Unfortunately, industry representatives say, the staffers in the Senate who will be doing the technical work necessary to reconcile the two bills are now working on the corporate governance and executive compensation issues that emerged in the wake of the Enron and WorldCom situations.

“The timing could not be worse,” said Maria Berthoud, senior vice president of federal affairs for the Alexandria, Va.-based Independent Insurance Agents and Brokers of America.

“This is another roadblock that no one could have anticipated,” she said.

Joel Wood, senior vice president of government affairs for the Washington-based Council of Insurance Agents and Brokers, said that the corporate governance and accounting issues are taking up the attention of the key policy makers involved in terrorism insurance.

He added that Sen. Chris Dodd, D-Conn., is trying to maintain as cohesive a Senate position as possible. Some leading senators, such as Sen. Phil Gramm, R-Texas, have voiced lingering questions over aspects of the S. 2600.

Mr. Wood said he is not surprised that the House and Senate have not yet sat down to begin hammering out a consensus bill.

Mr. Wood added that the conference may be more informal than formal.

Gary Karr, a representative of the Washington-based American Insurance Association, said that while there may be some procedural roadblocks right now, AIA remains optimistic on the substance.

Nobody seems to be digging in his heels right now, Mr. Karr said. Everyone, he said, is interested in resolving this issue.

Mr. Karr added he does not believe that current issues surrounding corporate governance will affect the terrorism insurance issue, in that members of Congress might be particularly concerned in the present environment about providing what some might term an industry “bailout.”

The issue of a “bailout” has always been there, Mr. Karr said, but he does not think it applies in this case given the strong support for creating a federal backstop.

This support, Mr. Karr noted, comes not only from the insurance industry, but from the policyholder community as well.

He added that whichever approach Congress ultimately adopts, a lot of money will go out of insurance companies before the federal backstop is tapped.

Once the procedural roadblocks are removed, Congress will have the task of reconciling two bills that take fundamentally different approaches to the issue.

According to a side-by-side comparison of the two bills prepared by AIA, H.R. 3210 establishes a government loan program that would be triggered following losses of $1 billion, although some adjustment would be made for smaller companies.

Once the threshold is met, financial assistance would be available for 90 percent of losses back to the first dollar of loss, minus $5 million for each insurer.

This assistance would be repaid through assessments on commercial insurers up to the first $20 billion in total losses. For assistance between $20 billion and the cap of $100 billion, the money would be repaid through a surcharge on all commercial policies.

By contrast, S. 2600 would establish a quota share program based on individual company retention levels. For total industry losses below $10 billion, the government would pay 80 percent of losses above a companys retention level.

When aggregate losses exceed $10 billion, the government would pay 90 percent of losses up to a cap of $100 billion.

Another area where the two bills differ markedly is tort reform.

H.R. 3210 establishes a federal cause of action for claims associated with terrorist events, bars punitive damages in such cases, eliminates the doctrine of joint and several liability for non-economic damages (meaning that defendants are only liable for their share of fault), and caps attorneys fees at 20 percent of any award.

S. 2600 creates a federal cause of action for losses caused by terrorism, but does not place any limits on punitive damages, non-economic damages or attorneys fees. However, any amounts awarded for punitive damages will not be counted as insured losses under the bill.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 15, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.