[Federal Register Volume 71, Number 91 (Thursday, May 11, 2006)]
[Rules and Regulations]
[Pages 27564-27572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4348]



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Part III





Department of the Treasury





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31 CFR Part 50



Terrorism Risk Insurance Program; TRIA Extension Act Implementation; 
Interim Final Rule and Proposed Rule

  Federal Register / Vol. 71, No. 91 / Thursday, May 11, 2006 / Rules 
and Regulations  

[[Page 27564]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AB66


Terrorism Risk Insurance Program; TRIA Extension Act 
Implementation

AGENCY: Departmental Offices, Treasury.

ACTION: Interim final rule.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
interim final rule as part of its implementation of amendments made to 
Title I of the Terrorism Risk Insurance Act of 2002 (TRIA, or Act) by 
the Terrorism Risk Insurance Extension Act of 2005 (Extension Act). The 
Act established a temporary Terrorism Risk Insurance Program (Program) 
that was scheduled to expire on December 31, 2005, under which the 
Federal Government shared the risk of insured losses from certified 
acts of terrorism with commercial property and casualty insurers. The 
Extension Act extends the Program through December 31, 2007, and makes 
other changes which are implemented by this rule. In particular, the 
rule addresses changes to the types of commercial property and casualty 
insurance covered by the Act, the requirements to satisfy the Act's 
mandatory availability (``make available'') provision and the operation 
of the new ``Program Trigger'' provision in section 103(e)(1)(B) of the 
Act. Published elsewhere in this issue of the Federal Register is a 
notice of proposed rulemaking that proposes to adopt as a final rule 
the provisions of this interim final rule.

DATES: This interim final rule is effective May 11, 2006. Comments may 
be submitted on or before June 12, 2006.

ADDRESSES: Submit comments by e-mail to [email protected] or by 
mail (if hard copy, preferably an original and two copies) to: 
Terrorism Risk Insurance Program, Public Comment Record, Suite 2100, 
Department of the Treasury, 1425 New York Avenue, NW., Washington, DC 
20220. Because paper mail in the Washington, DC area may be subject to 
delay, it is recommended that comments be submitted electronically. All 
comments should be captioned with ``TRIA Extension Act Proposed Rule 
Comments''. Please include your name, affiliation, address, e-mail 
address, and telephone number in your comment. Comments may also be 
submitted through the Federal eRulemaking Portal: http://www.regulations.gov. Comments will be available for public inspection 
by appointment only at the TRIP Office. To make appointments, call 
(202) 622-6770 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Howard Leikin, Deputy Director, or 
David Brummond, Legal Counsel, Terrorism Risk Insurance Program (202) 
622-6770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

A. Terrorism Risk Insurance Act of 2002

    On November 26, 2002, the President signed into law the Terrorism 
Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322). The Act 
was effective immediately. 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.
    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 which, as 
defined by the Act, is 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 (the Program), including the issuance of regulations 
and procedures.
    Each entity that meets the Act's definition of insurer (well over 
2000 firms) must participate in the Program. The amount of federal 
payment for an insured loss resulting from an act of terrorism is 
determined by insurance company deductibles and excess loss sharing 
with the Federal Government as specified in the Act and Treasury's 
implementing regulations. An insurer's deductible increases each year 
of the Program, thereby reducing the Federal Government's share of 
compensation for insured losses each year until the Program expires. An 
insurer's deductible is calculated based on the value of direct earned 
premiums collected over certain prescribed calendar periods. Once an 
insurer has met its individual deductible, the federal payments cover a 
percentage of the insured losses above the deductible, subject to an 
industry aggregate limit of $100 billion.
    The Act gives Treasury authority to recoup federal payments made 
under the Program through policyholder surcharges, up to a maximum 
annual limit. The Act reduces the Federal share of compensation for 
insured losses that have been covered under any other federal program. 
The Act also contains provisions designed to manage litigation arising 
from or relating to a certified act of terrorism. Section 107 of the 
Act 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. The Act provides the 
United States with the right of subrogation with respect to any payment 
or claim paid by the United States under the Program.

B. Terrorism Risk Insurance Extension Act of 2005

    The Program was originally set to expire on December 31, 2005. On 
December 22, 2005, the President signed into law the Terrorism Risk 
Insurance Extension Act of 2005 (Pub. L. 109-144, 119 Stat. 2660), 
which extends the Program through December 31, 2007. In doing so, the 
Extension Act adds Program Year 4 (January 1-December 31, 2006) and 
Program Year 5 (January 1-December 31, 2007) to the Program. In 
addition, the Extension Act made other significant changes to TRIA that 
include:
     A revised definition of insurer deductible that adds new 
Program Years 4 and 5 to the definition. The insurer deductible is set 
as the value of an insurer's direct earned premium for commercial 
property and casualty insurance (as now defined in the Act) over the 
immediately preceding calendar year multiplied by 17.5 percent for 
Program Year 4 and 20 percent for Program Year 5.
     A revised definition of property and casualty insurance 
that now excludes commercial automobile insurance; burglary and theft 
insurance; surety insurance; professional liability insurance; and 
farmowners multiple peril insurance. Though the definition excludes 
professional liability insurance, it explicitly retains directors and 
officers liability insurance.
     Creation of a new Program Trigger for any certified act of 
terrorism occurring after March 31, 2006, that prohibits payment of 
Federal compensation by Treasury unless the aggregate industry insured 
losses resulting from that act of terrorism exceed $50 million for 
Program Year 4 and $100 million for Program Year 5.
     A change to the Federal share of compensation for insured 
losses. Subject to the Program Trigger, the Federal share is 90 percent 
of that portion of the amount of insured losses that exceeds the 
applicable insurer deductible in Program Year 4 and

[[Page 27565]]

decreases to 85 percent of such amount in Program Year 5.
     Revisions to the recoupment provisions. For purposes of 
recouping the Federal share of compensation under the Act, the 
insurance marketplace aggregate retention amount for the two additional 
years of the Program is increased from the level in Program Year 3. For 
Program Year 4 the insurance marketplace aggregate retention amount is 
established as the lesser of $25 billion and the aggregate amount, for 
all insurers, of insured losses during Program Year 4. The insurance 
marketplace aggregate retention amount for Program Year 5 is the lesser 
of $27.5 billion and the aggregate amount, for all insurers, of insured 
losses during Program Year 5.
     A statutory codification of Treasury's litigation 
management regulatory requirements in section 50.82 of title 31 of the 
Code of Federal Regulations (as in effect on July 28, 2004), which 
requires advance approval by Treasury of proposed settlements of 
certain causes of action involving insured losses under the Program.

