Third Quarter 2002

Update on Terror Insurance Legislation: The Push to Pass

Holland & Knight Newsletter
Curtis L. Sano

Since the events of September 11, 2001, most insurance companies now exclude coverage for terror-related risks in new and renewal liability and property insurance policies. 

Although some coverage for terror-related risks is available from private insurance carriers, this availability comes at a price; the coverage may not be available for properties that are deemed to be risky, coverage may be at a high premium, and the coverages are limited in amount, scope and availability.

Insurers and re-insurers are reluctant to permit insurance policies to cover terror risks because of the billions of dollars of damage that could be caused by another terror attack, coupled with the uncertainty and unpredictability of such an attack.  Such large losses would strain the financial health of the insurance industry.  For this and other reasons, there currently is not enough insuring capacity in the insurance industry to provide terror coverage as insurance policies for the commercial properties in the U.S. are coming up for renewal in calendar year 2002. 

In many cases, the result of the limited availability and high cost of terror insurance has been that some property owners have simply done without such coverage, effectively assuming the risk of catastrophe themselves.  Others have had to pay exorbitant premiums for terror coverage for only a fraction of the property’s value. 

Against this backdrop, Congress, with the support of various organizations, such as Coalition to Insure Against Terrorism, is pushing to enact legislation that will provide for some form of federal supplement to the terror insurance provided by the private industry. 

The first terror insurance bills began to be introduced in November 2001. The House of Representatives passed a bill, H.R. 3210 on November 29, 2001.  The Senate passed a similar bill, S. 2600 on June 18, 2002.

These bills are intended to limit the exposure of insurance companies in covering claims arising out of incidents of terror.  Both bills provide that the government will pay a certain percentage (80-90%) of property and liability claims arising out of a terrorist incident in excess of a threshold amount, and a cap on the government’s total outlay.  Both bills have a limited term, subject to extension. 

The two bills have many differences that will have to be resolved in conference committee.  Two of the major differences between H.R. 3210 and S. 2600 are:

  • The House bill bans punitive damages against all persons other than terrorists and conspirators and places limits on attorneys fees.  The Senate bill simply provides that punitive damages are not losses covered by this program.
  • The House bill requires the insurance industry to repay losses paid by the government.  The Senate bill does not.

A comparison of the two bills can be found at the Coalition to Insure Against Terrorism Web site at : 

It is not likely a final bill will be ready for presentation to the President for signature until October.

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