Large construction projects across the country were placed on hold when many insurers refused to issue policies that covered the types of catastrophic losses witnessed on Sept. 11, 2001 in New York. Although those losses were covered by insurers, many insurance companies refused to cover future acts of terrorism.
"Retailers and other owners of commercial real estate have been living with a special kind of fear since 9/11 the fear of knowing that if there is an attack on your building, your insurance won't cover it," said Tracy Mullin, president and CEO of the National Retail Federation. "Insurance against terrorist attacks since 9/11 has become prohibitively expensive, if it's available at all. Even workers' compensation coverage is drying up."
The law, which took effect when signed by Bush, is effective through the end of 2005. It establishes a Terrorism Insurance Program within the Treasury Department, which provides government backing for insurers if the country sustains another serious loss from an attack by foreign terrorists.
Insurers will be required to offer terrorism coverage, and the federal government will act as a backstop for severe losses. The provisions will be invoked only if the treasury secretary, attorney general and secretary of state declare an act of terrorism has taken place.
Once an attack is certified as terrorism, insurers must pay losses up to an amount based on each insurer's premiums earned the previous year. The federal government pays 90 percent of losses above the deductible, and the insurer pays the other 10 percent.
"Should terrorists strike America again, we have a system in place to address financial losses and get our economy back on its feet as quickly as possible," said Bush at the signing. "With this new law, builders and investors can begin construction in real estate projects that have been stalled for too long, and get our hard-hats back to work."
Many insurance companies stopped covering builders and real estate owners against the risk of attack, the president noted, adding premiums skyrocketed and coverage was diminished.
According to the administration, more than $15 billion in real estate transactions were canceled or put on hold because owners and investors could not obtain the insurance protection they needed. Commercial construction is at a six-year low, and thousands of construction workers have been kept off the job.
The new law will discourage "abusive lawsuits," said Bush, since civil cases resulting from a terrorist attack will be combined in a single federal court. "Lawyers will be prevented from shopping for courts with a reputation for outrageous awards," noted Bush. "Judgments and rulings will be more consistent."
Edward C. Sullivan, the president of the Building and Construction Trades Department attended the signing of the Terrorism Risk Insurance Act at the White House. Sullivan, a leading proponents of the measure, commented yesterday, "We know that the terrorists want to attack our infrastructure to weaken our economy. The Terrorism Risk Insurance Act provides the backstop we need to ensure that major construction projects delayed or cancelled will move forward now and in the future… If the terrorists hoped to shut down the construction industry, they failed."