Call For Tort Reforms

Jeopardizes TRIA Extension

By ARTHUR D. POSTAL

Washington

Renewed efforts by conservative Republicans in the Senate toimpose tort reform standards in any extension of the Terrorism RiskInsurance Act are complicating efforts to draft legislation keepingthe reinsurance backstop in place beyond its Dec. 31 sunset.

Debate over similar concerns went down to the wire in November2002 before the original TRIA bill was finally passed, with most ofthe last-minute delay caused by Republican insistence on somelanguage curbing the ability of plaintiff lawyers to sue forpunitive damages in cases arising out of a terrorism attack. On theother hand, strong tort language is a bill-killer forDemocrats.

Former House Majority Leader Tom DeLay, R-Texas, held up thebill for eight hours in the waning hours of the 2002 sessionbecause he objected to its compromise tort reform language.President George W. Bush and Vice President Dick Cheney becameinvolved in the talks before Rep. DeLay relented and allowed thebill to be taken up by the House Rules Committee.

Rep. DeLay's concern was that the final tort language was asurrender to the trial bar, although trial lawyers pointed out atthe time that no lawsuit seeking punitive damages was ever filed asa result of the 9/11 attacks.

The final tort language called for consolidation ofterrorism-related lawsuits in federal court at both the pretrialand trial phases. However, it was silent on setting a federalstandard for the awarding of punitive damages in suits broughtagainst property owners, instead allowing state laws on punitivedamages to prevail.

The bill's language does make clear that punitive damagesawarded "shall not count as insured losses" for the purpose offederal payment, which effectively eliminates the probability thatlaw firms would invest the money to pursue punitive claims,observers say.

In comments to reporters when he went into a night meeting withHouse Speaker Dennis Hastert, R-Ill., at which the president wasbrought in by speakerphone, Rep. DeLay said the bill's tortprovisions as included in the conference report "would open up theU.S. Treasury" to trial lawyers. However, he relented, according tolobbyists and several members, after winning a commitment that thepresident would champion certain tort reform legislation thefollowing year.

Rep. DeLay noted on the House floor before the TRIA vote: "Iraised these concerns with President Bush," adding, "He agreed thatthere is more work left to protect victims of terrorism and thefederal Treasury, and he pledged to work with us next year toresolve these flaws."

That was never done, and the only tort reform legislationenacted by Congress since then were certain limits on class-actionlawsuits included in legislation passed earlier this year.

Vastly different TRIA extension bills are being negotiated on abipartisan basis in the Senate Banking Committee and by theRepublican leadership in the House Financial Services Committee.According to several industry lobbyists, the White House isparticipating in the Senate talks, but not in the House talks.

There is some thought that members of the Senate BankingCommittee will be presented a "take it or leave it" bill by thenegotiators, with the bill going directly to the Senatefloor–bypassing committee action, lobbyists said.

White House involvement in the Senate talks is complicatingefforts to coordinate with the House because the White House isinsisting that the restrictive principles for extension articulatedin the June Treasury Department report on the issue be adhered to,according to lobbyists familiar with the substance of thetalks.

The only saving grace is that the time to negotiate a bill hasbeen extended. "Any movement in the House toward introduction of aproposal will now probably be this week," one lobbyist said. Whilesome staffers worked on a bipartisan basis last weekend in theSenate, the talks have slowed. "The Senate talks are stillgrinding," one lobbyist said late last week.

"With the certain reality that Congress will be in [session] aminimum of two weeks in December, things are now a little lessfrantic at the moment," the lobbyist said.

Negotiations in the Senate involve representatives of Sens.Richard Shelby, R-Ala., and Paul Sarbanes, D-Md., chairman andranking member, respectively, of the panel, and Sens. RobertBennett, R-Utah, and Chris Dodd, D-Conn., authors of a bill callingfor a simple two-year extension of the legislation as is.

Negotiators in the Senate have agreed to Sen. Shelby'sstipulation that renewal will be for two years, but with "finality,no extension," one lobbyist familiar with the talks said.

In the House, there is also agreement on a two-year extensionthat would transition to a pooling arrangement where the federalgovernment will have far less liability than under the current TRIAbill.

Both bills will embrace the so-called "silo" concept ofdifferent levels of federal liability for different categories ofinsurance and for different events.

For example, government liability will be greater for claimsresulting from a terrorism attack by nuclear, chemical, biologicaland radiation agents, and for workers' compensation losses througha conventional attack than, for example, general liability andcommercial auto.

However, the silos in the bills are different, one lobbyistsaid, although he declined to elaborate.

One lobbyist said that since there is general agreement that thegovernment would have less responsibility for general liabilitylosses than for other losses, one way around the tort issue wouldbe eliminating such coverage altogether.

Moreover, the House bill envisions a mutual reinsurance systemas a means of protecting smaller and midsized insurers from beingwiped out by a terrorism attack, one lobbyist said. The Senateproposals envision no such provision.

Senate negotiators foresee a much higher threshold forgovernment involvement than the draft House bill, another lobbyistsaid.

Sen. Shelby is supporting the White House's call for a $500million threshold–a level which small insurers pointed out in aletter to senators 10 days ago could potentially wipe them out.

The threshold for government involvement is now $5 million, andwhile House negotiators foresee an increase in that trigger, thelevels they are proposing are far lower than suggested by the WhiteHouse and Sen. Shelby's staff, according to this source, who said"it remains unclear if that will be the final number."

Flag: Tort Details

Head: What Does TRIA Say Now?

Senate Republican tort reform advocates want language in anyTRIA extension keeping people from suing for punitive damages incases involving a terrorist attack. Democrats oppose suchrestrictions.

In the current TRIA program:

o Terrorism-related suits are consolidated in federal court,both for pretrial and trial.

o Any punitive damages awarded do not count as insured lossesfor the purpose of federal reinsurance.

o TRIA sets no federal standard for punitive damages in suitsagainst property owners, allowing state laws to prevail.

Callout:

"With the certain reality that Congress will be in [session] aminimum of two weeks in December, things are now a little lessfrantic at the moment," one lobbyist says.