Following a major terrorist attack on a commercial building in a large U.S. city, a commercial property insurer receives numerous claims for damages. Under the Terrorism Risk Insurance Act (TRIA), as amended, what is the insurer's responsibility regarding these claims once the event has been certified as a 'certified act of terrorism'?
- AThe insurer is fully responsible for all losses, with no federal backstop.
- BThe federal government pays all claims directly, bypassing the insurer entirely.
- CThe insurer must pay covered claims, subject to a deductible and a percentage of losses above the deductible, with the federal government reimbursing a portion of those losses.
- DThe insurer can deny all claims related to terrorism, as it is considered an act of war.
Show answer & explanationAnswer & explanation
Correct answer: C. The insurer must pay covered claims, subject to a deductible and a percentage of losses above the deductible, with the federal government reimbursing a portion of those losses.
TRIA establishes a federal backstop for certified acts of terrorism, where insurers pay claims subject to a deductible and a co-share percentage above that deductible, with the federal government reimbursing the remaining portion of insured losses.
Why the other options are wrong
- A. This contradicts TRIA's purpose of providing a federal backstop.
- B. Insurers remain the primary point of contact and payment; federal involvement is reimbursement.
- D. TRIA was enacted precisely to ensure coverage for terrorism, overriding prior exclusions.
TRIA Federal Backstop
The Terrorism Risk Insurance Act (TRIA) creates a federal program that shares the risk of loss from certified acts of terrorism with participating insurers. Insurers pay a deductible and a percentage of losses above that deductible, with the federal government reimbursing remaining insured losses.
- Applies to 'certified acts of terrorism'.
- Insurers pay a deductible and co-share.
- Federal government reimburses a percentage of losses.
- Aims to ensure availability of terrorism coverage.
Memory trick: TRIA: 'T'errorism 'R'isk 'I's 'A'ssisted by federal partnership.