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TRIA is Renewed, Finally…

Jay M. Sakalo

In the wake of the tragic September 11th attacks, virtually all commercial reinsurance contracts that renewed by July 2002 included absolute terrorism exclusions. As a result, domestic direct insurers passed these exclusions onto their insureds, leaving a void in the coverage requirements for many real estate owners, developers, sports teams and entertainment venues. In response to pressure from many sides, including the “too large to fail” banks, Congress enacted the Terrorism Risk Insurance Act (TRIA) to serve as a federal reinsurance backstop against losses arising from acts of terrorism. TRIA’s passage calmed the markets and the terrorism-based exclusions from coverage were largely eliminated.

Designed originally as a short-term piece of legislation, TRIA had an initial expiration date of December 2005, however, it was extended and modified twice since its enactment and had a current expiration date of December 31, 2014.  For a variety of reasons, TRIA was not extended prior to its expiration on New Year’s Eve. As reported by the NY Times, the result of the expiration caused about 750,000 private insurance policies to be canceled immediately, as those policies required the existence of TRIA (or another analogous federally-supported program) in order to include terrorism coverage. Many other policies have 30-60 day notice provisions, which meant that absent Congressional action, they too would be canceled shortly as a result of TRIA’s expiration.

Fortunately for the commercial real estate (and overall business) market, on January 8, 2015, the 114th Congress passed a retooled version of the federal terrorism backstop that, if signed by President Obama (which seems likely), will extend the program for another six years. Under the revised program, federal assistance would start when losses reach $100 million with an increase of $20 million per year, so that by year 2020, the loss threshold would be $200 million.

As an aside, the passage of the renewed TRIA was coupled with a tweak to Dodd-Frank that eliminated a component of its application to farmers and ranchers. It will be interesting to watch whether this Congress will, during its passage of bills, append unrelated tweaks to existing legislation it wishes to modify.

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