Friday,

April 18, 2003

Part IV

Department of the 

Treasury

31 CFR Part 50

Terrorism Risk Insurance Program; 

Interim Final Rule and Proposed Rules

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

DEPARTMENT OF THE TREASURY

31 CFR Part 50 

RIN 1505–AA98 

Terrorism Risk Insurance Program

AGENCY: Departmental Offices, Treasury.

ACTION: Interim final rule with request 

for comments. 

SUMMARY: The Department of the 

Treasury (Treasury) is issuing this 

interim final rule as part of its 

implementation of Title I of the 

Terrorism Risk Insurance Act of 2002 

(Act). The Act established a temporary 

Terrorism Risk Insurance Program 

(Program) under which the Federal 

Government will share the risk of 

insured losses from certified acts of 

terrorism with commercial property and 

casualty insurers until the Program 

sunsets on December 31, 2005. This 

interim final rule incorporates and 

clarifies statutory conditions for federal 

payment under the Program that require 

insurers to make certain disclosures to 

policyholders. The rule also 

incorporates and clarifies statutory 

requirements that insurers ‘‘make 

available,’’ in their commercial property 

and casualty insurance policies, 

terrorism risk coverage for insured 

losses under the Program. The interim 

final rule generally incorporates interim 

guidance previously issued by Treasury 

in this area, but with some 

modifications. This is the second in a 

series of regulations that Treasury will 

issue to implement the Act.

DATES: This interim final rule is 

effective April 18, 2003. Written 

comments on this interim final rule may 

be submitted on or before May 19, 2003.

ADDRESSES: Submit comments (if hard 

copy, preferably an original and two 

copies) to Office of Financial 

Institutions Policy, Attention: Terrorism 

Risk Insurance Program Public 

Comment Record, Room 3160 Annex, 

Department of the Treasury, 1500 

Pennsylvania Ave., NW., Washington, 

DC 20220. Because paper mail in the 

Washington, DC area may be subject to 

delay, it is recommended that comments 

be submitted by electronic mail to: 

triacomments@do.treas.gov. All 

comments should be captioned with 

‘‘April 18, 2003 Interim Final Rule TRIA 

Comments.’’ Please include your name, 

affiliation, address, e-mail address and 

telephone number in your comment. 

Comments will be available for public 

inspection by appointment only at the 

Reading Room of the Treasury Library. 

To make appointments, call (202) 622–

0990 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT:

Mario Ugoletti, Deputy Director, Office 

of Financial Institutions Policy (202) 

622–2730, or Martha Ellett or Cynthia 

Reese, Attorney-Advisors, Office of the 

Assistant General Counsel (Banking & 

Finance), (202) 622–0480 (not toll-free 

numbers).

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Terrorism Risk Insurance Act of 2002 

On November 26, 2002, President 

Bush signed into law the Terrorism Risk 

Insurance Act of 2002 (Pub. L. 107–297, 

116 Stat. 2322). The Act was effective 

immediately. Title I of the Act 

establishes a temporary federal program 

of shared public and private 

compensation for insured commercial 

property and casualty losses resulting 

from an act of terrorism as defined in 

the Act and certified by the Secretary of 

the Treasury, in concurrence with the 

Secretary of State and the Attorney 

General. The Act authorizes Treasury to 

administer and implement the 

Terrorism Risk Insurance Program, 

including the prescription of regulations 

and procedures. The Program will 

sunset on December 31, 2005. 

The Act’s purposes are to address 

market disruptions, ensure the 

continued widespread availability and 

affordability of commercial property 

and casualty insurance for terrorism risk 

and to allow for a transition period for 

the private markets to stabilize and 

build capacity while preserving State 

insurance regulation and consumer 

protections. 

The amount of federal payment for an 

insured loss resulting from an act of 

terrorism is to be determined based 

upon the insurance company 

deductibles and excess loss sharing with 

the Federal Government, as specified by 

the Act. Thus, the Program provides a 

federal reinsurance backstop for a 

temporary period of time. The Act also 

provides Treasury with authority to 

recoup federal payments made under 

the Program through policyholder 

surcharges, up to a maximum annual 

limit. 

Each entity that meets the definition 

of ‘‘insurer’’ (well over 2000 firms) must 

participate in the Program. From the 

date of enactment of the Act through the 

last day of Program Year 2 (December 

31, 2004), insurers under the Program 

must ‘‘make available’’ terrorism risk 

insurance in their commercial property 

and casualty insurance policies and the 

coverage must not differ materially from 

the terms, amounts and other coverage 

limitations applicable to commercial 

property and casualty losses arising 

from events other than acts of terrorism. 

The Act permits Treasury to extend the 

‘‘make available’’ requirement into 

Program Year 3, based on an analysis of 

factors referenced in the study required 

by section 108(d)(1) of the Act, and not 

later than September 1, 2004. 

An insurer’s deductible increases 

each year of the Program, thereby 

reducing the Federal Government’s 

involvement prior to sunset of the 

Program. An insurer’s deductible is 

based on ‘‘direct earned premiums’’ 

over a statutory Transition Period (now 

expired) and the three Program Years. 

