Peter Korda and Dan Evans Published in the New York Law Journal

• Terrorism Risk Insurance Act of 2002 (TRIA) developed in response to the 9-11 terrorist attacks in which insurers suffered losses 
• While TRIA may expire in 12/07, terrorism and disaster insurance a “very high” priority in Congress this year

The January 16 issue of the NYLJ carried a special section on real estate for the Real Estate Board of New York (REBNY). Included was Peter and Dan's follow-up article "Extending TRIA" from January 2006 on the impact that the Terrorism Risk Insurance Act of 2002 (TRIA) would have on the real estate and insurance markets. They wrote : "TRIA was enacted in 2002 in response to the 9-11 terrorist attacks in which insurers suffered estimated insured losses of some $32.5 billion, as reported by the Insurance Information Institute. Such extensive losses caused many insurers to significantly reduce the availability and/or amounts of insurance coverage or to cease providing terrorism insurance outright. Insurance companies that continued to offer terrorism insurance substantially raised prices on policies as a reflection of additional risk and the additional costs of capital. These increased costs were passed on to consumers. Individual businesses in the United States saw risk management costs rise a reported 85% from 2000 through 2002. The ripple effect spread to the capital markets as property owners were unable to maintain insurance in amounts required by lenders. Similarly, owners were reluctant to sign loan documents requiring on-going terrorism insurance coverage at whatever cost when they could not predict how high premiums could rise. The uncertainty seriously affected lenders, many of whose loan programs required having insurance in place to cover all casualty risks. . . . The viability to continue making non-recourse loans on properties was at risk when the collateral for a loan could disappear in a moment without lenders having an assurance that adequate terrorism insurance was in place. With the uncertainty and potential for market disruption relatively fresh in their minds, the real estate and insurance communities have paid close attention to the future of TRIA. TRIA initially was passed as a temporary means of restoring confidence in the markets and allowing the insurance industry to recover from the 9-11 attacks. The program contained sunset provisions and, as passed in 2002, was to last only until December 31, 2005. As the sunset date approached, many members of Congress and the real estate, financial and insurance industries were concerned that the stability gained by TRIA would be lost overnight once the government backstop was removed. Speculation as to the availability of terrorism insurance in a post-TRIA world varied with some believing the insurance industry had recovered sufficiently to provide terrorism insurance on its own and others believing that the market would return to the pre-TRIA days of exceedingly high costs, unavailability of coverage and uncertainty in the broader markets. . . . In the end, Congress passed an eleventh hour extension of TRIA, extending the program, and the debate, for an additional two years. Although TRIA is currently set to expire on December 31st of this year, powerful incoming committee heads in Congress who have been among the most vocal supporters of TRIA in the past have publicly stated that they intend to make continued, and possibly expanded, terrorism and disaster insurance a “very high” priority this year. In addition to past voting trends which seem to indicate that a TRIA extension is likely, the change in control of Congress following the recent mid-term elections will likely result in an ideological shift more favorable to governmental intervention in and support of the insurance and financial markets. . . . Of the TRIA extension legislation introduced in both houses of Congress in 2005, the House legislation by far offered the most expansive governmental backstop for insurance losses. The House bill passed with overwhelming Democratic approval and provided for not only a TRIA extension, but also for an expansion of coverage to include NBCR and group life. However, in order to reach agreement with the Senate, the House had to give up those expanded areas of coverage. Arguably, with a Democratically controlled House in the upcoming Congressional sessions it would not be surprising to see a similar House stance at the very least emerge in 2007. . . . When taken together, control of key congressional committees by some of TRIA’s most ardent supporters, assurances from congressional leaders that legislation providing for a continuation of TRIA protections will be passed this year and general voting patterns showing growing congressional interest in continuing TRIA, property owners, developers and real estate, insurance and financial industry leaders may have reason to see the new year bring them continued (and possibly expanded) TRIA relief."