S 1744 IS

To ensure the continued financial capacity of insurers to provide coverage for risks from terrorism.

November 29, 2001

Mr. MCCAIN introduced the following bill; which was read twice and referred to the Committee on Commerce, Science, and Transportation

To ensure the continued financial capacity of insurers to provide coverage for risks from terrorism.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Terrorism Insurance Act'.

(b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

Sec. 1. Short title and table of contents.

Sec. 2. Congressional findings.

Sec. 3. Submission of premium information to Secretary of Commerce.

Sec. 4. Individual company retention.

Sec. 5. Federal cost-sharing for commercial insurers.

Sec. 6. Terrorism loss repayment surcharge.

Sec. 7. Administration of surcharges.

Sec. 8. State preemption.

Sec. 9. Consistent State guidelines for coverage for acts of terrorism.

Sec. 10. Consultation with State insurance regulators and NAIC.

Sec. 11. Limitation on punitive damages.

Sec. 12. Definitions.

Sec. 13. Regulations.

SEC. 2. CONGRESSIONAL FINDINGS.

The Congress finds that--

(1) the terrorist attacks on the World Trade Center and the Pentagon of September 11, 2001, resulted in a large number of deaths and injuries, the destruction and damage to buildings, and interruption of business operations;

(2) the attacks have inflicted the largest losses for a man-made event ever incurred by insurers and reinsurers;

(3) while the insurance and reinsurance industries have committed to pay the losses arising from the September 11 attacks, the resulting disruption has created widespread market uncertainties with regard to the risk of losses arising from possible future terrorist attacks;

(4) such uncertainty threatens the continued availability of United States commercial property casualty insurance for terrorism risk at meaningful coverage levels;

(5) the unavailability of affordable commercial property and casualty insurance for terrorist acts threatens the growth and stability of the United States economy, by, among other things, impeding the ability of financial services providers to finance commercial property acquisitions and new construction;

(6) in the past, the private insurance markets have shown a remarkable resiliency in adapting to changed circumstances, and, given time, the private markets will diversify and develop risk spreading mechanisms to increase capacity and guard against possible future losses incurred by terrorist attacks;

(7) it is necessary in the short-term, however, to provide Federal assistance and to create a temporary industry risk sharing program to ensure the continued availability of commercial property and casualty insurance and reinsurance for terrorism-related risks;

(8) such action is necessary to limit immediate market disruptions, encourage economic stabilization, and facilitate a transition to a viable market for private terrorism risk insurance; and

(9) Federal involvement in the provision of commercial terrorism insurance should be short-term and should provide appropriate incentives for insurance companies and the commercial property insurance industry to continue providing terrorism insurance while minimizing terrorism risk and protecting American taxpayers.

SEC. 3. SUBMISSION OF PREMIUM INFORMATION TO THE SECRETARY.

To the extent such information is not otherwise available to the Secretary, the Secretary may require each insurer to submit, to the Secretary or to the NAIC, a statement specifying the aggregate premium amount of coverage written by such insurer for properties and persons in the United States under each line of commercial property and casualty insurance sold by such insurer during such periods as the Secretary may provide.

SEC. 4. INDIVIDUAL COMPANY RETENTION.

(a) IN GENERAL- For purposes of this Act, a `triggering determination' is a determination by the Secretary that a commercial insurer's annual insured losses for covered lines resulting from acts of terrorism occurring in calendar year 2002 or 2003 exceed the greater of--

(1) $10,000,000; or

(2) 5 percent of the commercial insurer's gross direct written premiums on covered lines for the preceding calendar year.

(b) DETERMINATIONS REGARDING EVENTS- For purposes of subsection (a), the Secretary shall have the sole authority to determine whether--

(1) an act of terrorism occurred; and

(2) it occurred during calendar year 2002 or 2003.

SEC. 5. FEDERAL COST-SHARING FOR COMMERCIAL INSURERS.

(a) IN GENERAL- The Secretary shall provide financial assistance, pursuant to a triggering determination, to commercial insurers in accordance with this section to cover insured losses resulting from acts of terrorism, which shall be repaid in accordance with subsection (e).

(b) AMOUNT- Subject to subsection (c), with respect to a triggering determination, the amount of financial assistance made available under this section to each commercial insurer shall be equal to 80 percent of the amount of the covered losses of the insurer as a result of the acts of terrorism.

(c) AGGREGATE LIMITATION- The aggregate amount of financial assistance provided pursuant to this section may not exceed $100,000,000,000.

(d) LIMITATIONS- The Secretary may establish limitations to ensure that payments under this section in connection with a triggering determination are made only to commercial insurers that are not in default of any obligation under section 6 to collect surcharges.

