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Friday,

April 18, 2003

Part IV

Department of the
Treasury
31 CFR Part 50
Terrorism Risk Insurance Program;
Interim Final Rule and Proposed Rules

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19302 Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Rules and Regulations

DEPARTMENT OF THE TREASURY FOR FURTHER INFORMATION CONTACT: from events other than acts of terrorism.
Mario Ugoletti, Deputy Director, Office The Act permits Treasury to extend the
31 CFR Part 50 of Financial Institutions Policy (202) ‘‘make available’’ requirement into
622–2730, or Martha Ellett or Cynthia Program Year 3, based on an analysis of
RIN 1505–AA98
Reese, Attorney-Advisors, Office of the factors referenced in the study required
Terrorism Risk Insurance Program Assistant General Counsel (Banking & by section 108(d)(1) of the Act, and not
Finance), (202) 622–0480 (not toll-free later than September 1, 2004.
AGENCY: Departmental Offices, Treasury. numbers). An insurer’s deductible increases
ACTION:Interim final rule with request SUPPLEMENTARY INFORMATION:
each year of the Program, thereby
for comments. reducing the Federal Government’s
I. Background involvement prior to sunset of the
SUMMARY: The Department of the A. Terrorism Risk Insurance Act of 2002 Program. An insurer’s deductible is
Treasury (Treasury) is issuing this based on ‘‘direct earned premiums’’
interim final rule as part of its On November 26, 2002, President over a statutory Transition Period (now
implementation of Title I of the Bush signed into law the Terrorism Risk expired) and the three Program Years.
Terrorism Risk Insurance Act of 2002 Insurance Act of 2002 (Pub. L. 107–297, Once an insurer has met its deductible,
(Act). The Act established a temporary 116 Stat. 2322). The Act was effective the federal payments cover 90 percent of
Terrorism Risk Insurance Program immediately. Title I of the Act insured losses above the deductible,
(Program) under which the Federal establishes a temporary federal program subject to an aggregate annual cap of
Government will share the risk of of shared public and private $100 billion. The Act prohibits
insured losses from certified acts of compensation for insured commercial duplicative payments for insured losses
terrorism with commercial property and property and casualty losses resulting that are covered under any other federal
casualty insurers until the Program from an act of terrorism as defined in program.
sunsets on December 31, 2005. This the Act and certified by the Secretary of As conditions for federal payment
interim final rule incorporates and the Treasury, in concurrence with the under the Program, insurers must
clarifies statutory conditions for federal Secretary of State and the Attorney provide clear and conspicuous
payment under the Program that require General. The Act authorizes Treasury to disclosure to the policyholders of the
insurers to make certain disclosures to administer and implement the premium charged for insured losses
policyholders. The rule also Terrorism Risk Insurance Program, covered by the Program, and must
incorporates and clarifies statutory including the prescription of regulations submit a claim and certain certifications
requirements that insurers ‘‘make and procedures. The Program will to Treasury. Treasury will be
available,’’ in their commercial property sunset on December 31, 2005. prescribing claims procedures at a later
and casualty insurance policies, The Act’s purposes are to address date.
terrorism risk coverage for insured market disruptions, ensure the The Act also contains specific
losses under the Program. The interim continued widespread availability and provisions designed to manage litigation
final rule generally incorporates interim affordability of commercial property arising from or relating to a certified act
guidance previously issued by Treasury and casualty insurance for terrorism risk of terrorism. Section 107 creates an
in this area, but with some and to allow for a transition period for exclusive federal cause of action,
modifications. This is the second in a the private markets to stabilize and provides for claims consolidation in
series of regulations that Treasury will build capacity while preserving State federal court and contains a prohibition
issue to implement the Act. insurance regulation and consumer on federal payments for punitive
protections. damages under the Program. This
DATES: This interim final rule is The amount of federal payment for an section also provides the United States
effective April 18, 2003. Written insured loss resulting from an act of with the right of subrogation with
comments on this interim final rule may terrorism is to be determined based respect to any payment or claim paid by
be submitted on or before May 19, 2003. upon the insurance company the United States under the Program. As
ADDRESSES: Submit comments (if hard deductibles and excess loss sharing with part of the claims process, and as
copy, preferably an original and two the Federal Government, as specified by directed by the President, Treasury will
copies) to Office of Financial the Act. Thus, the Program provides a be issuing regulations addressing
Institutions Policy, Attention: Terrorism federal reinsurance backstop for a Treasury’s role in the approval of
Risk Insurance Program Public temporary period of time. The Act also settlements.
