[Federal Register Volume 68, Number 75 (Friday, April 18, 2003)]
[Rules and Regulations]
[Pages 19302-19308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9611]



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Part IV





Department of the Treasury





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31 CFR Part 50



Terrorism Risk Insurance Program; Interim Final Rule and Proposed Rules

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

[[Page 19302]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AA98


Terrorism Risk Insurance Program

AGENCY: Departmental Offices, Treasury.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
interim final rule as part of its implementation of Title I of the 
Terrorism Risk Insurance Act of 2002 (Act). The Act established a 
temporary Terrorism Risk Insurance Program (Program) under which the 
Federal Government will share the risk of insured losses from certified 
acts of terrorism with commercial property and casualty insurers until 
the Program sunsets on December 31, 2005. This interim final rule 
incorporates and clarifies statutory conditions for federal payment 
under the Program that require insurers to make certain disclosures to 
policyholders. The rule also incorporates and clarifies statutory 
requirements that insurers ``make available,'' in their commercial 
property and casualty insurance policies, terrorism risk coverage for 
insured losses under the Program. The interim final rule generally 
incorporates interim guidance previously issued by Treasury in this 
area, but with some modifications. This is the second in a series of 
regulations that Treasury will issue to implement the Act.

DATES: This interim final rule is effective April 18, 2003. Written 
comments on this interim final rule may be submitted on or before May 
19, 2003.

ADDRESSES: Submit comments (if hard copy, preferably an original and 
two copies) to Office of Financial Institutions Policy, Attention: 
Terrorism Risk Insurance Program Public Comment Record, Room 3160 
Annex, Department of the Treasury, 1500 Pennsylvania Ave., NW., 
Washington, DC 20220. Because paper mail in the Washington, DC area may 
be subject to delay, it is recommended that comments be submitted by 
electronic mail to: [email protected]. All comments should be 
captioned with ``April 18, 2003 Interim Final Rule TRIA Comments.'' 
Please include your name, affiliation, address, e-mail address and 
telephone number in your comment. Comments will be available for public 
inspection by appointment only at the Reading Room of the Treasury 
Library. To make appointments, call (202) 622-0990 (not a toll-free 
number).

FOR FURTHER INFORMATION CONTACT: Mario Ugoletti, Deputy Director, 
Office of Financial Institutions Policy (202) 622-2730, or Martha 
Ellett or Cynthia Reese, Attorney-Advisors, Office of the Assistant 
General Counsel (Banking & Finance), (202) 622-0480 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

