Congress returned last week from an extended spring recess with few legislative days left on the calendar before the mid-term elections and a long list of must-do legislation. One piece of legislation that seems certain to get attention will be a bill reauthorizing the Terrorism Risk Insurance Act (TRIA). In testimony presented over the last year before committees in the House of Representatives and the Senate, insurance industry representatives have made it clear that the federal backstop provided under TRIA is still relevant and essential to ensuring that terrorism risk insurance is both widely available and affordable. This has led to bipartisan and bicameral support for a reauthorization of TRIA that now seems certain to happen. Only two questions remain: when will Congress move forward and what changes will be made to TRIA to further protect taxpayers from unreasonable risk?
TRIA
One consequence of 9/11 was that insurance coverage for terrorist attacks quickly became unavailable. As a result, Congress passed TRIA and President Bush signed it in November of 2002. TRIA was enacted because the government recognized that no viable private market for terrorism insurance was possible without a federal backstop that effectively limited the losses that the insurance industry would have to absorb in the event of another major attack. The statute requires that insurers make coverage for terrorism available to their commercial policyholders. In return, the industry’s liability is capped.
TRIA is activated once an event has been certified as an “act of terrorism” by the Secretaries of the Treasury and the Departments of State and Homeland Security. There is presently a $27.5 billion annual aggregate retention level, meaning that industry-wide commercial and worker’s compensation claims from a terrorist attack must exceed $27.5 billion before TRIA kicks in. The statute also has an 85/15 co-pay; above $27.5 billion, the federal government pays 85% of the loss and the insurance industry pays the remaining 15% up to a cap of $100 billion. Finally, each individual insurance company has a deductible that it must fund equal to 20% of its total property and casualty insurance premiums. Read more ›
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On appeal, the District Court of Appeal completely rejected the lower court’s use of an order compelling an appraisal as a vehicle to make coverage determinations, finding that it was procedurally improper and violated due process. The court was clear that, under Florida law, such coverage determinations are only appropriate when based on competent evidence reviewed through either summary adjudication or at trial. Additionally, and in light of the insurer’s complete denial of the damage at issue, the District Court of Appeal held that a judicial determination on all coverage issues, including causation, must first be made by the court. In reaching its ruling, the court cited a Florida Supreme Court decision, Johnson v. National Mut. Ins. Co., 828 So.2d 1021, 1022 (Fla. 2002), which held that “causation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed.”
Lyons notified Lexington of the water inflow in July 2010, after it had already spent $2.5 million on the problem. The insured sought coverage under six Lexington policies of “all risk” property insurance issued between March 2004 and April 2010. Suit was filed in the Spring of 2011 after Lexington refused to commit to reimbursement. The sworn statement in proof of loss that Lyons submitted in December of 2010 sought $7.5 million, and the policyholder was estimating that the total cost of investigating and fixing the intrusion would top $11 million as of last year.
Sandy struck several hours later, causing extensive flooding in lower Manhattan. The Bowling Green Network suffered “extensive water damage” from the flooding, and Con Edison spent the next several days pumping out the water and cleaning, testing, and – as necessary – replacing its equipment. The network was re-energized early in the morning on November 3.
In January, the Senate passed a bill which called for a four-year delay of the rate increases imposed by the Biggert-Waters. House leaders, however, wanted a more permanent fix, and they also wanted to avoid adding to the insolvency of the NFIP. Thus, the Homeowner Flood Insurance Affordability Act was born. The bill proposes, among other things: (1) to roll back certain rate increase “triggers” so that policyholders will no longer face rate increases as a result of the sale of a home or a lapse in coverage; (2) to provide a refund for those who already got hit under the foregoing provisions; (3) to restore “grandfathering” so that homes and businesses that were previously built to code and later remapped into a higher risk area by FEMA won’t face rate increases due to the remapping; and (4) to impose a cap on FEMA’s ability to raise annual insurance premium rates. Under the bill, FEMA can still increase premiums for owners of homes built before the flood insurance rate maps, but the increases have a hard cap of 18 percent per year (down from 20 percent under Biggert-Waters), and will typically range from only 5 percent to 15 percent.
The policyholder, Millennium Inorganic Chemicals, Ltd., processed titanium dioxide at its facility in Western Australia, using natural gas that it received via a pipeline. It purchased the gas from Alinta Sales Pty Ltd., a retail gas supplier. Alinta, in turn, purchased the gas it supplied to Millennium from others, including Apache Corporation.
Faced with what she described as “an onslaught” of lawsuits, the district’s Chief Judge Carol Bagley Amon ordered the clerk to open a miscellaneous civil case captioned “In Re: Hurricane Sandy Cases,” Docket No. 14 MC 41, on January 10 “for the purposes of Pretrial Case Administration in all actions seeking insurance coverage for damage caused by Hurricane Sandy.” She simultaneously directed three magistrate judges “to evaluate and make a recommendation regarding how to best handle all Hurricane Sandy cases.”
Peerless Insurance Company issued a $1 million fire insurance policy to Executive Plaza. This gave Executive the choice to select payment of “actual cash value” or payment of “replacement cost.” The policy also provided that Peerless would not pay the replacement cost for any loss or damage until the property had actually been repaired or replaced. Finally, the policy contained a suit limitation clause that required the insured to commence any legal action within two years from the date of loss.