Comment Record, Room 3160 Annex, provides Treasury with authority to
Department of the Treasury, 1500 recoup federal payments made under B. Previously Issued Interim Guidance
Pennsylvania Ave., NW., Washington, the Program through policyholder To assist insurers, policyholders and
DC 20220. Because paper mail in the surcharges, up to a maximum annual other interested parties in complying
Washington, DC area may be subject to limit. with immediately applicable and time-
delay, it is recommended that comments Each entity that meets the definition sensitive requirements of the Act prior
be submitted by electronic mail to: of ‘‘insurer’’ (well over 2000 firms) must to the issuance of regulations, Treasury
triacomments@do.treas.gov. All participate in the Program. From the issued interim guidance in four separate
comments should be captioned with date of enactment of the Act through the notices. Treasury publicly released
‘‘April 18, 2003 Interim Final Rule TRIA last day of Program Year 2 (December these interim guidance notices on its
Comments.’’ Please include your name, 31, 2004), insurers under the Program Program Web site, http://
affiliation, address, e-mail address and must ‘‘make available’’ terrorism risk www.treasury.gov/trip and published
telephone number in your comment. insurance in their commercial property each notice in the Federal Register.
Comments will be available for public and casualty insurance policies and the Treasury released the first notice of
inspection by appointment only at the coverage must not differ materially from Interim Guidance on December 3, 2002,
Reading Room of the Treasury Library. the terms, amounts and other coverage within a week of the Act’s enactment
To make appointments, call (202) 622– limitations applicable to commercial (Interim Guidance I). Interim Guidance
0990 (not a toll-free number). property and casualty losses arising I was published at 67 FR 76206 on

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December 11, 2002, and addressed insurers until superseded by regulations compensation for insured losses under
several issues pertaining to immediately or a subsequent notice. Treasury the Program.’’ The Act provides that in
applicable provisions of the Act, provided safe harbors for actions by the case of any policy that is issued
including statutory disclosure those insurers taken in accordance with, before the date of enactment of the Act
obligations of insurers as conditions for and in reliance on, the interim guidance (November 26, 2002), this disclosure
federal payment under the Program and for the time period prior to the issuance must occur not later than 90 days
the requirement that an insurer ‘‘make of regulations. thereafter (February 24, 2003). In the
available’’ terrorism risk insurance. The case of any policy that is issued within
C. Previously Issued Regulations
disclosure guidance in Interim 90 days of the date of enactment, the
Guidance I references certain model Treasury published the first disclosure must be made ‘‘at the time of
forms of the National Association of regulation implementing the Act on offer, purchase, and renewal of the
Insurance Commissioners (NAIC) and February 28, 2003 (68 FR 9804) as an policy.’’ In the case of any policy that
provides a safe harbor for those insurers interim final rule together with a is issued more than 90 days after the
that make use of such forms prior to the proposed rule. Both request comments date of enactment, disclosure must be
issuance of regulations, but Interim by March 31, 2003. The first regulation, made ‘‘on a separate line item in the
Guidance I stated that these forms are which is subpart A of new part 50 in policy, at the time of offer, purchase,
not the exclusive means by which title 31 of the CFR, covers the purpose and renewal of the policy.’’
insurers could comply with the and scope of the Program, key The disclosure requirements are key
disclosure conditions prior to the definitions, and certain general provisions of the Act, both in terms of
issuance of regulations. Interim provisions. being a condition for payment and a
Guidance I also provided guidance II. Analysis of the Interim Final Rule mechanism to effectuate the other
concerning the ‘‘direct earned purposes of the Act. The Conference
premium’’ on lines of property and This interim final rule incorporates Report accompanying the Act states, in
casualty insurance to enable insurers to and clarifies statutory conditions for part:
calculate their ‘‘insurer deductibles’’ federal payment that require insurers to
make certain disclosures to Before receiving Federal assistance under
and enable insurers to price and this Act, an insurer must certify its claim for
disclose premiums for terrorism risk policyholders within specified time
payment of insured losses, that a
insurance to policyholders within limits. The interim final rule also policyholder (or person acting on the
statutory time periods. incorporates and clarifies statutory policyholder’s behalf) has filed a claim for
On December 18, 2002, Treasury requirements that insurers must ‘‘make such loss, and the insurer’s compliance with
issued a second notice of interim available’’ in all of their commercial the Act. The Secretary may not reimburse an
guidance. This interim guidance was property and casualty insurance insurer for such losses unless the insurer has
published at 67 FR 78864 on December policies, coverage for insured losses provided clear and conspicuous disclosure to
resulting from an act of terrorism as the policyholder of the premium charged for
26, 2002 (Interim Guidance II). Interim
defined by the Act. The Act requires terrorism coverage and the Federal share of
Guidance II addressed the statutory compensation. * * *
categories of ‘‘insurers’’ that are insurers to make such terrorism risk The Conferees intend this disclosure to
required to participate in the Program, coverage available at terms, amounts, enhance the competitiveness of the
including their ‘‘affiliates;’’ provided and other coverage limitations that do marketplace by better enabling consumers to
clarification on the scope of ‘‘insured not differ materially from those comparison shop for terrorism insurance
loss’’ covered by the Program and applicable to losses arising from events coverage, and to make policyholders better
provided additional guidance to enable other than acts of terrorism. The interim aware that the Federal government will be
eligible surplus line carriers listed on final rule generally incorporates interim sharing the costs of such coverage with the
guidance previously issued by Treasury, insurers, thereby reducing the insurers’s (sic)
the Quarterly Listing of Alien Insurers
exposure. * * * H.R. Conf. Rep. No. 107–779
of the NAIC or federally approved except as described in this preamble. In (2002).
