Congress Pressured On Terrorism Insurance
As businesses' tales of woe emerge, Congress is about to get serious on terrorism insurance legislation.
By Joan Pryde, Senior Tax Editor, the Kiplinger letters
March 12, 2002
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Congressional foot-dragging on terrorism insurance legislation has left many firms - especially those in the commercial real estate and transportation sectors - underinsured for terrorism risk through the spring and into summer. But with evidence of potential harm to businesses beginning to pile up, look for lawmakers to get back on track in April, passing a final bill this summer.
Legislation to create a government backstop to help private insurers cover terrorism risk, which Congress had been expected to approve soon after reconvening in January, has remained in limbo. Of course, lawmakers have been preoccupied with the Enron debacle, but surprisingly, business lobbyists have had trouble getting companies to admit that they can't get insurance. While there's no lack of examples of underinsured firms out there, businesses have worried that acknowledging their problems openly would upset lenders or stockholders.
At last, reports of insurance problems are starting to bubble to the surface, including one real eyebrow raiser for Capitol Hill: the recent confession by organizers of the 2002 Winter Olympics in Salt Lake City that they agonized about the ramifications of a possible terrorist attack because they couldn't line up sufficient terrorism coverage. That revelation, together with numerous other stories of hardship publicized in a Feb. 27 report by the General Accounting Office and the efforts of a newly created business lobbying group, the Coalition to Insure Against Terrorism, will get legislation moving again after lawmakers return from their Easter recess next month.
The coalition, whose 36 members include several business trade associations and a few large corporations, aims to help out by collecting and offering examples of business insurance problems while preserving the anonymity of the businesses involved. In addition to the Winter Olympics, examples of insurance problems that have surfaced recently include:
- A large construction project in the Midwest, known to be financially sound before the Sept. 11 terrorist attacks, might be abandoned because of terrorism insurance gaps.
- A New York insurance broker can't obtain sufficient terrorism coverage for its client's portfolio of New York City office buildings, even though none are considered large "trophy" structures.
- A company with more than 500 employees in a tall office building in Pennsylvania has been turned down for renewal by its workers' compensation insurance carrier.
- The owner and operator of several small midwestern airports is being asked to pay 280% more for aviation liability coverage for 2002 on a policy that excludes terrorism coverage. The airport owner needs $500 million in terrorism coverage but has been offered just $50 million in coverage with a premium of $1 million.
These woeful tales will rekindle lawmakers' interest in legislation drafted after the Sept. 11 terrorist attacks. The House passed a terrorism insurance bill (H.R. 3210) in November, spurred by warnings from the insurance industry that a lot of businesses would find themselves without sufficient coverage after many policies expired at year end. But then the Senate failed to act before Congress adjourned in December, prompting insurance carriers to exclude terrorism coverage from policies they have renewed since Jan. 1.
Look for the Senate, once it gets going on drafting a bill, to follow the recommendations of a bipartisan group of members of the Senate Committee on Banking, Housing and Urban Affairs. In December, the group proposed a plan under which insurers would be liable for the first $10 billion in losses after a terrorist attack, with the government footing the bill for 90% of the next $90 billion in losses. The White House has said it supports that approach. The bill approved by the House sets the initial threshold for insurers at $1 billion, with the government picking up the tab for 90% of the next $20 billion. Expect compromise legislation to set the amounts somewhere between the two approaches.
The final bill is also likely to follow the House bill's requirements that the program "sunset" or expire after two years and that the insurers eventually repay any amounts the government handed over to cover terrorism losses. Businesses, of course, would bear the ultimate cost of those so-called loans in the form of higher premiums.
The thorniest issue to resolve will be not those core provisions, but rather one that's more tangential: whether to permit the award of punitive damages in litigation involving terrorism coverage. Language in the House bill that would bar policyholders from obtaining punitive damages in such disputes with insurance companies has sparked a storm of criticism in both houses from Democrats who vow to block the final bill if it contains such a measure.
But House Committee on Financial Services Chairman Michael Oxley (R-OH) now appears willing to give some ground on the issue of punitive damages. He has not said exactly how he would change the provision to appease Democrats, but his willingness to compromise is seen by insurance industry officials as an important breakthrough.
Researcher-Reporter: Gerry Moore
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