67100 Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / Proposed Rules 

Dated: October 2, 2003.

Linda S. Kahan,

Deputy Director, Center for Devices and 

Radiological Health.

[FR Doc. 03–29739 Filed 11–28–03; 8:45 am]

BILLING CODE 4160–01–S

DEPARTMENT OF THE TREASURY

31 CFR Part 50 

RIN 1505–AB07 

Terrorism Risk Insurance Program; 

Initial Claims Procedures

AGENCY: Departmental Offices, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Department of the 

Treasury (Treasury) is issuing this 

proposed rule as part of its 

implementation of Title I of the 

Terrorism Risk Insurance Act of 2002 

(the Act). That Act established a 

temporary Terrorism Risk Insurance 

Program (Program) under which the 

Federal Government will share the risk 

of insured loss from certified acts of 

terrorism with commercial property and 

casualty insurers until the Program 

sunsets on December 31, 2005. This 

proposed rule contains procedures for 

filing claims for payment of the federal 

share of compensation for insured losses 

under the Program and incorporates 

statutory conditions for federal 

payment. In particular, the proposed 

rule addresses requirements for loss 

certification and associated 

recordkeeping requirements; provides 

guidance on what is payable as the 

federal share of insured losses; and sets 

forth requirements for investigating and 

auditing claims under the Program. The 

rule generally builds upon previous 

interim guidances and final rules issued 

by Treasury, particularly in areas 

involving definitions and disclosure 

requirements. This proposed rule is the 

fourth in a series of regulations Treasury 

has issued to implement the Act.

DATES: Written comments may be 

submitted on or before December 31, 

2003.

ADDRESSES: Submit comments by e-mail 

to triacomments@do.treas.gov 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 Ave., NW., 

Washington, DC 20220. All comments 

should be captioned with ‘‘Proposed 

Rule on Claim Procedures’’. 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:

David Brummond, Legal Counsel; 

Howard Leikin, Senior Insurance 

Advisor; C. Christopher Ledoux, Senior 

Attorney; Terrorism Risk Insurance 

Program (202) 622–6770 (not a toll-free 

number).

SUPPLEMENTARY INFORMATION: 

I. Background 

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). 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. The 

Program provides a three-year federal 

reinsurance backstop for insured losses 

from an act of terrorism until the 

Program ends on December 31, 2005. 

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 to be determined, based 

upon the insurance company 

deductibles and excess loss sharing with 

the Federal Government, as specified by 

the Act and the 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 statutory periods. 

Once an insurer has met its individual 

deductible, the federal payments cover 

90 percent of the insured losses above 

the deductible, subject to an industryaggregate 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. 

II. Previous Rulemaking 

This proposed rule is the latest in a 

series of rules issued by Treasury under 

the Act. In implementing the Program, 

Treasury has sought to achieve several 

goals. First, an effort has been made to 

implement the Act in a transparent and 

effective manner that treats comparably 

those insurers required to participate in 

the Program and that provides necessary 

information to policyholders in a useful 

and efficient manner. Second, Treasury 

seeks to rely as much as possible on the 

State insurance regulatory structure. In 

that regard, Treasury is closely 

coordinating with the National 

Association of Insurance Commissioners 

(NAIC) in implementing all aspects of 

the Program. Third, to the extent 

possible within statutory constraints, 

Treasury seeks to allow insurers to 

participate in the Program in a manner 

consistent with their normal course of 

business. Finally, given the temporary 

and transitional nature of the Program, 

Treasury is guided by the Act’s goal for 

insurers to develop their own capacity, 

resources and mechanisms for terrorism 

risk insurance coverage when the 

Program expires. 

To assist insurers, policyholders and 

other interested parties in complying 

with immediately applicable and timesensitive requirements of the Act prior 

to the issuance of regulations, Treasury 

issued interim guidance in four separate 

notices on December 3 and 18, 2002 and 

on January 22 and March 25, 2003. 

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 [67 FR 76206 (December 11, 

Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / Proposed Rules 67101

2002); 67 FR 78864 (Dec. 18, 2002); 68 

FR 4544 (Jan. 29, 2003); 68 FR 15039 

(Mar. 27, 2003)]. The interim guidances 

addressed several issues requiring 

clarification of immediately applicable 

provisions, including provisions dealing 

with statutory disclosure obligations of 

insurers; requirements to make available 

terrorism risk insurance; the meaning of 

direct earned premium for commercial 

property and casualty insurance; 

categories of insurers required to 

participate in the Program; and the 

scope of the term insured loss under the 

Act. 

In addition to interim guidance, 

Treasury has published two interim 

final rules and a proposed rule that have 

now been issued as final rules. Treasury 

published the first regulation 

implementing the Act on February 28, 

2003 (68 FR 9804) as an interim final 

rule. That interim final rule was revised 

and published as a final regulation on 

July 11, 2003 (68 FR 41250). Now 

Subpart A of part 50 in Title 31 of the 

Code of Federal Regulations, this 

rulemaking covers the purpose and 

scope of the Program, key definitions 

and certain general provisions. A 

technical revision to the final rule 

dealing with the definition of direct 

earned premium was subsequently 

published on August 13, 2003 (68 FR 

48280). 

On April 18, 2002 (68 FR 19302) 

Treasury published a second interim 

final rule. Among other things, this rule 

dealt with requirements governing 

disclosures that insurers must make to 

policyholders as a condition for federal 

payment under the Act and 

requirements that insurers make 

available terrorism coverage in their 

commercial property and casualty 

insurance policies. The interim final 

rule created new Subparts B and C of 31 

CFR part 50. The interim final rule was 

revised and published as a final rule on 

October 17, 2003 (68 FR 59720). 

