Voluntary Expedited Filing Procedures For Exclusions Related To Acts Of Terrorism

ARKANSAS INSURANCE DEPARTMENT

LEGAL DIVISION

1200 West Third Street

Little Rock, AR 72201-1904

501-371-2820

FAX 501-371-2629

January 9, 2002

BULLETIN NO. 1-2002

TO:

ALL PROPERTY & CASUALTY INSURERS WRITING COMMERCIAL

LINES, INSURANCE PRODUCTS, ALL LICENSED RATE SERVICE AND

ADVISORY, ORGANIZATIONS, ALL INSURER AND AGENT TRADE

ASSOCIATIONS FOR PROPERTY AND CASUALTY INSURANCE, AND

OTHER INTERESTED PARTIES

FROM: ARKANSAS INSURANCE DEPARTMENT

SUBJECT:

VOLUNTARY EXPEDITED FILING PROCEDURES FOR EXCLUSIONS

RELATED TO ACTS OF TERRORISM

Background

There has been much uncertainty in the markets for commercial lines property and casualty insurance

coverage in light of the substantial losses experienced by the industry on September 11, 2001. Soon

after the events, many reinsurers announced that they did not intend to provide coverage for acts of

terrorism in future reinsurance contracts. This led to a concerted effort on behalf of all interested parties

to seek a temporary Federal backstop to calm market fears over future terrorists attacks and the ability

of the insurance industry to allocate capital to provide coverage for these unpredictable and potentially

catastrophic events. Unfortunately, the United States Congress has been unable to reach agreement on

the terms of a temporary federal solution. As a result, insurance regulators find themselves having to

consider approval of certain coverage exclusions for acts of terrorism or risk possible serious solvency

concerns in the insurance industry.

verage for these unpredictable and potentially

catastrophic events. Unfortunately, the United States Congress has been unable to reach agreement on

the terms of a temporary federal solution. As a result, insurance regulators find themselves having to

consider approval of certain coverage exclusions for acts of terrorism or risk possible serious solvency

concerns in the insurance industry.

The intent of this Bulletin is to inform you of the decision in the State of Arkansas to

approve certain limited exclusions for acts of terrorism and to provide a voluntary

procedure for insurers to use to expedite the filing and timely review of these limited

exclusions. As Commissioner and an NAIC officer, I was involved in recent

discussions at the National Association of Insurance Commissioners (NAIC) related to

this issue. In a recent conference call, the members of the NAIC adopted a motion

that:

“if the Congress adjourns without enacting federal terrorism legislation, the states should grant

conditional approval to commercial lines endorsements that exclude coverage for acts of

terrorism consistent with the exclusion framework developed by ISO. To the extent permitted by

state law, such approvals would sunset or be withdrawn 15 business days after the President

signs into law a federal backstop to address insurance losses attributed to acts of terrorism, or be

subject to other conditions on the approval consistent with state law.”

2

at exclude coverage for acts of

terrorism consistent with the exclusion framework developed by ISO. To the extent permitted by

state law, such approvals would sunset or be withdrawn 15 business days after the President

signs into law a federal backstop to address insurance losses attributed to acts of terrorism, or be

subject to other conditions on the approval consistent with state law.”

2

By this Bulletin, I am informing you of my intent to act in a manner consistent with the recommendation

from the NAIC membership. I believe this to be the best course of action as it balances the need of

insurers to have some certainty related to solvency concerns with the business consumers’ concerns that

their businesses and commercial enterprises may not be subject to uninsured events.

To date many unacceptable exclusions have been filed in various states by insurers to be attached to

commercial lines insurance products. These endorsements will be disapproved for use in this State as

inconsistent with the interests of public policy and inconsistent with the following provisions of law and

rule: Ark. Code Ann. §§23-79-109 and §23-79-110, and §§23-79-301, et seq; and Department Rule and

Regulation 23, et al.

Instead of approving the very broad total exclusions of coverage for acts of terrorism, this State intends to grant approval to

exclusions that are substantially similar to the series of optional endorsements developed by the Insurance Services Office, Inc.

(ISO)

law and

rule: Ark. Code Ann. §§23-79-109 and §23-79-110, and §§23-79-301, et seq; and Department Rule and

Regulation 23, et al.

