By Andrzej Zwaniecki
Washington File staff writer

Washington -- Congress has approved a bill under which the U.S. government will share with the insurance industry the costs of claims arising from massive terrorist attacks.

Passed November 19 by the Senate and five days earlier by the House of Representatives, the legislation limits the terrorist risk exposure of property and casualty insurance companies by having the federal government help cover losses stemming from terrorist attacks.

Under the measure, the government would cover 90 percent of terrorism-related losses of individual insurance companies after such losses exceed 7 percent of the company premiums in 2003. In years 2004 and 2005 the threshold activating the government coverage would increase to 10 percent and 15 percent respectively. Losses covered by the program would be capped at $100,000 million each year.

After the 2001 terrorist attacks in New York and Washington, which according to news reports resulted in $40,000-$50,000 million in insurance claims, insurance firms raised dramatically the cost of terrorism insurance or stopped offering it entirely.

Business groups argued that without such insurance, banks would not finance real estate purchases, new construction or business investment in plant and equipment.

This view was supported by President Bush who said that the lack of terrorism insurance availability or its exorbitant cost has dampened economic growth.

"Terrorism insurance will help ... create new jobs for America's workers and spur billions in new investment in construction projects all across the country," Bush said in a statement congratulating Congress on passing the bill. "This bill comes at a critical time as commercial construction is at a six-year low."

Senator Christopher Dodd, Democrat from Connecticut, said the bill he co-sponsored would "help ensure that construction sites continue to operate, workers continue to fuel our nation's economic engine and the threat of future attacks on our economy is minimized."

But Senator Phil Gramm, a Texas Republican who voted against the measure, said that the bill shifted too much risk onto taxpayers, discouraged development of a private terrorism insurance market and did not provide any protection against punitive damage awards related to terrorist attacks.

The legislation had been stalled for months over Democratic opposition to a Republican-proposed ban on punitive damage awards in civil lawsuits resulting from terrorist attacks. The compromise measure would consolidate such lawsuits in federal court and bar punitive damages from being counted as insurance losses subject to the government aid.

But Bush, who supported punitive damages restrictions, said he would return to the question of stricter limits on lawsuits when the new Republican-controlled Congress takes office in 2003.

"While I supported even stronger liability measures to strengthen our economy and believe that further reforms need to be pursued, this bill significantly improves the legal system to prevent abusive lawsuits," the president said.