- The Washington Times - Thursday, October 24, 2002

Bad legislation is worse than no legislation at all. That is the case with the terrorism-insurance bill that is now emerging from a conference committee on Capitol Hill. But the conference report has not been signed. So it is not officially a done deal. That means it can still be improved. And improvement is what it needs. Failing that, it needs to be killed until it can be improved.

That there is a need for a federal role in terrorism insurance is not in dispute. Insurance claims from September 11 are an estimated $40 billion. Any reasonable imagination can envision future terrorist scenarios that are far more costly than that. Obviously, at some point even a strongly capitalized insurance industry could be overwhelmed.

Unfortunately, the bill emerging from House-Senate conference panel does not properly address the problems. Unsurprisingly, a major problem involves punitive damages. The White House surely did not help matters by pre-emptively conceding to Senate Democratic Majority Leader Tom Daschle's determination to protect the trial-lawyers lobby, which has been one of the Democrats' most reliable and generous sugar daddies during past and present election cycles.

As the House-Senate conference committee remained stalled over the issue of punitive damages, President Bush ratcheted up the pressure to "get it done," as he eventually instructed House Financial Services Committee Chairman Michael Oxley in an October telephone conversation. Before that call, the president summoned several conferees to the White House on Oct. 1, and he publicly exhorted them at a news conference two days later. Having essentially relinquished the negotiating leverage to a determined Mr. Daschle, last week an increasingly desperate White House officially caved.

The House terrorism-insurance bill, which wisely capped attorneys' fees, also prohibited punitive damages except those assessed against the terrorists themselves and their accomplices. The Senate bill merely prohibited punitive damages to be paid with federal funds. What emerged from conference negotiations is a major loophole that will effectively hand over the keys to the federal Treasury to the trial lawyers.

While the emerging conference legislation technically prohibits the use of taxpayer funds to pay punitive-damages awards, predatory lawsuits may still be filed for the purpose of recovering what amounts to punitive damages through settlements before trial. With the federal government on the hook for 90 percent of claims above a certain threshold, there will be great incentives for insurers to make faster settlements rather than fair ones. Moreover, while the original bipartisan compromise in the Senate that senior members of the Banking Committee reached in early November 2001 would have required that out-of-court settlements be approved by the secretary of the treasury, the conference version provides for no adult supervision at the settlement table. In effect, the taxpayer, who will be financing the deal, is cut out of its negotiation.

In addition, the conference agreement significantly reduced the Senate's original compromise threshold level for insurance companies. Once these lower-than-desirable threshold levels are exceeded, the federal government begins absorbing 90 percent of the claims. This represents an unnecessarily excessive subsidy to the insurance industry and, indirectly, to the real-estate industry. With the reduction of these insurance-company deductibles, the bill will regrettably have the effect of stopping the emergence of a smoothly functioning risk-distributing re-insurance market, which was beginning to evolve. Now, the federal government will be compelled to play the important role of reinsurer. As a result, the bill's three-year duration will almost certainly be extended, as will the excessive subsidies and the trial lawyers' access to the federal Treasury.

This is a bad bill. It deserves to be stopped dead in its tracks, so that it can be improved early in the next Congress.

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