U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1 

49–010 

" ! SENATE 109TH CONGRESS

2d Session 

REPORT

2006

109–223 

Calendar No. 377 

WAR RISK INSURANCE 

R E P O R T 

OF THE

COMMITTEE ON COMMERCE, SCIENCE, AND 

TRANSPORTATION 

ON

S. 1102 

MARCH 27, 2006.—Ordered to be printed 


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(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

TED STEVENS, Alaska, Chairman 

DANIEL K. INOUYE, Hawaii, Co-Chairman 

JOHN MCCAIN, Arizona 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

GORDON H. SMITH, Oregon 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK LAUTENBERG, New Jersey 

E. BENJAMIN NELSON, Nebraska 

MARK PRYOR, Arkansas 

LISA SUTHERLAND, Staff Director 

CHRISTINE DRAGER KURTH, Deputy Staff Director 

KEN NAHIGIAN, Chief Counsel 

MARGARET CUMMISKY, Democratic Staff Director and Chief Counsel 

SAMUEL WHITEHORN, Democratic Deputy Staff Director and General Counsel 


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Calendar No. 377 

109TH CONGRESS REPORT " ! SENATE 2d Session 109–223 

WAR RISK INSURANCE 

MARCH 27, 2006.—Ordered to be printed 

Mr. STEVENS, from the Committee on Commerce, Science, and 

Transportation, submitted the following 

R E P O R T 

[To accompany S. 1102] 

The Committee on Commerce, Science, and Transportation, to 

which was referred the bill (S. 1102) to extend the aviation war 

risk insurance program for 3 years, having considered the same, reports favorably thereon without amendment and recommends that 

the bill do pass. 

PURPOSE OF THE BILL

The measure would extend the authority of the Secretary of 

Transportation (Secretary) to issue war risk insurance policies to 

air carriers. Additionally, the measure would extend the Secretary’s authority to certify that an air carrier is a victim of an act 

of terrorism and shall not be liable for losses suffered by third parties. The measure also extends the Secretary’s authority to certify immunity from punitive damages that exceed $100,000,000. The 

measure would extend the Secretary’s authority through December 

31, 2008. 

BACKGROUND AND NEEDS

Aviation war risk insurance provides coverage for acts of violence 

against airlines such as terrorism, hijackings, and sabotage. War 

risk coverage benefits apply to airlines, persons on the ground, and 

property where such third parties suffer losses that result from 

acts of violence against an airline. 

Airlines cannot operate without war risk insurance. Aircraft loan 

and lease agreements typically require airlines to obtain and maintain such insurance. Additionally, some foreign countries require 

that airlines have war risk insurance as a condition to operate in 


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their airspace or at their airports. Air carriers have traditionally 

provided some degree of insurance self-coverage, but they are reliant on the larger insurance and reinsurance markets to provide 

catastrophic coverage. 

On September 22, 2001, Congress enacted H.R. 2926, the September 11th Victim Compensation Fund of 2001 (P.L. 107–42) that 

authorized the Federal Aviation Administration (FAA) to issue insurance for both domestic and international commercial air carrier 

operations. Previously, FAA authority was limited to international 

operations. P.L. 107–42 also enacted a $100,000,000 act-of-terrorism liability limitation for U.S. airlines with respect to damage 

to people and property on the ground. Airlines remained fully responsible for passenger liability. Beginning on September 24, 2001, 

the FAA began issuing war risk insurance. It continued to do so 

for 60-day periods thereafter. 

In H.R. 5005 the Homeland Security Act of 2002 (P.L. 107–296), 

Congress concluded that continued short-term administrative extensions of the FAA-issued policies were unsatisfactory and instructed the FAA to provide war-risk coverage through August 31, 

2003, with the discretion to extend the coverage through December 

31, 2003. 

In H.R. 1559, the Emergency Wartime Supplemental Appropriations Act of 2003 (P.L. 108–11), Congress extended each of those 

dates by one year to August 31, 2004, and December 31, 2004. Congress also extended the $100,000,000 act-of-terrorism liability cap. 

