Insurances and Reinsurance of Marine Interests in the New Age of Terrorism

Terrorism has brought the marine and nonmarine markets into a new conjunction. The marine industry depends on both the nonmarine market, highly regulated by the states and standardized, and the lightly regulated marine market. Both depend heavily on the international reinsurance market, which shares with the marine market its rules of usage and freedom of underwriters to write only what they choose, with regard to the great range of their risks. The financial impact of the attacks of September 11, 2001, fell most heavily on reinsurers, leading them to exclude terrorism from future coverage, and direct insurers in turn to exclude it for lack of reinsurance. In addition to the main issue of coverage itself, a number of troublesome issues in both direct and reinsurance contracts were activated. Coverage was admitted in most cases because it was not excluded, the common nonmarine war-risk exclusions being acknowledged not to apply (although some marine war-risk clauses might have applied). Concerns about future coverage or exclusion bring all the wordings under scrutiny. Those in use varied widely as to what terrorism is, depending on the interests to be served in the trade concerned, and new forms have been adopted or proposed in both markets. The effect on commerce of inadequate terrorism insurance led to the Terrorism Insurance Act of 2002, creating a federal excess-of-loss reinsurance scheme under which direct insurers, both marine and nonmarine, are required to offer coverage for such incidents of terrorism as may be so declared by the Secretary of the Treasury under a definition limited to U.S. interests, which is described in some detail in this Article. The broader field, however, is left for private reinsurance to reoccupy, in tandem with the limited federal coverage. Jurisdiction and arbitration are dealt with and the authority of state regulators generally preserved. Meanwhile, desirable reforms in marine policy terms are going forward in the market and being further explored in the Comité Maritime International. Thus, while there is much adjustment going on in the marine market to conform to the new demands of the terrorism risk, it appears that ordinary development continues toward what the author hopes will be greater harmony.