C. Previously Issued Interim Guidance

    To assist insurers, policyholders, and other interested parties in 
complying with immediately applicable requirements of the Extension 
Act, on December 29, 2005 Treasury issued and posted interim guidance 
on its Web site. A Notice containing that interim guidance (Interim 
Guidance IV) was published in the Federal Register on January 5, 2006 
(71 FR 648). The notice stated that the guidance could be relied upon 
by insurers in complying with new statutory requirements prior to the 
issuance of regulations, but was not the exclusive means of compliance. 
The interim guidance is superseded by this interim final rule.

II. Analysis of the Interim Final Rule

    This interim final rule incorporates certain changes to 31 CFR part 
50 required by the amendments to TRIA in the Extension Act, which 
extended the Terrorism Risk Insurance Program by two years, to December 
31, 2007. The changes in the rules include new insurer deductible 
amounts for each of those Program Years, the extension of mandatory 
availability requirements, the deletion of certain types of insurance 
from the definition of property and casualty insurance, and a continued 
safe harbor for the use of model disclosure forms. The interim final 
rule also incorporates and clarifies statutory changes to the 
determination of the Federal share of compensation, taking into account 
the new Program Trigger. The interim final rule generally incorporates 
interim guidance previously issued by Treasury, except as described in 
this preamble. Treasury has consulted with the National Association of 
Insurance Commissioners in developing this rule.
    Although Treasury is issuing these requirements as an interim final 
rule, we are soliciting comments on all aspects of the interim final 
rule from all interested parties. Published elsewhere in a 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. Definitions (Sec.  50.5)

    The interim final rule incorporates revised definitions for insurer 
deductible, Program Years, and property and casualty insurance. The 
rule also adds definitions for professional liability insurance and 
Program Trigger event.
    The revisions to the definitions for insurer deductible and Program 
Years are straightforward changes based on the Extension Act. They 
implement that Act's addition of Program Years 4 (calendar year 2006) 
and 5 (calendar year 2007) and the percentages to be applied to an 
insurer's direct earned premium for the immediately preceding calendar 
year in computing insurer deductibles for Program Year 4 (17.5 percent) 
and Program Year 5 (20 percent).
    Section 102(12) of TRIA was also amended to exclude additional 
types of insurance from the definition of property and casualty 
insurance under the Program. The Act now excludes from the definition 
commercial automobile insurance, burglary and theft insurance, surety 
insurance, professional liability insurance, and farmowners multiple 
peril insurance. To the extent the newly excluded types of insurance 
represent specific lines of business on the NAIC Annual Statement, 
Treasury is continuing to utilize NAIC line of business definitions in 
implementing the Act. The newly excluded types of insurance which may 
correspond to lines of business on the NAIC Annual Statement are: Line 
3--Farmowners Multiple Peril; Line 19.3--Commercial Auto No-Fault 
(personal injury protection); Line 19.4--Other Commercial Auto 
Liability; Line 21.2--Commercial Auto Physical Damage; Line 26--
Burglary and Theft; and Line 24--Surety. In addition, the interim final 
rule makes clear that these types of insurance are excluded from the 
definition of property casualty insurance, regardless of how their 
premiums may be reported.
    The only type of insurance that is newly excluded from the 
definition of property and casualty insurance in the Act, but is not a 
specific line of business on the NAIC Annual Statement, is contained in 
new subsection 102(12)(xi) of TRIA--professional liability insurance. 
In this interim final rule, Treasury is providing the following 
definition of ``professional liability insurance'':

    Professional liability insurance means insurance coverage for 
liability arising out of the performance of professional or business 
duties related to a specific occupation, with coverage being 
tailored to the needs of the specific occupation. Examples include 
abstracters, accountants, insurance adjusters, architects, 
engineers, insurance agents and brokers, lawyers, real estate 
agents, stockbrokers and veterinarians. For purposes of this 
definition, professional liability insurance does not include 
directors and officers liability insurance.

    Insurers are to use this definition in identifying policies 
excluded from the Program, as well as for determining which policies 
have premiums that should be subtracted from Line 17--Other Liability 
on the NAIC Annual Statement when computing direct earned premium for 
Program purposes.
    This definition is derived from the definition of ``Professional 
Errors and Omissions Liability'' found in the Uniform Property & 
Casualty Coding Matrix currently utilized by the System for Electronic 
Rate and Form Filing (SERFF) sponsored by the National Association of 
Insurance Commissioners (NAIC).\1\ However, this definition is not 
meant to limit insurers to the filing code (17.0019) specified under 
SERFF for ``Professional Errors and Omissions Liability''. Certainly, 
policies and coverages that employ the SERFF filing code will meet the 
interim final rule definition of professional liability insurance. 
Treasury acknowledges that many insurers and insurance support 
organizations do not utilize the SERFF mechanism for all their form 
filings. Thus, the definition in the interim final rule is intended to 
have a broader application than the SERFF filing process and should not 
be viewed as limited to one particular SERFF filing code.
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    \1\ The Matrix can be found on the NAIC Web site at http://www.naic.org/industry_home.htm.
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    Directors and officers liability insurance, which is sometimes 
considered a type of professional liability insurance, is not included 
in the definition of professional liability insurance. Section 
102(12)(A) of the Act