I. Background

A. Terrorism Risk Insurance Act of 2002

    On November 26, 2002, President Bush signed into law the Terrorism 
Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322). The Act 
was effective immediately. Title I of the Act establishes a temporary 
federal program of shared public and private compensation for insured 
commercial property and casualty losses resulting from an act of 
terrorism as defined in the Act and certified by the Secretary of the 
Treasury, in concurrence with the Secretary of State and the Attorney 
General. The Act authorizes Treasury to administer and implement the 
Terrorism Risk Insurance Program, including the prescription of 
regulations and procedures. The Program will sunset on December 31, 
2005.
    The Act's purposes are to address market disruptions, ensure the 
continued widespread availability and affordability of commercial 
property and casualty insurance for terrorism risk and to allow for a 
transition period for the private markets to stabilize and build 
capacity while preserving State insurance regulation and consumer 
protections.
    The amount of federal payment for an insured loss resulting from an 
act of terrorism is to be determined based upon the insurance company 
deductibles and excess loss sharing with the Federal Government, as 
specified by the Act. Thus, the Program provides a federal reinsurance 
backstop for a temporary period of time. The Act also provides Treasury 
with authority to recoup federal payments made under the Program 
through policyholder surcharges, up to a maximum annual limit.
    Each entity that meets the definition of ``insurer'' (well over 
2000 firms) must participate in the Program. From the date of enactment 
of the Act through the last day of Program Year 2 (December 31, 2004), 
insurers under the Program must ``make available'' terrorism risk 
insurance in their commercial property and casualty insurance policies 
and the coverage must not differ materially from the terms, amounts and 
other coverage limitations applicable to commercial property and 
casualty losses arising from events other than acts of terrorism. The 
Act permits Treasury to extend the ``make available'' requirement into 
Program Year 3, based on an analysis of factors referenced in the study 
required by section 108(d)(1) of the Act, and not later than September 
1, 2004.
    An insurer's deductible increases each year of the Program, thereby 
reducing the Federal Government's involvement prior to sunset of the 
Program. An insurer's deductible is based on ``direct earned premiums'' 
over a statutory Transition Period (now expired) and the three Program 
Years. Once an insurer has met its deductible, the federal payments 
cover 90 percent of insured losses above the deductible, subject to an 
aggregate annual cap of $100 billion. The Act prohibits duplicative 
payments for insured losses that are covered under any other federal 
program.
    As conditions for federal payment under the Program, insurers must 
provide clear and conspicuous disclosure to the policyholders of the 
premium charged for insured losses covered by the Program, and must 
submit a claim and certain certifications to Treasury. Treasury will be 
prescribing claims procedures at a later date.
    The Act also contains specific provisions designed to manage 
litigation arising from or relating to a certified act of terrorism. 
Section 107 creates an exclusive federal cause of action, provides for 
claims consolidation in federal court and contains a prohibition on 
federal payments for punitive damages under the Program. This section 
also provides the United States with the right of subrogation with 
respect to any payment or claim paid by the United States under the 
Program. As part of the claims process, and as directed by the 
President, Treasury will be issuing regulations addressing Treasury's 
role in the approval of settlements.

B. Previously Issued Interim Guidance

    To assist insurers, policyholders and other interested parties in 
complying with immediately applicable and time-sensitive requirements 
of the Act prior to the issuance of regulations, Treasury issued 
interim guidance in four separate notices. Treasury publicly released 
these interim guidance notices on its Program Web site, http://www.treasury.gov/trip and published each notice in the Federal 
Register.
    Treasury released the first notice of Interim Guidance on December 
3, 2002, within a week of the Act's enactment (Interim Guidance I). 
Interim Guidance I was published at 67 FR 76206 on

[[Page 19303]]

December 11, 2002, and addressed several issues pertaining to 
immediately applicable provisions of the Act, including statutory 
disclosure obligations of insurers as conditions for federal payment 
under the Program and the requirement that an insurer ``make 
available'' terrorism risk insurance. The disclosure guidance in 
Interim Guidance I references certain model forms of the National 
Association of Insurance Commissioners (NAIC) and provides a safe 
harbor for those insurers that make use of such forms prior to the 
issuance of regulations, but Interim Guidance I stated that these forms 
are not the exclusive means by which insurers could comply with the 
disclosure conditions prior to the issuance of regulations. Interim 
Guidance I also provided guidance concerning the ``direct earned 
premium'' on lines of property and casualty insurance to enable 
insurers to calculate their ``insurer deductibles'' and enable insurers 
to price and disclose premiums for terrorism risk insurance to 
policyholders within statutory time periods.
    On December 18, 2002, Treasury issued a second notice of interim 
guidance. This interim guidance was published at 67 FR 78864 on 
December 26, 2002 (Interim Guidance II). Interim Guidance II addressed 
the statutory categories of ``insurers'' that are required to 
participate in the Program, including their ``affiliates;'' provided 
clarification on the scope of ``insured loss'' covered by the Program 
and provided additional guidance to enable eligible surplus line 
carriers listed on the Quarterly Listing of Alien Insurers of the NAIC 
or federally approved insurers to calculate their insurer deductibles 
for purposes of the Program.
    On January 22, 2003, Treasury issued a third notice of interim 
guidance, published at 68 FR 4544 on January 29, 2003 (Interim Guidance 
III). Interim Guidance III further clarified certain disclosure and 
certification questions, issues for non-U.S. insurers, and the scope of 
the term ``insured loss'' under the Act.
    On March 25, 2003, Treasury issued a fourth interim guidance 
published at 68 FR 15039 on March 27, 2003 (Interim Guidance IV). 
Interim Guidance IV provided insurers a procedure by which they could 
seek to rebut a presumption of control established in Treasury's first 
set of interim final regulations. See Previously Issued Regulations in 
section C below and Treasury's Web site at http://www.treasury.gov/trip.
    In issuing each notice of Interim Guidance, Treasury stated that 
the Interim Guidance may be relied upon by insurers until superseded by 
regulations or a subsequent notice. Treasury provided safe harbors for 
actions by those insurers taken in accordance with, and in reliance on, 
the interim guidance for the time period prior to the issuance of 
regulations.

