NEW YORK — Victims of the Sept. 11, 2001 terrorist attacks received more than $38 billion in compensation — a figure 30 times the size of the largest previous disaster payout — and one that is unlikely to be matched, says a Rand Corporation study released today.
Insurance companies and the federal government provided more than 90% of the payments — and some victims were overpaid while others fell through the cracks. But the massive compensation — unprecedented in scope and in the mix of programs — may not happen again, says Rand, 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 different organizations interacted to support those affected by the 9/11 terrorist strike.
The report also looked at questions of equity and fairness, noting that some people’s lives were considered more valuable than others by compensators, and that the 9/11 victims received more money than those affected by other terrorist attacks, such as the 1995 Oklahoma City bombing.
Framing the compensation system as an element of national security, the authors concluded that a robust system can dampen the intended effects of a terrorist strike, and they made several recommendations to improve policies and preparedness for future attacks.
“As we did the study we increasingly began to see that the choices we make for compensation have national security significance,” said Lloyd Dixon, senior economist at Rand who coauthored the report with Rachel Kaganoff Stern. “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 near Washington, and a field in Pennsylvania on Sept. 11killed 2,752 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 charity 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 9/11-related payments, and because of the heavy hit on the industry, many have stopped including automatic coverage against terrorism in policies. Since the attacks, it has been 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?” said Dixon.
The study concluded that the government reacted, on the whole, quickly and effectively to stem potential losses from business interruption and provide benefits for victims. But the report singles out two government agencies, the Federal Emergency Management Administration(FEMA) and the Environmental Protection Agency for criticism of the way they responded to the economic and environmental fallout of the disaster.
Charities responded at times even more rapidly than the government, distributing an unprecedented $2.7 billion, and caught 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 United Services Group.
But a lack of coordination led to disparities in compensation. Civilians killed or seriously injured received a total of $8.7 billion, averaging about $3.1 million per recipient, coming mostly from the Victims’ Compensation Fund.
Before the government’s creation of the Fund, charities awarded an average of $1 million to the families of first responders — firefighters, police and medical workers — who died in the attack. That meant they received an average of $1.1 million more than average 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 the 9/11 strikes cannot be assumed to reoccur, and that agencies should create a more permanent and predictable coordination plan and social safety net.
Among those who were undercompensated include undocumented workers, who were excluded from most government compensation programs after the initial payout from the Victims’ Compensation Fund. High-income earners may also have been shorted because their awards were capped at $231,000 per year in projected future lifetime earnings.
While businesses in New York City, 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 eventual claims if they eventually develop chronic diseases such as lung damage or cancer as a result of their exposure, Dixon said. Those people likely would have to file a lawsuit to receive compensation.
The researchers warned that there is no guarantee that the unique mix of resources will be available if there is 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.
Without defining a specific policy, the study recommends 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.