Renewed efforts by conservative Republicans in the Senate to impose tort reform standards in any extension of the Terrorism Risk Insurance Act are complicating efforts to draft legislation keeping the reinsurance backstop in place beyond its Dec. 31 sunset.

Debate over similar concerns went down to the wire in November 2002 before the original TRIA bill was finally passed, with most of the last-minute delay caused by Republican insistence on some language curbing the ability of plaintiff lawyers to sue for punitive damages in cases arising out of a terrorism attack. On the other hand, strong tort language is a bill-killer for Democrats.

Former House Majority Leader Tom DeLay, R-Texas, held up the bill for eight hours in the waning hours of the 2002 session because he objected to its compromise tort reform language. President George W. Bush and Vice President Dick Cheney became involved in the talks before Rep. DeLay relented and allowed the bill to be taken up by the House Rules Committee.

Rep. DeLay's concern was that the final tort language was a surrender to the trial bar, although trial lawyers pointed out at the time that no lawsuit seeking punitive damages was ever filed as a result of the 9/11 attacks.

The final tort language called for consolidation of terrorism-related lawsuits in federal court at both the pretrial and trial phases. However, it was silent on setting a federal standard for the awarding of punitive damages in suits brought against property owners, instead allowing state laws on punitive damages to prevail.

The bill's language does make clear that punitive damages awarded "shall not count as insured losses" for the purpose of federal payment, which effectively eliminates the probability that law firms would invest the money to pursue punitive claims, observers say.

In comments to reporters when he went into a night meeting with House Speaker Dennis Hastert, R-Ill., at which the president was brought in by speakerphone, Rep. DeLay said the bill's tort provisions as included in the conference report "would open up the U.S. Treasury" to trial lawyers. However, he relented, according to lobbyists and several members, after winning a commitment that the president would champion certain tort reform legislation the following year.

Rep. DeLay noted on the House floor before the TRIA vote: "I raised these concerns with President Bush," adding, "He agreed that there is more work left to protect victims of terrorism and the federal Treasury, and he pledged to work with us next year to resolve these flaws."

That was never done, and the only tort reform legislation enacted by Congress since then were certain limits on class-action lawsuits included in legislation passed earlier this year.

Vastly different TRIA extension bills are being negotiated on a bipartisan basis in the Senate Banking Committee and by the Republican leadership in the House Financial Services Committee. According to several industry lobbyists, the White House is participating in the Senate talks, but not in the House talks.

There is some thought that members of the Senate Banking Committee will be presented a "take it or leave it" bill by the negotiators, with the bill going directly to the Senate floor–bypassing committee action, lobbyists said.

White House involvement in the Senate talks is complicating efforts to coordinate with the House because the White House is insisting that the restrictive principles for extension articulated in the June Treasury Department report on the issue be adhered to, according to lobbyists familiar with the substance of the talks.

The only saving grace is that the time to negotiate a bill has been extended. "Any movement in the House toward introduction of a proposal will now probably be this week," one lobbyist said. While some staffers worked on a bipartisan basis last weekend in the Senate, the talks have slowed. "The Senate talks are still grinding," one lobbyist said late last week.

"With the certain reality that Congress will be in [session] a minimum of two weeks in December, things are now a little less frantic at the moment," the lobbyist said.

Negotiations in the Senate involve representatives of Sens. Richard Shelby, R-Ala., and Paul Sarbanes, D-Md., chairman and ranking member, respectively, of the panel, and Sens. Robert Bennett, R-Utah, and Chris Dodd, D-Conn., authors of a bill calling for a simple two-year extension of the legislation as is.

Negotiators in the Senate have agreed to Sen. Shelby's stipulation that renewal will be for two years, but with "finality, no extension," one lobbyist familiar with the talks said.

In the House, there is also agreement on a two-year extension that would transition to a pooling arrangement where the federal government will have far less liability than under the current TRIA bill.

Both bills will embrace the so-called "silo" concept of different levels of federal liability for different categories of insurance and for different events.

For example, government liability will be greater for claims resulting from a terrorism attack by nuclear, chemical, biological and radiation agents, and for workers' compensation losses through a conventional attack than, for example, general liability and commercial auto.

However, the silos in the bills are different, one lobbyist said, although he declined to elaborate.

One lobbyist said that since there is general agreement that the government would have less responsibility for general liability losses than for other losses, one way around the tort issue would be eliminating such coverage altogether.

Moreover, the House bill envisions a mutual reinsurance system as a means of protecting smaller and midsized insurers from being wiped out by a terrorism attack, one lobbyist said. The Senate proposals envision no such provision.

Senate negotiators foresee a much higher threshold for government involvement than the draft House bill, another lobbyist said.

Sen. Shelby is supporting the White House's call for a $500 million threshold–a level which small insurers pointed out in a letter to senators 10 days ago could potentially wipe them out.

The threshold for government involvement is now $5 million, and while House negotiators foresee an increase in that trigger, the levels they are proposing are far lower than suggested by the White House and Sen. Shelby's staff, according to this source, who said "it remains unclear if that will be the final number."

Flag: Tort Details

Head: What Does TRIA Say Now?

Senate Republican tort reform advocates want language in any TRIA extension keeping people from suing for punitive damages in cases involving a terrorist attack. Democrats oppose such restrictions.

In the current TRIA program:

o Terrorism-related suits are consolidated in federal court, both for pretrial and trial.

o Any punitive damages awarded do not count as insured losses for the purpose of federal reinsurance.

o TRIA sets no federal standard for punitive damages in suits against property owners, allowing state laws to prevail.

Callout:

"With the certain reality that Congress will be in [session] a minimum of two weeks in December, things are now a little less frantic at the moment," one lobbyist says.