United States Is The Only Insurer For Iraq Projects So Far Before war with Iraq began, insurance industry heavyweight Maurice Greenberg predicted that the war would end quickly and present opportunities for insurers like his own to provide coverage for contractors doing reconstruction.

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

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

Joe Norton, an AIG representative in New York, said the company would be “responsive to Bechtel and any other contractor” that made a request for coverage for the reconstruction work. He said, at this point, he could not comment on whether there had actually been requests for coverage.

Mr. Bushs memo provides contractor indemnification against claims, losses or damages from exposure to chemical, biological, radiological or nuclear weapons, agents or materials, mines, and unexploded shells and devices. His action was taken, Mr. Bushs memo said, because “that authorization would facilitate the national defense.”

It was also taken because, according to comments made at a news briefing by the AIDs chief acquisition officer Timothy Beans, when the agency surveyed firms with the ability to do the reconstruction work, they reported difficulty obtaining adequate commercial insurance.

After the Bechtel contract was awarded, Steve Naventi, a spokesperson for the San Francisco-based company, said that he could not discuss specifics of how any government indemnification might work–or what had transpired concerning Bechtels efforts in the private sector.

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

Ellen Yount, a spokesperson for the AID, also said she could not provide information about indemnification beyond the memorandum issued by President Bush.

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

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

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

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

Generally with the U.S. indemnity process, he said, the agency involved will work up an agreement with the contractor to define exactly what the risks are.

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

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

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

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

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

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

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

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