Terrorism Insurance Update

Recent Activity

The Treasury Department has published a number of Interim Guidances responding to issues raised by the Terrorism Risk Insurance Act.  These Interim Guidances are available at http://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx.  The Treasury Department has also proposed an interim final rule addressing implementation of the Act.  The text of the rule is available at http://www.treasury.gov/resource-center/fin-mkts/Documents/interimfinalrule28feb03.pdf.  Robins Kaplan Miller & Ciresi is pleased to be actively working with corporate and insurance clients affected by the many novel issues raised by the Act and the proposed rule.

The Act

On Tuesday November 26, 2002 President Bush signed the Terrorism Risk Insurance Act of 2002.  The bill arrived on the President's desk on the heels of the Homeland Security Act signed one day earlier.  Here are the key provisions:

• After an insurer pays enough claims to cover its statutory "deductible" for a new act of terrorism, the government will pay 90% of claims up to a global cap of $90 billion in 2003 declining to $87.5 in 2004 and $85 billion in 2005.
• Each insurer's deductible will be set based on a percentage of its prior year's premiums. The individual insurer deductible is set at 7% for 2003, 10% for 2004, and 15% for 2005. 
• Domestic acts of terrorism and losses under $5 million will not qualify for Government reimbursement.
• The bill creates a new and exclusive federal cause of action, governed in part by local state law, for all suits for property loss, personal injury or death arising out of a terrorist event.
• The Act includes fewer limits on punitive damages for litigation involving acts of terrorism than at first proposed.  There are provisions barring payment of punitive damages by the Government and establishing exclusive federal jurisdiction over terrorism lawsuits.
• Participation in the program is required for commercial property insurers and optional for homeowner insurers.  Policyholders can choose to purchase or not purchase terrorism insurance.
• The bill's provisions apply for an initial three year period.
• The Secretary of the Treasury administers the program.

Following passage of the Act, the White House predicted that the bill would provide a much needed stimulus to the national economy.  Since passage, some commentators have observed that terrorism insurance has been popular among companies purchasing insurance for HPR (highly protected risk) risks, but less popular with mainstream businesses.