Finally, Treasury published a 

proposed rule on April 18, 2003 to 

address issues involving State residual 

market insurance entities and State 

workers compensation funds as required 

by section 103(d)(1) of the Act (68 FR 

19309). The proposed rule clarified 

characteristics of a residual market 

mechanism that define it as an 

‘‘insurer’’, established guidelines for 

computing ‘‘direct earned premium’’

and continued the waiver of the Act’s 

requirements related to disclosure. The 

proposed rule was revised and 

published as a final rule on October 17, 

2003 (68 FR 59715). The final rule made 

minor revisions to the proposed rule 

and set forth disclosure requirements for 

residual market mechanisms.

III. The Proposed Rule 

This proposed rule would add 

Subparts F and G to Part 50, which 

comprises Treasury’s regulations 

implementing the Act. It also proposes 

to amend the definition of ‘‘insured 

loss’’ in § 50.5(e) of Subpart A. 

A. Overview 

Section 103(a)(2) of the Act requires 

the Secretary of the Treasury to 

administer the Program and pay the 

Federal share of compensation for 

insured losses. The proposed rule 

would establish requirements for 

insurers to follow in obtaining payment 

of the Federal share of compensation for 

insured losses from a terrorist event. 

The proposed rule is designed to reflect 

best practices of reinsurers, where 

applicable, in the context of the Act’s 

text, goals and purposes. In general, the 

proposed rule describes what is payable 

to insurers as the Federal share of 

compensation and then follows the 

sequence of the process for paying 

reinsurance claims. Essentially, the 

process involves gathering information 

about insured losses of insurers as 

defined by the Act; requiring proof, or 

certification, that an insurer has met the 

requirements of the Act as a condition 

to payment of the Federal share; and 

making payment to insurers for the 

Federal share of compensation for their 

insured losses. The proposed rule is 

modeled on customary business 

practices and procedures of the 

reinsurance industry while 

implementing the statutory 

requirements of the Act. Treasury seeks 

comment on all aspects of the proposed 

rule from interested persons and 

entities. 

In outlining proposed requirements 

for insurers to obtain payment for 

insured losses, Treasury seeks to 

establish operational procedures that 

emulate, as appropriate, the best 

practices of a reinsurer. In this proposed 

rule, Treasury’s goal is to be able to 

respond quickly to insurer claims for 

payment while maintaining appropriate 

financial controls so that taxpayer funds 

are protected. To the extent possible, the 

information that will be required from 

insurers already exists as part of their 

current process for administering and 

managing insurance claims. In certain 

instances, however, the Act requires 

certifications of insurer actions that may 

be different from customary industry 

business practices. It is Treasury’s 

objective to obtain the information and 

documentation needed to administer the 

Program, while avoiding undue burdens 

on insurers. 

The proposed rule seeks to clarify the 

amount of the Federal share of 

compensation payable by Treasury and 

establish certain basic operational 

requirements to implement payment. 

Accordingly, the previous definition of 

‘‘insured loss’’ is amended to facilitate 

clarification of items compensable as 

part of the Federal share. In addition to 

this proposed rulemaking, more detailed 

operating procedures will be developed 

as required. Such procedures will be 

posted on the Treasury Web site http:/

/www.Treasury.gov/trip. For the present 

time, Treasury is concentrating on 

regulations that are important to the 

initial and supplementary reporting and 

certification of insured losses and the 

filing of claims for payment of the 

Federal share of compensation. This is 

being done so that Treasury and 

insurers can proceed expeditiously 

should a certified act of terrorism occur. 

There are other issues, typically those 

arising at later stages of the claims 

payment process, that are not addressed 

in the proposed rule. For example, 

payment priorities when aggregate 

losses constituting the Federal share of 

compensation approach the statutory 

maximum of $100 billion are not 

included as part of this rulemaking. 

These and other issues will be the 

subject of subsequent rulemaking. 

B. Description of Proposed Rule 

The major provisions of the proposed 

rule are as follows: 

1. The Federal Share of 

Compensation. The proposed rule 

generally outlines the Act’s 

requirements and conditions for federal 

payment. A critical component of the 

calculation of the Federal share of 

compensation is the amount of insured 

losses of an insurer. The proposed rule 

thus clarifies elements of insured losses 

that are compensable by amending the 

current definition of ‘‘insured loss’’ in 

§ 50.5(e). Following customary business 

practices in the insurance industry, 

Treasury is proposing that loss 

adjustment expenses allocable to a 

specific underlying loss be payable as 

part of insured losses. Treasury has not 

included losses in excess of policy 

limits (known commonly as XPL) as 

insured losses. However, comments on 

why the Federal Government should 

consider including XPL losses are 

solicited by Treasury. Since the Act 

specifically excludes compensation for 

punitive or exemplary damages, these 

are also not included as insured loss 

items. 

The Federal share of compensation 

payable to an insurer under the Program 

is described by the proposed rule as 90 

percent of that portion of the insurer’s 

67102 Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / Proposed Rules 

insured losses that exceed its insurer 

deductible during a Program Year, 

subject to specified adjustments and the 

cap of $100 billion as provided in the 

Act. The proposed rule stipulates 

several adjustments in calculating the 

Federal share of compensation. First, 

the proposed rule reduces aggregate 

insured losses by amounts recovered by 

insurers for salvage and subrogation. 