insurers to calculate their insurer accordance with section 104(c) of the
deductibles for purposes of the Program. Act, Treasury has consulted with the Section 50.12 of the interim final rule
On January 22, 2003, Treasury issued National Association of Insurance deals generally with disclosure
a third notice of interim guidance, Commissioners on this rule. Treasury is requirements. Section 50.12(a) contains
published at 68 FR 4544 on January 29, also issuing a companion proposed rule a new provision stating that whether a
2003 (Interim Guidance III). Interim with request for comment. disclosure is clear and conspicuous
Guidance III further clarified certain Although Treasury is issuing these depends on the totality of the facts and
disclosure and certification questions, requirements in as an interim final rule, circumstances. Treasury is not
issues for non-U.S. insurers, and the we are soliciting comments on all specifying an exclusive form or means
scope of the term ‘‘insured loss’’ under aspects of the interim final rule from all of satisfying the statutory disclosure
the Act. interested parties. Published elsewhere requirements, and Treasury does not
On March 25, 2003, Treasury issued in this separate part of this issue of the intend to adopt a practice of prescribing
a fourth interim guidance published at Federal Register is a notice of proposed particular language or forms. However,
68 FR 15039 on March 27, 2003 (Interim rulemaking proposing to adopt the in order to provide guidance to insurers,
Guidance IV). Interim Guidance IV provisions of this interim final rule as Treasury in previous interim guidance
provided insurers a procedure by which a final rule. has deemed certain NAIC model forms
they could seek to rebut a presumption to be acceptable in terms of satisfying
of control established in Treasury’s first A. Disclosures the disclosure requirement and has
set of interim final regulations. See One of the conditions for federal stated that insurers may modify the
Previously Issued Regulations in section payments under section 103(b) of the forms to meet individual circumstances,
C below and Treasury’s Web site at Act is that the insurer provide ‘‘clear or use other forms. This interim
http://www.treasury.gov/trip. and conspicuous disclosure to the guidance has been incorporated into the
In issuing each notice of Interim policyholder of the premium charged interim final rule and provides a safe
Guidance, Treasury stated that the for insured losses covered by the harbor (see section 50.17 of the interim
Interim Guidance may be relied upon by Program and the federal share of final rule) for policies that were in force

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on the date of enactment or were issued this fashion. The insurer remains elsewhere within the policy itself; or in
within 90 days of enactment. For responsible for ensuring that the any rider or endorsement that is made
policies issued more than 90 days after disclosures are provided to a part of the policy. Taken together,
enactment, section 50.17 (c) provides policyholders. sections 50.13 and 50.14 allow for an
that insurers may continue to use Section 50.12(e) of the interim final insurer to make the required disclosure
certain NAIC model forms if appropriate rule states that an insurer may when the insurer first formally offers to
or develop other disclosures that meet demonstrate that it has complied with provide coverage, and then to refer back
the requirements of sections 50.10(a) the disclosure requirement through use to that disclosure using any of the
and 50.14. of appropriate systems and normal options that qualify a separate line item.
Treasury stated in Interim Guidance II business practices that demonstrate a Section 50.17 incorporates the safe
that an insurer may communicate the practice of compliance. As stated in harbors provided in interim guidance
premium for insured losses in a manner Interim Guidance II, compliance with for certain NAIC model forms. These
that is consistent with standard business the disclosure provisions may be forms may be found on the NAIC
practice, which in some cases may be as evidenced in a variety of ways, Internet Web site at http://
a percentage of the overall policy including a proof of mailing process and www.naic.org/pressroom/releases/
premium. This interim final rule other methods consistent with normal disclose_one_final.pdf and http://
incorporates this guidance and also forms of communication with www.naic.org/pressroom/releases/
contains a provision in section 50.12(b) policyholders. Treasury has taken this disclose_two_final.pdf. These forms are
stating that an insurer may not describe approach to enable insurers to utilize also accessible from the Treasury Web
the premium in a manner that is their normal business practices and risk site at http://www.treasury.gov/trip. As
misleading in the context of the management procedures as much as noted above, these forms are only
Program, such as by characterizing the possible to minimize the administrative examples and are not the exclusive
premium as a ‘‘surcharge.’’ It is burden to insurers in implementing the means for an insurer to comply with the
inappropriate to use the term Act. disclosure requirements.