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now explicitly includes directors and officers liability insurance in 
the definition of property and casualty insurance. This change does not 
substantively modify the previous definition of property and casualty 
insurance under the Act, but is a statutory clarification that 
directors and officers liability insurance is distinct from 
professional liability insurance. Premium for directors and officers 
liability insurance may be already included in Line 17--Other Liability 
on the NAIC Annual Statement, one of the commercial lines of business 
listed in Treasury's current regulations defining property and casualty 
insurance (31 CFR 50.5(l)), if not otherwise excluded. Treasury 
recommends that insurers consult the definition of ``Directors & 
Officers Liability'' found in the Uniform Property & Casualty Coding 
Matrix now being utilized by SERFF if further guidance is needed on 
what constitutes ``Directors & Officers Liability'' insurance.
    The Extension Act revision to TRIA section 102(12) specifically 
excludes ``farm owners multiple peril insurance'', a particular type of 
insurance which is also a specific line of business on the NAIC Annual 
Statement, from the definition of property and casualty insurance. 
Insurers have asked whether monoline farm insurance coverages are 
similarly excluded. There is no clear guidance in the legislative 
history of the Extension Act on this issue. Based on the plain meaning 
of the statute, Treasury believes it is appropriate to interpret this 
exclusion as applicable only to multiple peril coverages insuring farm 
risks. Single peril or monoline coverages insuring farm risks would 
continue to meet the Act's definition of property and casualty 
insurance. Treasury notes that the premiums for such policies are 
usually reported, or otherwise allocated, to one of the commercial 
lines of insurance on the NAIC Annual Statement (or an equivalent 
reporting system) listed in the definition of property and casualty 
insurance in Treasury's regulations.
    Treasury is aware of some concerns with this result on the part of 
some smaller insurance entities, such as farm and county mutuals. With 
this in mind, Treasury requests that any comments on this issue focus 
on the practical implications of this issue and articulate a basis for 
any assertion that monoline coverages are excluded from the Program as 
part of the farmowners multiple peril exclusion.
    The Extension Act adds a new section 103(e)(1)(B) to TRIA entitled 
``Program Trigger.'' This new provision directs the Secretary not to 
compensate insurers under the Program unless the aggregate industry 
insured losses from a certified act of terrorism exceed certain insured 
loss or ``trigger'' amounts.\2\ To implement this provision, the 
interim final rule adds a new definition for ``Program Trigger event''. 
Such an event is a certified act of terrorism that occurs after March 
31, 2006, for which the aggregate industry insured losses resulting 
from such act exceed $50 million if occurring in 2006 or $100 million 
if occurring in 2007.''
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    \2\ Section 103(e)(1)(B) states: ``In the case of a certified 
act of terrorism occurring after March 31, 2006, no compensation 
shall be paid by the Secretary under subsection (a), unless the 
aggregate industry insured losses resulting from such certified act 
of terrorism exceed--(i) $50,000,000, with respect to such insured 
losses occurring in Program Year 4; or (ii) $100,000,000, with 
respect to such insured losses occurring in Program Year 5.''
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    The new Program Trigger provision applies only to acts of terrorism 
that occur after March 31, 2006. Note that the application of the 
Program Trigger is based on the date of occurrence and not the date of 
certification of an act of terrorism. For example, the Program Trigger 
provision shall not apply to an act that occurs prior to March 31, 
2006, but which is certified after March 31. After March 31, unless an 
act of terrorism is a Program Trigger event, insured losses from that 
act of terrorism will not be considered in any determination of or 
calculation leading to any Federal share of compensation under the Act. 
For a further discussion of the Program Trigger, see ``E. Federal Share 
of Compensation'' below.

B. Interim Guidance Safe Harbors (Sec.  50.7)

    Section 50.7 of the current regulations provides that ``[a]n 
insurer will be deemed to be in compliance with the requirements of the 
Act to the extent the insurer reasonably relied on Interim Guidance 
prior to the effective date of applicable regulations.'' The interim 
final rule adds ``Interim Guidance IV issued by Treasury on December 
29, 2005, and published at 71 FR 648 (January 5, 2006)'' to the list of 
applicable Interim Guidance.

C. Disclosure (Sec. Sec.  50.12 and 50.17)

    The interim final rule incorporates guidance on compliance with 
disclosure requirements and revised safe harbor language with regard to 
the use of NAIC model disclosure forms.
    The Extension Act retains, as a condition for federal payments 
under the Act, the existing requirements contained in section 103(b) to 
provide clear and conspicuous disclosure to policyholders of the 
premium charged for insured losses covered by the Program and of the 
Federal share of compensation for insured losses under the Program. 
These disclosures must be made ``at the time of offer, purchase, and 
renewal of the policy''. Treasury is aware of certain operational 
difficulties some insurers faced with regard to policies processed in 
the latter part of Program Year 3 (2005) for issuance or renewal 
effective in 2006. In some cases policies were issued or renewed in 
2006 in a form that already included coverage for terrorism risks 
regardless whether TRIA was extended. Because TRIA would have ended on 
December 31, 2005, disclosures were not provided with these policies.
    The Extension Act made no change to the requirement that 
disclosures are required as a condition for payment of the Federal 
share of compensation for insured losses. However, given the late date 
of enactment of the Extension Act, the interim final rule provides in 
section 50.12(e) that ``[i]f an insurer made available coverage for 
insured losses in a new policy or policy renewal in Program Year 3 for 
coverage becoming effective in Program Year 4, but did not provide a 
disclosure at the time of offer, purchase or renewal, then the insurer 
must be able to demonstrate to Treasury's satisfaction that it has 
provided a disclosure as soon as possible following January 1, 2006.'' 
Treasury anticipates that these insurers will already have provided the 
disclosures by the time this rule is published.
    For an insurer to demonstrate to Treasury's satisfaction that it 
has provided disclosures as soon as possible following January 1, 2006, 
Treasury will expect an insurer to have provided disclosures by 30 days 
after publication of this interim final rule in the Federal Register, 
barring unforeseen or unusual circumstances. If not completed by that 
time, an insurer will be expected, when submitting a claim for the 
Federal share of compensation, to clearly demonstrate why such 
disclosures could not be made by that date and why the insurer should 
be deemed to be in compliance with the Act's disclosure requirement.
    Pursuant to 31 CFR 50.17, insurers that have used NAIC Model 
Disclosure Forms that were in existence on April 18, 2003, were deemed 
to satisfy the disclosure requirements of section 103(b)(2) of the Act. 
Although the Extension Act made no change to the TRIA disclosure 
requirements, revisions were made to the Act that required rewording of 
the NAIC Model Disclosure Forms. The NAIC has since issued revised 
Model Disclosure Forms, dated January 26, 2006, which if used by 
insurers, will be deemed to satisfy

[[Page 27567]]

disclosure requirements of the Act and Treasury regulations. The 
interim final rule continues the safe harbor approach for use of the 
most current NAIC Model Disclosure forms deemed by Treasury to meet 
Program requirements. Insurers may also continue to use other forms to 
comply with the disclosure requirements.