C. Previously Issued Regulations

    Treasury published the first regulation implementing the Act on 
February 28, 2003 (68 FR 9804) as an interim final rule together with a 
proposed rule. Both request comments by March 31, 2003. The first 
regulation, which is subpart A of new part 50 in title 31 of the CFR, 
covers the purpose and scope of the Program, key definitions, and 
certain general provisions.

II. Analysis of the Interim Final Rule

    This interim final rule incorporates and clarifies statutory 
conditions for federal payment that require insurers to make certain 
disclosures to policyholders within specified time limits. The interim 
final rule also incorporates and clarifies statutory requirements that 
insurers must ``make available'' in all of their commercial property 
and casualty insurance policies, coverage for insured losses resulting 
from an act of terrorism as defined by the Act. The Act requires 
insurers to make such terrorism risk coverage available at terms, 
amounts, and other coverage limitations that do not differ materially 
from those applicable to losses arising from events other than acts of 
terrorism. The interim final rule generally incorporates interim 
guidance previously issued by Treasury, except as described in this 
preamble. In accordance with section 104(c) of the Act, Treasury has 
consulted with the National Association of Insurance Commissioners on 
this rule. Treasury is also issuing a companion proposed rule with 
request for comment.
    Although Treasury is issuing these requirements in as an interim 
final rule, we are soliciting comments on all aspects of the interim 
final rule from all interested parties. Published elsewhere in this 
separate part of this issue of the Federal Register is a notice of 
proposed rulemaking proposing to adopt the provisions of this interim 
final rule as a final rule.

A. Disclosures

    One of the conditions for federal payments under section 103(b) of 
the Act is that the insurer provide ``clear and conspicuous disclosure 
to the policyholder of the premium charged for insured losses covered 
by the Program and the federal share of compensation for insured losses 
under the Program.'' The Act provides that in the case of any policy 
that is issued before the date of enactment of the Act (November 26, 
2002), this disclosure must occur not later than 90 days thereafter 
(February 24, 2003). In the case of any policy that is issued within 90 
days of the date of enactment, the disclosure must be made ``at the 
time of offer, purchase, and renewal of the policy.'' In the case of 
any policy that is issued more than 90 days after the date of 
enactment, disclosure must be made ``on a separate line item in the 
policy, at the time of offer, purchase, and renewal of the policy.''
    The disclosure requirements are key provisions of the Act, both in 
terms of being a condition for payment and a mechanism to effectuate 
the other purposes of the Act. The Conference Report accompanying the 
Act states, in part:

Before receiving Federal assistance under this Act, an insurer must 
certify its claim for payment of insured losses, that a policyholder 
(or person acting on the policyholder's behalf) has filed a claim 
for such loss, and the insurer's compliance with the Act. The 
Secretary may not reimburse an insurer for such losses unless the 
insurer has provided clear and conspicuous disclosure to the 
policyholder of the premium charged for terrorism coverage and the 
Federal share of compensation. * * *
The Conferees intend this disclosure to enhance the competitiveness 
of the marketplace by better enabling consumers to comparison shop 
for terrorism insurance coverage, and to make policyholders better 
aware that the Federal government will be sharing the costs of such 
coverage with the insurers, thereby reducing the insurers's (sic) 
exposure. * * * H.R. Conf. Rep. No. 107-779 (2002).

