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Senate Passes Bill to Shield Insurers

Liability: The measure's fate is uncertain because of controversy over whether people injured in terrorist attacks can seek punitive damages.


WASHINGTON — The Senate on Tuesday approved a measure that would provide a temporary federal backstop to insurance companies in the event of a future terrorist attack, but the bill faces an uncertain fate--even though Democrats and Republicans agree it is urgently needed.

The vote sets the stage for negotiations between the Democratic-led Senate and the Republican-controlled House, especially over the issue of whether individuals injured in a terrorist attack should be permitted to sue for punitive damages.

President Bush's economic advisors have said they would recommend a veto if the bill includes the Senate provision allowing such lawsuits. The House measure does not include that provision.

The Senate measure, approved 84 to 14, would require insurers to pay claims based on their market share. The government then would pay 80% of the remaining losses up to $10 billion and 90% above $10 billion. The program would be capped at $100 billion.

"We're trying to deal with homeland security to protect our personal security from terrorist attack," said Sen. Christopher J. Dodd (D-Conn.). "We also need to be talking about economic security."

Insurers have stopped writing terrorist insurance policies or have dramatically raised premiums, making it difficult for businesses to secure loans for projects.

Julie Rochman, a spokeswoman for the American Insurance Assn., said that although there is still "a lot of work left to be done," the vote shows a bipartisan commitment to "secure the American economy by putting a terrorism reinsurance backstop in place."

Rep. Michael G. Oxley (R-Ohio), chairman of the House Financial Services Committee, thanked the Senate for "finally acting" on the insurance bill.

"Now, about nine months after 9/11, we can get serious about resolving the many differences that exist between the House and the Senate pieces of legislation," he said. "It's high time we set about this work, as a lack of available terrorism insurance is clearly creating a drag on our economy."

"This has been a test [of] whether we can meet the post-9/11 challenge," said Sen. Charles E. Schumer (D-N.Y.). "Government is going to have to play a larger role.... The private sector could not solve this problem alone."

The insurance industry expects to be able to pay the estimated $50 billion in claims stemming from the Sept. 11 terrorist attacks. But industry officials say they cannot continue to insure against the incalculable liability from a future attack without government help. Bruce Josten, executive vice president of the U.S. Chamber of Commerce, praised the Senate for acting. But he complained that the Senate bill contains a "glaring loophole that could force victims of terrorist attacks to pay punitive damages for the acts of terrorists."

Treasury Secretary Paul H. O'Neill said the measure is "vitally needed to mitigate the economic drag we are currently experiencing due to the scarcity of terrorism insurance and to minimize adverse economic consequences from possible future attacks."

However, O'Neill said he was disappointed that the measure did not include protections against "abusive litigation and punitive damages claims. Such procedures are crucial to the protection of American taxpayers' interests and needs to be included in any final legislation."

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