D. Make Available (Sec. Sec.  50.20 and 50.21)

    For Program Year 4 (Calendar 2006) and Program Year 5 (Calendar 
2007) insurers are required to continue to ``make available'' coverage 
for insured losses as required by TRIA and Treasury regulations. 
Amendments to the ``make available'' requirement in section 103(c) of 
the Act are simply conforming amendments that continue the requirements 
through Program Years 4 and 5. Thus, insurers issuing or renewing 
commercial property and casualty insurance policies in Program Years 4 
and 5 must continue to offer coverage for insured losses resulting from 
an act of terrorism, as required by section 103(c) of the Act and 31 
CFR 50.20 to 50.24 if they wish to have their insured loss claims 
eligible for the Federal share of compensation in the extended Program 
Years.
    In its Interim Guidance IV issued on December 29, 2005, Treasury 
addressed ``make available'' requirements with regard to the transition 
from Program Year 3, originally the last year of the Program, to the 
extended Program Years 4 and 5. In that issuance, Treasury noted that 
the Extension Act made no changes to the ``make available'' requirement 
for insurers. Treasury provided guidance on how insurers could comply 
with Program requirements given operational difficulties arising from 
the Extension Act passage late in the year.
    Treasury clarified that no additional ``make available'' offer is 
required if terrorism coverage for the duration of the policy term was 
offered for policies issued or renewed in 2005. No additional action is 
required because the ``make available'' provision of section 103(c) of 
the Act and 31 CFR 50.20 to 50.24 has been satisfied for coverage 
periods extending into Program Year 4. For example, policies with 
``conditional'' terrorism coverage exclusions that do not arise or 
become effective on or after January 1 are policies in which the 
terrorism coverage portion continues to cover insured losses within the 
meaning of the Act. In such situations, no additional action is 
required for insurers to remain in compliance with the Act's ``make 
available'' provision until the time of policy renewal for insurers.
    Treasury also provided guidance as to how an insurer could comply 
with ``make available'' requirements under three scenarios where:

    (1) A policy did not provide terrorism coverage after December 
31, 2005, but the policyholder had rejected an offer of terrorism 
coverage for the portion of the policy term up to December 31,
    (2) A policy's terrorism coverage expired on December 31, 2005, 
but the remainder of the policy continued in force in 2006, and
    (3) A policy renewal or application was processed in 2005 for 
coverage becoming effective in 2006 and the insurer did not ``make 
available'' terrorism coverage for Program Year 4 as contemplated by 
the Extension Act.

    In the case of scenario (1) above, Treasury advised that an insurer 
was not required to make another offer of coverage for the remainder of 
the policy term. In the other two scenarios, Treasury advised insurers 
that TRIA as extended requires them to make offers of terrorism 
coverage for the policy terms continuing or beginning in Program Year 4 
(2006). However, Treasury recognized the late date of passage of the 
Extension Act and the administrative difficulties this posed for some 
insurers who otherwise had complied with the ``make available'' 
provision in 2005. Treasury said it expected all insurers to make a 
good faith effort to provide policyholders whose terrorism coverage 
expired as of January 1 with a new offer of terrorism coverage along 
with the appropriate disclosures by January 1, 2006, or as quickly as 
possible following that date. In this regard, Treasury stated it 
considered January 31, 2006, to be the latest reasonable date for 
offers of coverage to midterm policyholders, barring unforeseen or 
unusual circumstances. If the January 31 date was not met by an 
insurer, Treasury indicated it would expect the insurer to explain any 
delay as well as its good faith efforts when submitting a claim for the 
Federal share of compensation under the Program. In its discretion, 
Treasury would determine whether good faith efforts to comply had been 
made.
    The interim final rule generally incorporates the foregoing 
guidance into the TRIA ``make available'' provisions. Section 50.21(b) 
has been added to address the special Program Year 4 requirements for 
scenarios (1) and (2) above. For scenarios (2) and (3), where an 
insurer must make an offer of coverage, section 50.21(d) (formerly 
50.21(c)) has been amended to provide that the insurer must be able to 
demonstrate to Treasury's satisfaction that it has provided an offer of 
coverage for insured losses by January 1, 2006, or as soon as possible 
following that date. In demonstrating to Treasury's satisfaction that 
it has provided an offer of coverage for insured losses as soon as 
possible after January 1, 2006, Treasury considers January 31, 2006, to 
be the latest reasonable date for offers of coverage, barring 
unforeseen or unusual circumstances. If not provided by January 31, 
2006, Treasury would expect an insurer to demonstrate why the offer 
could not be made by that date when submitting a claim for Federal 
compensation under the Program.
    The interim final rule incorporates technical amendments to section 
50.20 that extend the ``make available'' requirements into Program 
Years 4 and 5. Section 50.20(c) also provides that ``property and 
casualty insurance coverage for insured losses does not have to be made 
available beyond December 31, 2007 (the last day of Program Year 5), 
even if the policy period of insurance coverage for losses from events 
other than acts of terrorism extends beyond that date''.
    As a result of the Extension Act's deletion of certain types of 
insurance from the definition of property and casualty insurance, some 
uncertainty has arisen regarding the ``make available'' and disclosure 
requirements for excess or umbrella liability policies. As a general 
rule, excess or umbrella liability policies are property and casualty 
insurance within the meaning of TRIA. Section 102(12)(A) of the Act 
defines the term ``property and casualty insurance'' as meaning 
commercial lines of property and casualty insurance ``including 
excess,'' unless otherwise excluded from the definition under Section 
102(12)(B). Premiums for commercial excess and umbrella insurance 
policies are normally reported on Line 17--Other Liability in the NAIC 
Annual Statement.\3\ Nonetheless, excess or umbrella insurance is 
commercial property and casualty insurance included in the Program only 
to the extent it provides coverage above primary or underlying coverage 
that is a type of insurance included in the Program. Thus, if an excess 
or umbrella policy provides an upper layer of coverage for a type of 
insurance specifically excluded from the Program (e.g., commercial 
auto, professional liability, medical malpractice), the excess or 
umbrella liability policy is also excluded.
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    \3\ See 68 FR 59725 (October 17, 2003).
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    Additional uncertainty has arisen with respect to excess or 
umbrella liability policies to the extent that the underlying policies 
they cover may