Treasury expects that as normal good 

business practice, insurers will pursue 

salvage and subrogation recoveries. The 

proposed rule sets forth that the amount 

of insured losses upon which the 

Federal share of compensation is 

calculated be reduced by such 

recoveries. The benefits of insurer 

recoveries for salvage and subrogation 

thus inure to both the insurer and to the 

Program. 

The proposed rule also specifies two 

other adjustments that will be made to 

reduce the Federal share of 

compensation otherwise due for the 

insured losses. The Act requires that the 

Federal share of compensation for 

insured losses be reduced by any 

duplicate amount of compensation 

otherwise provided by the Federal 

Government for those insured losses. 

The Act recognizes that insurers may 

have other sources of recovery for their 

insured losses, particularly reinsurance 

agreements. Should the amount of an 

insurer’s Federal share of compensation 

from the Program and the amount of 

recoveries from other sources exceed the 

aggregate amount of its insured losses in 

a Program Year, then any excess 

recovery must be returned to Treasury. 

Excluded from this requirement are 

recoveries from a reinsurer pursuant to 

an agreement whereby an insurer’s 

obligation to repay its reinsurer takes 

priority over its obligation to repay 

Treasury.

2. Information Gathering. The next 

stage of the claims process under the 

proposed rule involves the submission 

of information about insured losses so 

that Treasury can determine the extent 

of its obligation to pay individual 

insurers under the Act. 

a. Initial Notice. As the ‘‘payer’’ of 

Federal compensation for insured losses 

from acts of terrorism, Treasury is 

proposing an early notification 

requirement when an insurer obtains 

information indicating its insured losses 

will exceed 50% of its insurer 

deductible as defined by the Act. At that 

time Treasury expects the insurer to 

submit, on a form prescribed by 

Treasury, estimates of aggregate losses 

for the Program Year, its insurer 

deductible and the Federal share of 

aggregate losses, as well as to designate 

the person who will make required 

certifications and receive Federal 

payments. Such information will assist 

in anticipating funding and operational 

requirements. Because the insurer 

deductible applies collectively to all 

insurers in an affiliated group, the 

notice must include the designation of 

a single insurance entity to coordinate 

the submission of required reports and 

documentation (including the Initial 

Notice), make required certifications 

and receive Federal payments on behalf 

of the affiliated group. 

b. Loss Reporting. The proposed rule 

addresses the type of loss information 

that will be required to document 

insured losses when an insurer seeks 

reimbursement from Treasury for the 

Federal share of compensation. An 

Initial Certification of Loss, on a form 

prescribed by Treasury, is required 

when insured losses first exceed the 

insurer’s deductible. If the insurer 

sustains ongoing, additional insured 

losses, periodic Supplementary 

Certifications of Loss, on a form 

prescribed by Treasury, must be 

submitted. These Certifications of Loss 

will be used by Treasury to assess 

payment eligibility for the Federal share 

of compensation and compliance with 

the Act’s prerequisites for payment. 

(i) Loss Bordereau. The primary 

vehicle for gathering information about 

the insured losses of an insurer is a 

summary report of loss data commonly 

known in the reinsurance industry as a 

‘‘bordereau’’. A bordereau is a 

management report of basic information 

about an insurer’s underlying claims 

that, in the aggregate, constitute the 

insured losses of the insurer. The 

bordereau is used within the 

reinsurance industry to track insured 

losses and otherwise establish the 

reinsurer’s obligation to pay under a 

reinsurance agreement. The proposed 

rule would require insurers to provide 

Treasury with a bordereau that 

identifies insured losses by Program 

Year, by industry catastrophe code and 

by line of business. If an industry 

catastrophe code is not issued, Treasury 

will issue a code for insurer use. It is 

Treasury’s intent to coordinate this code 

with appropriate industry reporting 

organizations. 

In the future, Treasury will issue 

operating procedures and a prescribed 

format for the bordereau in its 

implementation of these regulations. For 

each underlying claim, Treasury 

contemplates the submission of 

information that is typical of a 

reinsurer’s requirements. Such basic 

information will allow Treasury to 

expeditiously handle and provide 

payment for claims under the Program. 

Certain data will be sought for claim 

identification and coverage 

determination, such as claim number, 

insured name, state code for the location 

of the loss, date of loss, policy effective 

date and length of term. Other data will 

assist in the assessment of the insurer’s 

claim, such as policy limits. And 

finally, certain data are simply basic to 

the insurer’s claim, such as the loss and 

allocated loss adjustment expenses paid, 

amounts reserved for those expenses 

and amounts recovered through salvage 

and subrogation. 

(ii) Other Information. The forms to 

be prescribed by Treasury will also seek 

loss-related information that is required 

by specific provisions of the Act. As 

previously noted, section 103(g)(2) of 

the Act recognizes that insurers may 

have other reinsurance recoveries for 

their insured losses. However, the Act 

requires that the Federal share of 

compensation from Treasury and 

amounts recovered from other sources 

cannot exceed the aggregate amount of 

the insurer’s insured losses in any 

Program Year. Thus, Treasury will 

require insurers to indicate on the 

bordereau whether an underlying claim 

could or does have other reinsurance 

recoverable. As part of the loss 

certification and bordereau information 

reported, an insurer would also report 

total reinsurance recoveries from other 

sources. This will provide the Treasury 

with an early notification that other 

reinsurance exists. 