In H.R. 2115, Vision 100—Century of Aviation Reauthorization 

Act (P.L. 108–176), Congress amended section 44310 to allow the 

Department of Transportation (DOT) to provide war risk insurance 

to a U.S. aircraft manufacturer for loss of an aircraft of a U.S. airliner in excess of $50,000,000 or in excess of the manufacturer’s 

primary insurance. The manufacturer program was extended and 

made effective until March 30, 2008. 

In H.R. 4818, the Consolidated Appropriations Act of 2005 (P.L. 

108–447), Congress continued a mandatory extension of the war 

risk insurance program, and eliminated expansion of the program 

to aircraft manufacturers and associated entities. The agreement 

extended existing terms and conditions of the program for one year, 

until August 31, 2005, with the Secretary given the option of extending it until December 31, 2005. Under that option, the Secretary continues to have the authority to extend war risk insurance 

to aircraft manufacturers at his discretion. 

On November 18, 2005, Congress passed H.R. 3058 the Transportation, Treasury, the Judiciary, Housing and Urban Development, 

and related agencies Appropriations bill of 2006 (P.L. 109–115). 

H.R. 3058 extended the terms and conditions of the aviation war 

risk insurance program, along with the limitation on air carrier liability for third party claims arising out of acts of terrorism to August 31, 2006. H.R. 3058 also includes an option for the Secretary 

to further extend the program until December 31, 2006. 

Since the terrorist attacks of September 11, 2001, the commercial 

insurance market has not provided war risk coverage with terms 

that commercial air carriers deem financially reasonable or bearable. Market analysis suggests that commercial air carriers can 

currently only obtain commercial insurance coverage at several 

times current premiums with far less favorable terms. Industry 


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data suggests a return to the commercial market to obtain war risk 

insurance could cost U.S. airlines $600,000,000 to $700,000,000 in 

premiums annually compared with the current cost of $140,000,000 

provided by the U.S. DOT. Since its inception, the FAA’s war risk 

program has saved the struggling U.S. air carrier industry hundreds of millions in annual expenses and produced a net benefit to 

the Federal Treasury. 

The Committee recognizes U.S. that airlines continue to represent the prime aviation target for acts of foreign-based terrorism 

and the commercial market for aviation war risk insurance remains insecure. The Committee also recognizes the private aviation 

insurance market is highly specialized. While aviation war risk insurance coverage is now generally available from private insurers, 

premium rates continue to remain unreasonably high. Also, commercial hull insurance coverage for occurrences involving weapons 

of mass destruction is now being withdrawn from the market. 

The Congress is providing for a temporary extension of the existing program because coverage currently available is only available 

at rates that remain unreasonably high. 

The Committee encourages DOT to identify and evaluate methods for a gradual reintroduction to the commercial insurance market and to provide annual reports to the Committee on the availability of reasonably priced war risk insurance. 

LEGISLATIVE HISTORY

The bill, S. 1102, was ordered to be reported without amendment 

favorably to the Senate by voice vote on November 17, 2005, in the 

presence of a quorum. 

ESTIMATED COSTS

In accordance with paragraph 11(a) of rule XXVI of the Standing 

Rules of the Senate and section 403 of the Congressional Budget 

Act of 1974, the Committee provides the following cost estimate, 

prepared by the Congressional Budget Office: 

JANUARY 10, 2006. 

Hon. TED STEVENS, 

Chairman, Committee on Commerce, Science, and Transportation, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 1102, a bill to extend the 

aviation war risk insurance program for three years. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Megan Carroll. 

Sincerely, 

DONALD B. MARRON, Acting Director. 

Enclosure. 

S. 1102—A bill to extend the aviation war risk insurance program 

for three years 

Summary: S. 1102 would extend, through December 31, 2008, 

the Federal Aviation Administration’s (FAA’s) authority to offer insurance to air carriers and certain manufacturers against liability 


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arising from losses caused by terrorist events. CBO estimates that 

enacting S. 1102 would increase direct spending by $710 million 

over the 2007–2015 period. Enacting the bill would not affect revenues. 

S. 1102 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) 

and would not affect the budgets of state, local, or tribal governments. 

