New York Mayor Michael Bloomberg has recruited a commercial insurer to take over a taxpayer fund that was formed to pay out claims arising from the clean-up of Ground Zero.
New York Mayor Michael Bloomberg has recruited a commercial insurer to take over a taxpayer fund that was formed to pay out claims arising from the clean-up of Ground Zero.
The plan, which is currently under review, would entrust the commercial insurer with $270 million in federal funds. The cash remaining in the World Trade Center Captive Insurance Company (WTCCIC) would be converted into a $600 million insurance policy.
The long-term health effects of the terrorist attacks are still being investigated. A growing number of New Yorkers are approaching city authorities, describing symptoms and circumstances that would seem to suggest a common link.
The affect of the clean up operation following the disaster was immediately obvious in the first responders, such as firefighters, police officers and members of the public that assisted immediately following the disaster. What has been less obvious, and taken longer to come to the fore, are the adverse health effects that have affected the cleaners, janitors and contractors who serviced the buildings surrounding the World Trade Center in the months and years that followed.
Wreckage from the impact was projected around lower Manhattan, in some cases travelling several miles from the point of impact. Tons of debris settled on the buildings adjacent to the World Trade Center, and cleaning and repairing them was a painstaking process that continued for several years after the attacks.
Tests carried out on the dust produced by the collapse of the buildings show that it contained fine caustic concrete, glass fibres, and traces of potentially harmful chemicals such as arsenic, mercury, lead, dioxin and asbestos.
Many of the workers who were engaged to carry out this work were immigrants that have since returned to their home countries, further complicating the process of establishing and verifying insurance claims.
The condition has become known as the ‘World Trade Center cough’, although this arguably implies that the health complaints are less serious than they are. With 80,000 people estimated to have been present in the aftermath of the attacks, the true scale of the damage may not be known for decades to come.
This perhaps explains why reaction to the commercial move has been mostly negative so far.
Conduct questioned
New York mayors are obligated to step down after three successive terms in office, and so Bloomberg will leave his position this month. He has faced criticism for piloting the WTCCIC deal through so close to the end of his tenure.
As part of the deal, the commercial insurer would take on the liability for fresh 9/11 health claims and other related litigation.
The WTCCIC was formed by the City of New York, with funding from the Federal Emergency Management Agency (FEMA), in order to provide insurance coverage to the city and its contractors for claims brought about in relation to the clean up operation at Ground Zero.
It received $1 billion in federal funds provided through a grant from FEMA. This was part of the $20 billion of funds requested by city officials and authorised by Congress following the attacks.
Owing to the immediacy of the disaster, municipal agencies and private contractors responded without signing contracts or obtaining insurance coverage. The claims that have been faced by the WTCCIC are partly a result of this necessarily rushed response.
Questions have been raised about the effectiveness of the captive. In 2006 Democratic Congressman Jerrold Nadler questioned why it was that the captive opted to litigate every claim that was filed.
Under the terms of a mass settlement reached several years after the attacks, plaintiffs are required to submit proof under oath that they were present and participated in the rescue, recovery and debris removal operations. As well as this, they are expected to provide specific medical documentation to back up these claims.
TRIA
Before the attacks in New York, business insurers would not specifically cover acts of terrorism. The scale of the attacks and the huge insured losses that followed changed this.
Following the attacks many businesses were unable to purchase terrorism insurance on the market. The situation threatened several key industries in the US economy, such as construction, transportation and real estate.
The Terrorism Risk Insurance Act was signed into federal law in 2002. The act created a federal guarantee for terrorism related insurance claims. The act was extended several times before being superceded by the Terrorism Risk Insurance Program.
The programme is currently scheduled to lapse at the end of 2014. The insurance industry has argued for many years that without a government commitment such as TRIA, the risk of terrorist attacks is uninsurable.
The insurer Aon responded to the US Treasury Department’s request for comment on the long-term availability and affordability of TRIA in September.
“Today’s successful terrorism risk marketplace relies on the TRIA programme. TRIA minimises price volatility and coverage uncertainty. This makes TRIA reauthorisation imperative for our country and the economy,” said Aaron Davis, managing director at Aon Risk Solutions, in a statement at the time.
“Should the programme expire, Aon’s market intelligence suggests that more than 85 percent of insurers will no longer continue to insure terrorism risk. Ultimately, in the unfortunate event of a large-scale attack, the US government would face the full burden of the associated costs of said terrorism.”
Ed Ryan, a senior managing director with Aon Benfield, the firm’s global reinsurance business, added: “The main hurdle in assessing and underwriting terrorism risk is that the frequency of loss from terrorism is neither predictable nor random. Therefore, terrorism insurance is unlike any other marketplace risk. The uncertainty surrounding terror risk makes insurance coverage unique and this requires a novel approach.”
Members of congress on both sides of the house remain unconvinced that a private market for terrorism risk would not emerge without the backing of government.
But the National Association of Insurance Commissioners (NAIC) passed a resolution supporting the reauthorisation TRIA in the summer.
Adam Hamm, NAIC president-elect and North Dakota insurance commissioner, described TRIA as a “critical piece of legislation” and urged members of Congress to reauthorise the act.
“In addition to providing essential coverage for commercial policyholders, this federal backstop remains an invaluable part of the industry’s ability to preserve its financial protection and maintain risk management,” added Hamm.
Settlement
In March 2010, WTCCIC settled with attorneys representing more than 10,000 plaintiffs claiming injuries related to the rescue and cleaning operations following the terrorist attacks.
In a statement at the time, Christine LaSala, president of WTCCIC, said: “We have reached a settlement that is fair under difficult and complicated circumstances. This agreement enables workers and volunteers claiming injury from the WTC site operations to obtain compensation commensurate with the nature of their injuries and the strength of their claims, while offering added protection against possible future illness.”
The settlement cost the federal-taxpayer funded captive $575 million. Residual funds were left to insure and defend the city and its contractors against any new claims that might arise. It is this residual fund that is being turned into a commercial insurance venture.
In October of this year, as a key deadline approached, a further 32,000 people applied to the compensation fund with fresh claims. This demonstrates the difficulty in estimating the potential liabilities for the company that is interested in taking on the responsibility for the fund. As a result of this, the commercial insurance venture may rely on its ability to establish a reinsurance deal.
The change in the fund’s status from a non-profit insurance entity to a commercial venture is bound to be controversial given the politically sensitive nature of the issue.
Rudy Giuliani, who was mayor at the time of the attacks, learned this the hard way when he was seeking the Republican nomination in the 2008 presidential race. In a series of mailshots, his fundraising team asked supporters around the country to donate $9.11 each to his campaign fund. This was a public relations setback that contributed to his failure in securing the nomination
