This document discusses the challenges in distinguishing between acts of war and acts of terrorism for insurance coverage purposes. It summarizes precedent court cases that have narrowly construed war exclusions and found that terrorist groups are not sovereign entities capable of war. It also outlines the definition and certification process for acts of terrorism under the Terrorism Risk Insurance Act, which requires terrorism coverage be made available. There remains ambiguity around differentiating these concepts, especially for losses under $5 million, and future attacks by groups like ISIS could challenge these definitions.

1. The Shifting Sands of Global Terrorism: Distinguishing Acts of
War From Acts of Terror in Determining Insurance Coverage
by Martin H. Alpert, Kim Hollaender, and Anthony L. Provost
Martin H. Alpert, JD, CPCU, ARM, ASLI, ARe,
CPD, is president and chief executive officer
of Environmental and General Liability
Consulting Group. He focuses on analyzing
environmental, mass tort and insurance
issues. He is a member of the CPCU Society
Diversity Committee and of the 2015 CPCU
Society Annual Meeting Task Force.
The Islamic State of Iraq and Syria (ISIS), ISIL, al Qaeda, the Khorasan
Group? The identity and nature of global terrorism entities are
increasingly difficult to identify, as terrorists have claimed vast strategic
locations and seek sovereign status. To combat the evolving threat
of these groups, the United States has enlisted a coalition. But how,
exactly, is this fighting to be characterized? Is the United States at war
with these entities, or are the highly coordinated bombing campaigns
simply “counterterrorism operations”?
Continued on page 14
Kim Hollaender, JD, partner, is chair of
Langsam Stevens Silver & Hollaender’s
Insurance Defense and Coverage Practice
Group. He has represented insurers
and reinsurers in complicated matters
throughout the country and has litigated
cases in state and federal courts throughout
New Jersey and Pennsylvania. He also has
extensive appellate experience.
Anthony L. Provost is a third-year law
student at the Drexel University Thomas
R. Kline School of Law. Also serving as
a law clerk at Langsam Stevens Silver &
Hollaender, he works in the firm’s insurance
defense group.
CPCU Society INSIGHTS | Spring 2015 | 13

2. Corresponding with the resurgence of U.S.
involvement in the Middle East has been an
increased concern regarding threats to the
U.S. homeland. The prospect of losses within
the U.S. raises significant questions about
distinguishing “acts of war” from “acts of
terror” for purposes of insurance coverage.
Since the terrorist attacks of September 11,
2001, the commercial insurance landscape
has changed dramatically. Much of this
landscape has been defined by the Terrorism
Risk Insurance Act (TRIA) of 2002 and its
subsequent renewals. Although TRIA made
coverage widely available for terrorism risk,
the statute maintains a distinction between an
“act of terrorism” and an “act … committed
as part of the course of war.” This distinction
reflects the insurance industry’s long-standing
exclusion of “acts of war” (apart from
highly specialized war-risk insurance, most
commonly used in shipping and aviation). If
and when the next strike against commercial
interests within the U.S. occurs, drawing this
distinction may prove contentious.
Judicial Precedent Analyzing
the Act of War Exclusion
The leading case on the act of war exclusion
in the context of terrorism is Pan American
World Airways, Inc. v. Aetna Casualty & Surety
Co., 505 F.2d 989 (2d Cir. 1974).
Pan Am arose out of a coordinated plot by the
Popular Front for the Liberation of Palestine
(PFLP) to hijack four aircraft on September 6,
1970. The case held that a “war” required a
conflict between sovereign or quasi-sovereign
nations and found that the PFLP was not a
sovereign entity that could engage in a war;
thus, the act of war exclusion did not apply.
Similarly, Holiday Inns Inc. v.Aetna Ins. Co., 571
F. Supp. 1460, 1500-03 (S.D.N.Y. 1983) found
that an act of war exclusion did not apply to
the destruction of a hotel in Beirut by terrorists
because, among other reasons, the terrorists
were not even “quasi-sovereign entities.”
The takeaway from these and other cases
is that courts typically construe act of war
exclusions narrowly, reflecting a judicial
preference for finding coverage in recognition
of the parties’ contractual intent.
9/11 and the Insurance
Aftermath
Given the magnitude of losses evident
immediately after the September 11, 2001,
terror attacks, and in light of President Bush’s
early characterization of the attacks as “an
act of war,” at least some insurers initially
considered rejecting claims based on act of
war exclusions in their policies.
Within days, however, the industry clarified
that it would not assert war risk exclusions
for the losses involved. Instead, the insurance
industry responded with explicitly worded
terror risk exclusions in subsequent policies.
These exclusions contributed to a market
environment that made coverage for
terrorism risk prohibitively expensive, thus
leaving the majority of commercial properties
uninsured. In response to this market failure,
Congress passed TRIA in 2002.
TRIA provides a substantial federal
backstop for losses related to acts
of terror; in exchange, the legislation
requires the insurance industry to “make
available” terrorism risk coverage for their
commercial policyholders.
TRIA’s Definition of “Act of
Terrorism”
TRIA provides both a definition and
certification process for determining when an
event qualifies as an act of terror.
To qualify as an act of terror, the U.S.
secretary of the Treasury, in consultation
with the U.S. secretary of Homeland Security
and the attorney general, must certify it
as such. (Please note that the inclusion
of the secretary of Homeland Security in
the certification process is one of several
important program changes made by the
Reauthorization Act of 2015—see sidebar
for other highlights.) The statutory definition
of an “act of terrorism” includes violent acts
resulting in damage within the U.S. for the
purpose of coercing the civilian population or
influencing the policy of the U.S. government.
The certification process is subject to two key
limitations: first, no act shall be certified as
an act of terrorism if committed “as part of
the course of war declared by the Congress,”
and second, aggregate property-casualty
insurance losses from the act must exceed
$5,000,000. Notably, the act specifically
precludes judicial review of certification
determinations; once the appointed cabinet
officials make their determination, it is
final. Because of this finality, distinguishing
between an act of terrorism and an act of
war, in most cases, is straightforward. For
aggregate losses below $5,000,000, however,
ambiguity may exist.
“Acts of War” in the CERCLA
Context
In the specific context of liability under the
Comprehensive Environmental Response
Compensation and Liability Act (CERCLA), the
U.S. Second Circuit Court of Appeals recently
held that the terrorist attacks of September
11, 2001, constituted acts of war, precluding
liability claims against owners and lessees of
the World Trade Center and the owners of the
planes that crashed into it.
In re September 11 Litig., 751 F.3d 86, 94 (2d
Cir. 2014) involved a developer who brought
an action to recover the cost of remediating
finely ground substances released by the
collapse of the towers, including concrete,
asbestos, silicon, fiberglass, benzene, lead,
and mercury. Noting that CERCLA imposes
strict liability on those responsible for
contamination, in conjunction with the fact
that the terrorists themselves were exclusively
responsible for the resulting environmental
contamination, the court reasoned that
the purpose of the statute was not served
by imposing liability on the owners of the
buildings and planes involved. Instead, the
court concluded, “solely for purposes of
construing CERCLA’s affirmative defenses, the
September 11 attacks were acts of war.”
14 | CPCU Society INSIGHTS | Spring 2015
Continued from page 13