Instead of approving the very broad total exclusions of coverage for acts of terrorism, this State intends to grant approval to

exclusions that are substantially similar to the series of optional endorsements developed by the Insurance Services Office, Inc.

(ISO). These endorsements include the following:

COMMERCIAL PROPERTY INTERLINE ENDORSEMENT: IL 09 41 01 02

(N/A to Standard Fire Policy States)

COMMERCIAL PROPERTY INTERLINE ENDORSEMENT: IL 09 40 01 02

(Applies in Standard Fire Policy States)

COMMERCIAL PROPERTY INTERLINE ENDORSEMENT: IL 09 42 01 02

(Applies in Standard Fire Policy States)

COMMERCIAL GENERAL LIABILITY ENDORSEMENT: CG 21 69 0102

COMMERCIAL GENERAL LIABILITY ENDORSEMENT: CG 31 42 01 02

COMMERCIAL GENERAL LIABILITY ENDORSEMENT: CG 31 43 01 02

COMMERCIAL LIABILITY UMBRELLA ENDORSEMENT: CU 21 29 01 02

BUSINESSOWNERS ENDORSEMENT: BP 05 11 01 02 (N/A to Standard Fire Policy States)

BUSINESSOWNERS ENDORSEMENT: BP 05 12 02 (Applies in Standard Fire Policy States)

BUSINESSOWNERS ENDORSEMENT: BP 05 13 01 02

FARM LIABILITY ENDIRSEMENT: FL 10 30 01 02

In an unprecedented move in recognition of the seriousness of the situation, ISO has indicated that it will permit the use of its

copyrighted language by any insurer, including one that is not a current licensee of ISO for policy forms. Insurers that are

current licensees of ISO for policy forms can use the new language pursuant to their current ISO agreements and approval by

this state of its forms.

Any Property and Casualty insurer which does not have a license agreement in effect with ISO for policy forms is required to

execute a short, limited license agreement that authorizes the use of the new language. ISO has indicated that there will be no

fee for this limited license. You may contact ISO’s Customer Service Department directly for more information at 1-800-888-

4ISO(4476) using Option 2

Property and Casualty insurer which does not have a license agreement in effect with ISO for policy forms is required to

execute a short, limited license agreement that authorizes the use of the new language. ISO has indicated that there will be no

fee for this limited license. You may contact ISO’s Customer Service Department directly for more information at 1-800-888-

4ISO(4476) using Option 2. You may also contact ISO at “info@ISO.com.” You will be responsible for assuring compliance

with this State’s filing requirements; however, you may find that the expedited approval or acknowledgment process outlined

in this Bulletin to be helpful in receiving prompt approval or acknowledgement of your filing.

Explanation and Instructions for Expedited Review

The policy exclusions filed by ISO and approved by the State of Arkansas have some significant limitations that provide

coverage for acts of terrorism under certain circumstances.

For policies providing property insurance coverage the following limitations apply:

•

Exclusion for acts of terrorism only apply if the acts of terrorism result in industry-wide insured losses that exceed

$25,000,000 for related incidents that occur within a 72 hour period;

•

Exclusions for acts of terrorism are not subject to limitations above if:

o The act involves the use, release or escape of nuclear materials, or that directly or indirectly results in nuclear

reaction or radiation or radioactive contamination;

o The act is carried out by means of the dispersal or application of pathogenic or poisonous biological or

chemical materials; or

o Pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the

terrorism was to release such materials.

ials, or that directly or indirectly results in nuclear

reaction or radiation or radioactive contamination;

o The act is carried out by means of the dispersal or application of pathogenic or poisonous biological or

chemical materials; or

o Pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the

terrorism was to release such materials.

For policies providing liability insurance coverage the following limitations apply:

•

Exclusion for acts of terrorism only apply if the acts of terrorism result in industry-wide insured losses that exceed

$25,000,000 for related incidents that occur within a 72 hour period; or

•

Fifty (50) or more persons sustain death or serious physical injury. For purposes of this provision, “serious physical

injury” means:

o Physical injury that involves a substantial risk of death;

o Protracted and obvious physical disfigurement; or

o Protracted loss of or impairment of the function of a bodily member or organ.