Once an insurer has met its deductible, 

the federal payments cover 90 percent of 

insured losses above the deductible, 

subject to an aggregate annual cap of 

$100 billion. The Act prohibits 

duplicative payments for insured losses 

that are covered under any other federal 

program. 

As conditions for federal payment 

under the Program, insurers must 

provide clear and conspicuous 

disclosure to the policyholders of the 

premium charged for insured losses 

covered by the Program, and must 

submit a claim and certain certifications 

to Treasury. Treasury will be 

prescribing claims procedures at a later 

date. 

The Act also contains specific 

provisions designed to manage litigation 

arising from or relating to a certified act 

of terrorism. Section 107 creates an 

exclusive federal cause of action, 

provides for claims consolidation in 

federal court and contains a prohibition 

on federal payments for punitive 

damages under the Program. This 

section also provides the United States 

with the right of subrogation with 

respect to any payment or claim paid by 

the United States under the Program. As 

part of the claims process, and as 

directed by the President, Treasury will 

be issuing regulations addressing 

Treasury’s role in the approval of 

settlements. 

B. Previously Issued Interim Guidance 

To assist insurers, policyholders and 

other interested parties in complying 

with immediately applicable and timesensitive requirements of the Act prior 

to the issuance of regulations, Treasury 

issued interim guidance in four separate 

notices. Treasury publicly released 

these interim guidance notices on its 

Program Web site, http://

www.treasury.gov/trip and published 

each notice in the Federal Register. 

Treasury released the first notice of 

Interim Guidance on December 3, 2002, 

within a week of the Act’s enactment 

(Interim Guidance I). Interim Guidance 

I was published at 67 FR 76206 on 

Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Rules and Regulations 19303

December 11, 2002, and addressed 

several issues pertaining to immediately 

applicable provisions of the Act, 

including statutory disclosure 

obligations of insurers as conditions for 

federal payment under the Program and 

the requirement that an insurer ‘‘make 

available’’ terrorism risk insurance. The 

disclosure guidance in Interim 

Guidance I references certain model 

forms of the National Association of 

Insurance Commissioners (NAIC) and 

provides a safe harbor for those insurers 

that make use of such forms prior to the 

issuance of regulations, but Interim 

Guidance I stated that these forms are 

not the exclusive means by which 

insurers could comply with the 

disclosure conditions prior to the 

issuance of regulations. Interim 

Guidance I also provided guidance 

concerning the ‘‘direct earned 

premium’’ on lines of property and 

casualty insurance to enable insurers to 

calculate their ‘‘insurer deductibles’’

and enable insurers to price and 

disclose premiums for terrorism risk 

insurance to policyholders within 

statutory time periods.

On December 18, 2002, Treasury 

issued a second notice of interim 

guidance. This interim guidance was 

published at 67 FR 78864 on December 

26, 2002 (Interim Guidance II). Interim 

Guidance II addressed the statutory 

categories of ‘‘insurers’’ that are 

required to participate in the Program, 

including their ‘‘affiliates;’’ provided 

clarification on the scope of ‘‘insured 

loss’’ covered by the Program and 

provided additional guidance to enable 

eligible surplus line carriers listed on 

the Quarterly Listing of Alien Insurers 

of the NAIC or federally approved 

insurers to calculate their insurer 

deductibles for purposes of the Program. 

On January 22, 2003, Treasury issued 

a third notice of interim guidance, 

published at 68 FR 4544 on January 29, 

2003 (Interim Guidance III). Interim 

Guidance III further clarified certain 

disclosure and certification questions, 

issues for non-U.S. insurers, and the 

scope of the term ‘‘insured loss’’ under 

the Act. 

On March 25, 2003, Treasury issued 

a fourth interim guidance published at 

68 FR 15039 on March 27, 2003 (Interim 

Guidance IV). Interim Guidance IV 

provided insurers a procedure by which 

they could seek to rebut a presumption 

of control established in Treasury’s first 

set of interim final regulations. See 

Previously Issued Regulations in section 

C below and Treasury’s Web site at 

http://www.treasury.gov/trip.

In issuing each notice of Interim 

Guidance, Treasury stated that the 

Interim Guidance may be relied upon by 

insurers until superseded by regulations 

or a subsequent notice. Treasury 

provided safe harbors for actions by 

those insurers taken in accordance with, 

and in reliance on, the interim guidance 

for the time period prior to the issuance 

of regulations. 

C. Previously Issued Regulations 

Treasury published the first 

regulation implementing the Act on 

February 28, 2003 (68 FR 9804) as an 

interim final rule together with a 

proposed rule. Both request comments 

by March 31, 2003. The first regulation, 

which is subpart A of new part 50 in 

title 31 of the CFR, covers the purpose 

and scope of the Program, key 

definitions, and certain general 

provisions. 

