AAIS is filing revised editions of the endorsements that can be used when the insured accepts or rejects the offer of coverage for loss caused by certified acts of terrorism for use with all farm-related policies. The rating procedure that applies with respect to coverage for certified terrorism loss under all farm-related policies has also been revised and is being filed in conjunction with the revised endorsements.

The filings are being submitted under the File and Use procedures permitted by the federal Terrorism Risk Insurance Act of 2002 (TRIA or the Act). The revised materials will become effective January 1, 2004.

BACKGROUND

TRIA, which establishes the Terrorism Insurance Program (the Program) was signed into law on November 26, 2002. AAIS Bulletin 02-0550 provided detailed information regarding TRIA and the AAIS endorsements originally filed to comply with the Act.

Since the enactment of TRIA,  the United States Department of the Treasury (Treasury) has issued a number of rules regarding the implementation of the Program. Treasury's Final Rule addressing the Program was issued on July 7, 2003. The supplementary information provided with the Final Rule indicates that Treasury considers coverage for an owner-occupied farm residence to be a personal lines coverage, rather than a commercial lines coverage, and thus not subject to TRIA. Treasury has also emphasized that any type of crop or livestock insurance, including that which is privately issued or reinsured, is ineligible for coverage under TRIA.

REVISED ENDORSEMENTS

In most states, 01 04 editions of the AAIS endorsements that are used when the insured accepts or rejects the company's offer of coverage for loss caused by certified acts of terrorism have been created to reflect Treasury's published positions with respect to farm risks. Except as otherwise indicated throughout this bulletin, the 01 04 editions of the revised 'FL', 'FO', and 'GL' endorsements described in this Bulletin are being filed under the Farm Properties, Farmowners, and Personal and Premises Liability programs on behalf of companies that have granted AAIS forms filing authority for the respective line(s) of insurance. In most states, the revised 'UM' endorsements described in this Bulletin are being filed under the Farm Umbrella Program on an advisory basis.

The changes made with respect to farm coverages are described under the sub-sections of this Bulletin that address each line of insurance. In addition to the changes made to reflect Treasury's position on farm risks, two other changes have been made in order to minimize the number of state-specific endorsements that were required in response to the previous filing of certified terrorism endorsements: 

--     A provision has been added under the definition of certified act of terrorism to indicate that no act will be certified by the Secretary of the Treasury (the Secretary) as an act of terrorism if the act is committed in the course of a war declared by the Congress or if losses resulting from the act do not exceed $5,000,000 in the aggregate. This change has been made to the endorsements that are used when the insured accepts the offer of coverage for loss caused by certified acts of terrorism, as well as the endorsements that are used when the insured rejects the offer of coverage for such loss.

--     The capping provision that applies when the Secretary determines that the amount of certified terrorism loss has exceeded the maximum annual liability as set forth by TRIA is activated only when the company has met its deductible requirements as specified by the Act. This change has been made to the endorsements that are used when the insured accepts the offer of coverage for loss caused by certified acts of terrorism, as well as the endorsements that are used when the insured rejects the offer of coverage for such loss in those states where coverage for fire loss caused by a certified act of terrorism is subject to Standard Fire Policy statutes.

Furthermore, previous editions of the endorsements used when the insured accepts the offer of coverage for loss caused by certified acts of terrorism included a provision to indicate that the terms of any terrorism exclusion attached to the policy were amended to specify that such exclusions did not apply to certified terrorism loss. That provision has been omitted from the 01 04 editions, since the endorsements now on file, wherever permitted, to address non-certified acts of terrorism distinguish between those acts of terrorism that are certified by the Secretary and those acts of terrorism that are not so certified.

A description of the changes that are specific to the farm coverages follows. A copy of each 01 04 edition endorsement described below is attached to this Bulletin.

Farm Properties Program
The following endorsements are being filed in all states where the Farm Properties forms are on file, except Alaska, New York, and Washington:

FL 0600 01 04, Certified Terrorism Loss
FL 0610 01 04, Certified Act of Terrorism Exclusion (Standard Fire Policy not applicable)
FL 0620 01 04, Certified Act of Terrorism Exclusion (Standard Fire Policy applicable)

Separate Bulletins will be issued to distribute the revised 'FL' endorsements being filed for use in Alaska, New York, and Washington.

The FL 0600 01 04 indicates that the TRIA capping provisions do not apply to livestock, poultry, other covered animals or unharvested crops under the Farm Coverage terms. The FL 0600 01 04 also specifies that the TRIA cap will not apply to the dwelling coverages when a residence covered under Coverage A is occupied by its owner or when the policy is issued to a tenant of a residence on the insured premises.