    Section 50.12 of the interim final rule deals generally with 
disclosure requirements. Section 50.12(a) contains a new provision 
stating that whether a disclosure is clear and conspicuous depends on 
the totality of the facts and circumstances. Treasury is not specifying 
an exclusive form or means of satisfying the statutory disclosure 
requirements, and Treasury does not intend to adopt a practice of 
prescribing particular language or forms. However, in order to provide 
guidance to insurers, Treasury in previous interim guidance has deemed 
certain NAIC model forms to be acceptable in terms of satisfying the 
disclosure requirement and has stated that insurers may modify the 
forms to meet individual circumstances, or use other forms. This 
interim guidance has been incorporated into the interim final rule and 
provides a safe harbor (see section 50.17 of the interim final rule) 
for policies that were in force

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

B. Mandatory Availability

    Section 103(c) of the Act requires each entity that meets the 
definition of an insurer under the Act to (1) make available, in all of 
its property and casualty insurance policies, coverage for insured 
losses; and (2) make available property and casualty insurance coverage 
for insured losses that does not differ materially from the terms, 
amounts, and other coverage limitations applicable to losses arising 
from events other than acts of terrorism. These requirements apply from 
the date of enactment (November 26, 2002) through the last day of 
Program Year 2 (December 31, 2004). The Secretary is required to 
determine, not later than September 1, 2004, based on the factors in 
section 108(d)(1) of the Act, whether the make available requirements 
should be extended through Program Year 3

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

III. Procedural Requirements

    The Act established a Program to provide for loss sharing payments 
by the Federal Government for insured losses resulting from certified 
acts of terrorism. The Act became effective immediately upon the date 
of enactment (November 26, 2002). Preemptions of terrorism risk 
exclusions in policies, mandatory participation provisions, disclosure 
and other requirements and conditions for federal payment contained in 
the Act applied immediately to those entities that come within the 
Act's definition of ``insurer.''
    The disclosure requirements are statutory conditions for federal 
payment under the Program. The disclosure

[[Page 19306]]

requirements were effective immediately upon enactment and remain 
ongoing requirements that apply to new and renewed policies throughout 
the life of the Program. In the event of an act of terrorism resulting 
in insured losses under the Program, insurers must certify, and 
Treasury must ascertain, that these disclosure requirements have been 
met before federal payment is made. Similarly, the make available 
requirements are critical elements of the Act. These requirements were 
effective immediately upon enactment and applied to policies in effect 
at that time. They will continue to apply to new and renewed policies 
through the end of 2004 (and if the requirements are extended by the 
Secretary, through 2005). Given the significance of the disclosure and 
make available requirements to policyholders and insurers, there is an 
urgent need to issue immediately effective regulations that incorporate 
and clarify interim guidance with regard to these requirements.
    For the above reasons, pursuant to 5 U.S.C. 553(b)(B), Treasury has 
determined that it would be contrary to the public interest to delay 
the publication of this rule in final form during the pendency of an 
opportunity for public comment. For the same reasons, pursuant to 5 
U.S.C. 553(d)(3), Treasury has determined that there is good cause for 
the interim final rule to become effective immediately upon 
publication. While this regulation is effective immediately upon 
publication, Treasury is seeking public comment on the regulation and 
will consider all comments in developing a final rule.
    This interim final rule is a significant regulatory action and has 
been reviewed by the Office of Management and Budget under the terms of 
Executive Order 12866.
    Because no notice of proposed rulemaking is required, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do 
not apply. However, the Act and the Program are intended to provide 
benefits to the U.S. economy and all businesses, including small 
businesses, by providing a federal reinsurance backstop to commercial 
property and casualty policyholders and spreading the risk of insured 
loss resulting from an act of terrorism.