Estimated cost to the Federal Government: The estimated budgetary impact of S. 1102 is shown in the following table. The costs 

of this legislation fall within budget function 400 (transportation). 

By fiscal years, in millions of dollars— 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

CHANGES IN DIRECT SPENDING 

Estimated Budget Authority ...... 0 ¥125 5 270 210 140 100 60 30 20 

Estimated Outlays ..................... 0 ¥125 5 270 210 140 100 60 30 20 

Basis of estimate: The FAA offers insurance to air carriers and 

manufacturers of aircraft and aircraft engines against liability arising from losses caused by terrorist events. Under the Transportation, Treasury, Housing and Urban Development, the Judiciary, 

the District of Columbia, and Independent Agencies Appropriations 

Act, 2006 (Public Law 109–115), the FAA already has authority to 

offer that insurance through December 31, 2006. S. 1102 would extend the FAA’s authority to offer terrorism insurance through December 31, 2008. Assuming the agency would provide insurance 

through that date, we estimate that the net cost to the federal government would total $710 million over the 2007–2015 period. 

Currently, the FAA collects premiums from air carriers and manufacturers in exchange for insurance coverage. Such premiums are 

recorded as an offset to direct spending in the year that they are 

collected. Based on information from the FAA about rates charged 

for coverage, CBO estimates that under S. 1102, the agency would 

collect about $340 million in additional premiums over the 2007–

2008 period. CBO expects that the potential cost of providing insurance, however, would be much greater than premiums collected. 

CBO estimates that payments for expected losses under the FAA 

insurance program would cost nearly $1.1 billion over the 2007–

2015 period, with residual spending in later years. 

CBO cannot predict how much insured damage terrorists might 

cause to air carriers and aircraft engine manufacturers in any specific year. Instead, our estimate of the cost of the insurance coverage under S. 1102 represents an expected value of payments 

from the program—a weighted average that reflects the probabilities of various outcomes, from zero damages up to very large 

damages due to possible future terrorist attacks. The expected 

value can be thought of as the amount of an insurance premium 

that would be necessary to just offset the risk of providing this insurance; indeed, our estimate of the expected cost for S. 1102 is 

based on actual premiums for terrorism insurance that have been 

paid by non-U.S. air carriers that must purchase such insurance 

from the private sector. Our estimate also takes into account differences in costs faced by private insurance firms that are not 

borne by the federal government. While this cost estimate reflects 


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CBO’ s best judgment on the basis of available information, costs 

are a function of inherently unpredictable future terrorist attacks. 

As such, actual costs could fall anywhere within an extremely 

broad range. 

Intergovernmental and private-sector impact: S. 1102 contains no 

intergovernmental or private-sector mandates as defined in UMRA 

and would not affect the budgets of state, local, or tribal governments. 

Estimate prepared by: Federal Costs: Megan Carroll. Impact on 

State, Local, and Tribal Governments: Sarah Puro. Impact on the 

Private Sector: Paige Piper/Bach. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

REGULATORY IMPACT STATEMENT

Because S. 1102 does not create any new programs, the legislation would have no additional regulatory impact, and would result 

in no additional reporting requirements. The legislation would have 

no further effect on the number or types of individuals and businesses regulated, the economic impact of such regulation, the personal privacy of affected individuals, or the paperwork required 

from such individuals and businesses. 

SECTION-BY-SECTION ANALYSIS

Section 1. Extension of airline war risk policies and terrorism coverage 

This section would amend section 44302(f) of title 49, United 

States Code, to extend through August 31, 2008, the coverage provided by any war risk insurance policy that DOT has currently 

issued to U.S. civil aircraft. The Secretary would be authorized to 

further extend the coverage through December 31, 2008. 

This section would also amend 44303(b) of title 49, United States 

Code, to extend through December 31, 2008, the authority of the 

Secretary to certify that an air carrier has been a victim of a terrorist act, and thus, not responsible for losses suffered by third parties in excess of $100,000,000 in total for all claims arising out of 

such an act. In addition, no punitive damages may be awarded 

against an air carrier or the Federal Government under this provision, and the Federal Government would be responsible for any liability in amounts that exceed $100,000,000, for any claims arising 

as the result of a terrorist act against an air carrier covered under 

the DOT’s policy. 