II. Analysis of the Interim Final Rule 

This interim final rule incorporates 

and clarifies statutory conditions for 

federal payment that require insurers to 

make certain disclosures to 

policyholders within specified time 

limits. The interim final rule also 

incorporates and clarifies statutory 

requirements that insurers must ‘‘make 

available’’ in all of their commercial 

property and casualty insurance 

policies, coverage for insured losses 

resulting from an act of terrorism as 

defined by the Act. The Act requires 

insurers to make such terrorism risk 

coverage available at terms, amounts, 

and other coverage limitations that do 

not differ materially from those 

applicable to losses arising from events 

other than acts of terrorism. The interim 

final rule generally incorporates interim 

guidance previously issued by Treasury, 

except as described in this preamble. In 

accordance with section 104(c) of the 

Act, Treasury has consulted with the 

National Association of Insurance 

Commissioners on this rule. Treasury is 

also issuing a companion proposed rule 

with request for comment. 

Although Treasury is issuing these 

requirements in as an interim final rule, 

we are soliciting comments on all 

aspects of the interim final rule from all 

interested parties. Published elsewhere 

in this separate part of this issue of the 

Federal Register is a notice of proposed 

rulemaking proposing to adopt the 

provisions of this interim final rule as 

a final rule. 

A. Disclosures 

One of the conditions for federal 

payments under section 103(b) of the 

Act is that the insurer provide ‘‘clear 

and conspicuous disclosure to the 

policyholder of the premium charged 

for insured losses covered by the 

Program and the federal share of 

compensation for insured losses under 

the Program.’’ The Act provides that in 

the case of any policy that is issued 

before the date of enactment of the Act 

(November 26, 2002), this disclosure 

must occur not later than 90 days 

thereafter (February 24, 2003). In the 

case of any policy that is issued within 

90 days of the date of enactment, the 

disclosure must be made ‘‘at the time of 

offer, purchase, and renewal of the 

policy.’’ In the case of any policy that 

is issued more than 90 days after the 

date of enactment, disclosure must be 

made ‘‘on a separate line item in the 

policy, at the time of offer, purchase, 

and renewal of the policy.’’

The disclosure requirements are key 

provisions of the Act, both in terms of 

being a condition for payment and a 

mechanism to effectuate the other 

purposes of the Act. The Conference 

Report accompanying the Act states, in 

part:

Before receiving Federal assistance under 

this Act, an insurer must certify its claim for 

payment of insured losses, that a 

policyholder (or person acting on the 

policyholder’s behalf) has filed a claim for 

such loss, and the insurer’s compliance with 

the Act. The Secretary may not reimburse an 

insurer for such losses unless the insurer has 

provided clear and conspicuous disclosure to 

the policyholder of the premium charged for 

terrorism coverage and the Federal share of 

compensation. * * *

The Conferees intend this disclosure to 

enhance the competitiveness of the 

marketplace by better enabling consumers to 

comparison shop for terrorism insurance 

coverage, and to make policyholders better 

aware that the Federal government will be 

sharing the costs of such coverage with the 

insurers, thereby reducing the insurers’s (sic) 

exposure. * * * H.R. Conf. Rep. No. 107–779 

(2002).

Section 50.12 of the interim final rule 

deals generally with disclosure 

requirements. Section 50.12(a) contains 

a new provision stating that whether a 

disclosure is clear and conspicuous 

depends on the totality of the facts and 

circumstances. Treasury is not 

specifying an exclusive form or means 

of satisfying the statutory disclosure 

requirements, and Treasury does not 

intend to adopt a practice of prescribing 

particular language or forms. However, 

in order to provide guidance to insurers, 

Treasury in previous interim guidance 

has deemed certain NAIC model forms 

to be acceptable in terms of satisfying 

the disclosure requirement and has 

stated that insurers may modify the 

forms to meet individual circumstances, 

or use other forms. This interim 

guidance has been incorporated into the 

interim final rule and provides a safe 

harbor (see section 50.17 of the interim 

final rule) for policies that were in force 

19304 Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Rules and Regulations 

on the date of enactment or were issued 

within 90 days of enactment. For 

policies issued more than 90 days after 

enactment, section 50.17 (c) provides 

that insurers may continue to use 

certain NAIC model forms if appropriate 

or develop other disclosures that meet 

the requirements of sections 50.10(a) 

and 50.14. 

Treasury stated in Interim Guidance II 

that an insurer may communicate the 

premium for insured losses in a manner 

that is consistent with standard business 

practice, which in some cases may be as 

a percentage of the overall policy 

premium. This interim final rule 

incorporates this guidance and also 

contains a provision in section 50.12(b) 

stating that an insurer may not describe 

the premium in a manner that is 

misleading in the context of the 

Program, such as by characterizing the 

premium as a ‘‘surcharge.’’ It is 

inappropriate to use the term 

‘‘surcharge’’ in the disclosures, because 

that term is used in the Act and the 

Program only in connection with the 

statutory recoupment procedure that 

requires certain surcharges to repay the 

federal financial assistance. Pursuant to 

the Act’s recoupment provisions, any 

amount established by the Secretary as 

a terrorism loss risk-spreading premium 

is to be imposed as a policyholder 

premium ‘‘surcharge’’ on property and 

casualty insurance policies in force at 

that time. See sections 103(e)(7) and (8) 

of the Act. 

