Standard property insurance cover on a block of flats or apartments is unlikely to include damage by terrorists. It has to be requested and an additional premium is payable. You may find that terrorism cover is a requirement of your lease or mortgage provider, so it’s advisable to check.
Many blocks of flats do not buy this insurance because they believe they are not at risk, but is this really the case?
The court appeal in the “Qdime case*” (July 2014) upheld that if an insurance clause in your lease includes a requirement to insure against explosion, then this should include terrorism. The ruling made clear that this cover is a requirement of most leases. While the likelihood of a terrorist incident may seem small, uninsured losses could be massive and it may not be worth the risk.
Key features of a Terrorism Policy
The policy will provide you with cover against the following*:
Damage to the buildings by terrorist action as defined up to the policy sum insured.
Prevention of access to the building due to police or other emergency service action which necessitates alternative accommodation.
Loss of rent or alternative accommodation costs following damage resulting in the premises becoming uninhabitable.
In making your decision please think about the following:
Is it your choice whether to insure?
The terms of the lease or mortgage agreement may specifically state the minimum insurance required. Older agreements may pre-date the change in the terrorism rules in 1990. Therefore when stating “full insurance” the agreement would have expected this to include terrorism. Newer agreements may be more specific. Remember to check your lease – if you are obliged to insure and fail to do so, not only will the loss not be insured but the directors could be held personally responsible for the loss.
Are you in an affected area?
You may have considered the risk and chosen not to insure as you are not in a target area – e.g. Government premises, or inner cities. Residential areas are not normally targets. Even if not in an obvious target area, where is the bomb being assembled, what route it will be transported on – these activities often take place in low profile areas and the explosion could be unplanned.
What is an act of terrorism?
Most people’s thoughts immediately focus on what is in the news and equate terrorism with political acts linked to overseas events. The policy definition of terrorism is broad; this can include other groups with agendas relating to environmental issues or animal rights. People whose aims you may support but methods you abhor. These activities may be planned or happen in residential
areas – could one of your residents be a participant or a target – e.g. a CEO of a biotech company or a politician with extremist views.
Court ruling sheds new light on the need for terrorism cover
The court appeal in the “Qdime case*” (July 2014) upheld that if an insurance clause includes a requirement to insure against explosion, then this should include terrorism. With this ruling it
now seems clear that this cover is a requirement of most leases. Most blocks of flats buildings insurance policies do not include cover for incidents related to terrorism, and has to be requested. While the likelihood of a terrorist incident may seem very small, uninsured losses could be massive and it may not be worth the risk. It’s also worth being aware that some mortgage providers will not lend on a flat unless terrorism cover is in place, so it can help if you want to sell. * Qdime Ltd -v- Bath Building (Swindon) Management Company Ltd Various lessees of the Bath Building  UKUT 0261 (LC)).
For a copy of our guide to Terrorism insurance, the cover provided under a standard policy** and examples of how the cover could benefit you, click here.
*Qdime Ltd –v- Bath Building (Swindon) Management Company Ltd Various lessees of the Bath Building (2014) UKUT 0261 (LC). ** For full terms and conditions please refer to the policy wording available on request. For Residential Management Committees in small blocks it is normally best for simplicity and costs to extend your block policy to include this cover. If you are managing a large block then a standalone policy from a specialist insurer may save you money. As with all insurance policies, the policy is subject to limits, conditions and exclusions. For more information please contact us to discuss further, or request a full summary of the cover or the full policy terms and conditions. The opinions and views expressed in the above article are those of the author only and are for guidance purposes only. The authors disclaim any liability for reliance upon those opinions and would encourage readers to rely upon more than one source before making a decision based on the information.
Frequently Asked Questions
Does my buildings insurance cover terrorism?
A standard block of flats building insurance policy is unlikely to include damage caused by terrorism, but it’s usually easy to extend your block policy to include this cover for an additional premium. The level of premium will depend on your building sum insured, but also where you are located, as some areas are seen as higher risk.
What qualifies as terrorism?
Terrorism is defined in an Act of Parliament (The Terrorism Act 2000) and most insurers use this definition in their policies. The definition includes what people normally consider to be an act of terrorism, such as a bomb exploding in a public area, but it extends beyond this to include an organisation or persons, that is trying by illegal means to influence the government and intimidate the public for reasons including, but not limited to, political or ideological cause.
Why do blocks of flats need terrorism cover?
A standard block policy may not cover acts of terrorism, so you could be at risk if the building is damaged by a terrorist act. These losses usually involve fire or explosion so although fortunately very rare, can be major when they do happen. For this reason many leases and also most mortgage providers insist this cover is included – so do check.
Do I need terrorism insurance for my flat?
In older leases there was no specific mention of terrorism and the need to insure it, but this was before the insurance market started to exclude terrorism risks from their standard policies. This means that if terrorists cause damage by, for example fire or explosion, this would not necessarily be covered. The courts have looked into this (the Qdime case 2014) and decided that if in a lease there is requirement to insure for damage caused by fire or explosion then this should include cover for such losses when caused by terrorism. If you are a leaseholder then your buildings insurance policy should be extended to include this. Always check your policy wording to be certain.
What is covered by terrorism insurance?
A typical policy will provide cover for damage to the property up to the policy sum insured and alternative accommodation or loss of rent. Policy wordings do vary as to the insured perils (the cause of the damage) they include, fire and explosion risks are standard but some will exclude the major catastrophes of chemical, biological, radiological and nuclear risks.
Is terrorism insurance a legal requirement for blocks of flats?
There is no law that says you must but you may have a contractual obligation under the terms of your lease or your mortgage to include this cover. Other than that it’s your choice. Older agreements may pre-date the change in the terrorism rules in 1990. Therefore, when stating “full insurance” although no mention is made of terrorism specifically, the agreement could expect this to be included. Newer agreements may be more specific. Always remember the mantra: ‘Check your lease’. If you are obliged to insure and fail to do so, not only could the loss not be insured but if there are directors who are responsible for managing your building, they could be held personally liable for the loss.
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