Among the dozens of executive orders that President Trump signed on his inauguration, one centered on the designation of certain cartels as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). With terrorism often listed as an excluded peril within property and casualty policies, this is a significant development. Risk managers should take note.
For organizations operating in areas affected by organized criminal activity, two questions naturally arise:
The precise wording of any policy is key. Exact terminology may differ across contracts, but acts of terrorism are generally defined as those committed for political, religious or ideological purposes. This includes the intention to influence any government or to put the public in fear for such purposes, regardless of whether a government has declared those responsible as terrorists.
At face value, therefore, the executive order may not seem to have an immediate impact on coverage interpretation. Yet a closer look at its language may give pause for thought.
Describing cartels as being involved in “infiltration into foreign governments,” functioning “as quasi-governmental entities, controlling nearly all aspects of society” speaks to how the Trump Administration views these entities as political agents. The language from the prior executive order that created the SDGT distinction creates an additional link between the two concepts: that SDGTs “intimidate or coerce a civilian population to influence the policy of a government by intimidation or coercion or to affect the conduct of a government.”
Could cartels then pass that “political” test within the insurance definition?
While the consensus within the specialty insurance market is that these events would not fall under the traditional understanding of the peril, parties (for example, a property insurer searching for an applicable exclusion) may seek to take advantage of a turning political tide by testing this within the U.S. court system.
This kind of uncertainty may be resolved through the purchase of coverage related to malicious attacks in general, or even organized crime specifically. Available as an extension to standalone terrorism and political violence policies, this protection broadens the scope of covered losses – often (but not always) specifically citing acts committed by cartels and drug-trafficking organizations. This option can provide organizations with coverage certainty during this time of political transition.
If you have questions about your business’s exposure to terrorism and cartel activity, please contact your local WTW office or the WTW Crisis Management team.