In Interim Guidance III, Treasury 

indicated that the disclosures can be 

communicated by the use of channels, 

methods and forms of communication 

normally used to communicate similar 

policyholder information. This interim 

final rule incorporates that principle in 

section 50.12(c). In some contexts there 

may be a question about who is the 

‘‘policyholder’’ with whom the insurer 

normally communicates. For example, a 

surety insurance company may 

normally deal with purchasers of surety 

bonds and communicate to them 

policyholder information similar to 

disclosures, although the bonds run in 

favor of other parties who would be 

paid in the event of loss. In such cases 

where there is some ambiguity as to 

who the policyholder is, insurance 

companies should rely on normal 

business practices in determining what 

parties should be provided disclosures. 

Section 50.12(d) of the interim final 

rule reiterates guidance previously 

issued (see Interim Guidance I) to the 

effect that an insurer may communicate 

disclosures through an insurance broker 

or other intermediary acting as agent for 

the insurer if the insurer normally 

communicates with a policyholder in 

this fashion. The insurer remains 

responsible for ensuring that the 

disclosures are provided to 

policyholders. 

Section 50.12(e) of the interim final 

rule states that an insurer may 

demonstrate that it has complied with 

the disclosure requirement through use 

of appropriate systems and normal 

business practices that demonstrate a 

practice of compliance. As stated in 

Interim Guidance II, compliance with 

the disclosure provisions may be 

evidenced in a variety of ways, 

including a proof of mailing process and 

other methods consistent with normal 

forms of communication with 

policyholders. Treasury has taken this 

approach to enable insurers to utilize 

their normal business practices and risk 

management procedures as much as 

possible to minimize the administrative 

burden to insurers in implementing the 

Act. 

In Interim Guidance III, Treasury 

stated that it expected to propose 

regulations that would require an 

insurer to certify that it complied with 

the required disclosure(s) to the 

policyholder on the underlying claim or 

claims submitted by the insurer for 

federal payment under the Program. 

This provision does not in any way 

impact the calculation of an insurer’s 

direct earned premium as specified in 

section 50.5(d) (see the first interim 

final rule, 68 FR 9804), or the statutory 

recoupment provisions. Section 50.12(f) 

of this interim final rule clarifies that an 

insurer will only be required to certify 

with respect to those policies that form 

the basis for its claims, i.e., not all other 

policies that are written by an insurance 

company. ‘‘Basis’’ means all policies 

used by an insurer to calculate its total 

insured loss.

Sections 50.13 and 50.14 of the 

interim final rule incorporate guidance 

previously issued (see Interim Guidance 

III) on what constitutes ‘‘offer, purchase, 

and renewal’’ and a ‘‘separate line item’’

for purposes of this provision of the Act. 

An insurer is deemed to be in 

compliance with the requirement of 

providing disclosure at the time of 

‘‘offer, purchase, and renewal’’ of the 

policy if the insurer makes the 

disclosure when the insurer first 

formally offers to provide insurance 

coverage or renew a policy for a current 

policyholder, and makes clear and 

conspicuous reference back to that 

disclosure, as well as the final terms of 

terrorism insurance coverage, when the 

transaction is completed. An insurer is 

deemed to be in compliance with the 

‘‘separate line item’’ requirement if the 

insurer makes the disclosure: on the 

declarations page of the policy; 

elsewhere within the policy itself; or in 

any rider or endorsement that is made 

a part of the policy. Taken together, 

sections 50.13 and 50.14 allow for an 

insurer to make the required disclosure 

when the insurer first formally offers to 

provide coverage, and then to refer back 

to that disclosure using any of the 

options that qualify a separate line item. 

Section 50.17 incorporates the safe 

harbors provided in interim guidance 

for certain NAIC model forms. These 

forms may be found on the NAIC 

Internet Web site at http://

www.naic.org/pressroom/releases/

disclose_one_final.pdf and http://

www.naic.org/pressroom/releases/

disclose_two_final.pdf. These forms are 

also accessible from the Treasury Web 

site at http://www.treasury.gov/trip. As 

noted above, these forms are only 

examples and are not the exclusive 

means for an insurer to comply with the 

disclosure requirements. 

Section 50.18 of the interim final rule 

reiterates the disclosure requirements in 

section 105(c) of the Act for 

reinstatement of any preexisting 

terrorism exclusion. Section 50.19 is 

merely a cross-reference to the 

regulations in subpart D, which will be 

issued separately and will cover State 

residual market insurance entities and 

State workers’ compensation funds. 

The Act specifies certain time limits 

for disclosures to policyholders. 

Treasury will be evaluating whether an 

insurer has materially complied with 

these and other conditions for payment 

with respect to any claim. In so doing, 

Treasury expects to consider applicable 

facts and circumstances, including good 

faith efforts of the insurer to meet 

applicable time limits after enactment of 

the Act, and during the duration of the 

Program. 

B. Mandatory Availability 

Section 103(c) of the Act requires 

each entity that meets the definition of 

an insurer under the Act to (1) make 

available, in all of its property and 

casualty insurance policies, coverage for 

insured losses; and (2) make available 

property and casualty insurance 

coverage for insured losses that does not 

differ materially from the terms, 

amounts, and other coverage limitations 

applicable to losses arising from events 

other than acts of terrorism. These 

requirements apply from the date of 

enactment (November 26, 2002) through 

the last day of Program Year 2 

(December 31, 2004). The Secretary is 

required to determine, not later than 

September 1, 2004, based on the factors 

in section 108(d)(1) of the Act, whether 

the make available requirements should 

be extended through Program Year 3 

Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Rules and Regulations 19305

(December 31, 2005). The Conference 

Report accompanying the Act states, 

with respect to this provision, that ‘‘the 

Secretary has discretion to extend this 

requirement to the third year of the 

Program, to preserve this important 

option for policyholders.’’ H.R. Conf. 

