Federal Register / Vol. 71, No. 165 / Friday, August 25, 2006 / Rules and Regulations 50341 

counterpart Federal regulations for 

which an analysis was prepared and a 

determination made that the Federal 

regulation did not impose an unfunded 

mandate. 

List of Subjects in 30 CFR Part 924 

Intergovernmental relations, Surface 

mining, Underground mining. 

Dated: August 15, 2006. 

Brent Wahlquist, 

Acting Director, Office of Surface Mining 

Reclamation and Enforcement. 

■ For the reasons set out in the 

preamble, 30 CFR part 924 is amended 

as set forth below: 

PART 924—MISSISSIPPI 

■ 1. The authority citation for part 924 

continues to read as follows: 

Authority: 30 U.S.C. 1201 et seq. 

■ 2. Part 924 is amended by adding 

§ 924.20 to read as follows: 

§ 924.20 Approval of Mississippi 

Abandoned Mine Land Reclamation Plan. 

The Mississippi AMLR plan statutes, 

as submitted on April 5, 2006, are 

approved. Copies of the approved plan 

statutes are available at: 

Office of Surface Mining Reclamation 

and Enforcement, Birmingham Field 

Office, 135 Gemini Circle, Suite 215, 

Homewood, Alabama 35209. 

Mississippi Department of 

Environmental Quality, Office of 

Geology, 2380 Highway 80 West, 

Jackson, Mississippi 39289–1307. 

[FR Doc. E6–14155 Filed 8–24–06; 8:45 am] 

BILLING CODE 4310–05–P 

DEPARTMENT OF THE TREASURY 

31 CFR Part 50 

RIN 1505–AB67 

Terrorism Risk Insurance Program; 

TRIA Extension Act Implementation 

AGENCY: Departmental Offices, Treasury. 

ACTION: Final rule. 

SUMMARY: The Department of the 

Treasury (Treasury) is issuing this rule 

in final form as part of its 

implementation of amendments made to 

Title I of the Terrorism Risk Insurance 

Act of 2002 (TRIA or Act) by the 

Terrorism Risk Insurance Extension Act 

of 2005 (Extension Act). The Act 

established a temporary Terrorism Risk 

Insurance Program (Program) that was 

scheduled to expire on December 31, 

2005, under which the Federal 

Government shared the risk of insured 

losses from certified acts of terrorism 

with commercial property and casualty 

insurers. The Extension Act extends the 

Program through December 31, 2007, 

and makes other changes which are 

implemented by this rule. In particular, 

the rule addresses changes to the types 

of commercial property and casualty 

insurance covered by the Act, the 

requirements to satisfy the Act’s 

mandatory availability (‘‘make 

available’’) provision and the operation 

of the new ‘‘Program Trigger’’ provision 

in section 103(e)(1)(B) of the Act. 

Treasury published an interim final rule 

and a cross-referenced proposed rule 

with a request for comment on May 11, 

2006. This final rule finalizes the 

proposed rule by adopting the text of 

the interim final rule without revision. 

DATES: This final rule is effective 

September 25, 2006. 

FOR FURTHER INFORMATION CONTACT: 

Howard Leikin, Deputy Director, 

Terrorism Risk Insurance Program, (202) 

622–6770 (not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Terrorism Risk Insurance Act of 2002 

On November 26, 2002, the President 

signed into law the Terrorism Risk 

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

116 Stat. 2322). The Act was effective 

immediately. The Act’s purposes are to 

address market disruptions, ensure the 

continued widespread availability and 

affordability of commercial property 

and casualty insurance for terrorism 

risk, and to allow for a transition period 

for the private markets to stabilize and 

build capacity while preserving state 

insurance regulation and consumer 

protections. 

Title I of the Act establishes a 

temporary federal program of shared 

public and private compensation for 

insured commercial property and 

casualty losses resulting from an act of 

terrorism which, as defined by the Act, 

is certified by the Secretary of the 

Treasury, in concurrence with the 

Secretary of State and the Attorney 

General. The Act authorizes Treasury to 

administer and implement the 

Terrorism Risk Insurance Program 

(Program), including the issuance of 

regulations and procedures. 

Each entity that meets the Act’s 

definition of insurer (well over 2,000 

firms) must participate in the Program. 