Endorsements FL 0610 01 04 and FL 0620 01 04 indicate that the certified terrorism exclusion does not apply to livestock, poultry, other covered animals or unharvested crops under the Farm Coverage terms or to the dwelling coverages when a residence covered under Coverage A is occupied by its owner or when the policy is issued to a tenant of a residence on the insured premises.

Farm Umbrella Program
The following endorsements are being filed for use in all states where the Farm Umbrella forms are on file, except Alaska, Arkansas, and Washington:

         UM 0330 01 04, Certified Terrorism Loss
         UM 0340 01 04, Certified Act of Terrorism Exclusion

Separate Bulletins will be issued to distribute the revised 'UM' endorsements being filed for use in Alaska and Washington. The special editions of the certified terrorism endorsements filed under the Arkansas Farm Umbrella Program, UM 0330 07 03 and UM 0340 07 03, are similar in content to the 01 04 edition UM endorsements described in this Bulletin. Refer to Bulletin 03-0291. No additional filings of certified terrorism endorsements are anticipated at this time for the Arkansas Farm Umbrella Program.

AAIS filings submitted under the Farm Umbrella Program apply on an advisory basis in all states except Virginia. Refer to the Company Action section of this Bulletin for more information.

The UM 0330 01 04 includes new terms that limit the TRIA capping provisions to the umbrella coverage provided for farming and business activities. Under the UM 0330 01 04, the TRIA cap will not apply to the personal, non-business exposures that may be covered by the farm umbrella policy.

When the UM 0340 01 04 is attached to a policy that includes the farm personal umbrella liability provided by form UM 0002, the certified act of terrorism exclusion will apply only to liability arising out of farming or the activities related to an insured's business and not to any personal, non-business exposures. When the UM 0340 01 04 is attached to a policy that includes the farm commercial umbrella liability provided by form UM 0610, the certified act of terrorism exclusion will apply only to liability for the farming exposures covered under the UM 0610 and will not apply to any personal umbrella liability coverage that may be added by endorsement.

Farmowners Program
The following endorsements are being filed in all states where the Farmowners forms are on file, except Alaska, New York, and Washington:

FO 0600 01 04, Certified Terrorism Loss
FO 0610 01 04, Certified Act of Terrorism Exclusion (Standard Fire Policy not applicable)
FO 0620 01 04, Certified Act of Terrorism Exclusion (Standard Fire Policy applicable)

Separate Bulletins will be issued to distribute the revised 'FO' endorsements being filed for use in Alaska, New York, and Washington.

Under endorsement FO 0600 01 04, the capping provision that is activated when the Secretary determines that the amount of certified terrorism loss has exceeded the maximum annual liability as set forth by TRIA does not apply with respect to the dwelling coverages provided under forms FO-1, FO-2, FO-3, FO-4, or FO 0005.

The FO 0600 01 04 also includes new provisions to specify that the TRIA capping provisions do not apply to livestock, poultry, or other covered animals or unharvested crops under the Farm Coverage terms, or to the personal, non-business exposures that may be covered under the Liability Coverage terms.

Under endorsements FO 0610 01 04 and the FO 0620 01 04, the certified act of terrorism exclusion does not apply to livestock, poultry, other animals, or unharvested crops under the Farm Coverage terms, or to the Dwelling Coverage terms when the policy includes those terms.

When the FO 0610 01 04 or the FO 0620 01 04 is attached to a policy that includes the liability coverage provided by form GL-2, the certified act of terrorism exclusion will apply only to liability arising out of farming or the activities related to an insured's business and not to any personal, non-business exposures. When the FO 0610 01 04 or the FO 0620 01 04 is attached to a policy that includes the liability coverage provided by form GL-610, the certified act of terrorism exclusion will apply only to liability for the farming exposures covered under the GL-610 and will not apply to any personal liability coverage that may be added by endorsement.

Personal and Premises Liability Program
The following endorsements are being filed for use in all states where the Personal and Premises Liability forms are file, except Alaska and Washington:

GL 0310 01 04, Certified Terrorism Loss
GL 0320 01 04, Certified Act of Terrorism Exclusion

Separate Bulletins will be issued to distribute the revised 'GL' endorsements being filed for use in Alaska and Washington.

The GL 0310 01 04 includes new terms that limit the TRIA capping provisions to the liability coverage provided for farming and business activities. Under the GL 0310 01 04, the TRIA cap will not apply to the personal, non-business exposures covered by the farm personal liability policy.

The certified act of terrorism exclusion under the GL 0320 01 04 will apply only to liability arising out of farming or the activities related to an insured's business and not to any personal, non-business exposures.

STANDARD FIRE POLICY STATES

Endorsements FL 0620 01 04 (Farm Properties Program) and FO 0620 01 04 (Farmowners Program) are being filed for use when the insured rejects the offer of coverage for loss caused by certified acts of terrorism in the following states: