Insurance Payout May Depend on Whether Boston Bombing Was 'Terrorist Act'

PHOTO: The Globe Bar & Cafe is open for business, April 24, 2013.

Whether the Boston bombings are deemed a "terrorist" act could have enormous financial implications for the businesses that were damaged or closed during the police investigation.

At the center of the issue is a federal law passed in the shadow of the attacks of 9/11. In Nov. 2002, Congress enacted the Terrorism Risk Insurance Act, which provided insurance coverage for terrorist acts. That means if a special insurance rider was not purchased, and the act is deemed terrorism, the claim will be denied under business policies.

On the other hand, if the bombings aren't deemed a terror act, affected businesses could then apply for reimbursement under their regular insurance policies.

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President Barack Obama called the bombings an "act of terror" but businesses now await word from the Treasury secretary, attorney general, and secretary of state on the designation.

If those offices officially certify the Boston bombings as an act of terror, then only businesses that had previously purchased coverage for "terrorism" from their insurance companies will receive insurance payments for damage and lost income from the events of April 15.

"It does not help the policyholder when the President makes such statements, but his statement is before all evidence has been reviewed, so it depends on what the insurance carriers decide as to the event," said Judith Spry, partner in litigation and consulting with BDO.

A spokeswoman for the Treasury said the office has not taken action yet.

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It's possible some businesses won't have insurance coverage for building damage or lost income after being cordoned off by police for over a week. That's likely the case for the dozens of small businesses on Boylston Street and the area near the finish line of the Boston Marathon.

"Some of the large businesses, like hotels, likely had the coverage," said Robert Hartwig, president of the Insurance Information Institute, an industry trade group. "It's not surprising or atypical if the small businesses did not."

Mark Bollman, president and founder of Ball and Buck, a men's retailer about two blocks away from the finish line, did purchase terrorism insurance.

"It's not something you think you need to have or something you would ever want to need, but being in a downtown city we wanted to be safe rather than sorry," Bollman said.

His brick and mortar store is back up and running after being closed for several days. The store did not sustain any damage other than the lost business. Bollman and other local businesses are donating 10 percent of their sales to the Red Cross and inviting others to participate through www.PatsDayFund.org.

"Customers and traffic still remain slower than normal but is steadily picking up," he said. "We would expect that by next week we will be back where we were planning."

Bollman said he is in contact with his insurance agency and has submitted a claim under terrorism insurance, but does not know what exactly will be covered.

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For businesses that may be affected by a terrorist act, Spry advises owners to gather documentation, put the insurance carrier on notice, and retain professionals, like accountants and attorneys, if needed.

While terrorism insurance has been available for the last 11 years, businesses and the insurance industry have little experience in filing claims for it.

"When the act was legislated in 2002, everyone's version of a terrorist attack was something like 9/11, or involved hundreds of billions of dollars of damage," Hartwig said.

Hartwig said the Treasury secretary, secretary of state and attorney general are under no obligation to certify within a specific timeline whether the bombing was a terrorist act.

"Until then, insurers will proceed to adjust the claims and work with policyholders just as it would have been in a natural disaster of some sort," Hartwig said.

To be certified as a terrorist act, they must also assess whether insured damage, like building damage and lost income, exceeds $5 million.

If these officials don't certify the bombing as a terrorist act, the businesses' standard policy would apply.

Part of the definition for a terrorist act in the federal law states that the attack must have been "committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion."

The coverage itself is "relatively inexpensive," Hartwig says, but many factors influence the cost, such as location and the size of a business.

A small business in many cities might pay less than $100 a year for the coverage, said Hartwig.

"If you're a very large business with a lot of real estate, machinery, aircraft, or a stadium, these things will cost more of course," he said.

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