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Terrorism
Risk Insurance Act
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The federal Terrorism Risk Insurance Act is still in the process of being implemented, but the future of the program has become a prime topic of discussion in Washington over the past several weeks. Workers’ compensation insurers are following these developments closely and are providing the U.S. Treasury Department with comments on proposed regulations as well as beginning lobbying efforts to extend the TRIA program. What will become of TRIA? The answers to those questions are not yet clear, but pressure for extension of both the “make available” requirement and the TRIA program as a whole is growing. At two recent congressional hearings, Treasury officials were circumspect about their intentions on “make available,” but the insurer and commercial policyholder communities as well as the NAIC and members of Congress from both parties are strongly urging the secretary to extend the “make available” requirement. On May 5, the Treasury Department formally requested public comment on the issue, and the comment period expires on June 4. Following that, the decision will come in “maybe not days, but certainly not months” according to Treasury Under-Secretary Brian Roseboro, who testified at a May 18 Senate Banking Committee hearing. Under the statute, the secretary must make his decision no later than Sept. 1. Support for extension of the TRIA program beyond 2005 is also strong among insurers and policyholders as well as in the NAIC. Whether Congress will act this year, however, remains to be seen. At two recent congressional hearings, Democrats expressed strong support for extension of the programs. Some Republicans did, too, but others are worried that what they thought would be a temporary program might not be temporary if the program is extended. Insurers, policyholders and the NAIC have asked for a one- to two-year extension, possibly with a “soft landing” or rolling program termination that coincides with the expiration of policies written while the program was in effect. The idea is that all interested parties will use this time to consider whether a more permanent solution to the terrorism insurance problem is needed and, if so, what that solution is. Insurers already have resurrected discussions of the British “Pool Re” concept, and are calling attention to the fact that many other governments around the world have established some form of terrorism insurance program. Critical for workers’ compensation Indeed, an official of one of the major insurance trade associations was recently quoted as saying that, even though all segments of the property and casualty industry are supporting extension of the program, workers’ compensation will drive the debate in Congress. Legislation to extend the program is already being drafted, and insurer and policyholder groups have begun their lobbying efforts. With political conventions on the calendar this summer and Congress scheduled to adjourn in early October, it is not yet clear whether Congress will act this year. But insurers, and workers’ compensation insurers in particular, are turning up the heat. Treasury rulemaking The proposal made no provision for advances against outstanding claims to give insurers liquidity assistance or for circumstances where an insurer becomes insolvent. Although the proposal also indicated that Treasury will pay claims “promptly,” it did not define that term. Under the proposal, insurers would file an “Initial Notice of Insured Loss” when aggregate insured losses within a TRIA program year exceed 50 percent of the insurer’s deductible. When the insurer’s losses first exceed the deductible, the insurer would then file a “Certification of Loss.” The proposal set forth detailed requirements as to required documentation for claims. Treasury officials have indicated that they expect to publish final claims regulations soon. In May, Treasury also proposed new regulations governing litigation management. The statute created an exclusive federal cause of action for claims for property damage, personal injury or death arising out of a certified act of terrorism. The proposal would require insurers to submit to Treasury for advance approval any proposed agreement to settle or compromise any federal cause of action for which the insurer intends to submit a claim for reimbursement under TRIA. Read in its entirety, the proposal appears to contemplate advance approval of all settlements, whether or not a legal action has been filed. The proposal also sets forth several factors that Treasury will consider in determining whether to pay a claim. Importantly, the proposal confirms that the exclusive federal cause of action and prior approval of settlement requirement do apply to “coverage disputes and other civil actions involving contract rights.” The exclusive federal cause of action provision had prompted concerns that workers’ compensation claims might be “federalized.” The proposed rule confirms, however, that state workers’ compensation laws are not preempted. Treasury’s reasoning is that workers’ compensation claims are not a “cause of action” but a statutory compensation scheme that replaces state causes of action for workplace injuries. The comment period on the proposed litigation management regulations remain open until July 6. Insurers continue vigilance In addition, the Treasury secretary is hearing the voice of the insurance industry on the issue of the extension of the “make available” requirement, and Congress is hearing from insurers regarding extension of the program. How these issues will be resolved remains to be seen, but there no doubt will be more newsworthy TRIA developments in the months to come. Stay tuned. This
article, made available by the AASCIF Ad Hoc Committee, was originally
published by the Workers’ Compensation Fund of Utah in its policyholder
newsletter and is reprinted here by permission of its author Robert W.
Woody, Esq. of LeBoeuf, Lamb, Greene & MacRae. Permission is also
extended to other funds and boards to reprint the article. Download complete newsletter in PDF format
AASCIF
urges members of Congress to extend TRIA A number of AASCIF’s individual member funds have contacted their congressional delegations in recent weeks, and several funds are letting agents and employers know that lawmakers need to hear from them, too. In addition, AASCIF President Pat Johnson sent letters in April to key committee chairs, and AASCIF subsequently issued a news release carried by several insurance trade publications. Here is the text of the news release, transmitted April 20 via PR Newswire: BLOOMINGTON, Minn.— The American Association of State Compensation Insurance Funds today urged key members of Congress to extend the federal Terrorism Risk Insurance Act beyond its Dec. 31, 2005, expiration date. “TRIA is especially critical in workers’ compensation because of the direct impact that acts of terrorism have on businesses and their employees and families,” AASCIF President Patricia Johnson said in letters to Rep. Michael Oxley, chairman of the U.S. House Committee on Financial Services, and Sen. Richard Shelby, chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs. Workers’ compensation insurance is mandatory for employers in almost every state, and current laws don’t permit coverage exclusions for terrorism. TRIA protects businesses and individuals by providing a critical financial backstop for insurers in the event of a terrorist attack. Making sure coverage is available and affordable for employers is vital to each state’s economy, the letters said. AASCIF includes state fund insurer organizations
in 26 states and Puerto Rico that provide critical workers’ compensation
coverage to business owners and their employees as a vital part of their
jurisdictions’ workers’ compensation systems. Insured workers’
compensation premium of these insurer organizations is estimated at more
than Download complete newsletter in PDF format |
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