[[Page 27568]]

include types of insurance that are both included and excluded from the 
Act's definition of property and casualty insurance. For example, an 
excess or umbrella liability policy might cover both an underlying 
professional liability policy (generally excluded from the Program) as 
well as underlying general liability policy (generally included in the 
Program). In such cases, the treatment of these hybrid excess and 
umbrella policies follows the same analysis as the treatment of hybrid 
policies generally under existing Treasury regulations.\4\
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    \4\ See 31 CFR 50.5(d)(1)(iii) and (iv); 68 FR 41256-41258 (July 
11, 2003).
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    Thus, where the included commercial property and casualty coverage 
segment of an excess or umbrella liability policy is merely incidental 
to the remaining excluded coverage under the policy, an insurer may 
treat the entire policy as not providing property and casualty 
insurance within the meaning of TRIA and Treasury's regulations.\5\ In 
such circumstances, the TRIA ``make available'' and disclosure 
requirements will not apply and no losses from the commercial coverage 
segment of the policy will be paid by Treasury.
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    \5\ See 31 CFR 50.5(d)(1)(iii): ``For purposes of the Program, 
commercial coverage combined with coverages that otherwise do not 
meet the definition of property and casualty insurance is incidental 
if less than 25 percent of the total direct premium is for such 
coverage.''
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E. Federal Share of Compensation (Sec.  50.50)

    The interim final rule adds several provisions to section 50.50 to 
reflect the addition of the new Program Trigger provision to the Act. 
Under section 103(a) of TRIA, the Secretary is required to pay the 
Federal share of compensation for insured losses in accordance with 
section 103(e) of the Act. The Extension Act amended subsection (e) to 
provide, in part, that no compensation shall be paid by the Secretary 
under subsection (a) unless the aggregate industry insured losses from 
a certified act of terrorism occurring after March 31, 2006, exceed 
certain amounts. This provision was intended to ensure that there would 
be no Federal compensation unless the aggregate industry losses from an 
act of terrorism exceed these amounts.
    The interim final rule incorporates a technical amendment to 
renumbered section 50.50(a) (formerly 50.50(d)) to provide that the 
Federal share of compensation in Program Year 5 shall be ``85 percent 
of that portion of the insurer's aggregate insured losses that exceed 
its insurer deductible during Program Year 5,'' (subject to any 
adjustments in section 50.51 and the cap of $100 billion as provided in 
section 103(e)(2) of the Act). A new provision has also been added to 
renumbered section 50.50(d) (formerly 50.50(a)) that reiterates, as a 
condition for Federal compensation for insured losses, a basic 
insurance principle that, ``[t]he insurer offered the coverage for 
insured losses and the offer was accepted by the insured prior to the 
occurrence of the loss''.
    New section 50.50(b) incorporates the Program Trigger limitations 
on the amount of Federal compensation payable under the Act. To 
implement these limitations, section 50.50(g) states that Treasury will 
determine the amount of aggregate industry insured losses, and that if 
the aggregate industry insured losses exceed the applicable Program 
Trigger amounts, Treasury will publish notice in the Federal Register 
that the act of terrorism is a Program Trigger event. As noted in the 
previously issued Interim Guidance, Treasury also expects to provide 
notification through press releases and postings on the TRIP Web site.
    Consistent with Treasury's Interim Guidance, section 50.50(c) 
clarifies that in the provisions dealing with claims procedures, 
Subpart F, insured losses or aggregate insured losses for acts of 
terrorism after March 31, 2006, will be limited to those insured losses 
resulting from Program Trigger events. This limitation on insured 
losses controls any determinations of, or calculations leading to, a 
Federal share of compensation under the Act including any adjustments 
of the Federal share, and applies to submissions of an insurer in 
conjunction with Initial Notices of Loss and Certifications of Loss and 
payments of the Federal share.
    As Treasury indicated in its Interim Guidance, the Program Trigger 
provision also has a direct bearing on which insured losses count 
towards satisfaction of the insurer deductible. In Program Year 4, for 
example, for certified acts of terrorism occurring after March 31, only 
an insurer's insured losses resulting from Program Trigger events will 
count towards satisfaction of the insurer deductible for that year. 
Similarly, in Program Year 5, only an insurer's insured losses 
resulting from Program Trigger events in that year will count towards 
satisfaction of the insurer deductible.

F. Determination of Affiliations (Sec.  50.55)

    Section 50.55 provides that for the purposes of claims procedures 
and the determination of the Federal share of compensation ``an 
insurer's affiliates for any Program Year shall be determined by the 
circumstances existing on the date of occurrence of the act of 
terrorism that is the first act of terrorism in a Program Year to be 
certified by the Secretary for that Program Year.'' The purpose of this 
regulation, when promulgated in 2005, was to clarify the point in time 
when insurer affiliations would be determined in order to facilitate 
the calculation of insurer deductibles and the payments of the Federal 
share of compensation for Program Years in which affiliations could 
change over time. Since this has meaning only if there is a potential 
Federal share of compensation, the interim final rule incorporates an 
amendment clarifying that if the first certified act of terrorism 
occurs after March 31, 2006, it must also be a Program Trigger event to 
be used for determining affiliations under the rule.

G. Federal Cause of Action; Approval of Settlements

    The Extension Act added section 107(a)(6) to TRIA, which provides 
that procedures and requirements established by the Secretary under 31 
CFR 50.82, as in effect on the date of issuance of that section in 
final form [July 28, 2004], shall apply to any Federal cause of action 
described in section 107(a)(1). This provision has been added to new 
section 50.85.
    Section 50.82 of the regulations requires insurers to submit to 
Treasury for advance approval certain proposed settlements involving an 
insured loss, any part of the payment of which the insurer intends to 
submit as part of its claim for federal payment under the Program. 
Thus, Treasury would not expect insurers to submit any proposed 
settlement if the insured losses would not be eligible for payment, as 
would be the case if the losses resulted from a post-March 31, 2006 
certified act that was not a Program Trigger event. However, if there 
is uncertainty whether or not a certified act will become a Program 
Trigger event, an insurer may wish to err on the side of caution and 
submit a proposed settlement for prior approval in order to preserve 
any subsequent eligibility for Federal compensation for insured losses 
under the Program. Otherwise the insured losses will be ineligible for 
later payment if the Program Trigger is reached.

