H.R. 3210 -- "THE TERRORISM RISK PROTECTION ACT"

Background & Summary

Background

Just as limited legal reforms were integral to the two earlier responses to terrorism that Congress has already passed since September 11, the legal reforms in H.R. 3210 are essential to making terrorism risk insurance available and affordable, limiting unjustified taxpayer liability, and expediting and enhancing compensation of victims. Here's why:

• Without these reforms, federal taxpayers who are in no way responsible for acts of terrorism would be on the hook for unlimited noneconomic and punitive damages assessed against non-terrorist defendants-parties who are not responsible for the sort of vicious, premeditated attacks that took place on September 11.
• Moreover, any attempt to limit these protections to insurers would merely shift and magnify the terrorism risk borne by insureds. Although the entire purpose of this legislation is to facilitate the availability of terrorism risk insurance for insureds, such a limitation-far from promoting the availability of insurance-would instead actually codify its unavailability.
• Further, the sort of catastrophic terrorist acts that this legislation addresses will, like the September 11 attack, strain the full resources of the federal government, insured defendants, and insurers simply to compensate the most fundamental injuries, like medical expenses and destruction of property. Without these reforms, the legal system would allow plaintiffs to further recover unlimited non-economic and punitive damages against any party, no matter how marginal their responsibility or how much the plaintiff had already received from other sources in compensation for the same injuries-all subject, of course, to unlimited attorneys fees unsupervised by the courts, and unrelated to the amount of effort or risk undertaken by the attorney.

Such a system would randomly and grossly overcompensate some plaintiffs who won the "race to the courthouse," thereby exhausting the fund of public and private monies available for compensation before other victims had been compensated for the most basic losses, like the death or permanent maiming of a family breadwinner. Such a system would pit victim against victim, promote overreaching by unscrupulous attorneys, and impose on top of already horrific costs inflicted by terrorism a whole range of crushing litigation expenses.

That is why some observers have described efforts to strip these provisions from this economic rescue legislation as "piracy on a hospital ship," and why bipartisan majorities in both houses of Congress overwhelmingly passed similar reforms twice since September 11 as part of vital antiterrorist legislation.

The existing legal system is simply not designed to redress premeditated attempts to inflict mass murder and cripple the American economy. The 1993 World Trade Center bombing, for example, killed six people but resulted in 500 lawsuits by 700 individuals, businesses, and insurance companies claiming $500 million in damages. Eight years later, these cases are just now coming to trial, and hundreds of plaintiffs have yet to receive a penny in compensation. And bipartisan majorities of both houses of Congress have already twice acknowledged that allowing the existing tort system to address the September 11 terrorist attacks would have imposed catastrophic economic consequences on the United States above and beyond the losses caused by the attacks themselves-including paralyzing the commercial aviation industry that is the lifeblood of interstate and foreign commerce. Congress must apply this lesson to future acts of terrorism, as well-and continue to focus our closest attention on inflicting "punitive damage" on international terrorists, those truly responsible.

Summary

H.R. 3210 creates a temporary industry risk spreading program to ensure the continued availability of commercial property and casualty insurance and reinsurance for terrorism-related risks to limit immediate market disruptions, encourage economic stabilization, and facilitate a transition to a viable market for private terrorism risk insurance.

In the event of a terrorist attack, the Secretary of the Treasury will determine when losses from one or more acts of terrorism result in insurance claims industry wide of over $1 billion and up to $20 billion during the coverage period of the measure. This provision is modeled in part on existing state insurance programs for solvency guarantee funds and catastrophic disaster pools. After such a determination, the Treasury will pay 90 percent of the claims (with 10 percent of losses retained by the insurers) on the first dollar of the coverage. The Secretary of the Treasury must thereafter assess all commercial property and casualty insurers to recoup the costs of the Treasury payments. If losses in the coverage period are less than $1 billion industry wide, the bill provides company specific trigger levels for cost sharing with a per company deductible to protect smaller insurance companies. If losses exceed $20 billion industry-wide, the Treasury will pay 90 percent of all claims up to financial assistance of $100 billion over the covered period. The legislation gives the Secretary the power to recoup these payments through surcharges on commercial property and casualty policy premiums upon a weighing of economic conditions and other factors. These provisions expire at the end of 2002, although the Secretary may extend the program through 2004.

Further, the legislation establishes a federal cause of action which is the exclusive remedy for actions brought under this legislation. Additionally, actions may only be brought in certain courts and additional protections are provided to limit the obligations of the United States only to actual damages in the case of a terrorist incident that results in a triggering determination. Finally, the bill includes three studies on the effects of terrorism on various sectors of the insurance industry, as well as a study on allowing property and casualty insurance companies to establish deductible reserves against losses for future acts of terrorism.