BACKGROUND EXPLANATION FOR AIMU'S CHEMICAL, BIOLOGICAL,
BIO-CHEMICAL, AND ELECTROMAGNETIC EXCLUSION CLAUSE
This is the summary of the work done on the Chemical, Biological, etc. exclusionary form.
When the Forms & Clauses committee was formed to review this issue, the London Institute form had already been issued on November 1, 2002. The committee first considered whether to accept the London form essentially "as is". However, after various discussions some committee members were concerned that "Chemical", "Biological" and other words were not defined. Others contended that the intent of the clause was not clear enough. Underwriters did not want to exclude certain losses of a chemical nature, such as loss to a liquid bulk cargo due to contamination. Indeed, some pointed out that any fire or explosion, whether intentional or not, is chemical in nature. Having only the word "weapon" to drive the intent that the endorsement only applied to intentional hostile acts was perhaps not sufficient.
Nevertheless, despite these misgivings a proposal to adopt the London clause was made, but this was met with stiff resistance for several reasons. These were:
- On a technical basis, the form refers to a London Institute exclusion that does not exist on American policies.
- Many members of the marine insurance community continued to be troubled by the cyber exclusionary language. This seemed vague and poorly defined. Also, it was not felt that the type of risks marine insurers generally write posed a problem in this area.
- Members again cited the concern over the clear intent of the form with only the word "weapon" denoting its applications to intentional hostile acts.
The committee accepted the concerns of those responding to the proposed form and decided to redraft an AIMU version of the form. The committee set about to address the concerns raised by the membership while continuing to seek broad support on behalf of both the direct underwriters and reinsurance community.
After a further review of the amended form two issues continued to be raised.
Some members expressed concern that TRIA could potentially "trump" the exclusion if an offer to purchase TRIA coverage was accepted by an insured and a loss arose from a certified act of terrorism due to a Chemical, etc. cause. However, the Government has stated in an Interim Final Regulation published April 18, 2003 (page 19307) that the use of "NBC" type exclusions is permissible under TRIA. In any event, use of the word "terrorism" would not change the form's intent. To go back to the original London draft would again introduce the same ambiguity which the committee sought to overcome.
This may still create a potential non-conformity between direct writers and reinsurers for losses arising from the perils addressed in the clause. However, reinsures are not subject to compliance with TRIA.
Concern was expressed that the definition of Terrorism as contained in this clause could be at odds with what is already embedded in marine forms. The cargo form in particular was cited where terrorism is referred to, but not defined. There is no reference to "terrorism" in the form. Concerns over specifically defining and using the word terrorism were also strongly voiced given conflicting or non-existent definitions in some other commonly used forms.
To further denote the intent of the form the words "when used in an intentionally hostile manner" are added to the end of the second paragraph. At the end of the review process it is hoped that the proposed clause will be seen as a more simple and elegant way to achieve our purpose for this clause.