Protection and terrorism

REALITIES OF life and philosophical approach to issues do not by themselves offer a solution when one is confronted with a catastrophic loss, which has benumbed a nation. The owners and occupiers of the Twin Tower buildings of the World Trade Center in Manhattan in New York are the victims of the dastardly air crash which demolished the North and South tower on September 11.

The U.S. Government, no doubt will be initiating measures and steps to prevent recurrence of `terrorists attacks' and may also guard against possible loss of human lives and destruction of property. The devastation brought in its wake chaos, panicky conditions, paralysed communication channels and further resulted in evacuation of men and material in the nearby and adjacent buildings.

Robert Hartwig, chief economist for the Insurance Information Institute, witnessed the crash and in his view the insurance claims would be in billions. The damage caused by the aircraft to Pentagon near Washington may not result in insurance claim, as the U.S. Government does not buy commercial insurance to protect its building. But businesses within the Pentagon could incur insured losses.

The collapse of the World Trade Center has caused damage to the surrounding property, including the 47 storey Salomon building that also collapsed hours after the World Trade Center towers had crumbled to the ground.

Events resulting in huge and substantial insurance claims generally arise out of fire, Act of God perils such as earthquake, storm, tempest, flood and inundation but the destruction and damage caused by aircraft to the World Trade Center is considered to be the most expensive man-made insured event ever.

The immediate task after destruction of properties in the above incident starts with removal of debris, recoup the monetary loss and reconstruction of the assets and buildings. Here comes to rescue is the insurance protection against accidental losses caused by events as in the instant case. The American citizens are generally insurance-conscious as their per capita expenditure on life and general insurances is highest among the countries in the world.

As the most advanced country in the world, U.S. insurers offer sophisticated insurance products. It is very likely that individuals and institutions affected by the above events would have opted for a variety of insurance covers and claims will definitely arise for property, personal accident and disability, third party liability and indemnity, business loss, and disruption of income. In the life insurance sector, the tragedy would cause severe financial strain on life insurers in the context of insurance-conscious Americans availing themselves of life insurance cover of substantial value in accordance with their level of income and standard of living.

It was reported that four aircraft carriers belonging to American Airlines and United Airlines regular passenger service aircraft were involved. The American Airline flight umber 11, scheduled from Boston to Los Angles (LA), carrying 81 passengers and 11 crew, struck the north tower of the World Trade Center. The second aircraft of American Airlines flight 77 from Washington Dallas to LA, carrying 58 passengers and 6 crew, struck the south tower of the WTC. The third aircraft of United Airlines flight number 175 from Boston to LA, carrying 65 passengers, crashed into Pentagon. The fourth aircraft of United Airlines flight No. 93 from New York to San Francisco, carrying 176 passengers, crashed 80 miles south of Pittsburgh.

Modern aircraft are of very high value and they are insured under an ``Aircraft Policy'' which covers loss of or damage to aircraft, third party liability and legal liability to passengers. With advancement in civil aviation and various happenings in the skies, it is expected optimistically that the owners of aircraft have availed themselves of extension of insurance cover against risk of hijacking and terrorism. With no survivors in all the four aircraft accidents, the Black Boxes of the aircraft will unfold the mystery surrounding their accident. It is possible for an aircraft when on a flight in the skies to succumb to accidents brought about by force majeure conditions. The aircraft insurer is liable to pay the insured value of the aircraft and also the claims for legal liability to the passengers. It is estimated that the claims for total loss of four aircraft will be over $6 billion.

Compensation

A helpful feature in the aircraft accidents of this nature is that the passenger manifest will be available to identify the passengers died and also trace the close relations for settlement of claims. It is learnt that the average compensation for death claims arising out of U.S. domestic aircraft is in the region of $3,000,000 per passenger and in all the passenger liability will be about $800 million.

As regards the death of the airline crew, the airlines company is liable as employer in as much as the accident has arisen out of and in the course of employment. In addition to the above, some or all the crew and passengers in these aircraft would have taken a personal accident insurance which covers death due to accident (some policies pay double the sum insured for passengers travelling in approved airlines in scheduled routes) and also life insurance policies taken on individual lives. The aircraft policy also covers loss of or damage to the registered baggage and or the personal effects of such passengers. The third party liability cover, under the aviation policy, would also become operational and aviation insurers may face claims from the legal heirs of the third parties who were in the World Trade Center and died when the planes hit the towers. The owners of the two towers can also prefer a claim on the aviation insurer for damage to their buildings caused by the aircraft.

