Some insurers have suggested they are not obligated to make future payments owed for redevelopment because the original construction plan has been changed. Currently only two insurers remain as defendants in the case--Allianz and Royal Indemnity company.

The legislation advanced by Sen. Padavan and Assemblyman Espaillat, in addition to allowing policyholders to sue insurance companies for bad faith, would create stiff penalties for insurers who fail to honor existing requirements to deal fairly with insureds with disaster claims.

In the event of a "catastrophic event" that causes in excess of $1 billion of damages, insurers could be held liable for both interest and attorney fees if they act in bad faith.

In the egregious cases, the legislation would hold insurers liable for punitive damages. In the legislation, bad faith is defined as an occasion when an insured that sues an insurer wins an award that is 20 percent or more above the settlement offer it received from the insurer.

Senator Padavan said without laws requiring insurers to deal with their policyholders in good faith in place, there is a strong economic incentive for companies to pay lawyers to fight claims rather than live up to their obligations.

This legislation is designed to make sure that insurance companies have an economic incentive to do the right thing and make fair settlement offers to their customers."

According to the lawmakers, insurers still owe Silverstein Properties and the Port Authority of New York and New Jersey more than $2.2 billion in claims before interest. They said the money is critical to rebuilding the World Trade Center.

Their bill is retroactive and its language is intended to cover losses suffered as a result of the Sept. 11 terrorist attacks.

According to the legislators, while New York law makes it unlawful for an insurer to engage in unfair claims practices the only mechanism available for enforcing this requirement is a "weak regulatory proceeding brought by the superintendent of insurance, who does not even have the power to force an insurer to pay a claim."

"The state insurance superintendent can only impose relatively minor fines, or resort to the draconian step of suspending the company's license to do business in New York," they added.

Sen. Padavan said that "when faced with a choice between a traffic ticket and the death penalty, insurance companies have been willing to risk the regulatory proceeding since regulators have been reluctant to take the drastic steps of suspending a company, which in turn would likely have to cut jobs in New York."

According to Mr. Padavan and Mr. Espaillat's data, more than 30 states permit some type of bad faith claims. Assemblyman Espaillat said the legislature needs to act "to protect our citizens and our economy from greedy insurance companies."