CHANGES IN EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing 

Rules of the Senate, changes in existing law made by the bill, as 

reported, are shown as follows (existing law proposed to be omitted 

is enclosed in black brackets, new material is printed in italic, existing law in which no change is proposed is shown in roman): 


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øTITLE 49—TRANSPORTATION¿ 

øSUBTITLE VII—AVIATION PROGRAMS¿ 

øPART A—AIR COMMERCE AND SAFETY¿ 

SUBPART III—SAFETY 

CHAPTER 443—INSURANCE 

§ 44302. General authority 

(a) INSURANCE AND REINSURANCE.—(1) Subject to subsection (c) 

of this section and section 44305(a) of this title, the Secretary of 

Transportation may provide insurance and reinsurance against loss 

or damage arising out of any risk from the operation of an American aircraft or foreign-flag aircraft. 

(2) An aircraft may be insured or reinsured for not more than its 

reasonable value as determined by the Secretary in accordance 

with reasonable business practices in the commercial aviation insurance industry. Insurance or reinsurance may be provided only 

when the Secretary decides that the insurance cannot be obtained 

on reasonable terms from an insurance carrier. 

(b) REIMBURSEMENT OF INSURANCE COST INCREASES.— (1) IN GENERAL.—The Secretary may reimburse an air carrier for the increase in the cost of insurance, with respect to 

a premium for coverage ending before October 1, 2002, against 

loss or damage arising out of any risk from the operation of an 

American aircraft over the insurance premium that was in effect for a comparable operation during the period beginning 

September 4, 2001, and ending September 10, 2001, as the 

Secretary may determine. Such reimbursement is subject to 

subsections (a)(2), (c), and (d) of this section and to section 

44303. 

(2) PAYMENT FROM REVOLVING FUND.—A reimbursement 

under this subsection shall be paid from the revolving fund established by section 44307. 

(3) FURTHER CONDITIONS.—The Secretary may impose such 

further conditions on insurance for which the increase in premium is subject to reimbursement under this subsection as the 

Secretary may deem appropriate in the interest of air commerce. 

(4) TERMINATION OF AUTHORITY.—The authority to reimburse 

air carriers under this subsection shall expire 180 days after 

the date of enactment of this paragraph. 

(c) PRESIDENTIAL APPROVAL.—The Secretary may provide insurance or reinsurance under subsection (a) of this section, or reimburse an air carrier under subsection (b) of this section, only with 

the approval of the President. The President may approve the insurance or reinsurance or the reimbursement only after deciding 

that the continued operation of the American aircraft or foreignflag aircraft to be insured or reinsured is necessary in the interest 

of air commerce or national security or to carry out the foreign policy of the United States Government. 

(d) CONSULTATION.—The President may require the Secretary to 

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ities of the Government before providing insurance or reinsurance 

or reimbursing an air carrier under this chapter. 

(e) ADDITIONAL INSURANCE.—With the approval of the Secretary, 

a person having an insurable interest in an aircraft may insure 

with other underwriters in an amount that is more than the 

amount insured with the Secretary. However, the Secretary may 

not benefit from the additional insurance. This subsection does not 

prevent the Secretary from making contracts of coinsurance. 

(f) EXTENSION OF POLICIES.—

(1) IN GENERAL.—The Secretary shall extend through øAugust 31, 2005, and may extend through December 31, 2005,¿ 

August 31, 2008, and shall extend through December 31, 2008, 

the termination date of any insurance policy that the Department of Transportation issued to an air carrier under subsection (a) and that is in effect on the date of enactment of this 

subsection on no less favorable terms to the air carrier than 

existed on June 19, 2002; except that the Secretary shall 

amend the insurance policy, subject to such terms and conditions as the Secretary may prescribe, to add coverage for losses 

or injuries to aircraft hulls, passengers, and crew at the limits 

carried by air carriers for such losses and injuries as of such 

date of enactment and at an additional premium comparable 

to the premium charged for third-party casualty coverage 

under such policy. 

