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Terrorism Insurance: A Two-Edged Sword

By Raymond J. Werner
March 31, 2005

In the landlord-tenant arena, the issue of whether terrorism insurance must be purchased has two frequently encountered aspects. In one factual pattern, a tenant of a single-user property is required by its lease to purchase certain insurance coverage to protect both its own interest and the landlord's. Does this lease provision include terrorism insurance, as well as other types of coverage generally required on the leased premises? In another factual pattern, tenants of a multi-tenant facility must reimburse the landlord for their share of the landlord's taxes, common area expenses and insurance premiums. Do those insurance premiums properly include the landlord's cost of obtaining terrorism insurance?

Leases entered into before 9/11 rarely mentioned the requirement that a tenant or landlord obtain terrorism insurance. Sept. 11 changed many things, including the way attorneys draft insurance clauses in leases. In pre-9/11 lease documents, the requirement for terrorism insurance is typically found in one of two places. The first is the casualty insurance clause. Leases typically require a party to obtain and maintain “all risk” property or casualty insurance. Up until 9/11, all risk insurance included terrorism coverage because there was no exclusion for losses resulting from a terrorist attack. After the tragedy and the losses that occurred in New York and Washington, D.C., insurance carriers began to exclude the terrorism risk from their all risk coverage. The second source of the provision for terrorism coverage is found in the so-called “other insurance” clause. Leases typically provide that the party required to obtain the insurance also obtain such other insurance as the other party may require or elect to obtain.

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