Section 107(a)(5) of the Act provides 

that punitive damage amounts may not 

be included as insured losses. Thus, 

Treasury will require such amounts to 

be reported with an underlying claim on 

the bordereau for appropriate 

adjustment of the amount claimed from 

the Program.

Finally, section 103(e)(1)(B) of the Act 

requires the reduction of the Federal 

share of compensation for insured losses 

under the Program by the amounts 

provided by the Federal Government 

through any other program for those 

same losses. Accordingly, insurers will 

be required to inquire of each of their 

claimants whether or not the claimant 

received any duplicate recovery from 

any other Federal source and to report 

that amount on the bordereau with the 

underlying claim. 

3. Compliance Certifications. The 

proposed rule also addresses various 

written certifications the Act requires as 

a condition for payment of the Federal 

share. Specific statements certifying 

actions by the insurer as required by the 

Act will be included as part of each 

Certification of Loss. Section 103(b)(2) 

of the Act states that no payment may 

be made to an insurer for a covered 

insured loss unless ‘‘the insurer 

Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / Proposed Rules 67103

provides 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.’’ This requirement 

has been addressed in the previously 

issued Treasury regulations at §§ 50.10 

through 50.19 and will be a formal 

requirement in submitting a claim for 

the Federal share of compensation for 

an insured loss. Treasury anticipates 

that an executive officer of the insurer 

will provide this written certification for 

all underlying claims submitted on the 

bordereau, both with the Initial 

Certification of Loss and with any 

Supplementary Certifications of Loss. 

Section 103(c) of the Act also requires 

that through December 31, 2004, an 

entity meeting the definition of an 

insurer under this Program ‘‘(A) shall 

make available, in all of its commercial 

property and casualty insurance 

policies, coverage for insured losses; 

and (B) shall 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’’. This requirement has 

also been addressed in the previously 

issued Treasury regulations at §§ 50.20 

through 50.24. The Initial and each 

Supplementary Certification of Loss will 

include a certification that this 

availability requirement has been met. 

Although this is not a statutory 

condition for payment, Treasury 

believes it is necessary to effectively 

administer and implement the Program. 

Finally, the Act requires that insurers 

absorb a specified level of insured 

losses, or an insurer deductible, before 

receiving reimbursement for the Federal 

share of compensation for insured 

losses. To facilitate the administration 

of this provision, the Initial Certification 

of Loss requires an insurer to certify the 

amount of its direct earned premium, 

along with the calculation of its insurer 

deductible. The proposed rule provides 

that, at the option of the insurer, this 

statement and supporting 

documentation can be submitted along 

with the Initial Notice of Insured Loss 

instead of being provided in 

conjunction with the Initial Certification 

of Loss. This is allowed so that the 

amount of the insurer’s deductible can 

be on file with the Program to expedite 

the processing of the insurer’s Initial 

Certification of Loss. Treasury will 

prescribe a schedule or attachment to 

the Initial Notice of Insured Loss and 

the Initial Certification of Loss forms for 

the calculation and certification by an 

insurer of its direct earned premium and 

resulting insurer deductible based on its 

reporting to the NAIC, or as otherwise 

appropriately reported. 

4. Paying the Federal Share. The final 

stage in the claim process addressed by 

Treasury in the proposed rule is to make 

payment as provided by the Act. Once 

again, the proposed rule generally 

follows payment practices and 

procedures used in the reinsurance 

industry. 

a. Payment Process. Treasury is 

proposing that it will, upon receiving 

the required documentation, promptly 

provide payment. If Treasury makes 

payments before the total amount of 

insured losses are known, such 

payments will be subject later to 

adjustment based on any overpayment 

or underpayment. If the total amount of 

insured losses to be paid by the insurer 

or the amount of Federal compensation 

payable by Treasury has not been finally 

determined when the Initial 

Certification of Loss has been filed, the 

normal procedure to be followed is that 

the insurer will file Supplementary 

Certifications of Loss on a monthly 

basis. If monthly reporting is 

inappropriate in a particular case, then 

Treasury may determine a more suitable 

schedule to be worked out with the 

insurer. In either situation, on the basis 

of each Supplementary Certification of 

Loss thereafter, Treasury or the insurer, 

as the case may be, shall pay the balance 

due. It is proposed that any 

overpayment to an insurer will either be 

offset from future payments or due to 

Treasury within 45 days of the reporting 

of the overpayment.

Because the Act requires insurance 

entities within an affiliated group to be 

treated as a single entity in determining 

the insurer deductible, Treasury is 

proposing that all payments will be 

made to a single insurance entity within 

an affiliated group. This entity will be 

identified by the affiliated group and 

designated on the Initial Notice of Loss. 

The proposed rule also requires that 

insurers within the affiliated group 

assign their rights to payment from 

Treasury to the single insurance entity. 

Failure to make such assignment may be 

grounds for Treasury withholding an 

affiliate insurer’s share of Federal 

compensation under the Program. 

b. Audits and Records. If a certified 

act of terrorism occurs, it will be the 

objective of the Treasury to reimburse 

insurers according to the Act as soon as 

possible following receipt of the Initial 

Certification of Loss and supporting 

documentation. The proposed rule 

requires insurers to retain all records 

and files pertaining to the handling and 

settlement of claims, including 

electronic documents and data, for 

subsequent financial and claims audits. 

