Politics May Stall Aid for Terror-Hit Insurers

While Congress tries to move quickly on creating a Department of Homeland Security, partisan bickering threatens to stall another element of the U.S. response to terrorism, providing temporary financial help to insurers in the event of future attacks.

The Senate grappled anew with the issue Thursday, but a chasm exists over one dispute: Whether people harmed in a terrorist attack should be permitted to sue companies for punitive damages.

President Bush asked for legislation months ago that would address warnings from insurers that they could not cover liability costs from a future terrorist attack without government assistance.

Democrats and Republicans agree such a measure is urgently needed, especially as insurers have stopped writing terrorist insurance policies or have dramatically raised premiums, making it difficult for businesses to secure loans for projects.

But Bush’s economic advisors have said they would recommend a presidential veto if the bill sent to him includes a Democratic-backed provision allowing companies to be sued for punitive damages. Republicans say that would amount to a second attack on business.

“First, you’ve been attacked by the terrorists.... Then you’re going to be attacked by the lawyers,” said Sen. Mitch McConnell (R-Ky.).

Democrats accuse Republicans of holding hostage America’s economic security to force through an agenda that has nothing to do with the terrorism threat.

On Thursday, the Democratic-led Senate turned back a GOP effort to strip the insurance bill of the provision allowing victims to seek punitive damages. The provision’s backers say such damages would be justified in cases in which businesses failed to take reasonable precautions against terrorist attacks.

But with the GOP-led House opposing the provision, prospects for agreement on a final bill appear bleak.

The Senate worked Thursday to try to pass its version of the bill, with some lawmakers holding out hope that a compromise is possible.

“This is a test in our post-9/11 world,” said Sen. Charles E. Schumer (D-N.Y.) “Can this body deal in a bipartisan way with a complicated issue that is vital to our future? We have to be in a new frame of mind. We have to come together.”

The Bush administration has repeatedly prodded the Senate to act.

“No measure is more important to mitigating the economic effects of terrorist events than the passage of terrorism insurance legislation,” Treasury Secretary Paul H. O’Neill and the president’s other economic advisors wrote Senate leaders earlier this week.

But the dispute over punitive damages is part of a longtime Republican effort to rein in the costs of lawsuits, including limiting the fees of trial lawyers. And it has become a political tug of war between Bush and the top Democrat in Congress, Senate Majority Leader Tom Daschle of South Dakota.

After months of unsuccessful negotiations with Republicans on the issue, Daschle decided to bring the bill to the Senate floor.

“We cannot afford to let this critical measure be held hostage any longer by a handful of senators who want to use it to pass extraneous measures,” Daschle said. “The risks to America’s economic security is too great.”

Under the proposed Senate legislation, the total paid by individual insurers after a terrorist attack would be based on their market share. The government would pay 80% of the remaining losses for an attack costing less than $10 billion and 90% for one costing more than $10 billion.

The program would be in effect for the rest of this year, with a possible one-year extension. The temporary backstop is designed to give the insurance industry time to find a better way to deal with terrorist risks.

Under the House bill, when claims from an attack exceed $1 billion, the government would cover 90% of the losses, up to $100 billion. The government would recoup its money from an assessment on insurance firms and perhaps a surcharge on policyholders.

Estimated claims from the Sept. 11 attacks total $50 billion, which the insurance industry has said it expects to be able to pay.

Julie Rochman, a spokeswoman for the American Insurance Assn., said that she hopes the dispute over punitive damages doesn’t derail the entire bill.

She said of the provision on punitive damages: “If it’s in there, that’s great. But the underlying legislation is so important to us that we would hate to see it fall because of that partisan debate.”

An estimated $7 billion worth of commercial real estate activity has been suspended or canceled because of the lack of terrorism insurance, according to the Bush administration.

Clifton Rodgers, senior vice president of the Real Estate Roundtable, a Washington-based lobbying group, called the bill “vitally important, not just for real estate but for other business sectors ... as well as the state and local governments that have to insure infrastructure, such as bridges and tunnels.”