Boston Marathon Bombing Victims Are Proof That Terrorism Definition Is Different When It Comes Insurance Coverage

It's an act of terror when “bombs are used to target innocent civilians,” President Obama said on Tuesday, the day after two bombs exploded near the finish line of the Boston Marathon. But the Boston Marathon bombing, which so far has caused three fatalities and many critical injuries, may not qualify as a terrorist attack for the purposes of insurance coverage, the Wall Street Journal reports in its Law Blog.

In order to trigger the post-9/11 federal reinsurance program, an act must be certified as an “act of terrorism” by the secretary of the treasury in agreement with the secretary of state and the U.S. attorney general. As for the two-bomb explosion at the Boston Marathon, no certification has been issued, a spokeswoman for the Treasury Department said, the Law Blog points out.

The Journal reports that Congress sought to stabilize the terrorism insurance market in industries such as commercial real estate and construction. What resulted was a backstop, the “Terrorism Risk Insurance Program,” a system for spreading catastrophic losses between private insurers and the United States government.

According to a 2012 research report prepared for Congress, about 60 percent of commercial policyholders have bought terrorism coverage in recent years as its cost has gotten lower, according to the Journal. Larger businesses in cities with greater risk exposure tend to be the most frequent buyers.

Insurance Information Institute president Robert Hartwig told the Law Blog that he believed the Boston bombing caused minimal property damage. So it’s not likely that property and casualty insurance losses would climb above $5 million, the threshold amount for classifying an attack as terrorism under the insurance law. “Below $5 million, Mr. [Secretary of the Treasury Jack] Lew can’t certify -- even if the purpose of the bombing was to coerce the government or intimidate the American people,” the Law Blog states.

According to Randy Maniloff, a Philadelphia-based insurance-coverage attorney, there’s bound to be confusion regarding what’s thought of as terrorism considering how the program is set up, the Journal explains.

Maniloff wrote in an email:

I can envision a situation where the President declares an attack to be terrorism, because that’s what it seems like as the term is generally understood. But then when the time comes to address the insurance issues, the Secretary of the Treasury, Secretary of State and the Attorney General are hard-pressed to reach that same conclusion if the facts needed to do so under the formal definition are not there.

Meanwhile, according to a report in Reuters, victims of the Boston Marathon bombing will eventually win compensation, but it’s too early to tell how much money there will be, if private donors or insurers will provide the majority of it, and how long it will take to distribute.

Massachusetts and Boston officials have established One Fund Boston as a central compensation source for victims, Reuters reports. Boston-based insurer John Hancock has contributed $1 million in seed money and Boston law firm Goodwin Procter will run it, Reuters adds.

“What happens next will depend in part on whether individual victims choose to hire lawyers to press their own claims,” Reuters notes. “Judging from previous catastrophes, experts say victims have an easier path if they settle with a central relief fund rather than pursue lawsuits against governments, race sponsors or perpetrators.”