List of Subjects in 31 CFR Part 50

    Terrorism risk insurance.

Authority and Issuance

0
For the reasons stated above, 31 CFR part 50 is amended as follows:

PART 50--TERRORISM RISK INSURANCE PROGRAM

0
1. The authority citation for 31 CFR part 50 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322 (15 U.S.C. 6701 note).

0
2. Subpart B of 31 CFR part 50 is amended by adding Sec. Sec.  50.10 
through 50.14 and 50.17 through 50.19 to read as follows:


Sec.  50.10  General disclosure requirements.

    (a) All policies. As a condition for federal payments under section 
103(b) of the Act, the Act requires that an insurer provide clear and 
conspicuous disclosure to the policyholder of:
    (1) The premium charged for insured losses covered by the Program; 
and
    (2) The federal share of compensation for insured losses under the 
Program.
    (b) Policies in force on the date of enactment. For policies issued 
before November 26, 2002, the disclosure required by the Act must be 
provided within 90 days of November 26, 2002 (no later than February 
24, 2003).
    (c) Policies issued within 90 days of the date of enactment. For 
policies issued within the 90-day period beginning on November 26, 2002 
through February 24, 2003, the disclosure required by the Act must be 
provided at the time of offer, purchase, and renewal of the policy.
    (d) Policies issued more than 90 days after the date of enactment. 
For policies issued on or after February 25, 2003, the disclosure 
required by the Act must be made on a separate line item in the policy, 
at the time of offer, purchase, and renewal of the policy.


Sec.  50.11  Definition.

    Except as provided in Sec.  50.18, for purposes of this subpart the 
term ``disclosure'' or ``disclosures'' refers to the disclosures 
described in section 103(b)(2) of the Act and Sec.  50.10.


Sec.  50.12  Clear and conspicuous disclosure.

    (a) General. Whether a disclosure is clear and conspicuous depends 
on the totality of the facts and circumstances of the disclosure. See 
Sec.  50.17 for model forms.
    (b) Description of premium. An insurer may describe the premium 
charged for insured losses covered by the Program as a portion or 
percentage of an annual premium, if consistent with standard business 
practice. An insurer may not describe the premium in a manner that is 
misleading in the context of the Program, such as by characterizing the 
premium as a ``surcharge.''
    (c) Method of disclosure. An insurer may provide disclosures using 
normal business practices, including forms and methods of communication 
used to communicate similar policyholder information to policyholders.
    (d) Use of agent. If an insurer normally communicates with a 
policyholder through an insurance broker or other intermediary acting 
as agent for the insurer, an insurer may provide disclosures through 
such an agent. The insurer remains responsible for ensuring that 
disclosures are provided to policyholders in accordance with the Act.
    (e) Demonstration of compliance. An insurer may demonstrate that it 
has satisfied the requirement to provide clear and conspicuous 
disclosure as described in Sec.  50.10 through use of appropriate 
systems and normal business practices that demonstrate a practice of 
compliance.
    (f) Certification of compliance. An insurer must certify that it 
has complied with the requirement to provide disclosure to the 
policyholder on all policies that form the basis for any claim that is 
submitted by an insurer for federal payment under the Program.


Sec.  50.13  Offer, purchase, and renewal.

    An insurer is deemed to be in compliance with the requirement of 
providing disclosure ``at the time of offer, purchase, and renewal of 
the policy'' under Sec.  50.10(c) and (d) if the insurer:
    (a) Makes the disclosure no later than the time the insurer first 
formally offers to provide insurance coverage or renew a policy for a 
current policyholder; and
    (b) Makes clear and conspicuous reference back to that disclosure, 
as well as the final terms of terrorism insurance coverage, at the time 
the transaction is completed.


Sec.  50.14  Separate line item.

