Administration Asks Terror Bill Tort Shield

The letter was signed by Treasury Secretary Paul O'Neill, Office of Management and Budget Director Mitchell E. Daniels, National Economic Council Director Lawrence B. Lindsey and Council of Economic Advisors Director R. Glenn Hubbard.

Without terrorism insurance legislation, the letter says, the economic impact of another terrorist attack would be much larger than the Sept. 11 attack, resulting in major bankruptcies, layoffs and loan defaults.

However, the letter says that legislation must not allow for excessive litigation against American companies.

Two provisions are essential in any legislation to avoid this problem, the letter says. The first provision is that all cases arising out of terrorist attacks should be resolved in a federal court in a consolidated action.

The second provision, the letter said, is that American businesses hurt by terrorism should not have to pay punitive damages related to claims that are an outgrowth from the same attack.

"We would recommend that the President not sign any legislation that leaves the American economy and victims of terrorist acts subject to predatory lawsuits and punitive damages," the letter said.

But the legislation that was introduced on Friday by Democratic leaders, S. 2600, only addresses one of these issues. Under S. 2600, all claims for property damage, personal injury or death filed against American companies will be handled by a federal court. All state-based causes of action are preempted.

However, S. 2600 does not address the issue of punitive damages against American companies.

But under the parliamentary rules that will govern consideration of S. 2600 on the Senate floor, those who want to ban punitive damages will be able to offer amendments to that effect.

While the House passed a terrorism insurance bill last November, the issue has been tied up in the Senate due to the tort reform dispute. Additionally there are lingering questions among Republicans about the need for the underlying legislation, some sources say.

But the Bush administration letter says the process must move forward.

"Prompt action by the Senate on this vitally important legislation is needed now," the letter says.

Under S. 2600, following a terrorist attack, the federal government would pay 80 percent of claims above a company-by-company deductible for the first $10 billion in losses.

The government would pay 90 percent of losses between $10 billion and $100 billion. It would be up to Congress to determine the next step if losses exceed $100 billion.

The program would expire on Dec. 31, but could be extended for one more year upon a determination by the Treasury Secretary that an extension is needed.

While the program would cover only property-casualty insurance, S. 2600 also calls for a study, to be completed within nine months, on the need for a similar program covering life insurance.