Fire insurance

The next point for our consideration is the property losses relevant to the north and south towers of the WTC. It is customary to insure buildings and contents under a fire insurance policy insuring against the risk of fire and lightning. In addition, coverage for a series of other risks can be added on to the basic fire insurance policy by an endorsement called extended coverage endorsement. The extended cover includes aircraft and vehicles provision covering loss or damage caused by actual physical contact of an aircraft with the property insured under the policy.

It is understood that U.S. insurance policies do not usually mention coverage for terrorist acts explicitly. Unless insurance policies explicitly exclude terrorism damage, the insurers will have to pay out the claims when lodged. No doubt, it is widely known and spread out information that the events relating to the collapse of the two towers of the WTC was engineered by terrorists who had set in motion an aircraft crash and it will be difficult for the insurers to prove the identity of the terrorists in a lawsuit if they choose to turn down the claim as caused by terrorism damage. On the other hand, the policyholders and third parties are on a safe wicket and are entitled to claim for the property damage and loss of life directly caused by aircraft.

To establish a valid claim under a policy of insurance, two important elements are to be satisfied, namely the proof of loss and cause of loss. In the present case, the principle "the thing speaks for itself" will apply.

The general insurance-policies in India and in particular fire insurance policies cover terrorism damage as part of riot, strike and malicious damage. Terrorism is not defined in the insurance policies. When this cover was first introduced in India, the relevant clause read as under: "Terrorism shall mean the use of violence for political ends and shall include any use of violence for the purpose of putting the public or any section of the public in fear". In Chambers English dictionary the term terrorism means "an organised system of intimidation especially for political ends".

The U.K. has enacted a Prevention of Terrorism Act in 1976 and in the U.S. the relevant law is Intelligence and Surveillance, 1979. Legally, terrorism would mean sustained and clandestine use of bombings and hostage and in some cases coupled with murder with an intention to achieve a political purpose. The insurance may be for the market value of the asset or on reinstatement value basis. The policy on reinstatement value basis covers debris removal which is very significant in the case of two towers. It was reported that the World Trade Center alone cost $750 millions to build in the early 1970s and the current construction cost including losses directly arising from the World Trade Center would be around $10 billion.

It is understood that the World Trade Center housed nearly 400 business establishments and all of them put together employing 10,000 to 20,000 persons. The occupants include insurance companies such as Gerling and St. Paul International and three insurance brokers namely AON, Marsh and Guy Carpenter. It is relevant to mention herein that AON's division brokered the insurance for American Airlines and two of the planes were put to use.

Reinsurance

It is customary for insurers to arrange for reinsurance of large property and liability policies and these are spread out among insurers and reinsurers after working out the probable maximum loss due to concentration of risk in one location to avoid overwhelming and financially staggering claims on any one insurer. The direct insurers and reinsurers involved are renowned companies such as Munich Re, Swiss Re, Allianz, Zurich Financial, SCOR, Chubb, AIG, Berkshire Hathaway and Lloyd's.

It is known that persons of Indian origin and NRIs were working in the World Trade Center and it is likely that some of them would have died in the above accident. In case they had taken out life insurance cover with the LIC of India and remitted insurance premiums in foreign currency out of their earnings, their nominees and legal heirs could stake their claims. For persons reported to be missing, it would be necessary to provide a plausible evidence to life insurers that the mission persons entered the building in the morning and that there is no record to show that they had exited from the building.

In India, under the provisions of the Evidence Act a presumption is valid on the existence of any fact likely to have happened having due regard to the course of natural events human conduct and public and private business in relation to the facts of the case. The U.S. laws must be identical and any further proof of loss would only be a satisfaction in paper and file and not related to realities. This will lead to establishing an unquestionable presumption that the missing persons died in the collapse of the building. It is hoped that the LIC under the chairmanship of Mr. G. N. Bajpai would take the initiative and, if necessary, depute a competent and dynamic senior executive to the U.S. to coordinate with the Indian embassy to get complete details of Indians who have lost their lives and settle their claims expeditiously wherever life insurance policies were taken out in India.

N. C. Vijairagavan

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