This is because Treasury and/or its 

appointed designee(s) will need to have 

access to pertinent books, files, 

agreements and records which support 

the Certifications of Loss previously 

submitted. Insurer records should be 

retained for a minimum of three years 

following the conclusion of the policy 

year for premium information and for a 

minimum of five years following the 

final adjustment of each individual 

claim. 

c. Fraud and Civil Penalties. One of 

the conditions for Federal payment 

under section 103(b) of the Act is that 

the insurer ‘‘processes the claim for the 

insured loss in accordance with 

appropriate business practices, and any 

reasonable procedures that the Secretary 

may prescribe.’’ The proposed rule 

provides that Treasury may deny 

eligibility for payment of the Federal 

share of insured losses should an 

insurer intentionally conceal or 

misrepresent any material fact or 

circumstance, engage in fraudulent 

conduct, or make false statements 

relating to participation under the Act. 

Fines, civil penalties and imprisonment 

under applicable Federal laws may also 

apply. 

IV. Procedural Requirements 

Executive Order 12866, ‘‘Regulatory 

Planning and Review’’. This rule is a 

significant regulatory action for 

purposes of Executive Order 12866, 

‘‘Regulatory Planning and Review,’’ and 

has been reviewed by the Office of 

Management and Budget. 

Regulatory Flexibility Act. Pursuant to 

the Regulatory Flexibility Act, 5 U.S.C. 

601 et. seq., it is hereby certified that 

this proposed rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Treasury is required to pay the Federal 

share of compensation to insurers for 

insured losses in accordance with the 

Act. A condition of Federal payment is 

that the insurer must submit to 

Treasury, in accordance with 

procedures established by Treasury, a 

claim for payment and certain 

certifications. The proposed rule seeks 

to emulate loss reporting practices in 

the reinsurance industry, which 

insurers already follow in order to get 

payment for reinsurance, thus 

minimizing the impact on all insurers. 

The Act itself requires all insurers 

receiving direct earned premium for any 

type of property and casualty insurance, 

as defined in the Act, to participate in 

the Program. This includes all insurers 

regardless of size or sophistication. The 

Act also defines property and casualty 

insurance to mean commercial lines 

67104 Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / Proposed Rules 

insurance without any reference to the 

size or scope of the insurer or the 

insured. Accordingly, any economic 

impact associated with the proposed 

rule flows from the Act and not the 

proposed rule. A regulatory flexibility 

analysis is thus not required. 

Paperwork Reduction Act. The 

collection of information (recordkeeping 

requirement) contained in this proposed 

rule has been submitted to the Office of 

Management and Budget (OMB) for 

review under the requirements of the 

Paperwork Reduction Act, 44 U.S.C. 

3507(d). The forms to be prescribed by 

Treasury will be the subject of a 

separate submission to OMB on which 

the public will be provided an 

opportunity to comment. An agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a valid control number 

assigned by OMB. 

Organizations and individuals 

desiring to submit comments 

concerning the collection of information 

in the proposed rule should direct them 

to the Desk Officer for the Department 

of the Treasury, Office of Information 

and Regulatory Affairs, Office of 

Management and Budget, Washington, 

DC 20503 (preferably by Fax to 202–

395–6974, or by e-mail to 

jlackeyj@omb.eop.gov). A copy of the 

comments should also be sent to 

Treasury at the addresses previously 

specified. Comments on the collection 

of information should be received by 

December 31, 2003.

Treasury specifically invites 

comments on: (a) Whether the proposed 

collection of information is necessary 

for the proper performance of the 

mission of Treasury, and whether the 

information will have practical utility; 

(b) the accuracy of the estimate of the 

burden of the collections of information 

(see below); (c) ways to enhance the 

quality, utility, and clarity of the 

information collection; (d) ways to 

minimize the burden of the information 

collection, including through the use of 

automated collection techniques or 

other forms of information technology; 

and (e) estimates of capital or start-up 

costs and costs of operation, 

maintenance, and purchase of services 

to maintain the information. 

The collection of information in the 

proposed rule is the recordkeeping 

requirement in § 50.61. The information 

will be used by Treasury (or its 

designees) to audit or examine claims 

for Federal payments submitted by 

insurers. The recordkeeping 

requirement is mandatory for any 

insurer that seeks payment of a Federal 

share of compensation. 

If an act of terrorism is certified under 

the Act, the number of respondents, if 

any, will be determined by the size and 

nature of the certified act of terrorism. 

Because of the extreme uncertainty 

regarding any such event, a ‘‘best 

estimate’’ has been developed based on 

the considered judgment of Treasury. 

This estimate has 100 insurers 

sustaining insured losses; each of these 

insurers would be required to retain 

records concerning 100 claims. Treasury 

believes that the records that insurers 

would be required to retain under 

§ 50.61 largely duplicate the records that 

insurers would normally retain in the 

course of processing and administering 

claims, and that the burden associated 

with the proposed rule therefore is 

minimal. Accordingly, Treasury 

estimates that the proposed rule will 

impose 5 minutes of burden with 

respect to each claim; the estimated 

annual burden per recordkeeper is 

therefore 8.33 hours (100 claims × 5 

minutes) and the estimated total annual 

burden is 833 hours (8.33 hours × 100 

insurers).

List of Subjects in 31 CFR Part 50 

Terrorism risk insurance.

For the reasons stated above, 31 CFR 

part 50 is proposed to be amended as 

follows:

PART 50—TERRORISM RISK 

INSURANCE PROGRAM 

1. The authority citation for 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).

2. Revise § 50.5(e) to read as follows:

§ 50.5 Definitions.

