Aircraft Insurance - What is TRIA Coverage?

March 2003
By Timothy K. Bonnell Jr.

Note from the author: This article is now outdated, however it can provide some history and insight into what TRIA Coverage is and where it started. Currently this program has been extended several times and its future is still uncertain.

By now most aircraft owners have received a letter from their insurance company offering them TRIA coverage for their aircraft policy. If you are like many aircraft owners, this probably provided a great deal of confusion. I will try to help clarify and answer some of your questions about this new coverage, as well as what to expect from it in the future.

There has been a lack of availability and affordability of terrorism insurance coverage as a result of the events of Sept. 11, 2001. In an effort to resolve these issues, Congress passed legislation addressing the problem. On Nov. 26, 2002, President Bush signed the Terrorism Risk Insurance Act of 2002 into law. The act requires commercial property and casualty insurers to provide terrorism coverage to their customers. The provisions of the act are very broad and in order to completely comply with the law, many companies are offering TRIA to all of their policyholders.

Essentially, TRIA is a three-year Federal Terrorism Insurance Program administered by the Department of the Treasury. The government will cover 90 percent of the insurers losses that fall above the insurer's annual program deductible. The program only covers acts of international terrorism, in which the loss was a terrorist act by, or on behalf of, a foreign entity. Domestic terrorism, such as the Oklahoma City bombing, is not covered under the program. The Treasury Secretary has the responsibility of determining what constitutes an "act of terrorism" under this program.

The program was designed to last three years, but reviewed after two. It is the goal of the program that affordable terrorism insurance will become available within this time frame. The program has an annual aggregate limit of $100 billion and any losses above that will not be covered.

What does this mean to you as an aircraft owner? Most of you did not have terrorism insurance prior to this act. After its passage, the companies did offer it to you for a price and did provide the coverage for the time period they allowed you to respond to their letter. There is availability for insureds to buy TRIA hull and/or TRIA liability coverage to the limits they currently carry. For you that feel you have exposure to acts of foreign terrorism, this is an avenue to purchase coverage. For the rest of you, it will be of little consequence. In all honesty, since the time TRIA was enacted there has been very few policyholders who purchased the TRIA coverages.

Some of you carry war-risk coverages, as discussed in the previous article. TRIA and war-risk coverages are two completely separate and different coverages. If you carry war risk coverage, you already have some coverage for terrorist acts whether foreign or domestic. TRIA can provide additional coverage for those who carry war-risk insurance. It changes the "notice of cancellation" clause from seven days to 30, it changes the liability limit from an "aggregate" limit to an "occurrence" limit, the defense costs within the limit with war-risk coverages become separate from the limit through TRIA, albeit only with respects to the TRIA program and it eliminates the third-party liability cap of $50 million for those who carry limits in excess of that, up to the limit of liability carried for losses that fall under the TRIA program.

So what can you expect of TRIA in the future? More than likely, on your next aircraft insurance renewal or purchase, you will see a quotation for TRIA coverage that you must either accept or decline. The TRIA program will be offered to you until the program's expiration in 2005 or until the Department of Treasury reviews it otherwise. We may also see some of the companies offering a specialized coverage that will give you the advantages of the TRIA program in the war risk coverages. Time will tell where it is going. Until then, I hope that you have a better understand what TRIA is, what it does, and what you can expect to see of it in the next few years to come.

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