(1)

A terrorism exclusion in an eligible insurance contract has no effect in relation to a loss or liability to the extent to which the loss or liability is an eligible terrorism loss.

(2)

For the purposes of subsection (1), terrorism exclusion means an exclusion or exception (however described) for:

(a) acts that are described using the word "terrorism" or "terrorist" or words of similar effect; or
(b) other acts (however described) that are substantially similar to terrorist acts as defined in section 5.

(3)

If:

(a) apart from this subsection, an amount (the base amount ) would be payable under the contract, solely because of this section, in respect of a declared terrorist incident; and
(b) a reduction percentage applies to the declared terrorist incident; and
(c) if the contract was made on or after 1 October 2003—the insurer is reinsured with the Corporation in respect of the whole or a part of the insurer's liabilities under the contract that arise solely because of this section;

then the base amount is to be reduced by the reduction percentage.

(4)

The Corporation is liable to compensate an insurer for:

(a) a liability incurred by the insurer under a protected contract, to the extent that the liability arises solely because of this section; and
(b) expenditure incurred by the insurer in connection with, or arising from, the assessment, management, conduct, rejection, defence or settlement of a claim by the insured, to the extent to which the claim is:
(i) under a protected contract; and
(ii) in respect of a liability that arises (or is alleged to arise) solely because of this section.

For the purposes of this subsection, protected contract means an eligible insurance contract that is in force at the startup time or is entered into after the startup time and before 1 October 2003.