Treasury is asking interested parties to comment on the thresholds by July 6, 2004.

Treasury said that as part of its inquiry, it needs comments from property-casualty insurers on how frequently claims are received under commercial liability policies where the policyholder settles directly with a claimant and then notifies the insurer after the fact.

In such a situation, Treasury said, if the insurer was not notified in advance of the settlement, it might have difficulty meeting the prior approval requirement, thus jeopardizing the application of federal reinsurance.

Treasury said it needs to know the frequency of such situations, the size of claims involved and possible approaches to address these situations.

In determining whether to approve a settlement, Treasury proposes to examine several factors, including whether:

The settlement compensates for a bona fide loss.

Any amount of the proposed settlement includes punitive damages.

Attorneys fees and expenses are reasonable.

o The insurer took all reasonable and businesslike steps to investigate and ascertain the amount of the loss.

Treasury specifically noted that punitive damages are not covered by TRIA and that insurers will be required to identify any portion of a proposed settlement attributable to punitive damages.

If an insurer settles a cause of action either without Treasury approval or after Treasury has rejected a settlement, it will not be entitled to federal reinsurance unless the insurer can demonstrate extenuating circumstances.

Treasury added that settlements below the proposed thresholds, which are not subject to the prior approval requirement, are still subject to Treasury review.

Anne Sittmann, a representative with the Des Plaines, Ill.-based Property Casualty Insurers Association of America, said that at this point, PCI is reviewing the document. PCI, she added, will file comments with Treasury, most likely on a joint basis with others in the industry.

Gary Karr, a representative of the American Insurance Association in Washington, said that AIA has also just begun evaluating the request for comments and will file comments following consultations with its member companies.

Treasury recommended that comments be filed electronically to [email protected].

Reproduced from National Underwriter Edition, May 14, 2004. Copyright 2004 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.