Terrorism Backstop Bill Gets Final Approval

Objections to the measure came from consumer groups, which called it an unwarranted giveaway.

Although the bill does not rule out lawsuits that seek punitive damages, it does require that any legal action be brought in federal court and consolidates claims into a single Federal district court assigned by the Judicial Panel on Multi-district Litigation.

Once President Bush, who pressed for the measure, gives it his signature an insurer can only omit terrorism coverage from a policy if the insured agrees to the exclusion or balks at paying any increase in premium to pay for the protection. Insurers must give policyholders 30 days before they make any changes related to a policyholder's terrorism coverage.

"It is a challenge from a logistical standpoint," noted Jason Schupp, assistant general counsel for Zurich North America in Schaumburg, Ill. His company like other insurers, must contact all of their affected insureds and be prepared within 90 days to send out information regarding terrorism insurance with all new policies.

Mr. Schupp said the company has had a task force operating the past couple of weeks to be able to comply with the measure when it becomes law and send out "hundreds of thousands" of notices to policyholders.

The measure had the support of virtually every major insurers' trade group. The American Insurance Association in Washington before the vote said the measure was a "critical component of a secure American economy" and the group hopes it will protect thousands of jobs.

Rodger S. Lawson, president of the Alliance of American Insurers, Downers Grove, Ill., called the Senate action "another important step on the road to insurance market stabilization in the aftermath of Setp. 11, 2001."

He said while requiring a financial commitment from insurers, the federal backstop would "spread the risk, stabilize the market, and give insurers the opportunity to once again provide coverage without the pending threat of insolvency from a future terrorist act"

The Independent Insurance Agents & Brokers of America, in commending the bill earlier, said that it was sorely needed to protect hospitals, office buildings, malls, stadiums, museums, churches and "facilities where large groups of people gather."

Robert A. Rusbuldt, IIABA chief executive officer, noted previous comments by President Bush that the measure was needed to preserve 300,000 jobs and more than $15 billion in real estate projects that had been stalled or canceled.

Among the trade groups pushing hard for the bill was the National Association of Professional Insurance Agents, based in Washington. Recounting its support recently, the group said that during a yearlong effort, that included representatives from construction, lending organizations, real estate and other business interests, it had run several grassroots action campaigns and held meetings with House Speaker J. Dennis Hastert, R-Ill.

Carl Parks, senior vice president, government relations for the National Association of Independent Insurers, Des Plaines, Ill., in an analysis of the bill, said the federal backstop was needed for workers' compensation, which saw more than $2 billion in 9/11 ?related claims and and business interruption coverage which paid the most money.

He also said he welcomed language in the bill that directs the Treasury to study the availability of personal lines. The National Association of Mutual Insurance Companies in a prior reaction to the bill said that it was disappointed that personal lines were not included.

Monte Ward, NAMIC federal affairs vice president, said the group was pleased that the legislation includes a per-company deductible "that will allow small, or even large, companies to more accurately measure their loss potential. The vast majority of insurers are small and mid-sized companies writing under $100 million in insurance annually."

Consumer groups, such as the Washington-based Consumer Federation of America, however, labeled blast the legislation, calling it a taxpayer-financed giveaway to the insurance industry.

Under the legislation, the federal backstop would come into effect when the Treasury Secretary, in consultation with the Secretary of State and the Attorney General, certifies that a terrorist attack has occurred causing at least $5 million of insured losses.

The program would cover all commercial property-casualty lines, including workers' compensation and business interruption. For workers' compensation only, the program would cover both terrorism and war.

The Treasury Secretary is empowered to extend the program to group life without the need for additional legislation, if a mandated study identifies a need.

Separately, Treasury will study the need for a terrorism backstop for other lines, including individual life and personal lines, but the Secretary would not have authority to extend the program to these lines by regulation.

Insurance companies would not qualify for federal assistance unless they suffer losses above a deductible, which is based on a percentage of direct written premiums for commercial U.S. risks.

The deductibles are 7 percent in 2003, 10 percent in 2004 and 15 percent in 2005.

Thus, if an attack occurs in 2004, an insurer with $1 billion in direct premiums would have to pay the first $100 million in losses before the federal backstop would apply.

At that point, the federal government would pay 90 percent of insured losses, while the insurer would remain responsible for 10 percent.

The program is capped at $100 billion. For losses beyond that, Congress would again have to step in and determine how to respond.

The industry would have to repay the government for any assistance up to $10 billion in 2003, $12.5 billion in 2004 and $15 billion in 2005.