* * * * *

(e) Insured loss. (1) The term insured 

loss means any loss resulting from an 

act of terrorism (including an act of war, 

in the case of workers’ compensation) 

that is covered by primary or excess 

property and casualty insurance issued 

by an insurer if the loss: 

(i) Occurs within the United States; 

(ii) Occurs to an air carrier (as defined 

in 49 U.S.C. 40102), to a United States 

flag vessel (or a vessel based principally 

in the United States, on which United 

States income tax is paid and whose 

insurance coverage is subject to 

regulation in the United States), 

regardless of where the loss occurs; or 

(iii) Occurs at the premises of any 

United States mission. 

(2)(i) A loss that occurs to an air 

carrier (as defined in 49 U.S.C. 40102), 

to a United States flag vessel, or a vessel 

based principally in the United States, 

on which United States income tax is 

paid and whose insurance coverage is 

subject to regulation in the United 

States, is not an insured loss under 

section 102(5)(B) of the Act unless it is 

incurred by the air carrier or vessel 

outside the United States. 

(ii) An insured loss to an air carrier or 

vessel outside the United States under 

section 102(5)(B) of the Act does not 

include losses covered by third party 

insurance contracts that are separate 

from the insurance coverage provided to 

the air carrier or vessel. 

(3) The term insured loss includes 

loss adjustment expenses incurred by an 

insurer in connection with insured 

losses that are allocated and identified 

by claim file in insurer records, 

including expenses incurred in the 

investigation, adjustment and defense of 

claims, but excluding staff adjuster 

salaries and any allocations of other 

internal insurer expenses. 

(4) The term insured loss does not 

include: 

(i) Punitive or exemplary damages 

awarded or paid in connection with the 

Federal cause of action specified in 

section 107(a)(1) of the Act. The term 

‘‘punitive or exemplary damages’’

means damages that are not 

compensatory but are an award of 

money made to a claimant solely to 

punish or deter; or 

(ii) Extra contractual damages 

awarded, or obligations paid by an 

insurer, including but not limited to, 

punitive, exemplary, or special 

damages, or damages in excess of policy 

limits.

* * * * *

3. New Subparts F and G of Part 50 

are added to read as follows:

Subpart F—Claims Procedures 

Sec. 

50.50 Federal share of compensation. 

50.51 Adjustments to the Federal share of 

compensation. 

50.52 Initial Notice of Insured Loss. 

50.53 Loss certifications. 

50.54 Payment of Federal share of 

compensation.

Subpart F—Claims Procedures

§ 50.50 Federal share of compensation. 

(a) General. The Treasury will pay to 

insurers the Federal share of 

compensation for insured losses 

resulting from acts of terrorism as 

provided in section 103 of the Act. 

Treasury shall determine the amount of 

payment of the Federal share of 

compensation based upon a 

determination by Treasury, or upon 

Treasury’s reservation of rights and a 

later determination, that:

Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / Proposed Rules 67105

(1) The insurer is an entity meeting 

the requirements of § 50.5(f); 

(2) The insurer’s insured losses as 

defined in § 50.5(e) have exceeded its 

insurer deductible as defined in 

§ 50.5(g); 

(3) The insurer has made payment of 

an underlying insured loss to a person 

who had suffered the insured loss, or to 

a person acting on behalf of such 

person, and who had filed a claim that 

was not fraudulent, collusive, made in 

bad faith or otherwise dishonest; 

(4) The insurer had provided a clear 

and conspicuous disclosure as required 

by §§ 50.10 through 50.19; 

(5) The insurer took all steps 

reasonably necessary to properly and 

carefully investigate the underlying 

insured loss and otherwise processed 

the underlying loss using appropriate 

insurance business practices; 

(6) The insured losses submitted for 

payment are within the scope of 

coverage issued by the insurer for 

commercial property and casualty 

insurance as defined in § 50.5(l); and 

(7) The procedures specified in this 

subpart have been followed and all 

conditions to payment have been met. 

(b) Amount payable. The Federal 

share of compensation payable to an 

insurer under the Program shall be 90 

percent of that portion of the insurer’s 

aggregate insured losses that exceed its 

insurer deductible during a Program 

Year, subject to any adjustments in 

§ 50.51 and the cap of $100 billion as 

provided in section 103(e)(2) of the Act.

§ 50.51 Adjustments to the Federal share 

of compensation. 

(a) Aggregate amount of insured 

losses. The aggregate amount of insured 

losses of an insurer in a Program Year 

used to calculate the Federal share of 

compensation shall be reduced by any 

amounts recovered by the insurer as 

salvage or subrogation for its insured 

losses in the Program Year. 

(b) Amount of Federal share of 

compensation. The Federal share of 

compensation shall be adjusted as 

follows: 

(1) No excess recoveries. For any 

Program Year, the sum of the Federal 

share of compensation paid by Treasury 

to an insurer and the insurer’s 

recoveries for insured losses from other 

sources shall not be greater than the 

insurer’s aggregate amount of insured 

losses for acts of terrorism in that 

Program Year. Amounts recovered for 

insured losses in excess of an insurer’s 

aggregate amount of insured losses in a 

Program Year shall be repaid to 

Treasury within 45 days after the end of 

the month when such amounts are 

received by the insurer. For purposes of 

this paragraph, amounts recovered from 

a reinsurer pursuant to an agreement 

whereby the reinsurer’s right to any 

excess recovery has priority over the 

rights of Treasury shall not be 

considered a recovery subject to 

repayment to Treasury. 