‘‘surcharge’’ in the disclosures, because In Interim Guidance III, Treasury Section 50.18 of the interim final rule
that term is used in the Act and the stated that it expected to propose reiterates the disclosure requirements in
Program only in connection with the regulations that would require an section 105(c) of the Act for
statutory recoupment procedure that insurer to certify that it complied with reinstatement of any preexisting
requires certain surcharges to repay the the required disclosure(s) to the terrorism exclusion. Section 50.19 is
federal financial assistance. Pursuant to policyholder on the underlying claim or merely a cross-reference to the
the Act’s recoupment provisions, any claims submitted by the insurer for regulations in subpart D, which will be
amount established by the Secretary as federal payment under the Program. issued separately and will cover State
a terrorism loss risk-spreading premium This provision does not in any way residual market insurance entities and
is to be imposed as a policyholder impact the calculation of an insurer’s State workers’ compensation funds.
premium ‘‘surcharge’’ on property and direct earned premium as specified in The Act specifies certain time limits
casualty insurance policies in force at section 50.5(d) (see the first interim for disclosures to policyholders.
that time. See sections 103(e)(7) and (8) final rule, 68 FR 9804), or the statutory Treasury will be evaluating whether an
of the Act. recoupment provisions. Section 50.12(f) insurer has materially complied with
In Interim Guidance III, Treasury of this interim final rule clarifies that an these and other conditions for payment
indicated that the disclosures can be insurer will only be required to certify with respect to any claim. In so doing,
communicated by the use of channels, with respect to those policies that form Treasury expects to consider applicable
methods and forms of communication the basis for its claims, i.e., not all other facts and circumstances, including good
normally used to communicate similar policies that are written by an insurance faith efforts of the insurer to meet
policyholder information. This interim company. ‘‘Basis’’ means all policies applicable time limits after enactment of
final rule incorporates that principle in used by an insurer to calculate its total the Act, and during the duration of the
section 50.12(c). In some contexts there insured loss. Program.
may be a question about who is the Sections 50.13 and 50.14 of the
interim final rule incorporate guidance B. Mandatory Availability
‘‘policyholder’’ with whom the insurer
normally communicates. For example, a previously issued (see Interim Guidance Section 103(c) of the Act requires
surety insurance company may III) on what constitutes ‘‘offer, purchase, each entity that meets the definition of
normally deal with purchasers of surety and renewal’’ and a ‘‘separate line item’’ an insurer under the Act to (1) make
bonds and communicate to them for purposes of this provision of the Act. available, in all of its property and
policyholder information similar to An insurer is deemed to be in casualty insurance policies, coverage for
disclosures, although the bonds run in compliance with the requirement of insured losses; and (2) make available
favor of other parties who would be providing disclosure at the time of property and casualty insurance
paid in the event of loss. In such cases ‘‘offer, purchase, and renewal’’ of the coverage for insured losses that does not
where there is some ambiguity as to policy if the insurer makes the differ materially from the terms,
who the policyholder is, insurance disclosure when the insurer first amounts, and other coverage limitations
companies should rely on normal formally offers to provide insurance applicable to losses arising from events
business practices in determining what coverage or renew a policy for a current other than acts of terrorism. These
parties should be provided disclosures. policyholder, and makes clear and requirements apply from the date of
Section 50.12(d) of the interim final conspicuous reference back to that enactment (November 26, 2002) through
rule reiterates guidance previously disclosure, as well as the final terms of the last day of Program Year 2
issued (see Interim Guidance I) to the terrorism insurance coverage, when the (December 31, 2004). The Secretary is
effect that an insurer may communicate transaction is completed. An insurer is required to determine, not later than
disclosures through an insurance broker deemed to be in compliance with the September 1, 2004, based on the factors
or other intermediary acting as agent for ‘‘separate line item’’ requirement if the in section 108(d)(1) of the Act, whether
the insurer if the insurer normally insurer makes the disclosure: on the the make available requirements should
communicates with a policyholder in declarations page of the policy; be extended through Program Year 3

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(December 31, 2005). The Conference Section 50.21(c) addresses the terrorism. If an insurer does not cover
Report accompanying the Act states, demonstration of compliance by an all types of risks, either because the
with respect to this provision, that ‘‘the insurer with the make available insurer is outside of direct State
Secretary has discretion to extend this requirement. Treasury has audit and regulatory oversight, or because a State
requirement to the third year of the investigative authority under the Act permits certain exclusions for certain
Program, to preserve this important and insurers should be prepared to types of losses, such as nuclear,
option for policyholders.’’ H.R. Conf. demonstrate compliance with the make biological, or chemical events, then the
Rep. No. 107–779 (2002). available requirements. Treasury is not insurer is not required to make such
Section 50.20 of the interim final rule prescribing any new recordkeeping coverage available.