(2) SPECIAL RULES.—Notwithstanding paragraph (1)—

(A) in no event shall the total premium paid by the air 

carrier for the policy, as amended, be more than twice the 

premium that the air carrier was paying to the Department of Transportation for its third party policy as of June 

19, 2002; and 

(B) the coverage in such policy shall begin with the first 

dollar of any covered loss that is incurred. 

(g) AIRCRAFT MANUFACTURERS.—

(1) IN GENERAL.—The Secretary may provide to an aircraft 

manufacturer insurance for loss or damage resulting from operation of an aircraft by an air carrier and involving war or 

terrorism. 

(2) AMOUNT.—Insurance provided by the Secretary under 

this subsection shall be for loss or damage in excess of the 

greater of the amount of available primary insurance or 

$50,000,000. 

(3) TERMS AND CONDITIONS.—Insurance provided by the Secretary under this subsection shall be subject to the terms and 

conditions set forth in this chapter and such other terms and 

conditions as the Secretary may prescribe. 

§ 44303. Coverage 

(a) IN GENERAL.—The Secretary of Transportation may provide 

insurance and reinsurance, or reimburse insurance costs, as authorized under section 44302 of this title for the following: 

(1) an American aircraft or foreign-flag aircraft engaged in 

aircraft operations the President decides are necessary in the 

interest of air commerce or national security or to carry out the 

foreign policy of the United States Government. 


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(2) property transported or to be transported on aircraft referred to in clause (1) of this section, including— (A) shipments by express or registered mail; 

(B) property owned by citizens or residents of the United 

States; 

(C) property— (i) imported to, or exported from, the United States; 

and 

(ii) bought or sold by a citizen or resident of the 

United States under a contract putting the risk of loss 

or obligation to provide insurance against risk of loss 

on the citizen or resident; and 

(D) property transported between— (i) a place in a State or the District of Columbia and 

a place in a territory or possession of the United 

States; 

(ii) a place in a territory or possession of the United 

States and a place in another territory or possession 

of the United States; or 

(iii) 2 places in the same territory or possession of 

the United States. 

(3) the personal effects and baggage of officers and members 

of the crew of an aircraft referred to in clause (1) of this section 

and of other individuals employed or transported on that aircraft. 

(4) officers and members of the crew of an aircraft referred 

to in clause (1) of this section and other individuals employed 

or transported on that aircraft against loss of life, injury, or detention. 

(5) statutory or contractual obligations or other liabilities, 

customarily covered by insurance, of an aircraft referred to in 

clause (1) of this section or of the owner or operator of that aircraft. 

(6) loss or damage of an aircraft manufacturer resulting from 

operation of an aircraft by an air carrier and involving war or 

terrorism. 

(b) AIR CARRIER LIABILITY FOR THIRD PARTY CLAIMS ARISING

OUT OF ACTS OF TERRORISM.—For acts of terrorism committed on 

or to an air carrier during the period beginning on September 22, 

2001, and ending on øDecember 31, 2005,¿ December 31, 2008, the 

Secretary may certify that the air carrier was a victim of an act 

of terrorism and in the Secretary’s judgment, based on the Secretary’s analysis and conclusions regarding the facts and circumstances of each case, shall not be responsible for losses suffered 

by third parties (as referred to in section 205.5(b)(1) of title 14, 

Code of Federal Regulations) that exceed $100,000,000, in the aggregate, for all claims by such parties arising out of such act. If the 

Secretary so certifies, the air carrier shall not be liable for an 

amount that exceeds $100,000,000, in the aggregate, for all claims 

by such parties arising out of such act, and the Government shall 

be responsible for any liability above such amount. No punitive 

damages may be awarded against an air carrier (or the Government taking responsibility for an air carrier under this subsection) 

under a cause of action arising out of such act. The Secretary may 

extend the provisions of this subsection to an aircraft manufacturer 


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(as defined in section 44301) of the aircraft of the air carrier involved. 

Æ 


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