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HEADLINE: Terrorism Insurance Bill Passed By Senate; Battle Expected Over Competing Versions

BYLINE: Jackie Spinner, Washington Post Staff Writer

BODY:




The Senate yesterday approved legislation that would provide insurance companies with billions of dollars in government funding to help pay claims from future terrorist strikes, the latest attempt by Congress to deal with the financial fallout of the September attacks.

The measure, which passed 84-14, is a major step forward for a legislative effort that is backed by insurers and business leaders but has been bogged down on the Hill for months. Supporters said the legislation is essential in light of repeated government warnings about the threat of more attacks.

But a conference fight still looms between Senate Democrats, House Republicans and the White House over how much money insurance companies should have to pay and whether businesses should be protected from lawsuit claims arising from attacks. The House passed a competing measure in December that requires insurers to repay any government funding. That measure also limits lawsuits.

"We're not home free," said Sen. Jon S. Corzine (D-N.J.), who supported the bill. "But this is a good step. We're really making a short-term interim step that's a bridge to fill a gap. Our economy is not yet robust, and this bite is getting broader."

Senate backers pushed for the legislation to address a shortage of terrorism coverage that has left a growing number of office buildings, hospitals, bridges, stadiums and apartments without insurance against another attack. The problem has rippled through the commercial real estate industry, making it difficult for some new projects to get financing and raising borrowing costs.

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 themselves from catastrophic losses. Reinsurance generally pays most claims resulting from a major disaster, though most policyholders never know it.

Without reinsurance, many primary insurers have been reluctant to cover terrorism, and state regulators have largely permitted them to exclude the coverage from property and casualty policies.

"It's hard to generalize about the market," said Steven B. Larsen, Maryland's insurance commissioner. "Not everybody is experiencing problems. But there are problems out there, and there certainly are some of a significant magnitude."

Both the House and Senate bills would create a system for helping the insurance companies calculate their financial exposure by establishing a limit on the amount the private sector would have to pay after another attack.

Under the terms of the Senate bill, insurance companies would have to pay a portion of claims resulting from a terrorist attack. The amount would vary according to each insurer's market share. The government would then pay 80 percent of the remaining claims if the attack cost less than $ 10 billion and 90 percent if claims totaled more than $ 10 billion.

The terrorism-insurance program would remain in place until the end of this year, with an option by the treasury secretary to extend it until the end of 2003.

The House bill 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 bill also includes some measures to limit lawsuits against businesses.

Although the Senate bill would prohibit federal money from being used to pay punitive damages from lawsuits, it would not shield businesses.

President Bush has not directly threatened to veto the Senate bill, but he said yesterday that any legislation must include such lawsuit protections for businesses.

"Terrorism insurance is critical to promoting and protecting jobs and America's economic security," Bush said in a prepared statement.

He said, "The final terrorism insurance package must include reasonable litigation procedures so that Americans who are victimized by terrorism do not also fall victim to predatory lawsuits and punitive damages."

Sen. Phil Gramm (R-Tex.), who voted against the bill, said the legislation was a "gross overreach that puts taxpayers at risk."

Some consumer groups also condemned the bill.

"This will kill the strong market for terrorism insurance that has been emerging in the last few months," said J. Robert Hunter, insurance director for the Consumer Federation of America. "While some problems exist in Manhattan and a few cities, taxpayers should not be forced to foot the bill for businesses and insurers that have already found terror coverage."

Democrats said yesterday that there is room for compromise.

"I don't consider this the final word," said Sen. Christopher J. Dodd (D-Conn.), the bill's primary sponsor. "We have work to do."

Terrorism damage was typically covered in most U.S. policies before Sept. 11. And although the insurance industry is paying the estimated $ 50 billion in claims from those attacks, the uncertainty over when, where or if another attack might occur has made it difficult for companies to price the coverage.

"This is something you need in order to price the coverage," said Bernard L. Hengesbaugh, chairman and chief executive of Chicago-based insurer CNA Financial Corp. "A federal backstop allows the industry to put a cap on the maximum loss it would have to pay."

Some insurance brokers in the Washington area said terrorism coverage still is not available for many commercial policyholders.

"It's a significant problem whether you're in Des Moines, Iowa, or Washington, D.C., or Northern Virginia," said Robert J. Murphy, senior vice president of insurance firm Franey, Parr & Muha Inc. in Chantilly.

Matt Mosher, group vice president of property and casualty insurance for A.M. Best, an insurance ratings firm, said a flow of new capital into the industry -- about $ 20 billion -- has not resolved the shortages.

He said that six new insurance companies have entered the market since Sept. 11 but that "for the most part, the new companies aren't focused on terrorism risk and the terrorism needs."



LOAD-DATE: June 19, 2002