incorporates the general statutory requirement. With regard to an insurer’s Section 50.24 of the interim final rule
requirements as described above. current insurance policies, records addresses the interrelationship of
Section 50.21 of the interim final rule related to the make available federal and State law requirements and
covers general matters of applicable requirements are likely to be included confirms the continued applicability of
time periods, initial offers of coverage and retained as part of standard policy State law requirements, consistent with
versus subsequent negotiations, and documents in the normal course of Interim Guidance I. (See also the
how an insurer may demonstrate business. In this regard, however, if an discussion of section 50.21(b), above.)
compliance. Section 50.21(a) makes insurer makes an offer of insurance but After satisfying the requirement to make
clear that the make available no contract of insurance is purchased or available coverage for insured losses
requirements apply to policies in renewed (i.e. no insurance contract is that does not differ materially from the
existence on November 26, 2002, new finalized), the insurer may demonstrate terms, amounts, and other coverage
policies issued, and renewals of existing that it has satisfied the make available limitations applicable to losses arising
policies through the end of Program requirements through its routine from events other than acts of terrorism,
Year 2 (unless extended by the adherence to normal risk management if coverage is rejected, an insurer may
Secretary). The make available systems (e.g., company policies, use of then offer coverage that is on different
requirements are not one-time internal controls and audits) and normal terms, amounts, or coverage limitations,
requirements. For example, if an insurer business practices (e.g. sample forms as long as such an offer does not violate
has satisfied the make available routinely used to solicit business) any applicable State law requirements.
requirements in Program Year 1 in its during the relevant time period that For example, if an insurer subject to
offer to a policyholder, but the coverage evidence its practice of compliance. State regulation first satisfies the
offered is declined, the insurer must Section 50.23 of the interim final rule requirement to make available property
still satisfy the make available addresses the language ‘‘terms, amounts, and casualty insurance coverage for
requirements again when the policy is and coverage limitations’’ in the make insured losses that does not differ
renewed in Program Year 2. available requirements. Sections materially from the terms, amounts, and
Section 50.21(a) also states, consistent 50.23(a) and (b) of the interim final rule other coverage limitations applicable to
with Interim Guidance I, that the make incorporate guidance previously issued losses arising from events other than
available requirements apply at the time by Treasury (Interim Guidance I). acts of terrorism, and the State has a
an insurer makes the initial offer of Section 50.23(a) states that an insurer requirement that an insurer offer full
coverage, as distinguished from changes must offer coverage for insured losses coverage without any exclusion, then
negotiated by the insurer thereafter as resulting from an act of terrorism that the requirement would continue to
part of the process of agreeing on a does not differ materially from the apply and the insurer may not
contract of insurance. Section terms, amounts, and other coverage subsequently offer less than full
50.21(b)(1) addresses a situation in limitations (including deductibles) coverage or coverage with exclusions. If
which an insurer makes an initial bona applicable to losses from other perils. such an insurer first satisfies the make
fide offer of terrorism risk coverage for ‘‘Terms’’ excludes price for purposes of available requirement but the State
insured losses that does not differ this requirement. This means the permits certain exclusions or allows for
materially from the terms, amounts, and requirement to offer coverage for other limitations (or an insurance policy
other coverage limitations applicable to insured losses that does not differ is not governed by State law
losses arising from events other than materially from the terms, amounts and requirements), then the insurer may
acts of terrorism; the policyholder then other coverage limitations applicable to subsequently offer limited coverage or
declines the offer, and the insurer losses arising from events other than coverage with exclusions.
subsequently negotiates terrorism risk acts of terrorism does not apply to the
coverage of the policyholder for insured III. Procedural Requirements
price of the coverage. As noted in
losses at a lower amount of terrorism Interim Guidance I, however, Treasury The Act established a Program to
risk coverage than initially offered. In will be monitoring the pricing and provide for loss sharing payments by the
such a situation, under the interim final availability of terrorism risk insurance Federal Government for insured losses
rule, the make available requirements coverage as part of the Act’s resulting from certified acts of terrorism.