•

Exclusions for acts of terrorism are not subject to limitations above if;

o The act involves the use, release or escape of nuclear materials, or that directly or indirectly results in nuclear

reaction or radiation or radioactive contamination;

o The act is carried out by means of the dispersal or application of pathogenic or poisonous biological or

chemical materials; or

o Pathogenic or poisonous biological or chemical materials are released, and it appears that one (1) purpose of

the terrorism was to release such materials.

This State will accept the following definition of acts of terrorism or definitions which are more liberal to policyholders:

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

1. That involve the following or preparation for the following:

a.

Use or threat of force or violence; or

b. Commission or threat of a dangerous act; or

c

release such materials.

This State will accept the following definition of acts of terrorism or definitions which are more liberal to policyholders:

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

1. That involve the following or preparation for the following:

a.

Use or threat of force or violence; or

b. Commission or threat of a dangerous act; or

c.

Commission or threat of an act that interferes with or disrupts an electronic, communication,

information, or mechanical system; and

2. When one (1) or both of the following applies:

a.

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

b. 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 to express opposition to) a philosophy or

ideology.”

For a Property and Casualty insurer to receive expedited approval of its exclusions for commercial lines insurance coverages,

the exclusionary endorsements must comply with the terms and conditions set forth in this Bulletin; and be submitted in

accordance with the instructions specified below. Further, you must certify that you are either using the ISO endorsements or

using an endorsement which provides coverage at least as broad as the approved ISO endorsements.

4

sions for commercial lines insurance coverages,

the exclusionary endorsements must comply with the terms and conditions set forth in this Bulletin; and be submitted in

accordance with the instructions specified below. Further, you must certify that you are either using the ISO endorsements or

using an endorsement which provides coverage at least as broad as the approved ISO endorsements.

4

Forms with Instructions

Attached to this Bulletin is a uniform filing transmittal form that has been agreed upon by this State and other

states. An insurer wishing to receive expedited treatment of its filing for approval or acknowledgement under Ark.

Code Ann. §23-79-109, et seq., shall complete the EXPEDITED FILING—TERRORIST EXCLUSIONS

APPLICATION Form Filing Transmittal as directed. In addition, the insurer(s) submitting this filing must certify

that it is either using one (1) or more of the ISO endorsements or has developed its own exclusionary language that

provides coverage at least as broad as the approved ISO endorsement with respect to coverage granted to

policyholders. Further, the insurer(s) must certify that the reason for seeking approval of these endorsements is that

it is unable to obtain reinsurance coverage for acts of terrorism. Certification is made by signing the appropriate

blank on the transmittal form.

To be complete, a form filing must include the following:

1.

A completed, certified Form Filing Transmittal Header for each insurer;

2.

One copy of each endorsement;

3.

The appropriate filing fees of $50 per company per exclusion, under Department Rule and Regulation 57;

4.

A postage-paid, self-addressed envelope large enough to accommodate the return. Note that a comparable

filing transmittal form is available in SERFF.

If this filing is for multiple companies, please provide a copy of the transmittal header for each company and an extra copy for

return to the company. (i.e

fees of $50 per company per exclusion, under Department Rule and Regulation 57;

4.

A postage-paid, self-addressed envelope large enough to accommodate the return. Note that a comparable

filing transmittal form is available in SERFF.

If this filing is for multiple companies, please provide a copy of the transmittal header for each company and an extra copy for

return to the company. (i.e. 7 companies = 8 copies)

Effective Date

This Bulletin shall take immediate effect and shall expire on March 1, 2002.

Department Contact

Please direct your inquiries to Bill Lacy, Director of the Property and Casualty Division, at 501-371-2800 or electronic mail to

bill.lacy@mail.state.ar.us.

[signed by Mike Pickens 1-9-02]

___________________________________

MIKE PICKENS

INSURANCE COMMISSIONER

STATE OF ARKANSAS

5

EXPEDITED FILING— COMMERCIAL LINES TERRORIST EXCLUSIONS APPLICATION

Ed. 12/21/01

This page applies to the following state(s) ___________

Department Use only

Company Name(s)

Domicile

NAIC #

FEIN #

Contact Info for Filer

Name and address of Filer(s)

Telephone #

FAX #

e-mail

Filing information

Line of Insurance (see attachment)

Company Program Title (Marketing

title) (if applicable)

Filing Type ** see note below

This application is used with:

Effective Date Requested

Filing date

Company Tracking Number

Date filing approved in domiciliary

state

Component/Form Name

/Description/Synopsis

Form #)

Include edition date

Replacement

Or withdrawn?