Rep. No. 107–779 (2002).

Section 50.20 of the interim final rule 

incorporates the general statutory 

requirements as described above. 

Section 50.21 of the interim final rule 

covers general matters of applicable 

time periods, initial offers of coverage 

versus subsequent negotiations, and 

how an insurer may demonstrate 

compliance. Section 50.21(a) makes 

clear that the make available 

requirements apply to policies in 

existence on November 26, 2002, new 

policies issued, and renewals of existing 

policies through the end of Program 

Year 2 (unless extended by the 

Secretary). The make available 

requirements are not one-time 

requirements. For example, if an insurer 

has satisfied the make available 

requirements in Program Year 1 in its 

offer to a policyholder, but the coverage 

offered is declined, the insurer must 

still satisfy the make available 

requirements again when the policy is 

renewed in Program Year 2. 

Section 50.21(a) also states, consistent 

with Interim Guidance I, that the make 

available requirements apply at the time 

an insurer makes the initial offer of 

coverage, as distinguished from changes 

negotiated by the insurer thereafter as 

part of the process of agreeing on a 

contract of insurance. Section 

50.21(b)(1) addresses a situation in 

which an insurer makes an initial bona 

fide offer of terrorism risk coverage for 

insured losses that does not differ 

materially from the terms, amounts, and 

other coverage limitations applicable to 

losses arising from events other than 

acts of terrorism; the policyholder then 

declines the offer, and the insurer 

subsequently negotiates terrorism risk 

coverage of the policyholder for insured 

losses at a lower amount of terrorism 

risk coverage than initially offered. In 

such a situation, under the interim final 

rule, the make available requirements 

would have been satisfied by the initial 

offer, and therefore an offer of a lower 

amount of terrorism risk coverage is 

deemed permissible, if allowed under 

any applicable State law. Although a 

subsequent lower offer as described is 

permissible, neither the Act nor the 

Program require an insurer to offer 

partial coverage if the policyholder 

declines full coverage in an initial offer. 

(See the discussion below of section 

50.24, which deals with the 

applicability of State law requirements.) 

Section 50.21(c) addresses the 

demonstration of compliance by an 

insurer with the make available 

requirement. Treasury has audit and 

investigative authority under the Act 

and insurers should be prepared to 

demonstrate compliance with the make 

available requirements. Treasury is not 

prescribing any new recordkeeping 

requirement. With regard to an insurer’s 

current insurance policies, records 

related to the make available 

requirements are likely to be included 

and retained as part of standard policy 

documents in the normal course of 

business. In this regard, however, if an 

insurer makes an offer of insurance but 

no contract of insurance is purchased or 

renewed (i.e. no insurance contract is 

finalized), the insurer may demonstrate 

that it has satisfied the make available 

requirements through its routine 

adherence to normal risk management 

systems (e.g., company policies, use of 

internal controls and audits) and normal 

business practices (e.g. sample forms 

routinely used to solicit business) 

during the relevant time period that 

evidence its practice of compliance. 

Section 50.23 of the interim final rule 

addresses the language ‘‘terms, amounts, 

and coverage limitations’’ in the make 

available requirements. Sections 

50.23(a) and (b) of the interim final rule 

incorporate guidance previously issued 

by Treasury (Interim Guidance I). 

Section 50.23(a) states that an insurer 

must offer coverage for insured losses 

resulting from an act of terrorism that 

does not differ materially from the 

terms, amounts, and other coverage 

limitations (including deductibles) 

applicable to losses from other perils. 

‘‘Terms’’ excludes price for purposes of 

this requirement. This means the 

requirement to offer coverage for 

insured losses that does not differ 

materially from the terms, amounts and 

other coverage limitations applicable to 

losses arising from events other than 

acts of terrorism does not apply to the 

price of the coverage. As noted in 

Interim Guidance I, however, Treasury 

will be monitoring the pricing and 

availability of terrorism risk insurance 

coverage as part of the Act’s 

requirements that Treasury study the 

effectiveness of the Program (section 

108(d)(1)). 

Section 50.23(b) provides that if an 

insurer does not cover all types of risks, 

then it is not required to cover the 

excluded risks in satisfying the 

requirement to make available coverage 

for losses resulting from an act of 

terrorism that does not differ materially 

from the terms, amounts, and other 

coverage limitations applicable to losses 

arising from events other than acts of 

terrorism. If an insurer does not cover 

all types of risks, either because the 

insurer is outside of direct State 

regulatory oversight, or because a State 

permits certain exclusions for certain 

types of losses, such as nuclear, 

biological, or chemical events, then the 

insurer is not required to make such 

coverage available. 

Section 50.24 of the interim final rule 

addresses the interrelationship of 

federal and State law requirements and 

confirms the continued applicability of 

State law requirements, consistent with 

Interim Guidance I. (See also the 

discussion of section 50.21(b), above.) 

