The House approved legislation Thursday that would provide a federal safety net to insurance companies for future terrorist attacks, but the measure's fate is clouded by legal reforms added to it by Republicans.
The Bush administration has said the bill is critical to the nation's economic recovery, and lawmakers are rushing to pass it to head off a threat by insurers to exclude terrorism coverage on commercial policies or drastically increase the cost of such protection.
Such moves could have ripple effects throughout the economy, making lenders reluctant to finance construction projects without the certainty of adequate insurance to protect their investment.
The insurance industry expects to be able to pay the estimated $30 billion to $70 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 assistance. As a result, many insurance companies have notified regulators that unless Congress intervenes, they plan to exclude terrorism coverage when the bulk of commercial policies come up for renewal at year's end.
Under the House measure, when claims from a future attack exceed $1 billion, the government would cover 90% of the losses, up to $100 billion. The government would recoup its money from an assessment on insurance firms and perhaps a surcharge on policyholders.
The measure provides the protection only for the next year, with a possible extension of two years. Lawmakers hope insurers in the next few years will work out other means to deal with possible attacks, perhaps by building reserves.
The bill has drawn opposition from trial lawyers, consumer groups and Democratic lawmakers, who object to provisions to limit the legal rights of victims of terrorism, such as a prohibition on punitive damages and a cap on attorneys' fees in terrorism-related lawsuits.
Rep. John J. LaFalce of New York, the top Democrat on the House Financial Services Committee, accused Republicans of playing "Russian roulette" with the bill--and the economy--by attaching limits on legal action that could doom the measure in the Democratic-controlled Senate, which will take up the bill next.
House Minority Leader Richard A. Gephardt (D-Mo.), attacking the tort reform provisions, said Republicans were seeking to "add an ideological agenda to what ought to be a bipartisan bill."
Republicans have long sought to rein in the costs of lawsuits, including limiting the fees of trial lawyers, a group that has been a major donor to Democrats.
The House measure was approved, 227 to 193, on a largely party line vote.
President Bush praised the House for "taking an important step toward ensuring the continued availability of insurance for terrorist-related acts and for ensuring that victims of terrorism don't also become subjects of unfair lawsuits. . . . It is time for the Senate to focus on this important issue."
Some administration officials have expressed concerns about the proposed assessments on insurance companies and policyholders, saying they could harm the economy.
In the Senate, key Democrats and Republicans have drafted a bill that would have federal assistance kick in once insured losses reach $10 billion, but there is no repayment requirement. Senate aides met with White House staff Thursday and planned meetings today on a compromise.
Sen. John McCain (R-Ariz.) introduced a bill Thursday that could lead to a compromise. It proposes federal assistance up to $50 billion, to be repaid by commercial property and casualty policyholders through a surcharge on their premiums.
If a deal is reached, insurers would become the second industry to receive federal assistance since the Sept. 11 attacks. The airline industry received $5 billion in cash and $10 billion in loan guarantees.
Sponsors of the House measure insisted it is not a bailout. "This legislation is all about keeping our economy strong, not about bailing out insurers," said Rep. Michael G. Oxley (R-Ohio), chairman of the House Financial Services Committee. "The role of the federal government is limited to a helping hand-up, not a handout. Any assistance provided must be repaid by the industry over time."
Democrats assailed Republicans for voting to assist another industry while Congress remains deadlocked over helping laid-off workers. "We just don't get it," Gephardt said, as plans to extend unemployment insurance remain stymied.
"Why do the big dogs always eat first in Congress?" asked Rep. Jay Inslee (D-Wash.).
But it was the proposed legal reforms, especially the prohibition on punitive damages in terrorist-related attacks, that set off the fiercest debate.
"Without the threat of punitive damages, companies will have little or no incentive to take steps today designed to maximize security against future terrorist attacks," Consumers Union said in a letter to lawmakers.
Rep. F. James Sensenbrenner Jr. (R-Wis.), chairman of the House Judiciary Committee, said that without the limits on liability, "the mom-and-pop store down the street will have to invest scarce resources to turn itself from a corner shop into a fortified bunker . . . to avoid potentially infinite liability, or pay through the nose in higher insurance premiums . . . ."
After the House vote, Robert E. Vagley, president of the American Insurance Assn., urged the Senate to act quickly. "Without adequate insurance, financiers cannot make loans, real estate cannot be bought or sold, new construction will cease and the beneficial effects of any economic stimulus package would be greatly muted," he said.
Oxley said he is confident of getting a bill passed before Congress adjourns for the year, noting that he has a "list longer than my arm--both arms--of trade associations who are supporting this."