TRIA Settlement Restrictions Guide Proposed
By Steven Brostoff, Washington Editor
NU Online News Service, May 6, 11:48 a.m. EDT, Washington?Insurance companies would need Treasury Department approval to settle terrorism-related claims of $1 million or more for personal injury or death, or $5 million or more for property damage under newly proposed rules for the Terrorism Risk Insurance Act.[@@]
In the proposed litigation management rules, Treasury says that it is trying to establish a monetary threshold for pre-approval of settlements that balances the need to protect the interests of the United States with the administrative costs involved in advance approval.
Treasury is asking interested parties to comment on the thresholds by July 6, 2004.
Treasury says that as part of its inquiry, it needs comments from property-casualty insurers on how frequently claims are received under commercial liability policies where the policyholder settles directly with a claimant and then notifies the insurer after the fact.
In such a situation, Treasury says, if the insurer was not notified in advance of the settlement, it may have difficulty meeting the prior approval requirement, thus jeopardizing the application of federal reinsurance.
Treasury says it needs to know the frequency of such situations, the size of claims involved and possible approaches to address these situations.
In determining whether to approve a settlement, Treasury proposes to examine several factors, including whether the settlement compensates for a bona fide loss, whether any amount of the proposed settlement includes punitive damages, whether attorneys fees and expenses are reasonable, and whether the insurer took all reasonable and businesslike steps to investigate and ascertain the amount of the loss.
Treasury specifically notes that punitive damages are not covered by TRIA and that insurers will be required to identify any portion of a proposed settlement attributable to punitive damages.
If an insurer settles a cause of action either without Treasury approval or after Treasury has rejected a settlement, it will not be entitled to federal reinsurance unless the insurer can demonstrate extenuating circumstances.
Treasury adds that settlements below the proposed thresholds, which are not subject to the prior approval requirement, are still subject to Treasury review. Anne Sittman, a representative with the Des Plaines, Ill.-based Property Casualty Insurers Association of America, said that at this point, PCI is reviewing the document. PCI, she added, will file comments with Treasury, most likely on a joint basis with others in the industry.
Gary Karr, a representative of the Washington-based American Insurance Association, said that AIA has also just begun evaluating the request for comments. AIA will file comments following consultations with its member companies, he said.
Treasury recommends that comments be filed with them online at triacomments@do.treas.gov.
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