After satisfying the requirement to make 

available coverage for insured losses 

that does not differ materially from the 

terms, amounts, and other coverage 

limitations applicable to losses arising 

from events other than acts of terrorism, 

if coverage is rejected, an insurer may 

then offer coverage that is on different 

terms, amounts, or coverage limitations, 

as long as such an offer does not violate 

any applicable State law requirements. 

For example, if an insurer subject to 

State regulation first satisfies the 

requirement to make available property 

and casualty insurance coverage for 

insured losses that does not differ 

materially from the terms, amounts, and 

other coverage limitations applicable to 

losses arising from events other than 

acts of terrorism, and the State has a 

requirement that an insurer offer full 

coverage without any exclusion, then 

the requirement would continue to 

apply and the insurer may not 

subsequently offer less than full 

coverage or coverage with exclusions. If 

such an insurer first satisfies the make 

available requirement but the State 

permits certain exclusions or allows for 

other limitations (or an insurance policy 

is not governed by State law 

requirements), then the insurer may 

subsequently offer limited coverage or 

coverage with exclusions. 

III. Procedural Requirements 

The Act established a Program to 

provide for loss sharing payments by the 

Federal Government for insured losses 

resulting from certified acts of terrorism. 

The Act became effective immediately 

upon the date of enactment (November 

26, 2002). Preemptions of terrorism risk 

exclusions in policies, mandatory 

participation provisions, disclosure and 

other requirements and conditions for 

federal payment contained in the Act 

applied immediately to those entities 

that come within the Act’s definition of 

‘‘insurer.’’

The disclosure requirements are 

statutory conditions for federal payment 

under the Program. The disclosure 

19306 Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Rules and Regulations 

requirements were effective 

immediately upon enactment and 

remain ongoing requirements that apply 

to new and renewed policies throughout 

the life of the Program. In the event of 

an act of terrorism resulting in insured 

losses under the Program, insurers must 

certify, and Treasury must ascertain, 

that these disclosure requirements have 

been met before federal payment is 

made. Similarly, the make available 

requirements are critical elements of the 

Act. These requirements were effective 

immediately upon enactment and 

applied to policies in effect at that time. 

They will continue to apply to new and 

renewed policies through the end of 

2004 (and if the requirements are 

extended by the Secretary, through 

2005). Given the significance of the 

disclosure and make available 

requirements to policyholders and 

insurers, there is an urgent need to issue 

immediately effective regulations that 

incorporate and clarify interim guidance 

with regard to these requirements. 

For the above reasons, pursuant to 5 

U.S.C. 553(b)(B), Treasury has 

determined that it would be contrary to 

the public interest to delay the 

publication of this rule in final form 

during the pendency of an opportunity 

for public comment. For the same 

reasons, pursuant to 5 U.S.C. 553(d)(3), 

Treasury has determined that there is 

good cause for the interim final rule to 

become effective immediately upon 

publication. While this regulation is 

effective immediately upon publication, 

Treasury is seeking public comment on 

the regulation and will consider all 

comments in developing a final rule. 

This interim final rule is a significant 

regulatory action and has been reviewed 

by the Office of Management and 

Budget under the terms of Executive 

Order 12866. 

Because no notice of proposed 

rulemaking is required, the provisions 

of the Regulatory Flexibility Act (5 

U.S.C. chapter 6) do not apply. 

However, the Act and the Program are 

intended to provide benefits to the U.S. 

economy and all businesses, including 

small businesses, by providing a federal 

reinsurance backstop to commercial 

property and casualty policyholders and 

spreading the risk of insured loss 

resulting from an act of terrorism.

List of Subjects in 31 CFR Part 50 

Terrorism risk insurance.

Authority and Issuance

■ For the reasons stated above, 31 CFR 

part 50 is amended as follows:

PART 50—TERRORISM RISK 

INSURANCE PROGRAM

■ 1. The authority citation for 31 CFR 

part 50 continues to read as follows:

Authority: 5 U.S.C. 301; 31 U.S.C. 321; 

Title I, Pub. L. 107–297, 116 Stat. 2322 (15 

U.S.C. 6701 note).

■ 2. Subpart B of 31 CFR part 50 is 

amended by adding §§ 50.10 through 

50.14 and 50.17 through 50.19 to read as 

follows:

§ 50.10 General disclosure requirements. 

(a) All policies. As a condition for 

federal payments under section 103(b) 

of the Act, the Act requires that an 

insurer provide clear and conspicuous 

disclosure to the policyholder of: 

(1) The premium charged for insured 

losses covered by the Program; and 

(2) The federal share of compensation 

for insured losses under the Program. 

(b) Policies in force on the date of 

enactment. For policies issued before 

November 26, 2002, the disclosure 

required by the Act must be provided 

within 90 days of November 26, 2002 

(no later than February 24, 2003). 

(c) Policies issued within 90 days of 

the date of enactment. For policies 

issued within the 90-day period 

beginning on November 26, 2002 

through February 24, 2003, the 

disclosure required by the Act must be 

provided at the time of offer, purchase, 

and renewal of the policy. 