The amount of federal payment for an 

insured loss resulting from an act of 

terrorism is determined by insurance 

company deductibles and excess loss 

sharing with the Federal Government as 

specified in the Act and Treasury’s 

implementing regulations. An insurer’s 

deductible increases each year of the 

Program and in Program Year 5, so does 

its share of the losses in excess of the 

deductible, thereby reducing the Federal 

Government’s share of compensation for 

insured losses each year until the 

Program expires. An insurer’s 

deductible is calculated based on the 

value of direct earned premiums 

collected over certain prescribed 

calendar periods. Once an insurer has 

met its individual deductible, the 

federal payments cover a percentage of 

the insured losses above the deductible, 

subject to an industry aggregate limit of 

$100 billion. 

The Act gives Treasury authority to 

recoup federal payments made under 

the Program through policyholder 

surcharges, up to a maximum annual 

limit. The Act reduces the Federal share 

of compensation for insured losses that 

have been covered under any other 

federal program. The Act also contains 

provisions designed to manage litigation 

arising from or relating to a certified act 

of terrorism. Section 107 of the Act 

creates an exclusive federal cause of 

action, provides for claims 

consolidation in federal court, and 

contains a prohibition on federal 

payments for punitive damages under 

the Program. The Act provides the 

United States with the right of 

subrogation with respect to any 

payment or claim paid by the United 

States under the Program. 

B. Terrorism Risk Insurance Extension 

Act of 2005 

The Program was originally set to 

expire on December 31, 2005. On 

December 22, 2005, the President signed 

into law the Terrorism Risk Insurance 

Extension Act of 2005 (Pub. L. 109–144, 

119 Stat. 2660), which extends the 

Program through December 31, 2007. In 

doing so, the Extension Act adds 

Program Year 4 (January 1–December 

31, 2006) and Program Year 5 (January 

1–December 31, 2007) to the Program. In 

addition, the Extension Act made other 

significant changes to TRIA that 

include: 

• A revised definition of ‘‘insurer 

deductible’’ that adds new Program 

Years 4 and 5 to the definition. The 

insurer deductible is set as the value of 

an insurer’s direct earned premium for 

commercial property and casualty 

insurance (as now defined in the Act) 

over the immediately preceding 

calendar year multiplied by 17.5 percent 

for Program Year 4 and by 20 percent for 

Program Year 5. 

• A revised definition of ‘‘property 

and casualty insurance’’ that now 

excludes commercial automobile 

insurance; burglary and theft insurance; 


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50342 Federal Register / Vol. 71, No. 165 / Friday, August 25, 2006 / Rules and Regulations 

1We also received one comment from a group of 

farm mutual insurers after the close of the comment 

period. We note that this comment raised the same 

issues contained in one of the four other comments. 

These issues were addressed in this final rule. 

surety insurance; professional liability 

insurance; and farmowners multiple 

peril insurance. Though the definition 

excludes professional liability 

insurance, it explicitly retains directors 

and officers liability insurance. 

• Creation of a new Program Trigger 

for any certified act of terrorism 

occurring after March 31, 2006, that 

prohibits payment of Federal 

compensation by Treasury unless the 

aggregate industry insured losses 

resulting from that act of terrorism 

exceed $50 million for Program Year 4 

and $100 million for Program Year 5. 

• A change to the Federal share of 

compensation for insured losses. 

Subject to the Program Trigger, the 

Federal share is 90 percent of that 

portion of the amount of insured losses 

that exceeds the applicable insurer 

deductible in Program Year 4 and 

decreases to 85 percent of such amount 

in Program Year 5. 

• Revisions to the recoupment 

provisions. For purposes of recouping 

the Federal share of compensation 

under the Act, the insurance 

marketplace aggregate retention amount 

for the two additional years of the 

Program is increased from the level in 

Program Year 3. For Program Year 4 the 

insurance marketplace aggregate 

retention amount is established as the 

lesser of $25 billion and the aggregate 

amount, for all insurers, of insured 

losses during Program Year 4. The 

insurance marketplace aggregate 

retention amount for Program Year 5 is 

the lesser of $27.5 billion and the 

aggregate amount, for all insurers, of 

insured losses during Program Year 5. 

• A statutory codification of 

Treasury’s litigation management 

regulatory requirements in § 50.82 of 

title 31 of the Code of Federal 

Regulations (as in effect on July 28, 

2004), which requires advance approval 

by Treasury of proposed settlements of 

certain causes of action involving 

insured losses under the Program. 

C. The Interim Final Rule 

The interim final rule was published 

in the Federal Register at 71 FR 27564 

(May 11, 2006) with a cross-referenced 

proposed rule published at 71 FR 27573 

that would adopt the text of the interim 

final rule as final. References in the 

following discussion are to the interim 

final rule. The interim final rule 

incorporated certain changes to 31 CFR 

part 50 required by the amendments to 

TRIA in the Extension Act, which 

extended the Program by two years, to 

December 31, 2007. The changes in the 

rules included new insurer deductible 

amounts for each of those Program 

Years, the extension of mandatory 

availability requirements, the deletion 

of certain types of insurance from the 

definition of property and casualty 

insurance, and a continued safe harbor 

for the use of model disclosure forms. 

