Insurance Coverage Concerns: Was it Terrorism?

Insurance companies are concerned about whether or not the damage caused in Thailand’s recent civil unrest will be treated as terrorism, reports the Bangkok Post.  If the damages were caused by terrorism there is often no insurance coverage and insurance companies are not required to make a pay-out.  A few companies purchased additional insurance to cover terrorism, but many did not. The Bangkok Post:

Many businesses damaged during last year's Bangkok riots remain locked in disputes with their insurers, which say the policies are voided by acts of terrorism and therefore no payouts can be made.

Although the Office of Attorney General filed terrorism charges against many of the participants in the unrest, at least one early court decision has rejected those charges and instead found the participants guilty of arson.  In a 26 July 2011 case involving a fire at the Bangkok Bank’s branch at Samutprakarn, the court of first instance dismissed the terrorism charges and found the defendants guilty of arson instead.

This same Bangkok Post article says insurance companies are expressing concern about purported government plans to “revoke” an Office of the Insurance Commission (OIC) announcement that last year’s “violent clashes were an act of terrorism.”  We have not been able to find any official notifications saying last year's clashes were an "act of terrorism", although officials with the OIC may have made comments to that effect.  Because the facts of each incident will differ, we suspect each incident will be treated on a case-by-case basis and the outcome will vary depending upon the facts of each case.  A Thai Supreme Court decision may provide some guidance, but it will likely be years before there is any such decision. 

The Bangkok Post also quotes an insurance executive, Mr Surachai, as saying it will “not be easy to pressure foreign reinsurers to pay claims since Thailand has yet to come up with a clear picture of what actually happened.”  The Bangkok Post goes onto say:

"The loss to Thai firms would be enormous should the reinsurers deny the claim payouts. Lengthy legal disputes and court action would almost certainly ensue," said Mr Surachai, adding that more than 90% of damages would fall to global reinsurers.

Terrorism insurance is a difficult product.  The term “terrorism” itself is difficult to define. The damages caused when terrorism is alleged to be at play are often enormous.  And all of this creates powerful incentives for expensive and protracted coverage disputes.