(d) Policies issued more than 90 days 

after the date of enactment. For policies 

issued on or after February 25, 2003, the 

disclosure required by the Act must be 

made on a separate line item in the 

policy, at the time of offer, purchase, 

and renewal of the policy.

§ 50.11 Definition. 

Except as provided in § 50.18, for 

purposes of this subpart the term 

‘‘disclosure’’ or ‘‘disclosures’’ refers to 

the disclosures described in section 

103(b)(2) of the Act and § 50.10.

§ 50.12 Clear and conspicuous disclosure. 

(a) General. Whether a disclosure is 

clear and conspicuous depends on the 

totality of the facts and circumstances of 

the disclosure. See § 50.17 for model 

forms. 

(b) Description of premium. An 

insurer may describe the premium 

charged for insured losses covered by 

the Program as a portion or percentage 

of an annual premium, if consistent 

with standard business practice. An 

insurer may not describe the premium 

in a manner that is misleading in the 

context of the Program, such as by 

characterizing the premium as a 

‘‘surcharge.’’

(c) Method of disclosure. An insurer 

may provide disclosures using normal 

business practices, including forms and 

methods of communication used to 

communicate similar policyholder 

information to policyholders. 

(d) Use of agent. If an insurer 

normally communicates with a 

policyholder through an insurance 

broker or other intermediary acting as 

agent for the insurer, an insurer may 

provide disclosures through such an 

agent. The insurer remains responsible 

for ensuring that disclosures are 

provided to policyholders in accordance 

with the Act. 

(e) Demonstration of compliance. An 

insurer may demonstrate that it has 

satisfied the requirement to provide 

clear and conspicuous disclosure as 

described in § 50.10 through use of 

appropriate systems and normal 

business practices that demonstrate a 

practice of compliance. 

(f) Certification of compliance. An 

insurer must certify that it has complied 

with the requirement to provide 

disclosure to the policyholder on all 

policies that form the basis for any 

claim that is submitted by an insurer for 

federal payment under the Program.

§ 50.13 Offer, purchase, and renewal. 

An insurer is deemed to be in 

compliance with the requirement of 

providing disclosure ‘‘at the time of 

offer, purchase, and renewal of the 

policy’’ under § 50.10(c) and (d) if the 

insurer: 

(a) Makes the disclosure no later than 

the time the insurer first formally offers 

to provide insurance coverage or renew 

a policy for a current policyholder; and 

(b) Makes clear and conspicuous 

reference back to that disclosure, as well 

as the final terms of terrorism insurance 

coverage, at the time the transaction is 

completed.

§ 50.14 Separate line item. 

An insurer is deemed to be in 

compliance with the requirement of 

providing disclosure on a ‘‘separate line 

item in the policy’’ under § 50.10(d) if 

the insurer makes the disclosure: 

(a) On the declarations page of the 

policy; 

(b) Elsewhere within the policy itself; 

or 

(c) In any rider or endorsement that is 

made a part of the policy.

§ 50.17 Use of model forms. 

(a) Policies in force on the date of 

enactment. (1) An insurer that is 

required to make the disclosure under 

§ 50.10(b) and that makes no change in 

the existing premium, is deemed to be 

in compliance with the disclosure 

Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Rules and Regulations 19307

requirement if it uses NAIC Model 

Disclosure Form No. 2. 

(2) An insurer that is required to make 

the disclosure under § 50.10(b) and that 

makes a change in the existing 

premium, is deemed to be in 

compliance with the disclosure 

requirement if it uses NAIC Model 

Disclosure Form No. 1. Such an insurer 

may also use the same NAIC Model 

Disclosure Form No. 1 to comply with 

the disclosure requirement of section 

105(c) of the Act. See § 50.18. 

(b) Policies issued within 90 days of 

the date of enactment. An insurer that 

is required to make the disclosure under 

§ 50.10(c) is deemed to be in compliance 

with the disclosure requirement if it 

uses either NAIC Model Disclosure 

Form No. 1 or NAIC Model Disclosure 

Form No. 2, as long as the form used is 

modified as appropriate for the 

particular policy. 

(c) Policies issued more than 90 days 

after the date of enactment. An insurer 

that is required to make the disclosure 

under § 50.10(d) may continue to use 

NAIC Model Disclosure Form No. 1 or 

NAIC Model Disclosure Form No. 2 if 

appropriate, or other disclosures that 

meet the requirements of §§ 50.10(a) and 

50.14 may be developed. 

(d) Not exclusive means of 

compliance. An insurer is not required 

to use NAIC Model Disclosure Form No. 

1 or NAIC Model Disclosure Form No. 

2 to satisfy the disclosure requirement. 

An insurer may use other means to 

comply with the disclosure 

requirement, as long as the disclosure 

comports with the requirements of the 

Act. 

(e) Definitions. For purposes of this 

section, references to NAIC Model 

Disclosure Form No. 1 and NAIC Model 

Disclosure Form No. 2 refer to such 

forms as were in existence on April 18, 

2003. These forms may be found on the 

Treasury Web site at http://

www.treasury.gov/trip.

§ 50.18 Disclosure required by 

reinstatement provision. 