    An insurer is deemed to be in compliance with the requirement of 
providing disclosure on a ``separate line item in the policy'' under 
Sec.  50.10(d) if the insurer makes the disclosure:
    (a) On the declarations page of the policy;
    (b) Elsewhere within the policy itself; or
    (c) In any rider or endorsement that is made a part of the policy.


Sec.  50.17  Use of model forms.

    (a) Policies in force on the date of enactment. (1) An insurer that 
is required to make the disclosure under Sec.  50.10(b) and that makes 
no change in the existing premium, is deemed to be in compliance with 
the disclosure

[[Page 19307]]

requirement if it uses NAIC Model Disclosure Form No. 2.
    (2) An insurer that is required to make the disclosure under Sec.  
50.10(b) and that makes a change in the existing premium, is deemed to 
be in compliance with the disclosure requirement if it uses NAIC Model 
Disclosure Form No. 1. Such an insurer may also use the same NAIC Model 
Disclosure Form No. 1 to comply with the disclosure requirement of 
section 105(c) of the Act. See Sec.  50.18.
    (b) Policies issued within 90 days of the date of enactment. An 
insurer that is required to make the disclosure under Sec.  50.10(c) is 
deemed to be in compliance with the disclosure requirement if it uses 
either NAIC Model Disclosure Form No. 1 or NAIC Model Disclosure Form 
No. 2, as long as the form used is modified as appropriate for the 
particular policy.
    (c) Policies issued more than 90 days after the date of enactment. 
An insurer that is required to make the disclosure under Sec.  50.10(d) 
may continue to use NAIC Model Disclosure Form No. 1 or NAIC Model 
Disclosure Form No. 2 if appropriate, or other disclosures that meet 
the requirements of Sec. Sec.  50.10(a) and 50.14 may be developed.
    (d) Not exclusive means of compliance. An insurer is not required 
to use NAIC Model Disclosure Form No. 1 or NAIC Model Disclosure Form 
No. 2 to satisfy the disclosure requirement. An insurer may use other 
means to comply with the disclosure requirement, as long as the 
disclosure comports with the requirements of the Act.
    (e) Definitions. For purposes of this section, references to NAIC 
Model Disclosure Form No. 1 and NAIC Model Disclosure Form No. 2 refer 
to such forms as were in existence on April 18, 2003. These forms may 
be found on the Treasury Web site at [chyph]http://www.treasury.gov/trip.


Sec.  50.18  Disclosure required by reinstatement provision.

    (a) Nullification of terrorism exclusion. Any terrorism exclusion 
in a contract for property and casualty insurance that was in force on 
November 26, 2002, is void to the extent it excludes losses that would 
otherwise be insured losses.
    (b) Reinstatement of terrorism exclusion. Notwithstanding paragraph 
(a) of this section, an insurer may reinstate a preexisting provision 
in a contract for property and casualty insurance that was in force on 
November 26, 2002, and that excludes coverage for an act of terrorism 
only if:
    (1) The insurer has received a written statement from the insured 
that affirmatively authorizes such reinstatement; or
    (2) The insured provided notice at least 30 days before any such 
reinstatement of the increased premium for such terrorism coverage and 
the rights of the insured with respect to such coverage, including the 
date upon which the exclusion would be reinstated if no payment is 
received, and the insured fails to pay any increased premium charged by 
the insurer for providing such terrorism coverage.


Sec.  50.19  Disclosure by State residual market insurance entities and 
State workers' compensation funds [Reserved]

0
3. Subpart C of 31 CFR part 50 is amended by adding Sec. Sec.  50.20, 
50.21, 50.23 and 50.24 to read as follows:


Sec.  50.20  General mandatory availability requirements.

    (a) Transition Period and Program Years 1 and 2--period ending 
December 31, 2004. Under section 103(c) of the Act (unless the time is 
extended by the Secretary as provided in that section) during the 
period beginning on November 26, 2002 and ending on December 31, 2004 
(the last day of Program Year 2), an insurer must:
    (1) Make available, in all of its property and casualty insurance 
policies, coverage for insured losses; and
    (2) Make available property and casualty insurance coverage for 
insured losses that does not differ materially from the terms, amounts, 
and other coverage limitations applicable to losses arising from events 
other than acts of terrorism.
    (b) Program Year 3--calendar year 2005. [Reserved]


Sec.  50.21  Make available.

