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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Before the February 1993 World Trade Center bombing, a risk assessment had been done on the facility that highlighted some of the WTC's vulnerabilities. One of the assessment's recommendations was that the Port Authority of New York & New Jersey limit access to the parking garage, advice that wasn't followed.

The Port Authority was held 68 percent liable for the event, the terrorists' liability was reckoned at 32 percent. Under New York state law, a party has to pay all damages to survivors and family members of the deceased when its liability is found to be greater than 50 percent. Claims against the Port Authority at this point have added up to about $2 billion.

"The evidence, fairly considered, clearly supported the view that the defendant's negligence had been extraordinarily conducive of the terrorists' conduct," wrote the judges on the state appeals court that affirmed the decision in 2008, according to a New York Times article.

"That sort of triggers in your mind that there is definitely liability exposure when it comes to terrorism exposure," said Wendy Peters, head of the Willis HRH Terrorism Practice Group.

Especially if you're a risk manager whose employer owns or operates a large public venue or some other facility with mass public access.

THE INSURANCE MARKET

Of course the next question is: How do I mitigate or transfer that exposure?

For the last five years, according to Peters, the trend has been to include terrorism liability coverage in a comprehensive general liability policy. Under the Terrorism Risk Insurance Program set up by the U.S. government, insurers have to offer it to clients. However, insurers can charge what they want for terrorism coverage and they are not mandated to include protection against so-called NCBR--or nuclear, chemical, biological or radioactive--attacks.

Risk managers can also seek coverage in the stand-alone terrorism liability market, though "it's relatively limited," said Peters. She estimated that the market has perhaps $250 million in capacity with a limited number of players--Axis and the Lloyd's market being the two biggest markets.

The stand-alone terrorism property market, in comparison, has from $1.5 billion to $3 billion in capacity with at least a dozen markets.

For an example of what is offered on the stand-alone liability side, there's Hiscox at Lloyd's Liability Terrorism Insurance product. According to a Marsh terrorism insurance market update from January 2009, the coverage pays for damages and claims and legal expenses that an insured might pay for claims against it of bodily injury or third-party property damage. As much as a $100 million aggregate limit is available.

Like the property stand-alone market, however, the liability market offers cover for international locations (where TRIP does not apply). Speaking of location, it is a major determinate of rates. A venue in Kansas City, said Peters, would see different rates than a venue in a Tier-1 city like New York.

THE SAFETY BET

If risk managers hadn't heard of the Support Anti-Terrorism by Fostering Effective Technologies (SAFETY) Act before, they should have by now. That's because the SAFETY Act got a major pr boost--and more importantly, a major extension in scope and significance--in early 2009 when the National Football League sought and acquired SAFETY certification from the U.S. Department of Homeland Security.

By getting the SAFETY certification, the NFL now enjoys governmentally mandated risk mitigation, namely a maximum cap on liability claims resulting from a terrorist attack; exclusive federal jurisdiction for all suits; and no related claims for punitive, noncompensatory or noneconomic damages.

The SAFETY Act was originally designed to extend these protections to manufacturers of counterterrorism "black-box" technologies, such as bomb detection and other "hard tech," explained Willis' Peters. The protections also extend to users of certified technologies.

With the NFL and other enterprises, however, the DHS broadened the SAFETY scope, agreeing that facility owners that take "heroic efforts to create a safe environment" can also receive certification, said Peters.

Earning this certification isn't easy. "You have to really demonstrate that you have gone above the standard," she said.

The NFL launched a new safety regime after Sept.11, 2001, for instance, that includes digital security cameras in every stadium, search procedures for spectators and barriers that stop vehicles from getting within 100 feet of the stadium.

When judging on certification, the DHS also determines what level of underlying liability insurance an organization must have.

Peters said that Willis has a special security division that can help clients to apply for SAFETY certification and that certain law firms also specialize in the process. And despite the effort, Peters has seen a lot more public venues trying to attain the vaunted SAFETY certification.

"By doing that, you're basically getting your get out of jail free card," she said.

October 1, 2009

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