would have been satisfied by the initial requirements that Treasury study the The Act became effective immediately
offer, and therefore an offer of a lower effectiveness of the Program (section upon the date of enactment (November
amount of terrorism risk coverage is 108(d)(1)). 26, 2002). Preemptions of terrorism risk
deemed permissible, if allowed under Section 50.23(b) provides that if an exclusions in policies, mandatory
any applicable State law. Although a insurer does not cover all types of risks, participation provisions, disclosure and
subsequent lower offer as described is then it is not required to cover the other requirements and conditions for
permissible, neither the Act nor the excluded risks in satisfying the federal payment contained in the Act
Program require an insurer to offer requirement to make available coverage applied immediately to those entities
partial coverage if the policyholder for losses resulting from an act of that come within the Act’s definition of
declines full coverage in an initial offer. terrorism that does not differ materially ‘‘insurer.’’
(See the discussion below of section from the terms, amounts, and other The disclosure requirements are
50.24, which deals with the coverage limitations applicable to losses statutory conditions for federal payment
applicability of State law requirements.) arising from events other than acts of under the Program. The disclosure

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requirements were effective PART 50—TERRORISM RISK (c) Method of disclosure. An insurer
immediately upon enactment and INSURANCE PROGRAM may provide disclosures using normal
remain ongoing requirements that apply business practices, including forms and
to new and renewed policies throughout ■ 1. The authority citation for 31 CFR methods of communication used to
the life of the Program. In the event of part 50 continues to read as follows: communicate similar policyholder
an act of terrorism resulting in insured Authority: 5 U.S.C. 301; 31 U.S.C. 321; information to policyholders.
losses under the Program, insurers must Title I, Pub. L. 107–297, 116 Stat. 2322 (15 (d) Use of agent. If an insurer
certify, and Treasury must ascertain, U.S.C. 6701 note). normally communicates with a
that these disclosure requirements have ■ 2. Subpart B of 31 CFR part 50 is policyholder through an insurance
been met before federal payment is amended by adding §§ 50.10 through broker or other intermediary acting as
made. Similarly, the make available 50.14 and 50.17 through 50.19 to read as agent for the insurer, an insurer may
requirements are critical elements of the follows: provide disclosures through such an
Act. These requirements were effective agent. The insurer remains responsible
§ 50.10 General disclosure requirements.
immediately upon enactment and for ensuring that disclosures are
applied to policies in effect at that time. (a) All policies. As a condition for provided to policyholders in accordance
They will continue to apply to new and federal payments under section 103(b) with the Act.
renewed policies through the end of of the Act, the Act requires that an (e) Demonstration of compliance. An
2004 (and if the requirements are insurer provide clear and conspicuous insurer may demonstrate that it has
extended by the Secretary, through disclosure to the policyholder of: satisfied the requirement to provide
(1) The premium charged for insured clear and conspicuous disclosure as
2005). Given the significance of the
losses covered by the Program; and described in § 50.10 through use of
disclosure and make available
(2) The federal share of compensation appropriate systems and normal
requirements to policyholders and
for insured losses under the Program. business practices that demonstrate a
insurers, there is an urgent need to issue
(b) Policies in force on the date of practice of compliance.
immediately effective regulations that
enactment. For policies issued before (f) Certification of compliance. An
incorporate and clarify interim guidance November 26, 2002, the disclosure
with regard to these requirements. insurer must certify that it has complied
required by the Act must be provided with the requirement to provide
For the above reasons, pursuant to 5 within 90 days of November 26, 2002 disclosure to the policyholder on all
U.S.C. 553(b)(B), Treasury has (no later than February 24, 2003). policies that form the basis for any
determined that it would be contrary to (c) Policies issued within 90 days of claim that is submitted by an insurer for
the public interest to delay the the date of enactment. For policies federal payment under the Program.
publication of this rule in final form issued within the 90-day period
during the pendency of an opportunity beginning on November 26, 2002 § 50.13 Offer, purchase, and renewal.