(a) Nullification of terrorism 

exclusion. Any terrorism exclusion in a 

contract for property and casualty 

insurance that was in force on 

November 26, 2002, is void to the extent 

it excludes losses that would otherwise 

be insured losses. 

(b) Reinstatement of terrorism 

exclusion. Notwithstanding paragraph 

(a) of this section, an insurer may 

reinstate a preexisting provision in a 

contract for property and casualty 

insurance that was in force on 

November 26, 2002, and that excludes 

coverage for an act of terrorism only if: 

(1) The insurer has received a written 

statement from the insured that 

affirmatively authorizes such 

reinstatement; or 

(2) The insured provided notice at 

least 30 days before any such 

reinstatement of the increased premium 

for such terrorism coverage and the 

rights of the insured with respect to 

such coverage, including the date upon 

which the exclusion would be 

reinstated if no payment is received, 

and the insured fails to pay any 

increased premium charged by the 

insurer for providing such terrorism 

coverage.

§ 50.19 Disclosure by State residual 

market insurance entities and State 

workers’ compensation funds [Reserved]

■ 3. Subpart C of 31 CFR part 50 is 

amended by adding §§ 50.20, 50.21, 

50.23 and 50.24 to read as follows:

§ 50.20 General mandatory availability 

requirements. 

(a) Transition Period and Program 

Years 1 and 2—period ending December 

31, 2004. Under section 103(c) of the 

Act (unless the time is extended by the 

Secretary as provided in that section) 

during the period beginning on 

November 26, 2002 and ending on 

December 31, 2004 (the last day of 

Program Year 2), an insurer must: 

(1) Make available, in all of its 

property and casualty insurance 

policies, coverage for insured losses; 

and 

(2) Make available property and 

casualty insurance coverage for insured 

losses that does not differ materially 

from the terms, amounts, and other 

coverage limitations applicable to losses 

arising from events other than acts of 

terrorism. 

(b) Program Year 3—calendar year 

2005. [Reserved]

§ 50.21 Make available. 

(a) General. The requirement to make 

available coverage as provided in 

§ 50.20 applies to policies in existence 

on November 26, 2002, new policies 

issued and renewals of existing policies 

during the period beginning on 

November 26, 2002 and ending on 

December 31, 2004 (the last day of 

Program Year 2), and if the requirement 

is extended by the Secretary, to new 

policies issued and renewals of existing 

policies in Program Year 3 (calendar 

year 2005). The requirement applies at 

the time an insurer makes the initial 

offer of coverage. 

(b) Changes negotiated subsequent to 

initial offer. If an insurer satisfies the 

requirement to ‘‘make available’’

coverage as described in § 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 § 50.24. 

(c) Demonstration of compliance. If an 

insurer makes an offer of insurance but 

no contract of insurance is concluded, 

the insurer may demonstrate that it has 

satisfied the requirement to make 

available coverage as described in 

§ 50.20 through use of appropriate 

systems and normal business practices 

that demonstrate a practice of 

compliance.

§ 50.23 No material difference from other 

coverage. 

(a) Terms, amounts, and other 

coverage limitations. As provided in 

§ 50.20(a)(2), an insurer must offer 

coverage for insured losses resulting 

from an act of terrorism that does not 

differ materially from the terms, 

amounts, and other coverage limitations 

(including deductibles) applicable to 

losses from other perils. For purposes of 

this requirement, ‘‘terms’’ excludes 

price. 

(b) Limitations on types of risk. If an 

insurer does not cover all types of risks, 

then it is not required to cover the 

excluded risks in satisfying the 

requirement to make available coverage 

for losses resulting from an act of 

terrorism that does not differ materially 

from the terms, amounts, and other 

coverage limitations applicable to losses 

arising from events other than acts of 

terrorism. For example, if an insurer 

does not cover all types of risks, either 

because the insurer is outside of direct 

State regulatory oversight, or because a 

State permits certain exclusions for 

certain types of losses, such as nuclear, 

biological, or chemical events, then the 

insurer is not required to make such 

coverage available.

§ 50.24 Applicability of State law 

requirements. 

(a) General. After satisfying the 

requirement to make available coverage 

for insured losses that does not differ 

materially from the terms, amounts, and 

other coverage limitations applicable to 

losses arising from events other than 

acts of terrorism, if coverage is rejected 

an insurer may then offer coverage that 

is on different terms, amounts, or 

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

coverage limitations, as long as such an 

offer does not violate any applicable 

State law requirements. 

(b) Examples. (1) If an insurer subject 

to State regulation first makes available 

coverage in accordance with § 50.20 and 

the State has a requirement that an 

insurer offer full coverage without any 

exclusion, then the requirement would 

continue to apply and the insurer may 

not subsequently offer less than full 

coverage or coverage with exclusions. 

(2) If an insurer subject to State 

regulation first makes available coverage 

in accordance with § 50.20 and the State 

permits certain exclusions or allows for 

other limitations, or an insurance policy 

is not governed by State law 

requirements, then the insurer may 

subsequently offer limited coverage or 

coverage with exclusions.

Dated: April 11, 2003. 

Wayne A. Abernathy, 

Assistant Secretary of the Treasury.

[FR Doc. 03–9611 Filed 4–17–03; 8:45 am] 

BILLING CODE 4810–25–P