(e) REPAYMENT- Financial assistance made available under this section shall be repaid through surcharges collected by commercial insurers under section 6 and remitted to the Secretary. Any such amounts collected or remitted shall be deposited into the general fund of the Treasury. The aggregate amount of financial assistance repaid pursuant to this subsection may not exceed--

(1) $50,000,000,000, plus market rate interest for assistance provided for acts of terrorism occurring in calendar year 2002; and

(2) $50,000,000,000 for acts of terrorism occurring in calendar year 2003.

(f) EMERGENCY DESIGNATION- Congress designates the amount of new budget authority and outlays in all fiscal years resulting from this section as an emergency requirement pursuant to section 252(e) of the Balanced Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 901(e)). Such amount shall be available only to the extent that a request, that includes designation of such amount as an emergency requirement as defined in such Act, is transmitted by the President to Congress.

SEC. 6. TERRORISM LOSS REPAYMENT SURCHARGE.

(a) IMPOSITION AND COLLECTION- If, pursuant to a triggering determination, the Secretary Provides Federal assistance to commercial insurers under this Act, the Secretary shall--

(1) establish and impose a policyholder premium surcharge, as provided under this section, on commercial insurers' covered lines of insurance written after such determination, for the purpose of repaying financial assistance made available under section 5 in connection with such triggering determination; and

(2) provide for commercial insurers to collect such surcharge and remit amounts collected to the Secretary.

(b) AMOUNT AND DURATION- The surcharge under this section shall be established in such amount, and shall apply to covered lines of insurance written during such period, as the Secretary determines is necessary to recover the aggregate amount of financial assistance provided under section 5 subject to the limitation in section 5(e).

(c) LIMITATION ON SURCHARGE- The surcharge applied to any policyholder under this section--

(1) may not exceed 6 percent of the policyholder's annual premium for covered lines of insurance; and

(2) shall be imposed with respect to all covered lines of insurance written during the period referred to in subsection (b).

SEC. 7. ADMINISTRATION OF ASSESSMENTS AND SURCHARGES.

(a) MANNER AND METHOD- The Secretary shall provide for the manner and method of imposing, collecting, and remitting surcharges under section 6, including the timing and procedures of making such surcharges, notifying commercial insurers of surcharge requirements, collecting surcharges through commercial insurers, and refunding or crediting of any excess amounts remitted.

(b) EFFECT OF SURCHARGES ON URBAN AND SMALLER COMMERCIAL AND RURAL AREAS AND DIFFERENT LINES OF INSURANCE- In determining the method and manner of imposing surcharges under section 6, and the amount thereof, the Secretary shall take into consideration--

(1) the economic impact of any such surcharges on commercial centers of urban areas, including the effect on commercial rents and commercial insurance premiums, particularly rents and premiums charged

to small businesses, and the availability of lease space and commercial insurance within urban areas;

(2) the risk factors related to rural areas and smaller commercial centers, including the potential exposure to loss and the likely magnitude of such loss, as well as any resulting cross-subsidization that might result; and

(3) the various exposures to terrorism risk for different lines of commercial property and casualty insurance.

(c) TIMING OF COVERAGES AND ASSESSMENTS- The Secretary may adjust the timing of coverages and assessments provided under this Act to provide for equivalent application of the provisions of this Act to commercial insurers and policies that are not based on a calendar year.

(d) APPLICATION TO SELF-INSURANCE ARRANGEMENTS- The Secretary may, in consultation with the NAIC, apply the provisions of this Act, as appropriate, to self-insurance arrangements by municipalities and other public entities, but only if such application is determined before the occurrence of a triggering event and all of the provisions of this Act are applied uniformly to such entities.

SEC. 8. STATE PREEMPTION.

(a) COVERED PERILS- A commercial insurer shall be considered to have complied with any State law that requires or regulates the provision of insurance coverage for acts of terrorism if the insurer provides coverage in accordance with the definitions regarding acts of terrorism under the regulations issued by the Secretary.

(b) FILE AND USE- With respect only to covered lines of insurance covering acts of terrorism, any provision of State law that requires, as a condition precedent to the effectiveness of rates or policies for such insurance that is made available by an insurer licensed to transact such business in the State, any action (including prior approval by the State insurance regulator for such State) other than filing of such rates and policies and related information with such State insurance regulator is preempted to the extent such law requires such additional actions for such insurance coverage. This subsection shall not be considered to preempt a provision of State law solely because the law provides that rates and policies for such insurance coverage are, upon such filing, subject to subsequent review and action, which may include actions to disapprove or discontinue use of such rates or policies, by the State insurance regulator.

