Terrorism losses apparently covered under the US Terrorism Risk Insurance Act 2002 (TRIA) may not be covered if the West goes to war against Iraq.

Top brokers and lawyers highlighted problems with TRIA, which requires all commercial lines carriers doing business in the US to offer terrorism cover.

In return the act offers an annual fund of $100bn (£69.9bn) a year as a backstop for insurers.

Tom Player, of US law firm Morris, Manning & Martin, said the act's wording means that terrorism committed while the US is officially at war will not be certified as an act of terrorism.

The act applies only if the US Secretary of State certifies that an act was one of terrorism.

This may mean that if the US declares war on Iraq and suffers a terrorist attack at the same time, losses from the terrorist act may not be covered.

John Eltham, a terrorism specialist with leading Lloyd's broker Miller, said that even if the US did not declare war against Iraq but suffered a terrorist attack by an Iraqi agent, there could be an argument over whether a state of war existed between the two governments and therefore whether the act applied.

Eltham said: "The people with the vested interest here are financiers putting money up for a construction project or factory or portfolio of properties, because they stand to lose but are one step removed from the decision-making process over whether to buy cover under the act."

Inquiries to Miller about stand alone terrorism cover for such eventualities had jumped since TRIA's introduction last year.

"There are a number of UK and European lenders looking to protect their portfolios," he said.

UK insurers fronting US operations could also find themselves exposed to risks despite apparently being covered, Eltham said.

The act has been a source of frustration for UK brokers and underwriters, who have invested huge amounts of time checking its detail and offering cover.

But market sources said just four risks had been placed through the London market to allow them to recoup their costs.

What follows from TRIA

  • TRIA nullifies terrorism exclusions

  • It says the US government will cover 90% of losses in excess of £10bn

  • Insurers and brokers have less than a month to go before TRIA's 26 February deadline.

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