Payout to Victims of 9/11 Tops $38 Billion

Victims of the Sept. 11 attacks received more than $38 billion in compensation -- a figure 30 times the size of the largest previous payout for a terrorism event and one that is unlikely to be matched, a Rand Corp. study released Monday said.

Insurance companies and the federal government provided more than 90% of the payments, and some victims were overpaid while others fell through the cracks, according to the Santa Monica-based think tank. But such compensation -- unprecedented in scope and in the mix of programs -- may not happen again, Rand said, because of new moves by the government to limit liabilities and requirements by insurance companies for businesses to purchase separate terrorism insurance.

The 173-page analysis by the Rand Institute for Civil Justice examined the compensation system as a whole and how well various organizations interacted to support those affected by the Sept. 11 terrorist strikes.

The report also looked at questions of equity and fairness, saying that some people’s lives were considered more valuable than others by compensators, and that the Sept. 11 victims received more money than those affected by other terrorist attacks, such as the 1995 Oklahoma City bombing. The largest previous insured losses from a terrorist attack were for a 1993 London bombing.

Framing the compensation system as an element of national security, the authors concluded that a robust system could dampen the intended effects of a terrorist strike. Without defining a specific policy, the study recommended developing some sort of objective standard for determining payouts to achieve more equitable and efficient distribution of funds in the future, and to reduce the nation’s economic vulnerability to terrorism.

“As we did the study, we increasingly began to see that the choices we make for compensation have national security significance,” said Lloyd Dixon, a senior economist at Rand who co-wrote the report. “When you put money out the door quickly, that can reduce the economic impact. It can affect the incentive companies have to adopt security measures, such as installing evacuation plans. And how it’s set up can help reduce the panic and social fragmentation produced by a terrorist attack.”

The crashes of passenger-filled airplanes into New York’s World Trade Center towers, the Pentagon and a field in Pennsylvania killed nearly 3,000 people and seriously injured more than 400 others. The largest terrorist strike in U.S. history also resulted in the largest financial payouts, but changes in the compensation system afterward may leave gaps that need to be addressed.

The insurance industry paid about 51% of the $38.1 billion in compensation accounted for, a figure Dixon called “striking.” Government programs made up 42%, and charities provided 7%. Several lawsuits are pending, but there have yet to be any payouts through the tort system. The total does not include financial assistance to airlines or payments for the repair of public buildings, transportation or infrastructure.

Insurance companies expect to make at least $19.6 billion in Sept. 11-related payments. Because of the heavy hit on the industry, many companies have stopped including automatic coverage against terrorism in policies. Instead, it is being offered as a separate type of coverage, and many businesses have not purchased it, the report said. In addition, chemical, biological and nuclear attacks are now typically excluded.

“If that [coverage] is not there next time, what’s going to fill in the gap?” Dixon said.

The study concluded that the government reacted, on the whole, quickly and effectively to stem potential losses from business interruptions and to provide benefits for victims.

But the report singled out two government agencies, the Federal Emergency Management Administration and the Environmental Protection Agency, citing some people’s criticism of the groups’ response to the economic and environmental fallout of the disaster.

Charities, which distributed an unprecedented $2.7 billion, at times responded more rapidly than the government, assisting some people who would have fallen through the cracks, such as undocumented workers or those without insurance. They also increased attention and services for mental health issues, an area that has been underserved in past disasters.

There were, at times, duplication of efforts and benefits among charities, a problem that was recognized and addressed through the creation of the 9/11 United Services Group.

But a lack of coordination led to disparities in compensation.

For civilians killed or seriously injured in the attacks, a total of $8.7 billion was distributed, averaging about $3.1 million per recipient, coming mostly from the federal Victim Compensation Fund.

But before the government created the fund, charities already had awarded an average of $1 million to each of the families of first responders -- firefighters, police and medical workers -- who died in the attack. That meant they received more compensation than other civilians with similar economic losses. Had the charities known about the other sources of compensation, they might have chosen to allocate their funds differently, Dixon said.

The report also noted that the extraordinary amount of donations and number of volunteers after Sept. 11 could not be assumed to recur, and that agencies should create a more permanent, predictable coordination plan and social safety net.

Among those who were undercompensated included undocumented workers, who were excluded from most government compensation programs after the initial payout from the Victim Compensation Fund. High-income earners also may have been shorted because their awards were capped at $231,000 per year in projected future lifetime earnings.

Although businesses in New York, particularly in the vicinity of the World Trade Center site, received $23.3 billion for property damage, interrupted business and revitalization incentives, the compensation system missed many people who had lost their jobs because of the economic ripples of the attack.

Displaced residents and workers, those with emotional trauma, and people exposed to environmental hazards received about $3.5 billion.

Although there is a government-funded study of the health consequences for residents and workers around ground zero exposed to environmental hazards, there are no funds reserved for claims if they eventually develop chronic diseases such as lung damage or cancer as a result of their exposure, Dixon said. Those people probably would have to file a lawsuit to receive compensation.

The researchers warned that there was no guarantee that the mix of resources available after Sept. 11 would be there if there was a future attack.

Congress may not reauthorize the same sort of victims fund, many businesses are not covered by special terrorism insurance, and charities may not play the same role. There is still no agreement on how the different organizations should coordinate their efforts.

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(BEGIN TEXT OF INFOBOX)

Who got what

Victims of the Sept. 11 attacks received more than $38 billion in compensation -- a figure 30 times the size of the largest previous payout in a terrorist attack.

Benefits by victim group (in billions of dollars)

Emotional injuries: 0.2

Environmental exposures: 0.7

Residents: 0.9

Workers: 1.7

Emergency responders*: 1.9

Civilians*: 8.7

Businesses: 23.3

*Killed or seriously wounded

Note: The total does not include $650 million in unallocated charitable benefits.

Source: Rand Corp.