If replacement,

give form #

it replaces

Previous State

Filing Number,

if required

by state

01

[ ] Replacement

[ ] Withdrawn

[ ] Neither

02

[] Replacement

[ ] Withdrawn

[ ] Neither

To be complete, a form filing must include the following:

•

A completed Form Filing Transmittal Header for each insurer

•

One copy of each endorsement, unless you have given ISO authorization to file them on your behalf

s

Previous State

Filing Number,

if required

by state

01

[ ] Replacement

[ ] Withdrawn

[ ] Neither

02

[] Replacement

[ ] Withdrawn

[ ] Neither

To be complete, a form filing must include the following:

•

A completed Form Filing Transmittal Header for each insurer

•

One copy of each endorsement, unless you have given ISO authorization to file them on your behalf.

•

The appropriate filing fees, if required

•

A postage-paid, self-addressed envelope large enough to accommodate the return.

The insurer(s) submitting this filing certifies that it is:

Using one of the approved ISO endorsements; or

Using an endorsement that provides coverage that is at least as broad as the ISO endorsements.

That it is unable to obtain reinsurance coverage for acts of terrorism.

___________________________ ___________________________

___________________________

Signature

Print Name:

Title:

6

COMPLETED SAMPLE FORM

EXPEDITED FILING—COMMERCIAL LINES TERRORIST EXCLUSIONS APPLICATION

Ed. 12/21/01

This page applies to the following state(s) ___________

Department Use only

Company Name(s)

Domicile

NAIC #

FEIN #

ABC Insurance Company

NY

0000-99999

99-1234567

Contact Information for Filer

Name and address of Filer(s)

Telephone #

FAX #

e-mail

John Doe (Form Filing)

Regulatory Compliance

ABC Insurance Co.

12345 Fifth Ave

New York, NY 10234

501-555-5555

501-555-5551

John.doe@abcins.com

Filing information

Line of Insurance (see attachment)

Commercial General Liability

Company Program Title (Marketing title)

(if applicable)

General Liability Program

Filing Type ** see note below

Form (Endorsement)

This application is used with:

(Insert policy form number to which the application attaches)

Effective Date Requested

01-01-02 (Enter your desired effective date)

Filing date

(Date Company sends filing)

Company Tracking Number

ABC-EP-2001-01 (Enter your filing tracking number, if applicable)

Da

(if applicable)

General Liability Program

Filing Type ** see note below

Form (Endorsement)

This application is used with:

(Insert policy form number to which the application attaches)

Effective Date Requested

01-01-02 (Enter your desired effective date)

Filing date

(Date Company sends filing)

Company Tracking Number

ABC-EP-2001-01 (Enter your filing tracking number, if applicable)

Date filing approved in domiciliary state

Not approved yet. Filed on same date as this filing.

Component/Form Name

/Description/Synopsis

Form #)

Include edition date

Replacement

Or withdrawn?

If replacement,

give form #

it replaces

Previous State

Filing Number,

if required

by state

01

War or Terrorism Exclusion

CG 21 69 01 02

[ ] Replacement

[ ] Withdrawn

[x] Neither

02

[ ] Replacement

[ ] Withdrawn

[ ] Neither

To be complete, a form filing must include the following:

•

A completed Form Filing Transmittal Header for each insurer

•

One copy of each endorsement, unless you have given ISO authorization to file them on your behalf.

•

The appropriate filing fees, if required

•

A postage-paid, self-addressed envelope large enough to accommodate the return.

The insurer(s) submitting this filing certifies that it is:

Using one of the approved ISO endorsements; or

Using an endorsement that provides coverage that is at least as broad as the ISO endorsements; and

That it is unable to obtain reinsurance coverage for acts of terrorism.

___________________________ ___________________________

___________________________

Signature

Print Name:

Title:

7