Massachusetts Allows for Terrorism Exclusion in Commercial Insurance

Commercial property insurers in Massachusetts will be allowed to exclude terrorism coverage from commercial fire insurance policies under a new law signed by Gov. Deval Patrick.

The law modifies the standard fire insurance policy to allow insurers to exclude coverage for “fire following” acts of terrorism – although insurers can add that coverage by endorsement.

The change follows requirements in the 8-year-old Terrorism Risk Insurance Act (TRIA), a federal law signed in the wake of Sept. 11 which required insurers to make terrorism coverage available. TRIA also allows policyholders and insurers to agree to alternatives to full coverage.

Half of the 28 states that have the standard fire insurance policy on their books have modified laws to allow for changes for terrorism coverage. New Jersey was the most recent state, which modified its own law in 2008.

The law change goes into effect April 13.

James Harrington, executive director of the Massachusetts Insurance Federation, said that insurers have been pushing for the law change for years. “Terrorism was not a contemplated peril so it makes sense to provide for an exclusion unless the policyholder seeks that coverage,” he said.

Gary Henning, Northeast Regional vice president for the American Insurance Association, said the law “enables policyholders to more cost-effectively tailor their individual policies according to their individual needs. Without this amendment, the potential existed for commercial policyholders to be inadvertently covered for Ôfire following’ an act of terrorism without having paid for such coverage.”

Daniel J. Foley, vice president of government affairs for the Massachusetts Association of Insurance Agents, said the change in the law “is something that agents need to pay attention to for their commercial clients.”