Insurance Coverage for War Risks, Hijacking & Other Allied Perils
Every aviation insurance hull and liability policy contains a blanket exclusion for all war risk perils. Prior to the events of 9/11, coverage for war risk was commonly purchased for a small additional premium since the perceived risk of loss caused by any of the war perils was considered minimal.
The world changed after 9/11. For those who owned aircraft at that time, you will recall the war risk underwriters exercised their contractual option to cancel all coverage [war perils only, not the entire insurance policy]. That action wreaked absolute havoc in the aviation insurance world.
Several weeks following the terrorist attacks, insurance carriers reevaluated the exposure, re-rated the coverage and again offered war risk coverage – but at premiums exponentially higher than previously charged. Most owners had no option but to purchase the coverage as lienholders required it as part of the insurance conditions contained in their loan agreements.
There is a separate insurance market that sells coverage for war risk perils. In effect you have a policy within a policy. When you purchase war risk perils you are removing all but one war risk exclusion. Most folks don’t realize how many perils are excluded, so here they are:
- War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power.
- Any hostile detonation of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter (this coverage is simply not available at any premium).
- Strikes, riots, civil commotions or labor disturbances.
- Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting therefrom is accidental or intentional.
- Any malicious act or act of sabotage.
- Confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any government (whether civil, military or de facto) or public or local authority.
- Hijacking or any unlawful seizure or wrongful exercise of control of the aircraft or crew (including any attempt at such seizure or control) made by any person or persons on board the aircraft acting without your consent.
Depending on how you count them, that’s roughly 25 perils. Which exclusion do you think is the one war underwriters will not remove?
If you guessed war risk number 2, you would be correct. Nuclear is considered uninsurable. There is debate in the industry as to whether the nuclear peril might be covered under the Terrorism Risk Insurance Program Reauthorization Act [commonly known as TRIA] since the coverage trigger is controlled by three individuals of the US Government who declares an event a terrorist act.
Once this group certifies the circumstances as meeting the definition of a terrorist act under the Program, the TRIA coverage should be activated. If true, purchase of the TRIA coverage is much more important to consider.
Insurance companies remain undecided on this issue. In order to hedge the bet, in my opinion the smart money is on purchasing TRIA coverage, which in effect provides protection for only one event – terrorism as defined by the US Government in its TRIA Act.
Consider a dirty bomb attack at an airport facility where aircraft are contaminated and the event is certified as a terrorist act under TRIA. While definitely not covered under the war risk perils insurance [nuclear exclusion], I cannot imagine the US government would allow insurance companies to make the argument that nuclear is not covered under the TRIA act and therefore not pay.
While not a conventional insurance contract, TRIA improves coverage for the terrorism peril including a broad coverage trigger, more favorable cancellation provisions and removal of the aggregate limit.
In any event, the take-away is this: Purchase of war risk perils is a no-brainer. For a small additional premium, you remove 25 perils that were previously excluded but now are covered. For our corporate aircraft clients, we don’t offer war risk coverage as an option. It is included as part of their coverage – period, end of story. As discussed in a prior article, you should also consider purchase of per-occurrence war and TRIA coverage.
The world is becoming such a crazy place. Have the conversation with your aviation insurance broker sooner rather than later.