The Terrorism Risk Insurance Act of 2002 will ensure high-rise, high-risk buildings, such as the Prudential Center in Boston, continue to be covered.
The Building Owners and Managers Association International, a network of more than 18,500 commercial real estate professionals, has worked feverishly for months to protect the insurability of the nation’s real estate in the event of future acts of terrorism.
Terrorism insurance legislation, known as the Terrorism Risk Insurance Act of 2002, provides federal funding backstops for terrorism insurance and is considered essential to allowing insurance companies to provide this protection to building owners and property managers.
In October, BOMA International played a key role in persuading the White House to agree to a compromise that allowed a Congressional conference committee to complete work on the Conference Report. The Conference Report was recently passed by both the House and the Senate during the lame-duck session of Congress that followed the November elections.
For perspective, consider the background leading up to this crucial development. The acts of terror on Sept. 11, 2001, cost the insurance industry billions of dollars. While insurers publicly stated they would be able to honor claims resulting from those events, executives of the reinsurance and insurance industries testified before the U.S. House of Representatives Financial Services Committee on Sept. 26, 2001, that new policies are likely to exclude both acts of terrorism and acts of war. They also stated that reinsurance for terrorism was unavailable in the marketplace at that time.
Many owners of commercial properties have been advised that their policies may not be renewed or that their new policies will exclude terror/war risks. Without adequate insurance, it will be difficult, if not impossible, to operate or acquire properties, refinance loans and to sell commercial-backed securities. Disappearance of coverage for terrorist acts for real estate and other businesses could severely disrupt the economy.
For more than a year, BOMA International has advocated that the Federal government play a role to ensure that commercial property owners and other businesses can obtain insurance coverage for damage from acts of terrorism.
Compromise Reached
The compromise legislation will provide that, once the backstop is triggered, 90 percent of damages will be paid with federal funds. The federal backstop will be in place for three years, with federal funds kicking in after $10 billion in damages is incurred the first year, $12.5 billion the second year and $15 billion the third year. Individual company caps for damages would be set at 7 percent of premiums the first year, 10 percent the second year and 15 percent the third year. The bill would not cover group life insurance, unless a finding is made that the coverage is exorbitantly expensive or unavailable. Workers’ compensation may be covered under specific circumstances.
It took a lot of hard work from the commercial real estate industry to reach this point.
For months, terrorism insurance legislation appeared to be hopelessly deadlocked by an unwillingness to compromise by the Republican-controlled House and the Democrat-controlled Senate. Conference committee members could not agree on how much, if any, tort reform provisions should be included in the final bill. To complicate the dilemma, President Bush had indicated that he would not sign legislation into law unless it included a prohibition on punitive damages.
However, in mid-October, after much pressure from BOMA International and other business groups, the White House unexpectedly opted to accept legislation without the tort reform language. This led to an agreement between the White House, Senate negotiator Sen. Chris Dodd (D-CT), and House negotiator Rep. Michael Oxley (R-OH). Unfortunately, many Conference Committee members had already left Washington to return to their districts to campaign for the election, and the conference report was not signed. Following the elections, Congress returned to Washington to complete work on some critical issues, including bankruptcy reform, homeland security and funding for the federal government. The terrorism insurance issue was successfully passed during this session.
While BOMA International supports the tort reform provisions, it was unwilling to see the overall effort die due to the stalemate. BOMA International stated its message loud and clear to the White House that this legislation must be enacted, with or without the tort language. Congressional leaders have indicated that the tort reform provisions will be debated separately once the 108th Congress is underway in January.
BOMA International officers, staff and members held countless meetings with key congressional representatives, including conferees, President Bush and Secretary of the Treasury Paul O’Neill to ensure that action was taken on this issue. This issue has had a tremendous impact on the nation’s economy and virtually every type of business. BOMA International applauds Congress for its recognition that the terrorism insurance legislation is perhaps the most important economic stimulus package they have addressed in the past few years.