(2) Reduction of amount payable. The 

Federal share of compensation due an 

insurer for insured losses shall be 

reduced by any amounts received by the 

insurer or an insured or a third party 

suffering the underlying loss from any 

other Federal programs as compensation 

for those insured losses, including, but 

not limited to, insurance, assistance, 

grants or disaster relief from the Federal 

Government. Each insurer shall inquire 

of each of its claimants whether or not 

duplicate payments for insured losses 

have been paid from other Federal 

sources. Such amounts shall be reported 

with each underlying claim on the 

bordereau specified in § 50.53(b)(1) and 

the total amount subtracted from the 

aggregate amount claimed as the Federal 

share of compensation for insured 

losses.

§ 50.52 Initial Notice of Insured Loss. 

Each insurer shall submit to Treasury 

an Initial Notice of Insured Loss, on a 

form prescribed by Treasury, whenever 

the insurer’s aggregate insured losses 

(including reserves for ‘‘incurred but not 

reported’’ losses) within a Program Year 

exceed an amount equal to 50 percent 

of the insurer’s deductible as specified 

in § 50.5(g). Insurers are advised the 

form for the Initial Notice of Insured 

Loss will include an initial estimate of 

aggregate losses for the Program Year, 

the amount of the insurer deductible 

and an estimate of the Federal share of 

compensation for the insurer’s aggregate 

insured losses. In the case of an 

affiliated group of insurers, the form for 

the Initial Notice of Insured Loss will 

include the name and address of a 

single insurance entity within the 

affiliated group that will serve as the 

single point of contact for the purpose 

of providing loss and compliance 

certifications as required in § 50.53 and 

for receiving payments of the Federal 

share of compensation in accordance 

with § 50.54(b). An insurer, at its option, 

may elect to include with its Initial 

Notice of Insured Loss the certification 

of direct earned premium required by 

§ 50.53(b)(3).

§ 50.53 Loss certifications. 

(a) General. When an insurer has paid 

aggregate insured losses that exceed its 

insurer deductible, the insurer may 

make claim upon Treasury for the 

payment of the Federal share of 

compensation for its insured losses. The 

insurer shall file an Initial Certification 

of Loss, on a form prescribed by 

Treasury, and thereafter such 

Supplementary Certifications of Loss, 

on a form prescribed by Treasury, as 

may be necessary to receive payment for 

the Federal share of compensation for 

its insured losses. 

(b) Initial Certification of Loss. An 

insurer shall use its best efforts to file 

the Initial Certification of Loss with 

Treasury within 45 days following the 

last calendar day of the month when an 

insurer’s aggregate insured losses 

exceed its insurer deductible. Insurers 

are advised the Initial Certification of 

Loss will include the following: 

(1) A bordereau, on a form prescribed 

by Treasury, that includes basic 

information about each underlying 

insured loss. The bordereau will 

include, but may not be limited to:

(i) A listing of each underlying 

insured loss by catastrophe code and 

line of business; 

(ii) The total amount of reinsurance 

recovered from other sources; 

(iii) A calculation of the aggregate 

insured losses sustained by the insurer 

above its insurer deductible for the 

Program Year; and 

(iv) The amount the insurer claims as 

the Federal share of compensation for 

its aggregate insured losses. 

(2) A certification that the insurer is 

in compliance with the provisions of 

section 103(b) of the Act and this part, 

including certifications that: 

(i) The insurer has paid all underlying 

claims comprising the insured losses 

listed in the bordereau provided 

pursuant to § 50.53(b)(1); 

(ii) The underlying claims for insured 

losses were filed by persons who 

suffered an insured loss, or by persons 

acting on behalf of such persons; 

(iii) The underlying claims for insured 

losses were processed in accordance 

with appropriate business practices and 

the procedures specified in this subpart; 

(iv) The insurer has complied with 

the disclosure requirements of §§ 50.10 

through 50.19 for each underlying 

insured loss that is included in the 

amount of the insurer’s aggregate 

insured losses; and 

(v) The insurer has complied with the 

mandatory availability requirements of 

§§ 50.20 through 50.24. 

(3) A certification of the amount of the 

insurer’s ‘‘direct earned premium’’ as 

defined in § 50.5(d), together with the 

calculation of its ‘‘insurer deductible’’

as defined in § 50.5(g) (provided this 

certification was not submitted 

previously with Initial Notice of Insured 

Loss specified in § 50.52). 

(c) Supplementary Certification of 

Loss. If the total amount of the Federal 

67106 Federal Register / Vol. 68, No. 230 / Monday, December 1, 2003 / Proposed Rules 

share of compensation due an insurer 

for insured losses under the Act has not 

been determined at the time an Initial 

Certification of Loss has been filed, the 

insurer shall file monthly, or on a 

schedule otherwise determined by 

Treasury, Supplementary Certifications 

of Loss updating the amount of the 

Federal share of compensation owed for 

the insurer’s insured losses. 

Supplementary Certifications of Loss 

will include the following: 

(1) A bordereau described in 

§ 50.53(b)(1); and 

(2) A certification as described in 

§ 50.53(b)(2). 

(d) Supplementary information. In 

addition to the information required in 

paragraphs (b) and (c) of this section, 

Treasury may require such additional 

supporting documentation as required 

to ascertain the Federal share of 

compensation for the insured losses of 

any insurer. 

