XYZ INSURANCE LIMITED

XYZ Insurance Limited

XYZ Insurance Limited

Plans for the federal government to back up the insurance industry in case of a terrorist attack have been stalled by a debate over tort reform. Prior to September 2001 terrorist attacks against the U.S., most U.S. insurance policies covered damage from terrorism. Indeed, analysts estimate that the insurance industry will pay roughly $50 billion to $70 billion in claims from those attacks. However, many insurers have announced that they will discontinue terrorism insurance, arguing that the risk of another attack is too great. Without adequate insurance, many property owners and businesses could be financially devastated by another destructive attack, business leaders say.

As a result, many policy makers have called for the federal government to "reinsure" the insurance industry by promising to support insurers in case of terrorism. Federal support would limit the amount that insurers would have to pay after another attack and offer an incentive for them to continue terrorism coverage. That plan has received widespread bipartisan support.

In November 2001, the House passed a bill that would make the federal government responsible for 90% of claims of over $1 billion for as long as three years, up to $100 billion. Prior to the adoption of the bill, however, House Republicans inserted several provisions that limit lawsuits stemming from terrorist attacks, an effort at tort reform that was strongly opposed by Democrats.

The most controversial measures would eliminate punitive damages and restrict the amount of non-economic damages (such as pain and suffering) that victims and their families could collect. The bill also places a cap on attorney fees and prohibits suits from being filed in state courts, which are generally considered to be more sympathetic to victims than federal courts.

Those reforms, which Republicans have been advocating for years, are more necessary now than ever, supporters say. Without limits on liability, insurance companies will not be able to cover terrorism, they argue. "Unless there is some limit on proportionality of damages caused by terrorism, the [insurance] market can't function," says Larry Lindsey, an economic adviser to President Bush (R).

Democrats, meanwhile, accuse House Republicans of using the terrorist threat as an excuse to pass tort reform. The added provisions have less to do with providing insurance than with helping big businesses and restricting Americans' right to sue, critics argue. The House measures are "an effort to further erode the rights of victims," says Rep. William Delahunt (D, Mass.). "This is nothing more than a sop to corporate America." House Minority Leader Richard Gephardt (D, Mo.), meanwhile, accused Republicans of trying to "add an ideological agenda to what ought to be a bipartisan bill."

The House measure was ultimately approved, 227 to 193, on a largely party-line vote. However, the companion bill has been stalled in the Senate, where a Democratic majority has resisted efforts to include tort reform in the bill. Sen. Tom Daschle (D, S.D.) has pledged that he will not allow a vote on the bill as long as it contains the controversial tort ...