    (a) General. The requirement to make available coverage as provided 
in Sec.  50.20 applies to policies in existence on November 26, 2002, 
new policies issued and renewals of existing policies during the period 
beginning on November 26, 2002 and ending on December 31, 2004 (the 
last day of Program Year 2), and if the requirement is extended by the 
Secretary, to new policies issued and renewals of existing policies in 
Program Year 3 (calendar year 2005). The requirement applies at the 
time an insurer makes the initial offer of coverage.
    (b) Changes negotiated subsequent to initial offer. If an insurer 
satisfies the requirement to ``make available'' coverage as described 
in Sec.  50.20 by first making an offer with coverage for insured 
losses that does not differ materially from the terms, amounts, and 
other coverage limitations applicable to losses arising from events 
other than acts of terrorism, which the policyholder declines, the 
insurer may negotiate with the policyholder an option of partial 
coverage for insured losses at a lower amount of coverage if permitted 
by any applicable State law. An insurer is not required by the Act to 
offer partial coverage if the policyholder declines full coverage. See 
Sec.  50.24.
    (c) Demonstration of compliance. If an insurer makes an offer of 
insurance but no contract of insurance is concluded, the insurer may 
demonstrate that it has satisfied the requirement to make available 
coverage as described in Sec.  50.20 through use of appropriate systems 
and normal business practices that demonstrate a practice of 
compliance.


Sec.  50.23  No material difference from other coverage.

    (a) Terms, amounts, and other coverage limitations. As provided in 
Sec.  50.20(a)(2), an insurer must offer coverage for insured losses 
resulting from an act of terrorism that does not differ materially from 
the terms, amounts, and other coverage limitations (including 
deductibles) applicable to losses from other perils. For purposes of 
this requirement, ``terms'' excludes price.
    (b) Limitations on types of risk. If an insurer does not cover all 
types of risks, then it is not required to cover the excluded risks in 
satisfying the requirement to make available coverage for losses 
resulting from an act of terrorism that does not differ materially from 
the terms, amounts, and other coverage limitations applicable to losses 
arising from events other than acts of terrorism. For example, if an 
insurer does not cover all types of risks, either because the insurer 
is outside of direct State regulatory oversight, or because a State 
permits certain exclusions for certain types of losses, such as 
nuclear, biological, or chemical events, then the insurer is not 
required to make such coverage available.


Sec.  50.24  Applicability of State law requirements.

    (a) General. After satisfying the requirement to make available 
coverage for insured losses that does not differ materially from the 
terms, amounts, and other coverage limitations applicable to losses 
arising from events other than acts of terrorism, if coverage is 
rejected an insurer may then offer coverage that is on different terms, 
amounts, or

[[Page 19308]]

coverage limitations, as long as such an offer does not violate any 
applicable State law requirements.
    (b) Examples. (1) If an insurer subject to State regulation first 
makes available coverage in accordance with Sec.  50.20 and the State 
has a requirement that an insurer offer full coverage without any 
exclusion, then the requirement would continue to apply and the insurer 
may not subsequently offer less than full coverage or coverage with 
exclusions.
    (2) If an insurer subject to State regulation first makes available 
coverage in accordance with Sec.  50.20 and the State permits certain 
exclusions or allows for other limitations, or an insurance policy is 
not governed by State law requirements, then the insurer may 
subsequently offer limited coverage or coverage with exclusions.

    Dated: April 11, 2003.
Wayne A. Abernathy,
Assistant Secretary of the Treasury.
[FR Doc. 03-9611 Filed 4-17-03; 8:45 am]
BILLING CODE 4810-25-P