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DALLAS-Building owners already are digging deeper into their pockets to cover dramatic spikes in risk coverage. Now, it’s a smoking gun as inner circles buzz about the ramifications of Sept. 11 on insurance costs.

The closest analogy that can be drawn is political risk insurance, says John M. Stone of Dallas-based John M. Stone Co. and chairman of legislative committees for the North Texas Commercial Association of Realtors, IREM Dallas chapter and the Realtors Land Institute. “I think it goes without saying that there probably is going to be something,” he tells GlobeSt.com. That “something” most likely will have to be federally subsidized, much like flood and earthquake coverage. And that probably won’t get past the taxpayers at large no matter how hard the insurance industry lobbies. “The question is going to be ultimately whether the taxpayers are willing to insure against everything,” he says,”and the bottom line is going to be ‘no.’”

It won’t be cheap and it won’t be easy to develop terrorist riders to all-risk policies, which now exclude acts of war. “You’re dealing with a bottomless pit,” Stone says. “You don’t know the extent of damage or the reoccurrence.” Stringent claim standards will have to be massaged and re-massaged to fine-tune wording to weed out fraud.

“Are people here concerned? Yeah,” Stone says, “we are concerned, but we have to come up with practical solutions.” Otherwise, he says, it could end up like a recent mold lawsuit in which the property owner got a $32-million award for a $2-million home in Dripping Springs, TX.

The pros and cons of terrorist coverage is sure to fuel legislative sessions in the industry right up to Washington, DC and task forces convened at federal and state levels. Stone feels certain the committees he chairs would support coverage, with the proviso of stringent claim standards.

Mark Baldwin, founder and managing director of Dallas-based Henry S. Miller Commercial’s Capital Markets Group, says terrorist riders haven’t become an issue with the deals now on the lending table. “However, I can see it becoming an obstacle when our work involves high-profile, trophy assets.” he says. “If lenders decide they must have terrorist coverage and insurance companies won’t provide it, federal intervention may be necessary.”

Premiums, by and large, have doubled over 2000 costs. And, another double hit is projected for 2002. For some, the answer is to boost deductibles while others boost the rent.

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