III. Procedural Requirements

    The Extension Act extended the TRIA Program, which provides for 
loss sharing payments by the Federal Government for insured losses 
resulting from certified acts of terrorism. The Act's extension became 
effective

[[Page 27569]]

immediately upon the date of enactment (December 22, 2005). Changes in 
the Extension Act applied immediately to those entities that come 
within the Act's definition of ``insurer''.
    The Extension Act revised the definition of property and casualty 
insurance to exclude certain types of insurance previously covered 
under the Program. The Extension Act also added a Program Trigger 
provision limiting the Federal compensation for certified acts of 
terrorism after March 31, 2006, unless the aggregate industry losses 
exceed certain amounts. These provisions, which go to the scope of the 
Program and the conditions for payments by the Federal Government, 
resulted in the need to provide immediate guidance to insurers, 
policyholders, and regulators. In addition, extension of the disclosure 
requirements and the ``make available'' requirements to policies 
currently in effect in late December 2005 raised transition issues that 
need to be addressed immediately. Given the significance of these 
changes made by the Extension Act, there is a need to issue immediately 
effective regulations that incorporate and clarify these requirements.
    Accordingly, pursuant to 5 U.S.C. 553(b)(B), Treasury has 
determined that it would be contrary to the public interest to delay 
issuance of this interim final rule. For the same reasons, pursuant to 
5 U.S.C. 553(d)(3), Treasury has determined that there is good cause 
for this interim final rule to become effective immediately upon 
publication. While this rule is effective immediately upon publication, 
Treasury is seeking public comment 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. For applicability of 
the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the 
notice of proposed rulemaking published elsewhere in this issue of the 
Federal Register. 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 set forth 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 is revised 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), as amended by Pub. L. 
109-144, 119 Stat. 2660 (15 U.S.C. 6701 note).

Subpart A--General Provisions

0
2. Section 50.1(a) of subpart A is revised to read as follows:


Sec.  50.1  Authority, purpose and scope.

    (a) Authority. This Part is issued pursuant to authority in Title I 
of the Terrorism Risk Insurance Act of 2002, Pub. L. 107-297, 116 Stat. 
2322, as amended by the Terrorism Risk Insurance Extension Act of 2005, 
Pub. L. 109-144, 119 Stat. 2660.
* * * * *

0
3. Section 50.5 is amended as follows:
0
a. Paragraph (g) is revised.
0
b. Paragraphs (j) through (p) are redesignated as paragraphs (k), (m), 
(n), (o), (p), (q), and (r), respectively.
0
c. New paragraphs (j) and (l) are added.
0
d. Newly designated paragraphs (m) and (n) are revised.
    The revisions and additions read as follows:


Sec.  50.5  Definitions.

* * * * *
    (g) Insurer deductible means:
    (1) For an insurer that has had a full year of operations during 
the calendar year immediately preceding the applicable Program Year:
    (i) For the Transition Period (November 26, 2002 through December 
31, 2002), the value of an insurer's direct earned premiums over 
calendar 2001, multiplied by 1 percent;
    (ii) For Program Year 1 (January 1, 2003 through December 31, 
2003), the value of an insurer's direct earned premiums over calendar 
year 2002, multiplied by 7 percent;
    (iii) For Program Year 2 (January 1, 2004 through December 31, 
2004), the value of an insurer's direct earned premiums over calendar 
year 2003, multiplied by 10 percent;
    (iv) For Program Year 3 (January 1, 2005 through December 31, 
2005), the value of an insurer's direct earned premiums over calendar 
year 2004, multiplied by 15 percent;
    (v) For Program Year 4 (January 1, 2006 through December 31, 2006), 
the value of an insurer's direct earned premiums over calendar year 
2005, multiplied by 17.5 percent;
    (vi) For Program Year 5 (January 1, 2007 through December 31, 
2007), the value of an insurer's direct earned premiums over calendar 
year 2006, multiplied by 20 percent; and
    (2) For an insurer that has not had a full year of operations 
during the calendar year immediately preceding the applicable Program 
Year, the insurer deductible will be based on data for direct earned 
premiums for the applicable Program Year multiplied by the specified 
percentage for the insurer deductible for the applicable Program Year. 
If the insurer does not have a full year of operations during the 
applicable Program Year, the direct earned premiums for the applicable 
Program Year will be annualized to determine the insurer deductible.
* * * * *
    (j) Professional liability insurance means insurance coverage for 
liability arising out of the performance of professional or business 
duties related to a specific occupation, with coverage being tailored 
to the needs of the specific occupation. Examples include abstracters, 
accountants, insurance adjusters, architects, engineers, insurance 
agents and brokers, lawyers, real estate agents, stockbrokers and 
veterinarians. For purposes of this definition, professional liability 
insurance does not include directors and officers liability insurance.
* * * * *
    (l) Program Trigger event means a certified act of terrorism that 
occurs after March 31, 2006, for which the aggregate industry insured 
losses resulting from such act exceed $50 million with respect to such 
insured losses occurring in 2006 or $100 million with respect to such 
insured losses occurring in 2007.
    (m) Program Years means the Transition Period (November 26, 2002 
through December 31, 2002), Program Year 1 (January 1, 2003 through 
December 31, 2003), Program Year 2 (January 1, 2004 through December 
31, 2004), Program Year 3 (January 1, 2005 through December 31, 2005), 
Program Year 4 (January 1, 2006 through December 31, 2006), and Program 
Year 5 (January 1, 2007 through December 31, 2007).
    (n) Property and casualty insurance means commercial lines of 
property and casualty insurance, including excess insurance, workers' 
compensation insurance, and directors and officers liability insurance, 
and:
    (1) Means commercial lines within only the following lines of 
insurance from the NAIC's Exhibit of Premiums and Losses (commonly 
known as

[[Page 27570]]