3. Given this limiting language, the holding
is not direct precedent in the context of
differentiating acts of war and acts of terror
for purposes of insurance policy exclusions.
Distinguishing Terrorism From
Criminal Acts Resulting in
Personal Injury
Despite the “make available” requirements of
TRIA, the insured may still decline terrorism
coverage. In the absence of terrorism
coverage, and therefore outside the realm
of TRIA, additional questions can emerge
regarding the classification of criminal acts.
For example, in the specific context of a
maritime hijacking perpetrated by Nigerian
gunmen, Johnson v. PPI Tech. Servs., L.P.,
2013 WL 6665996 (E.D. La. Dec. 17, 2013),
the District Court for the Eastern District of
Louisiana held that an insurer’s terrorism
exclusion clause does not relieve the duty
to defend when the incident giving rise to
coverage could reasonably be interpreted
as either an act of terrorism or “merely an
act of a violent robbery and kidnapping for
pecuniary gain.”
In Johnson, an attack on the High Island
VII, an oil rig platform off the coast of
Nigeria, resulted in personal injuries to two
workers. A foreign commercial package
policy covered the rig’s owner, subject to
several exclusions, including terrorism.
From the policy’s terrorism exclusion, the
court identified three relevant elements:
1) violence, 2) by a person or group of
persons, 3) with the effect of intimidating
a segment of the population or disrupting
a segment of the economy. Competing
arguments regarding this third crucial
element persuaded the court to err in favor
of coverage, because the hijacking could
reasonably be interpreted as either an act of
terror or a mere criminal act.
Conclusion
The threat of future attacks in the U.S.,
particularly from increasingly organized
groups like ISIS, may present difficult
coverage questions related to the distinction
between acts of war and acts of terror. If
ISIS, or a similar group, gains recognized
sovereign status and subsequently attacks
the U.S., there may be an argument invoking
the act of war exclusion.
Given the certification process established
in TRIA, however, designated cabinet
members will determine whether such an
act qualifies as an act of terror unless
aggregate losses fall short of the
$5,000,000 threshold. The struggle over
interpreting coverage continues.
H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act
of 2015, was signed by the president and enacted on January 12,
2015.The bill contains several quantitative changes for the program
and calls for several “studies” and an “advisory committee,” which
seem to signal Congress’ long term goals for the program. Here are
a few highlights:
• Federal share of losses phased decrease from 85 percent
(current) to 80 percent.
• “Program Trigger” phased increase from $100 million (2015) to
$200 million (2020).
• Insurance Marketplace Aggregate Retention (i.e., mandatory
recoupment amount) phased increase from $27.5 billion to
$37.5 billion. This figure is subject to further revision to the
amount “equal to the annual average of the sum of insurer
deductibles for all insurers participating in the Program for
the prior 3 calendar years…”; this subsequent revision is
contingent on a final rulemaking on the matter to be completed
within three years.
• Certification language amended as follows:
In this title, the following definitions shall apply:
(1) ACT OF TERRORISM-
(A) CERTIFICATION- The term “act of terrorism” means any
act that is certified by the secretary, in consultation with the
secretary of Homeland Security, and the attorney general of the
United States—
• Call for the secretary of the Treasury to conduct and complete a
study on the certification process (timeline) within nine months;
the final rule governing the certification process is to be issued
within nine months from completion of the study.
• Call for the comptroller general to complete a study on the
viability and effects of 1) upfront premiums and 2) creation of
a capital reserve fund. This study is to include a comparison of
practices in international markets.
• Creation of an “Advisory Committee on Risk-Sharing
Mechanisms” to “encourage the growth of nongovernmental,
private market reinsurance capacity for protection against losses
arising from acts of terrorism.”
Tweaking TRIA: H.R. 26 Is Enacted in New Year
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