ISO Files Auto Terrorism Exclusion for Commercial Auto Program

This article examines the new ISO war, military action, and terrorism exclusions applicable to the business auto, business auto physical damage, motor carrier, truckers, and garage coverage forms and which states have approved them.

Insurance Services Offices, Inc. (ISO), filed two optional commercial auto exclusionary endorsements in January of this year. The endorsements were filed in all jurisdictions except Guam, Hawaii, and Massachusetts. As of May 17, 2002, the filings have been approved in 26 jurisdictions and disapproved in 1 (Virginia). See Figure A for a listing of states that have approved these filings.

The war, military action and terrorism exclusion (CA 23 37) applies to the business auto, business auto physical damage, motor carrier, and truckers coverage forms. The endorsement replaces and expands the war exclusion under:

1. liability coverage
2. physical damage coverage
3. trailer interchange coverage
4. auto medical payments coverage
5. personal injury protection (PIP) coverage, if the PIP coverage contains a war exclusion

The endorsement adds an exclusion for:

1. garagekeepers coverage endorsement or
2. garagekeepers coverage—customers' sound receiving equipment endorsement
3. uninsured/underinsured motorists coverage, and
4. PIP coverage, if the PIP coverage does not already have a war exclusion

The war, military action and terrorism exclusion—garage coverage form (CA 23 38) applies to the garage coverage form. The endorsement replaces and expands the war exclusion under:

1. liability coverage
2. physical damage coverage
3. auto medical payments
4. garage locations and operations medical payments coverage, and
5. personal injury protection coverage (PIP), if the PIP coverage contains a war exclusion

The endorsement adds an exclusion for:

1. garagekeepers coverage or
2. garagekeepers coverage—customers' sound receiving equipment endorsement
3. personal injury liability coverage—garages endorsement or
4. personal and advertising injury liability coverage under the broadened coverage-garages endorsement
5. uninsured/underinsured motorists coverage, and
6. PIP coverage, if the PIP coverage does not already have a war exclusion

The endorsements are patterned after the commercial general liability (CGL) policy endorsements (please refer to The ISO Terrorism Exclusions: Background and Analysis on IRMI.com for a full discussion) that have already been approved in a majority of states. In general, this change expands application of the war exclusion beyond contractual liability to include acts of terrorism. The term terrorism is defined as:

"Terrorism" means activities against persons, organizations, or property of any nature:

1. That involve the following or preparation for the following:
   1. Use or threat of force or violence; or
   2. Commission or threat of a dangerous act; or
   3. Commission or threat of an act that interferes with or disrupts an electronic, information, or mechanical system; and
2. When one or both of the following applies;
   1. The effect is to intimidate or coerce a government or the civilian population or any segment thereof, or to disrupt any segment of the economy; or
   2. It appears that the intent is to intimidate or coerce a government, or to further political, ideological, religious, social or economic objectives or to express (or express opposition to) a philosophy or ideology.

Quantitative thresholds—insured property damage of $25 million, or death or serious physical injury to 50 or more persons—are set forth to determine when the terrorism exclusion is triggered. Multiple incidents of terrorism that occur within a 72-hour period and appear to be carried out in concert or to have a related purpose or common leadership are considered to be one incident.

In conjunction with these endorsement filings, a new manual rule (111) was introduced that gives insurers two options: attach the applicable endorsement and apply ISO loss costs or insurer rates; or refer to insurer for rating. The implication, of course, is that when the endorsements are not attached, the insurer will apply some kind of debit rating for the exposure.