SEC. 9. CONSISTENT STATE GUIDELINES FOR COVERAGE FOR ACTS OF TERRORISM.

(a) SENSE OF CONGRESS REGARDING COVERED PERILS- It is the sense of the Congress that--

(1) the NAIC, in consultation with the Secretary, should develop appropriate definitions for acts of terrorism and appropriate standards for making determinations regarding events or occurrences of acts of terrorism;

(2) each State should adopt the definitions and standards developed by the NAIC for purposes of regulating insurance coverage made available in that State;

(3) in consulting with the NAIC, the Secretary should advocate and promote the development of definitions and standards that are appropriate for purposes of this Act; and

(4) after consultation with the NAIC, the Secretary should adopt definitions for acts of terrorism and standards for determinations that are appropriate for this Act.

(b) GUIDELINES REGARDING DISCLOSURE OF PRICING AND TERMS OF COVERAGE-

(1) SENSE OF CONGRESS- It is the sense of the Congress that the States should require, by laws or regulations governing the provision of commercial property and casualty insurance that includes coverage for acts of terrorism, that the price of any such terrorism coverage, including the costs of any terrorism related assessments or surcharges under this Act, be separately disclosed.

(2) ADOPTION OF NATIONAL GUIDELINES- If the Secretary determines that the States have not enacted laws or adopted regulations adequately providing for the disclosures described in paragraph (1) within a reasonable period of time after the date of the enactment of this Act, the Secretary shall, after consultation with the NAIC, adopt guidelines on a national basis requiring such disclosure in a manner that supersedes any State law regarding such disclosure.

SEC. 10. CONSULTATION WITH STATE INSURANCE REGULATORS AND NAIC.

The Secretary shall consult with the State insurance regulators and the NAIC in carrying out this Act. The Secretary may take such actions, including entering into such agreements and providing such technical and organizational assistance to insurers and State insurance regulators, as may be necessary to provide for the distribution of financial assistance under section 5 and the collection and remitting of surcharges under section 6.

SEC. 11. LIMITATION ON PUNITIVE DAMAGES.

(a) IN GENERAL- In any claim brought in any court for damages arising from an act of terrorism, as determined by the Secretary, no punitive damages may be awarded.

(b) EXCEPTION- The preceding sentence does not apply to a defendant who committed the act of terrorism or knowingly conspired to commit that act.

SEC. 12. DEFINITIONS.

For purposes of this Act, the following definitions shall apply:

(1) ACT OF TERRORISM-

(A) IN GENERAL- The term `act of terrorism' means any act that the Secretary determines meets the requirements under subparagraph (B), as such requirements are further defined and specified by the Secretary in consultation with the NAIC.

(B) REQUIREMENTS- An act meets the requirements of this subparagraph if the act--

(i) is unlawful;

(ii) causes harm to a person, property, or entity, in the United States;

(iii) is committed by a group of persons or associations who--

(I) are not a government of a foreign country or the de facto government of a foreign country; and

(II) are recognized by the Department of State or the Secretary as a terrorist group or have conspired with such a group or the group's agents or surrogates; and

(iv) has as its purpose to overthrow or destabilize the government of any country or to influence the policy or affect the conduct of the government of the United States by coercion.

(2) COVERED LINE- The term `covered line' means any one or a combination of the following, written on a direct basis, as reported by property and casualty insurers in required financial reports on Statutory Page 14 of the NAIC Annual Statement Blank:

(A) Fire.

(B) Allied lines.

(C) Commercial multiple peril.

(D) Ocean marine.

(E) Inland marine.

(F) Workers compensation.

(G) Products liability.

(H) Commercial auto no-fault (personal injury protection), other commercial auto liability, or commercial auto physical damage.

(I) Aircraft (all peril).

(J) Fidelity and surety.

(K) Burglary and theft.

(L) Boiler and machinery.

(3) COVERED LOSSES- The term `covered losses' means direct incurred losses from an act of terrorism for covered lines in excess of the participating insurer's retention, defense, and cost containment expenses.

(4) NAIC- The term `NAIC' means the National Association of Insurance Commissioners.

(5) SECRETARY- The term `Secretary' means the Secretary of Commerce.

(6) STATE- The term `State' means the States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, the Virgin Islands, American Samoa, and any other territory or possession of the United States.

(7) STATE INSURANCE REGULATOR- The term `State insurance regulator' means, with respect to a State, the principal insurance regulatory authority of the State.

SEC. 13. REGULATIONS.

The Secretary shall issue any regulations necessary to carry out this Act.

END