Terrorism Insurance Bill Revived

In a significant turnabout, legislation to make the federal government the insurer of last resort for damage caused by terrorist attacks is gaining new momentum and could soon become law.

The measure had stalled in Congress several months ago and was almost given up for dead. But supporters, through aggressive lobbying, seem to have made the case that the federal role is important to protect businesses and the economy.

Last week, President Bush also reiterated his backing for the legislation. He said in a speech in Texas that billions of dollars’ worth of commercial construction projects have been shelved because of a shortage of affordable terrorism insurance. The reason: Banks will not lend money to developers who can’t obtain adequate coverage.

“We need a terrorism insurance bill to get American hard hats back to work,” Bush said.

With the Republican-led House and Democratic-controlled Senate each having approved terrorism insurance bills, lawmakers late last month agreed to begin negotiations on a compromise that could be approved in both chambers by October.

Walloped by an estimated $40 billion to $50 billion in losses stemming from the Sept. 11 terrorist attacks, industry leaders began clamoring for the government to assume some risk in case of future strikes.

The industry leaders, supported by state insurance regulators, warned that many commercial policies covering terrorism would expire in January and would not be renewed without government intervention. They predicted devastating effects on the economy.

But Congress, quarreling over whether to set limits on damages in terrorism-related lawsuits, failed in December to finish the legislation. When the new year arrived, the insurance issue faded on Capitol Hill.

Across the country, meanwhile, the insurance markets responded, mainly by making terrorism coverage expensive or impossible to get. Insurers claimed that they lacked the resources to offer coverage for singular, unpredictable catastrophes on the scale of the collapse of the World Trade Center.

Forty-five states agreed to allow insurers to write standard language into policies that would limit or exclude terrorism coverage. California and New York were major exceptions.

However, there are indications that terrorism coverage is becoming more scarce in California as well. A spokeswoman for the California Department of Insurance, Nanci Kramer, said the state had approved, through July, 392 requests for terrorism exclusions filed by individual insurance companies.

The Council of Insurance Agents and Brokers found in July that 80% of brokers surveyed nationwide also were reporting drops in terrorism coverage.

Other reports, though, have found evidence that such coverage is slowly reemerging. All sides agree that the market remains in great flux.

Coletta Kemper, the council’s vice president for industry affairs, said government intervention is crucial to help insurance companies respond to the changing demands on their industry.

What the companies want is assurance that Washington will step in with a “backstop” if losses exceed a certain threshold. Both the House and Senate versions envision such guarantees.

“What it would do at least is give them some certainty,” Kemper said. “If there’s a terrorism event, they know what their losses would be to a point. That’s real important when you’re trying to price a product.”

Under the House bill, passed in November by a vote of 227 to 193, the government would cover 90% of property and casualty claims after losses in a terrorist attack exceed $1 billion. But insurers would be required to reimburse the government.

Under the Senate bill, passed in June by 84 to 14, the government would cover 90% of claims after total losses top $10 billion. But the Senate version would not require repayment. Both bills envision some government aid for less catastrophic attacks. The programs would last a year or two. The industry would then be on its own.

Congressional aides say a key sticking point is whether to limit civil liability in terrorism-related lawsuits and, if so, by how much. The House bill would allow punitive damages to be assessed only against terrorists and their accomplices, not against businesses they hit. The Senate bill is largely silent on the matter. The Bush administration favors the House position.

Negotiators will also have to decide how much, if anything, the insurance industry should be required to repay the government if federal aid is needed.

Still, the sense on Capitol Hill is that a deal will be struck--if not by Sept. 11, then soon afterward.

“There’s definitely a commitment on the part of Congress to get something done,” said an aide to one House Democrat involved in the talks. Republicans agree.

The bill may have been hampered by last year’s dire warnings. Predictions of economic disaster in January, another congressional aide acknowledged, were “overplayed.” But aides say that doesn’t mean the insurance shortage is not a threat to the economy.

Credit rating agencies, for example, are giving scrutiny to whether property holders are adequately covered. And deal-making for “trophy” properties in New York and other cities has been complicated. The sky may not have fallen, one congressional aide said, “but it’s beginning to rain.”