Executive Summary June 2019
Reports of violent and spectacular terrorist attacks have become a feature of our daily lives. The economic and human costs are high. Total financial loss as a result of death and injuries caused by terrorism in the EU since 2004 is estimated to be about €4.7bn. Property damage is estimated at about €898bn.* This paper aims to give an overview of how the financial costs of terrorism are addressed in France with a focus on the potential exposure of liability insurance and reinsurance coverages as a result of inadequacies in currently available compensation.
The note explains how the State fund (FGTI) operates to compensate for bodily injuries sustained in a terrorist attack. It examines the definition of those covered and how the compensation and its inherent limitations have led to discontent from some victims. A brief study of the other French State backed compensation system, GAREAT, which provides cover for property damages, leads to the conclusion that there are many losses, which remain either uncompensated or partially compensated.
The paper then examines where civil liability for terrorist acts might be established. This extends beyond the terrorists themselves. For example, parents are liable in law for injuries caused by the children for whom they are responsible. There is however no evidence that any action of this type has been taken.
Employers, too, have a high duty of care towards their employees (obligation de sécurité de résultat) by virtue of the contract of employment and could potentially be found liable for the injuries of their employees in the event of a terrorist attack. Tour operators also owe a duty of care to their clients.
Several attempts have been made to hold the government and municipalities responsible for failings in security and surveillance following terrorist attacks. Until now no such suit has been successful.
The forgoing indicates that although there are situations where liability might be founded following a terrorist attack, it is clear that there are significant hurdles to overcome to plead a successful action. Crucially too, although the FGTI has the right to seek recourse against those who may be liable in the event of a terrorist attack, the fund acknowledges that in reality this is difficult and therefore rare.
Having established the difficulty in founding liability, the paper deals with response of the insurance / reinsurance industry to this potential liability exposure. While generally excluded from insurance policies in the past, in recent years, terrorism is often covered by way of a buyback in the event of the establishment of liability. Reinsurance treaties as a rule do not exclude cover for terrorism, which could lead to an exposure if liability is established.
All Member States of the EU have transposed Directive 2004/80 requiring Member States to
create schemes for the compensation for victims of violent crime. The French system is acknowledged to be one of the most generous. The note gives a short overview of how some other countries have dealt with the financial impact of terrorism, including the UK, Spain Germany and the US.
The authors conclude that the current compensation system although imperfect will remain in force in the medium term. The government has shown its support to the FGTI by undertaking to bear all payments to victims which exceed €160m annually. Re/insurance liability policies and treaties are theoretically exposed by inadequacies in compensation, by the ability of the FGTI to seek recourse against liable parties and by coverage grants in insurance policies and treaties. Until now the difficulties in pursuing an action to establish liability have indicated little threat to the re/insurance industry but may well change if the system is put under further pressure from continuing attacks and mounting payments.