Policies of insurance are meant to be interpreted according to the meanings of words and expressions as determined by the ordinary course of usage of such words and expressions. Over time there are examples where the ordinary use of a word may take on an alternative or wider or narrower definition than previously. Such an example arises with the use of the word terrorism in policies of insurance.
The original concept of a terrorist as envisaged in the 1970s is of an individual or organisation who commits acts of violence against property or people to achieve an end, or achieve publicity for a cause, such end or cause being predominantly of a political nature. Essentially the terrorist must be acting in isolation or as part of a group, but not being representative of a sovereign power, and the ensuing damage or injury would involve the use of an explosive or “weapon of war”.
Over time the public consciousness of a terrorist act has widened to include acts of fanatics who are motivated by ideological or religious ideas, where the political motive is substituted by other deep seated grievances or beliefs, and where the term “political” may not be entirely appropriate. Moreover the methods used by terrorists have included the deliberate impact of targeted properties by hijacked aircraft or powered sea-craft that may not necessarily be packed with explosives.
The onshore terrorism market has recognised these trends and the wordings now customarily used by insurers
“an act, including the use of force or violence, of any person(s), whether acting alone or on behalf of or in connection with any organisation(s), committed for political, religious or ideological purposes including the intention to influence any government and/or to put the public in fear for such purposes”.
Such wordings do not make reference to explosives or weapons of war, and moreover contain a bespoke war exclusion clause that refers to “hostile acts of sovereign entities” as distinct from “hostilities (whether war be declared or not”). In terms of the exclusion, it is the “sovereign entity” that is the key.
This must be contrasted with the position of offshore insurers, who have tended to rely upon the old Addendum 42b Terrorists Exclusion, and a limited buy-back.
The Addendum 42b excludes:
1.the detonation of an explosive
.any weapon of war and caused by any person acting
. maliciously or from a political motive
2 .any act for political or terrorist purposes of any person or persons
.and whether or not agents of a sovereign power and whether the loss, damage or
.expense resulting therefrom is accidental or intentional
The limited buy-back merely seeks to reinstate cover excluded by Addendum 42b, but does so with the retention of a War Exclusion that incorporates “hostilities (whether war be declared or not)” [ i.e. no reference to sovereign entity]. The subtlety in coverage in this form is that it does not specify the perils insured but covers loss, damage or expense that would otherwise be recoverable but for the existence of Addendum 42b. From a legal perspective it is always more problematic to define your coverage by what is left of the insuring agreements after a specific exclusion is deleted, especially when other exclusions exist in the policy that could be interpreted on a wider basis than intended.
It thus appears that the onshore market has moved with the times but the offshore market is somewhat marooned in the 1970s offering an outdated cover with a lack of clarity as to the precise scope. This will not be the first time that the offshore market has relied upon older forms of wording that are clearly not appropriate. The point should also be made that an Automatic Termination provision applies to offshore terrorist wordings where there is a detonation of a nuclear device, irrespective of whether the theatre of war where the device is used is relevant to the location of the assured’s assets. Non marine wordings will exclude the loss to the insured property caused by the nuclear detonation, but otherwise retain the cover, albeit there is generally a 10 days Cancellation Clause. This is a much more preferable position, allowing some time to review the position and make alternative arrangements. It is to be noted that the shipping world recognised this position and removed the Automatic Termination provision when the Institute War and Strikes Clauses were revised in November 1995.
There has been a noticeable lack of attention paid to scope of cover for terrorism by the offshore market and in INDECS’ view this needs to change. We are aware that the Joint Rig Committee has a progressive and challenging menu of wording revisions, but, to our knowledge, this does not embrace a review of terrorist coverage. INDECS recommends assureds to review the basis of terrorism cover for offshore facilities and to seek insurer’s agreement to bring such cover up to date. INDECS would be delighted to assist in any such analysis and in drafting suitable amendments.