Statutory Page 14): Line 1--Fire; Line 2.1--Allied Lines; Line 5.1--
Commercial Multiple Peril (non-liability portion); Line 5.2--Commercial 
Multiple Peril (liability portion); Line 8--Ocean Marine; Line 9--
Inland Marine; Line 16--Workers' Compensation; Line 17--Other 
Liability; Line 18--Products Liability; Line 22--Aircraft (all perils); 
and Line 27--Boiler and Machinery; and
    (2) Does not include:
    (i) Federal crop insurance issued or reinsured under the Federal 
Crop Insurance Act (7 U.S.C. 1501 et seq.), or any other type of crop 
or livestock insurance that is privately issued or reinsured (including 
crop insurance reported under either Line 2.1--Allied Lines or Line 
2.2--Multiple Peril (Crop) of the NAIC's Exhibit of Premiums and Losses 
(commonly known as Statutory Page 14);
    (ii) Private mortgage insurance (as defined in section 2 of the 
Homeowners Protection Act of 1988) (12 U.S.C. 4901) or title insurance;
    (iii) Financial guaranty insurance issued by monoline financial 
guaranty insurance corporations;
    (iv) Insurance for medical malpractice;
    (v) Health or life insurance, including group life insurance;
    (vi) Flood insurance provided under the National Flood Insurance 
Act of 1968 (42 U.S.C. 4001 et seq.) or earthquake insurance reported 
under Line 12 of the NAIC's Exhibit of Premiums and Losses (commonly 
known as Statutory Page 14);
    (vii) Reinsurance or retrocessional reinsurance;
    (viii) Commercial automobile insurance, including insurance 
reported under Lines 19.3 (Commercial Auto No-Fault (personal injury 
protection)), 19.4 (Other Commercial Auto Liability) and 21.2 
(Commercial Auto Physical Damage) of the NAIC's Exhibit of Premiums and 
Losses (commonly known as Statutory Page 14);
    (ix) Burglary and theft insurance, including insurance reported 
under Line 26 (Burglary and Theft) of the NAIC's Exhibit of Premiums 
and Losses (commonly known as Statutory Page 14);
    (x) Surety insurance, including insurance reported under Line 24 
(Surety) of the NAIC's Exhibit of Premiums and Losses (commonly known 
as Statutory Page 14);
    (xi) Professional liability insurance as defined in section 
50.5(j); or
    (xii) Farmowners multiple peril insurance, including insurance 
reported under Line 3 (Farmowners Multiple Peril) of the NAIC's Exhibit 
of Premiums and Losses (commonly known as Statutory Page 14).
* * * * *

0
4. Section 50.7 of subpart A is revised to read as follows:


Sec.  50.7  Special Rules for Interim Guidance Safe Harbors.

    (a) An insurer will be deemed to be in compliance with the 
requirements of the Act to the extent the insurer reasonably relied on 
Interim Guidance prior to the effective date of applicable regulations.
    (b) For purposes of this section, Interim Guidance means the 
following documents, which are also available from the Department of 
the Treasury at http://www.treasury.gov/trip:
    (1) Interim Guidance I issued by Treasury on December 3, 2002, and 
published at 67 FR 76206 (December 11, 2002);
    (2) Interim Guidance II issued by Treasury on December 18, 2002, 
and published at 67 FR 78864 (December 26, 2002);
    (3) Interim Guidance III issued by Treasury on January 22, 2003, 
and published at 68 FR 4544 (January 29, 2003); and
    (4) Interim Guidance IV issued by Treasury on December 29, 2005, 
and published at 71 FR 648 (January 5, 2006).

Subpart B--Disclosures as Conditions for Federal Payment

0
5. Section 50.10(d) of subpart B is revised to read as follows:


Sec.  50.10  General disclosure requirements.

* * * * *
    (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. For policies 
issued in late 2005 with coverage extending into 2006, see Sec.  
50.12(e)(2).

0
6. Section 50.12(e) of subpart B is revised to read as follows:


Sec.  50.12  Clear and conspicuous disclosure.

* * * * *
    (e) Demonstration of compliance. (1) 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.
    (2) If an insurer made available coverage for insured losses in a 
new policy or policy renewal in Program Year 3 for coverage becoming 
effective in Program Year 4, but did not provide a disclosure at the 
time of offer, purchase or renewal, then the insurer must be able to 
demonstrate to Treasury's satisfaction that it has provided a 
disclosure as soon as possible following January 1, 2006.
* * * * *

0
7. Section 50.17(e) of subpart B is revised to read as follows:


Sec.  50.17  Use of model forms.

* * * * *
    (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, or as 
subsequently modified by the NAIC, provided Treasury has stated that 
usage by insurers of the subsequently modified forms is deemed to 
satisfy the disclosure requirements of the Act and the insurer uses the 
most current forms that are available at the time of disclosure. These 
forms may be found on the Treasury Web site at http://www.treasury.gov/trip.

Subpart C--Mandatory Availability

0
8. Sections 50.20 and 50.21 of subpart C are revised 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. In accordance with the 
determination of the Secretary announced June 18, 2004, an insurer must 
comply with paragraphs (a)(1) and (a)(2) of this section during Program 
Year 3.
    (c) Program Years 4 and 5--calendar years 2006 and 2007. Under 
section 103(c) of the Act, an insurer must comply with paragraphs 
(a)(1) and (a)(2) of this section during Program Years 4

[[Page 27571]]

and 5. Notwithstanding paragraph (a)(2) of this section and Sec.  
50.23(a), property and casualty insurance coverage for insured losses 
does not have to be made available beyond December 31, 2007 (the last 
day of Program Year 5) even if the policy period of insurance coverage 
for losses from events other than acts of terrorism extends beyond that 
date.


