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HEADLINE: Terrorism-Insurance Battle Looms; Senate Rejects GOP Plan to Limit Damages

BYLINE: Jackie Spinner, Washington Post Staff Writer

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Senate Democrats yesterday blocked a Republican effort to limit lawsuit claims as part of a terrorism insurance bill, setting up a battle with the White House and the Republican-controlled House over legislation that has been bogged down for months.

The Senate voted 50 to 46 along party lines to reject an amendment, proposed by Sen. Mitch McConnell (R-Ky.), to prohibit punitive damages in civil cases involving businesses or buildings attacked by terrorists, unless the businesses were found criminally negligent.

Republicans wanted the provision in a bill that would help pay the insurance costs of future terrorist attacks. Debate on the legislation began yesterday. A vote could come as soon as today. The bill, written by Sens. Christopher J. Dodd (D-Conn.), Charles E. Schumer (D-N.Y.), Harry M. Reid (D-Nev.) and Paul S. Sarbanes (D-Md.), would require insurance companies first to pay a portion of claims resulting from a terrorist attack. The amount of that initial payment has not yet been determined, but it will vary according to each insurer's market share.

The government would then pay 80 percent of the remaining claims totaling less than $ 10 billion and 90 percent of claims totaling more than $ 10 billion. Insurers would pick up the rest.

The House passed a bill last year that would require insurers to cover the first $ 1 billion in losses arising from a terrorist attack. The government would pay 90 percent of additional claims. The insurers and policyholders eventually would have to repay the money.

The House bill also includes limitations on lawsuits.

Many reinsurers stopped covering terrorism after the Sept. 11 attacks on the World Trade Center and the Pentagon. Primary insurers -- household names such as State Farm and the Hartford -- buy reinsurance to protect them from catastrophic losses. Reinsurance generally pays most claims resulting from a major disaster, although most policyholders never know it.

Without reinsurance, many primary insurance companies have been reluctant to cover terrorism. State regulators have largely permitted them to refuse to do so.

Real estate developers and commercial property owners need the coverage to get financing for their projects.

"This is an extremely important issue but it's deceptive," Schumer said. "We're not getting many calls. It's not an issue on the lips of the average citizen. But it affects the average citizen and greatly. . . . Without terrorism insurance, large numbers of projects will not go forward. Banks will not lend."

Although the White House supports a federal backup for insurance claims, the administration wants to protect businesses from lawsuits by victims of a terrorist attack.

The White House said in a prepared that it "cannot support enactment of any terrorism insurance bill that leaves the nation's economy and victims of terrorist acts subject to predatory lawsuits and punitive damages."

Senate Minority Leader Trent Lott (R-Miss.) has pledged to fight a bill that does not limit liability.

The Democratic-sponsored legislation prohibits federal money from being used to pay punitive damages but does not protect businesses from claims.

"Senator Lott and others have said that this would require the taxpayers to pay for punitive damages," said Senate Majority Leader Tom Daschle (D-S.D.). "Nothing could be farther from the truth." The Senate yesterday also rejected an amendment proposed by Sen. Bill Nelson (D-Fla.) that would have given the federal government oversight over terrorism-insurance rates while the government backstop was in place.

Nelson said he was concerned that insurance companies would get a windfall from the legislation if they are not carefully monitored.

"The fatal flaw is this bill overreaches and this bill does not have any provision to protect consumers from rate gouging," Nelson said.

"In an attempt to justify giving billions to the insurance industry, the supporters of this bill are overlooking a lot of good news in the market," said J. Robert Hunter, director of insurance for the Consumer Federation of America. "While some problems exist in Manhattan and a few cities, there is no need to bootstrap these limited problems into a full-blown taxpayer liability that covers the whole country."

"Congress needs to act on this issue," Sarbanes said. "We run the risk of serious damage to our economy if we don't."



LOAD-DATE: June 14, 2002