for public comment. For the same through February 24, 2003, the An insurer is deemed to be in
reasons, pursuant to 5 U.S.C. 553(d)(3), disclosure required by the Act must be compliance with the requirement of
Treasury has determined that there is provided at the time of offer, purchase, providing disclosure ‘‘at the time of
good cause for the interim final rule to and renewal of the policy. offer, purchase, and renewal of the
become effective immediately upon (d) Policies issued more than 90 days policy’’ under § 50.10(c) and (d) if the
publication. While this regulation is after the date of enactment. For policies insurer:
effective immediately upon publication, issued on or after February 25, 2003, the (a) Makes the disclosure no later than
Treasury is seeking public comment on disclosure required by the Act must be the time the insurer first formally offers
the regulation and will consider all made on a separate line item in the to provide insurance coverage or renew
comments in developing a final rule. policy, at the time of offer, purchase, a policy for a current policyholder; and
This interim final rule is a significant and renewal of the policy. (b) Makes clear and conspicuous
regulatory action and has been reviewed reference back to that disclosure, as well
§ 50.11 Definition.
by the Office of Management and as the final terms of terrorism insurance
Except as provided in § 50.18, for coverage, at the time the transaction is
Budget under the terms of Executive purposes of this subpart the term
Order 12866. completed.
‘‘disclosure’’ or ‘‘disclosures’’ refers to
Because no notice of proposed the disclosures described in section § 50.14 Separate line item.
rulemaking is required, the provisions 103(b)(2) of the Act and § 50.10. An insurer is deemed to be in
of the Regulatory Flexibility Act (5 compliance with the requirement of
U.S.C. chapter 6) do not apply. § 50.12 Clear and conspicuous disclosure.
providing disclosure on a ‘‘separate line
However, the Act and the Program are (a) General. Whether a disclosure is item in the policy’’ under § 50.10(d) if
intended to provide benefits to the U.S. clear and conspicuous depends on the the insurer makes the disclosure:
economy and all businesses, including totality of the facts and circumstances of (a) On the declarations page of the
small businesses, by providing a federal the disclosure. See § 50.17 for model policy;
reinsurance backstop to commercial forms. (b) Elsewhere within the policy itself;
property and casualty policyholders and (b) Description of premium. An or
spreading the risk of insured loss insurer may describe the premium (c) In any rider or endorsement that is
resulting from an act of terrorism. charged for insured losses covered by made a part of the policy.
the Program as a portion or percentage
List of Subjects in 31 CFR Part 50 of an annual premium, if consistent § 50.17 Use of model forms.
with standard business practice. An (a) Policies in force on the date of
Terrorism risk insurance.
insurer may not describe the premium enactment. (1) An insurer that is
Authority and Issuance in a manner that is misleading in the required to make the disclosure under
context of the Program, such as by § 50.10(b) and that makes no change in
■ For the reasons stated above, 31 CFR characterizing the premium as a the existing premium, is deemed to be
part 50 is amended as follows: ‘‘surcharge.’’ in compliance with the disclosure

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requirement if it uses NAIC Model (1) The insurer has received a written making an offer with coverage for
Disclosure Form No. 2. statement from the insured that insured losses that does not differ
(2) An insurer that is required to make affirmatively authorizes such materially from the terms, amounts, and
the disclosure under § 50.10(b) and that reinstatement; or other coverage limitations applicable to
makes a change in the existing (2) The insured provided notice at losses arising from events other than
premium, is deemed to be in least 30 days before any such acts of terrorism, which the
compliance with the disclosure reinstatement of the increased premium policyholder declines, the insurer may
requirement if it uses NAIC Model for such terrorism coverage and the negotiate with the policyholder an
Disclosure Form No. 1. Such an insurer rights of the insured with respect to option of partial coverage for insured
may also use the same NAIC Model such coverage, including the date upon losses at a lower amount of coverage if
Disclosure Form No. 1 to comply with which the exclusion would be permitted by any applicable State law.
the disclosure requirement of section reinstated if no payment is received, An insurer is not required by the Act to
105(c) of the Act. See § 50.18. and the insured fails to pay any offer partial coverage if the policyholder
(b) Policies issued within 90 days of increased premium charged by the declines full coverage. See § 50.24.
the date of enactment. An insurer that insurer for providing such terrorism (c) Demonstration of compliance. If an
is required to make the disclosure under coverage. insurer makes an offer of insurance but
§ 50.10(c) is deemed to be in compliance no contract of insurance is concluded,
§ 50.19 Disclosure by State residual the insurer may demonstrate that it has
with the disclosure requirement if it market insurance entities and State
uses either NAIC Model Disclosure workers’ compensation funds [Reserved]
satisfied the requirement to make
Form No. 1 or NAIC Model Disclosure available coverage as described in
Form No. 2, as long as the form used is ■ 3. Subpart C of 31 CFR part 50 is § 50.20 through use of appropriate
modified as appropriate for the amended by adding §§ 50.20, 50.21, systems and normal business practices
particular policy. 50.23 and 50.24 to read as follows: that demonstrate a practice of
(c) Policies issued more than 90 days § 50.20 General mandatory availability
compliance.
