Does a Strata Policy provide coverage following a terrorism event?

In my most recent post, I explained that commercial strata follows the same rules as commercial property and business interruption as it is regarded as ‘”‘eligible property’.

In summary, if the Minister for Finance declared an event a Terrorism Event, then any terrorism exclusion that appears in the policy of insurance of an eligible property is void. Claims will be met in accordance with the remaining terms and conditions of the policy. The key point to understand it’s that terrorism itself it not an insured peril. The terrorism exclusion is made void. If the terrorism event results in fire and the policy covers the peril of fire, which the vast majority do, then the claim would be met subject to any sums insured, limits and or sub-limits of liability with adjustments for under insurance and or deductibles/excesses.

If the terrorist causes loss or damage through a peril not insured by the eligible policy, then there is no cover despite it being caused by a terrorist event.

With non-eligible property such as home and residential contents, private motor, etc., if there is a terrorism exclusion in the policy, then the exclusion will remain in force and the claim would be denied.

With residential strata, there are two ways that the building can be deemed to be eligible property. The first is if the total value at risk is in excess of $50,000,000. This cut off point has remained the same for many years and with the escalating cost of construction more and more residential buildings will fall within the definition of eligible property.

The second way that residential strata can be deemed eligible property is if there is a mixture of residential and commercial strata with a minimum of 20% of the floor space being commercial space.

If either or both criteria are met, then the entire block(s) forming part of the strata are eligible property and the insured will pay the same rate of Terrorism Levy per $100 of insured value as would a fully commercial property.

So, this leaves residential strata property that does not meet either criteria as non-eligible property. That means that where the policy excludes terrorism there is no coverage under the policy of insurance.

I end this post with a spreadsheet, once again from PolicyComparison.com showing a list of common Strata policies and whether they include a Terrorism Exclusion.

In summary:

The majority of wordings excludes Act of Terrorism and/or any action taken to control prevent suppress retaliate against or respond to an act of terrorism.

Some wordings exclude as result of biological chemical or nuclear pollution contamination or explosion.

Some policy wordings have No exclusion at all – examples being AAMI, Suncorp and GIO

Some policies provide cover (exclusion does not apply) where the Reinstatement/replacement/SI shown in schedule of the Buildings and Contents is less than $50,000,000. Obviously, these policies are in line with what is eligible v non-eligible property.

Chubb Owners Elite and Body Corporate policy wordings provide for Optional Cover for First Loss Terrorism Extension for Sum Insured shown in Schedule any one occurrence and in the aggregate.

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Possible Solutions

If the risk of terrorism is of concern to the Insured and or strata unit holders and coverage is not available under their existing policy, then there are a few options available to bridge the gap in coverage.

The first obvious one is to change insurers to one that does. Before doing so, I would suggest you contact your existing insurer to see if they can remove the exclusion or if they have an alternative product. I, for one, believe in encouraging long standing sustainable relationships between Insureds and Insurers.

A second option is to arrange Stand Alone Terrorism coverage. There are several markets available in Australia for his coverage and I list a few below. I have not knowingly left anyone off the list and am happy to add to the list if you know of others. Just let me know in the comments.

• Liberty Specialty
• Chubb
• AIG
• AXA XL
• Swiss Re
• Lloyds Syndicates

A third alternative, which from my analysis may be more appropriate is known as Active Assailant coverage.

As with virtually every class of general insurance product, coverages do differ but as a guide I would provide this typical overview. I have chosen Solution Underwriting as the basis of this overview.

Such a policy would regard a threat incident any threat to inflict bodily injury, or damage, destroy or contaminate property.

There are typically 5 sections of the policy. Continuing to use Solution Underwriting as my example their policy provides the following:

• Legal Liability Coverage for the damages and claim expenses an insured will become legally obligated to pay following an incident.

•Physical Damage Coverage for the cost of physical loss, damage or destruction to insured property resulting from an Active Assailant incident.

• Business Interruption Indemnification for business interruption loss resulting from physical damage   or denial of access following an incident.

• Extra Expenses Cover for a range of extra expenses and costs likely to be incurred by an insured.

• Response Fees The cost of critical incident response from their approved supplier.

Religious & Community Organisations – Often targeted in politically or religiously motivated attacks.

I would stress that this coverage is not just available or recommended for non-eligible property but also industries that would be the target for a terrorist attack. Examples would be:

• Retail & Shopping Centers – High foot traffic increases risk exposure.

• Schools & Universities – To protect students, staff, and reputations.

• Hospitality & Entertainment Venues – Hotels, bars, casinos, and stadiums face security concerns.

• Corporate Offices – Particularly those in high-risk industries or urban centers.

• Healthcare Facilities – Hospitals and clinics can be vulnerable to violent incidents.

Several recent risk reports including the excellent one by Marsh titled Political Risk Report 2024, do highlight the increasing risk of terrorism globally and sadly as we have seen Australia is not immune to this risk.

Conclusion

For non-eligible property and eligible property where there is a risk they may be subject to a terrorist attack, I would urge Insured’s and those responsible for insurance to discuss the risk and alternative risk management strategies with their insurance broker.

Insurance brokers, I also believe should be having this discussion with the clients they believe may be subject to this risk.

It is heartening to see that government and law enforcement agencies are all working to reduce this risk but meanwhile the risk should not be ignored.

As always, my advice here is by definition general in nature. You are urged to discuss any concerns you may have with your trusted general insurance broker.

Summary of Cover