(e) Bordereau defined. For purposes of 

this section, a ‘‘bordereau’’ is a report of 

basic information about an insurer’s 

underlying claims that, in the aggregate, 

constitute the insured losses of the 

insurer.

§ 50.54 Payment of Federal share of 

compensation. 

(a) Timing. Treasury will promptly 

pay to an insurer the Federal share of 

compensation due the insurer for its 

insured losses. Payment shall be made 

in such installments and on such 

conditions as determined by the 

Treasury to be appropriate. Any 

overpayments by Treasury of the 

Federal share of compensation will be 

offset from future payments to the 

insurer or returned to Treasury within 

45 days. 

(b) Payee. Payment of the Federal 

share of compensation for insured losses 

will be made to the insurer filing the 

Initial Notice of Loss required by 

§ 50.52. In the case of an affiliated group 

of insurers, payment of the Federal 

share of compensation for the insured 

losses of the affiliated group will be 

made to the single insurance entity 

designated in the Initial Notice of Loss 

to receive payment on behalf of the 

affiliated group. It shall be the 

responsibility of the single insurance 

entity to distribute payments of the 

Federal share of compensation as 

appropriate to affiliated insurers in the 

group.

(c) Assignment of payments. To 

facilitate a single point of contact for 

payment of the Federal share of 

compensation to an affiliated group, an 

insurer within an affiliated group shall 

assign its rights to be paid amounts due 

or to become due from Treasury to the 

single insurance entity designated to 

receive payment on behalf of the 

affiliated group. The failure to make 

such an assignment may be grounds for 

Treasury to withhold, in whole or in 

part, payment of the Federal share of 

compensation due an insurer.

Subpart G—Audit and Investigative 

Procedures 

50.60 Audit authority. 

50.61 Recordkeeping. 

50.62 Eligibility for Federal share of 

compensation.

Subpart G—Audit and Investigative 

Procedures

§ 50.60 Audit authority. 

The Secretary of the Treasury, or an 

authorized representative, shall have 

access to all books, documents, papers 

and records of an insurer that are 

pertinent to amounts paid to the insurer 

as the Federal share of compensation for 

insured losses for the purpose of 

investigation, confirmation, audit and 

examination.

§ 50.61 Recordkeeping. 

Each insurer that seeks payment of a 

Federal share of compensation under 

subpart F of this part shall retain such 

records as are necessary to fully disclose 

all material matters pertinent to insured 

losses and the Federal share of 

compensation sought under the 

Program, including, but not limited to, 

records regarding premiums and 

insured losses for all commercial 

property and casualty insurance issued 

by the insurer and information relating 

to any adjustment in the amount of the 

Federal share of compensation payable. 

Insurers shall maintain detailed records 

for not less than 5 years from the 

termination dates of all reinsurance 

agreements involving commercial 

property and casualty insurance subject 

to the Act. Records relating to premiums 

shall be retained and available for 

review for not less than 3 years 

following the conclusion of the policy 

year. Records relating to underlying 

claims shall be retained for not less than 

5 years following the final adjustment of 

the claim.

§ 50.62 Eligibility for Federal share of 

compensation. 

(a) An insurer may be ineligible to 

receive payment for the Federal share of 

compensation for insured losses under 

the Act upon a determination by 

Treasury that the insurer: 

(1) Intentionally concealed or 

misrepresented any material fact or 

circumstance; 

(2) Engaged in fraudulent conduct; or 

(3) Made false statements relating to 

participation under the Act or this Part. 

(b) An insurer’s ineligibility for 

payment of the Federal share of 

compensation shall be effective as of the 

date any act described in paragraph (a) 

of this section was committed. 

(c) Fines, civil penalties and 

imprisonment under applicable Federal 

laws may apply in addition to 

ineligibility for payment of the Federal 

share of compensation.

Dated: November 12, 2003. 

Wayne A. Abernathy, 

Assistant Secretary of the Treasury.

[FR Doc. 03–29729 Filed 11–28–03; 8:45 am] 

BILLING CODE 4830–01–P

DEPARTMENT OF HOMELAND 

SECURITY 

Federal Emergency Management 

Agency 

44 CFR Part 67 

[Docket No. FEMA–D–7576] 

Proposed Flood Elevation 

Determinations

AGENCY: Federal Emergency 

Management Agency (FEMA), 

Emergency Preparedness and Response 

Directorate, Department of Homeland 

Security.

ACTION: Proposed rule.

SUMMARY: Technical information or 

comments are requested on the 

proposed Base (1% annual chance) 

Flood Elevations (BFEs) and proposed 

BFE modifications for the communities 

listed below. The BFEs are the basis for 

the floodplain management measures 

that the community is required either to 

adopt or to show evidence of being 

already in effect in order to qualify or 

remain qualified for participation in the 

National Flood Insurance Program 

(NFIP).

DATES: The comment period is ninety 

(90) days following the second 

publication of this proposed rule in a 

newspaper of local circulation in each 

community.

ADDRESSES: The proposed BFEs for each 

community are available for inspection 

at the office of the Chief Executive 

Officer of each community. The 

respective addresses are listed in the 

table below.

FOR FURTHER INFORMATION CONTACT:

Doug Bellomo, P.E., Hazard 

Identification Section, Emergency 

Preparedness and Response Directorate, 

FEMA, 500 C Street SW., Washington, 

DC 20472, (202) 646–2903.