after the date of enactment. An insurer requirements. § 50.23 No material difference from other
that is required to make the disclosure (a) Transition Period and Program coverage.
under § 50.10(d) may continue to use Years 1 and 2—period ending December (a) Terms, amounts, and other
NAIC Model Disclosure Form No. 1 or 31, 2004. Under section 103(c) of the coverage limitations. As provided in
NAIC Model Disclosure Form No. 2 if Act (unless the time is extended by the § 50.20(a)(2), an insurer must offer
appropriate, or other disclosures that Secretary as provided in that section) coverage for insured losses resulting
meet the requirements of §§ 50.10(a) and during the period beginning on from an act of terrorism that does not
50.14 may be developed. November 26, 2002 and ending on differ materially from the terms,
(d) Not exclusive means of December 31, 2004 (the last day of amounts, and other coverage limitations
compliance. An insurer is not required Program Year 2), an insurer must: (including deductibles) applicable to
to use NAIC Model Disclosure Form No. (1) Make available, in all of its losses from other perils. For purposes of
1 or NAIC Model Disclosure Form No. property and casualty insurance this requirement, ‘‘terms’’ excludes
2 to satisfy the disclosure requirement. policies, coverage for insured losses; price.
An insurer may use other means to and (b) Limitations on types of risk. If an
comply with the disclosure (2) Make available property and insurer does not cover all types of risks,
requirement, as long as the disclosure casualty insurance coverage for insured then it is not required to cover the
comports with the requirements of the losses that does not differ materially excluded risks in satisfying the
Act. from the terms, amounts, and other requirement to make available coverage
(e) Definitions. For purposes of this coverage limitations applicable to losses for losses resulting from an act of
section, references to NAIC Model arising from events other than acts of terrorism that does not differ materially
Disclosure Form No. 1 and NAIC Model terrorism. from the terms, amounts, and other
Disclosure Form No. 2 refer to such (b) Program Year 3—calendar year coverage limitations applicable to losses
forms as were in existence on April 18, 2005. [Reserved] arising from events other than acts of
2003. These forms may be found on the terrorism. For example, if an insurer
Treasury Web site at http:// § 50.21 Make available.
does not cover all types of risks, either
www.treasury.gov/trip. (a) General. The requirement to make because the insurer is outside of direct
available coverage as provided in State regulatory oversight, or because a
§ 50.18 Disclosure required by § 50.20 applies to policies in existence
reinstatement provision. State permits certain exclusions for
on November 26, 2002, new policies certain types of losses, such as nuclear,
(a) Nullification of terrorism issued and renewals of existing policies biological, or chemical events, then the
exclusion. Any terrorism exclusion in a during the period beginning on insurer is not required to make such
contract for property and casualty November 26, 2002 and ending on coverage available.
insurance that was in force on December 31, 2004 (the last day of
November 26, 2002, is void to the extent Program Year 2), and if the requirement § 50.24 Applicability of State law
it excludes losses that would otherwise is extended by the Secretary, to new requirements.
be insured losses. policies issued and renewals of existing (a) General. After satisfying the
(b) Reinstatement of terrorism policies in Program Year 3 (calendar requirement to make available coverage
exclusion. Notwithstanding paragraph year 2005). The requirement applies at for insured losses that does not differ
(a) of this section, an insurer may the time an insurer makes the initial materially from the terms, amounts, and
reinstate a preexisting provision in a offer of coverage. other coverage limitations applicable to
contract for property and casualty (b) Changes negotiated subsequent to losses arising from events other than
insurance that was in force on initial offer. If an insurer satisfies the acts of terrorism, if coverage is rejected
November 26, 2002, and that excludes requirement to ‘‘make available’’ an insurer may then offer coverage that
coverage for an act of terrorism only if: coverage as described in § 50.20 by first is on different terms, amounts, or

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19308 Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Rules and Regulations

coverage limitations, as long as such an continue to apply and the insurer may requirements, then the insurer may
offer does not violate any applicable not subsequently offer less than full subsequently offer limited coverage or
State law requirements. coverage or coverage with exclusions. coverage with exclusions.
(b) Examples. (1) If an insurer subject (2) If an insurer subject to State Dated: April 11, 2003.
to State regulation first makes available regulation first makes available coverage
Wayne A. Abernathy,
coverage in accordance with § 50.20 and in accordance with § 50.20 and the State
the State has a requirement that an permits certain exclusions or allows for Assistant Secretary of the Treasury.
insurer offer full coverage without any other limitations, or an insurance policy [FR Doc. 03–9611 Filed 4–17–03; 8:45 am]
exclusion, then the requirement would is not governed by State law BILLING CODE 4810–25–P

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