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 to new policies issued and renewals of 
existing policies in Program Years 3 through 5 (calendar years 2005 
through 2007). Except as provided in paragraph (b) of this section, the 
requirement applies at the time an insurer makes the initial offer of 
coverage as well as at the time an insurer makes an initial offer of 
renewal of an existing policy.
    (b) Special Program Year 4 requirement for certain new policies 
issued and renewals of existing policies in Program Year 3. If coverage 
for insured losses under a policy of property and casualty insurance 
(as defined by the Act, as amended) expired as of December 31, 2005, 
but the remainder of coverage under the policy continued in force in 
Program Year 4, then an insurer must make available coverage as 
provided in Sec.  50.20 for insured losses for the remaining portion of 
the policy term in the manner specified in paragraphs (d)(1) and (d)(2) 
of this section. This requirement does not apply if during Program Year 
3 a policyholder declined an offer of coverage for insured losses made 
at the time of the initial offer of coverage or offer of renewal of the 
existing policy.
    (c) 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.
    (d) Demonstrations of compliance. (1) 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.
    (2) If an insurer must make available coverage for insured losses 
as required by paragraph (b) of this section for a policy whose 
coverage period began in Program Year 3 but extends into Program Year 
4, then the insurer must be able to demonstrate to Treasury's 
satisfaction that it has offered such coverage by January 1, 2006, or 
as soon as possible following that date.
    (3) If an insurer processed a new policy or policy renewal in 
Program Year 3 for coverage becoming effective in Program Year 4, but 
did not make available coverage for insured losses as required by Sec.  
50.20 by January 1, 2006, then the insurer must be able to demonstrate 
to Treasury's satisfaction that it has provided an offer of coverage 
for insured losses as soon as possible following that date.

0
9. Section 50.50 of subpart F is revised to read as follows:

Subpart F--Claims Procedures


Sec.  50.50  Federal share of compensation.

    (a) General. (1) The Treasury will pay the Federal share of 
compensation for insured losses as provided in section 103 of the Act 
once a Certification of Loss required by Sec.  50.53 is deemed 
sufficient. The Federal share of compensation under the Program shall 
be:
    (i) 90 percent of that portion of the insurer's aggregate insured 
losses that exceed its insurer deductible during each Program Year 
through Program Year 4, and
    (ii) 85 percent of that portion of the insurer's aggregate insured 
losses that exceed its insurer deductible during Program Year 5.
    (2) The percentages in paragraphs (a)(1)(i) and (ii) are both 
subject to any adjustments in Sec.  50.51 and the cap of $100 billion 
as provided in section 103(e)(2) of the Act.
    (b) Program Trigger amounts. Notwithstanding paragraph (a) or 
anything in this Subpart to the contrary, no Federal share of 
compensation will be paid by Treasury unless the aggregate industry 
insured losses resulting from a certified act of terrorism occurring 
after March 31, 2006 exceed the following amounts:
    (1) For a certified act of terrorism occurring after March 31, 2006 
and before January 1, 2007: $50 million;
    (2) For a certified act of terrorism occurring in calendar year 
2007: $100 million.
    (c) Insured losses after March 31, 2006. For all purposes of 
subpart F, insured loss or insured losses or aggregate insured losses 
resulting from acts of terrorism after March 31, 2006 shall be limited 
to those insured losses resulting from Program Trigger events.
    (d) Conditions for payment of Federal share. Subject to paragraph 
(e) of this section, Treasury shall pay the appropriate amount of the 
Federal share of compensation to an insurer upon a determination that:
    (1) The insurer is an entity, including an affiliate thereof, that 
meets the requirements of Sec.  50.5(f);
    (2) The insurer's insured losses, as defined in Sec.  50.5(e) and 
limited by Sec.  50.50(c) (including the allocated dollar value of the 
insurer's proportionate share of insured losses from a State residual 
market insurance entity or State workers' compensation fund as 
described in Sec.  50.35), have exceeded its insurer deductible as 
defined in Sec.  50.5(g);
    (3) The insurer has paid or is prepared to pay an underlying 
insured loss, based on a filed claim for the insured loss;
    (4) Neither the insurer's claim for Federal payment nor any 
underlying claim for an insured loss is fraudulent, collusive, made in 
bad faith, dishonest or otherwise designed to circumvent the purposes 
of the Act and regulations;
    (5) The insurer had provided a clear and conspicuous disclosure as 
required by Sec. Sec.  50.10 through 50.19;
    (6) The insurer offered coverage for insured losses and the offer 
was accepted by the insured prior to the occurrence of the loss;
    (7) The insurer took all steps reasonably necessary to properly and 
carefully investigate the underlying insured loss and otherwise 
processed the underlying insured loss using appropriate insurance 
business practices;
    (8) The insured losses submitted for payment are within the scope 
of coverage issued by the insurer under the terms and conditions of the 
policies for commercial property and casualty insurance as defined in 
Sec.  50.5(n); and
    (9) The procedures specified in this Subpart have been followed and 
all conditions for payment have been met.
    (e) Adjustments. Treasury may subsequently adjust, including 
requiring repayment of, any payment made under paragraph (d) of this 
section in

[[Page 27572]]

accordance with its authority under the Act.
    (f) Suspension of payment for other insured losses. Upon a 
determination by Treasury that an insurer has failed to meet any of the 
requirements for payment specified in paragraph (d) of this section for 
a particular insured loss, Treasury may suspend payment of the Federal 
share of compensation for all other insured losses of the insurer 
pending investigation and audit of the insurer's insured losses.
    (g) Aggregate industry losses. Treasury will determine the amount 
of aggregate industry insured losses resulting from a certified act of 
terrorism. If such aggregate industry insured losses exceed the 
applicable Program Trigger amounts specified in paragraph (b) of this 
section, Treasury will publish notice in the Federal Register that the 
act of terrorism is a Program Trigger event.

0
10. Section 50.55 of subpart F is revised to read as follows:


Sec.  50.55  Determination of Affiliations.

    For the purposes of subpart F, an insurer's affiliates for any 
Program Year shall be determined by the circumstances existing on the 
date of occurrence of the act of terrorism that is the first act of 
terrorism in a Program Year to be certified by the Secretary for that 
Program Year. Provided, however, if such act of terrorism occurs after 
March 31, 2006, the act of terrorism must also be a Program Trigger 
event to determine affiliations as provided in this section.

0
11. A new Sec.  50.85 is added to subpart I as follows:


Sec.  50.85  Amendment related to settlement approval.

    Section 107(a)(6) of the Act, added December 22, 2005, provides 
that procedures and requirements established by the Secretary under 
Sec.  50.82 (as in effect on the date of issuance of that section in 
final form) shall apply to any cause of action described in section 
107(a)(1) of the Act.

    Dated: May 4, 2006.
Emil W. Henry, Jr.,
Assistant Secretary of the Treasury.
[FR Doc. 06-4348 Filed 5-10-06; 8:45 am]
BILLING CODE 4811-15-P