United States Is The Only Insurer For Iraq Projects SoFar Before war with Iraq began, insurance industryheavyweight Maurice Greenberg predicted that the war would endquickly and present opportunities for insurers like his own toprovide coverage for contractors doing reconstruction.

It may happen, but right now the only underwriter for capitalconstruction in Iraq is the U.S. of A.–not Mr. Greenbergs AmericanInternational Group or any other commercial lines insurer.

On April 17, the same day that Bechtel Corp. was awarded acontract to perform rebuilding work that could amount to $680million, President Bush issued a memorandum giving theadministrator of the Agency for International Development (AID) theauthority to indemnify the project.

Joe Norton, an AIG representative in New York, said the companywould be “responsive to Bechtel and any other contractor” that madea request for coverage for the reconstruction work. He said, atthis point, he could not comment on whether there had actually beenrequests for coverage.

Mr. Bushs memo provides contractor indemnification againstclaims, losses or damages from exposure to chemical, biological,radiological or nuclear weapons, agents or materials, mines, andunexploded shells and devices. His action was taken, Mr. Bushs memosaid, because “that authorization would facilitate the nationaldefense.”

It was also taken because, according to comments made at a newsbriefing by the AIDs chief acquisition officer Timothy Beans, whenthe agency surveyed firms with the ability to do the reconstructionwork, they reported difficulty obtaining adequate commercialinsurance.

After the Bechtel contract was awarded, Steve Naventi, aspokesperson for the San Francisco-based company, said that hecould not discuss specifics of how any government indemnificationmight work–or what had transpired concerning Bechtels efforts inthe private sector.

“Were in discussions with AID. It is too early to providedetailed information on indemnification issues,” he said.

Ellen Yount, a spokesperson for the AID, also said she could notprovide information about indemnification beyond the memorandumissued by President Bush.

Mike Adams, an attorney for the chief counsels office of theArmy Corps of Engineers at its Washington headquarters, said thatgovernment indemnity for projects “is extremely unusual,contractual relief.” He emphasized that it is for “extremelyhazardous activity for which the contractor is unable to getinsurance coverage.”

In order for the indemnity program to apply, he said, “they haveto submit all kinds of documentation–to include showing us theyhave attempted to get insurance and they are unable to do so.

Each case, he said has to be reviewed on an individualbasis.

Mr. Adams said that after the last conflict with Iraq, it wasthe government of Kuwait that had provided indemnity forcontractors working to undo the damage to oil fields set ablaze byIraq invaders.

Generally with the U.S. indemnity process, he said, the agencyinvolved will work up an agreement with the contractor to defineexactly what the risks are.

According to Mr. Adams, contractors indemnity has been grantedin a handful of cases. The most recent instance he could cite wasfor work being done to dispose of aging stockpiles of U.S. chemicalweapons. “Ultra-hazardous” activity, he noted.

As for the cost indemnifying, Mr. Adams said, “I cant recall usmaking a payment in any of the cases Ive seen. Im not saying wehavent. I just dont recall any.

Under the terms of its contract, Bechtel is due to receive $34.6million to commence work and has the possibility of earning up to$680 million if Congress votes to approve it. The contract is forrepairing airport facilities, fixing power, water and sanitationsystems, and work on the seaport at Umm Qasr.

Loretta Worters, vice president of communications at InsuranceInstitute in New York, said, at this point, there may be someissues related to distinguishing when exactly the war has ended.“Because it is such a fragile situation, it will take a lot ofnegotiation, I would think.”

“While Im sure there will be enormous demand for insurance, Iguarantee you it will be extremely expensive,” she said, noting,however, that she currently knows of no rates set by the insurancemarketplace to deal with rebuilding activity in Iraq.

In doing underwriting, Ms. Worters said she thought that safetyof cargo and shipping would be factors, and that one of the risksat play would be fear of looting.

Reproduced from National Underwriter Edition, April 28, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.