The interim final rule also incorporated 

and clarified statutory changes to the 

determination of the Federal share of 

compensation, taking into account the 

new Program Trigger. 

This final rule, and the preceding 

interim final rule, reflect interim 

guidance previously issued by Treasury 

in a notice published in the Federal 

Register on January 5, 2006 (71 FR 648), 

in order to assist insurers, 

policyholders, and other interested 

parties in complying with immediately 

applicable requirements of the 

Extension Act. Treasury consulted with 

the National Association of Insurance 

Commissioners (NAIC) in developing 

the interim final rule and has carefully 

considered the comments submitted in 

finalizing the interim final rule. 

II. Summary of Comments and Final 

Rule 

Treasury received four comments on 

the interim final rule.1 Comments were 

submitted by a farm mutual insurer, an 

insurance company, a farm mutual 

reinsurer and an insurance industry 

trade association. The comments raised 

issues in two areas—farm owners 

multiple peril insurance and umbrella 

and excess policies. In addition, one 

comment commended the Terrorism 

Risk Insurance Program for addressing 

issues in the earlier interim guidance 

that had required clarification. After 

review and consideration of the 

comments, Treasury is now 

promulgating a final rule implementing 

the Extension Act changes to TRIA. The 

final rule makes no changes to the 

interim final rule, but the preamble 

provides some clarification in response 

to the issues raised in the comments. 

The following discussion also 

summarizes the provisions of the 

interim final, and now final, rule.1

A. Definitions (§ 50.5) 

The interim final rule incorporated 

revised definitions for insurer 

deductible, Program Years, and property 

and casualty insurance. The rule also 

added definitions for professional 

liability insurance and Program Trigger 

event. 

The revisions to the definitions for 

insurer deductible and Program Years 

implemented the Extension Act’s 

addition of Program Years 4 (calendar 

year 2006) and 5 (calendar year 2007) 

and the percentages to be applied to an 

insurer’s direct earned premium for the 

immediately preceding calendar year in 

computing insurer deductibles for 

Program Year 4 (17.5 percent) and 

Program Year 5 (20 percent). 

Section 102(12) of TRIA was also 

amended to exclude additional types of 

insurance from the definition of 

property and casualty insurance under 

the Program. The Act now excludes 

from the definition commercial 

automobile insurance, burglary and 

theft insurance, surety insurance, 

professional liability insurance (but not 

directors and officers insurance), and 

farmowners multiple peril insurance. To 

the extent the newly excluded types of 

insurance represent specific lines of 

business on the NAIC Annual 

Statement, Treasury is continuing to 

utilize NAIC line of business definitions 

in implementing the Act. The newly 

excluded types of insurance which may 

correspond to lines of business on the 

NAIC Annual Statement are: Line 3—

Farmowners Multiple Peril; Line 19.3—

Commercial Auto No-Fault (personal 

injury protection); Line 19.4—Other 

Commercial Auto Liability; Line 21.2—

Commercial Auto Physical Damage; 

Line 26—Burglary and Theft; and Line 

24—Surety. In addition, the interim 

final rule made clear that these types of 

insurance are excluded from the 

definition of property casualty 

insurance, regardless of how their 

premiums may be reported. 

The only type of insurance that is 

newly excluded from the definition of 

property and casualty insurance in the 

Act, but is not a specific line of business 

on the NAIC Annual Statement, is 

professional liability insurance, located 

in new section 102(12)(xi). In the 

interim final rule, Treasury provided the 

following definition of ‘‘professional 

liability insurance’’: 

Professional liability insurance means 

insurance coverage for liability arising 

out of the performance of professional 

or business duties related to a specific 

occupation, with coverage being tailored 

to the needs of the specific occupation. 

Examples include abstracters, 

accountants, insurance adjusters, 

architects, engineers, insurance agents 

and brokers, lawyers, real estate agents, 

stockbrokers and veterinarians. For 

purposes of this definition, professional 

liability insurance does not include 

directors and officers liability insurance. 

Insurers are to use this definition in 

identifying policies excluded from the 

Program, as well as for satisfying the 

Act’s ‘‘make available’’ requirement and 

determining which policies have 


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Federal Register / Vol. 71, No. 165 / Friday, August 25, 2006 / Rules and Regulations 50343 

2The Matrix can be found on the NAIC Web site 

at http://www.naic.org/industry_home.htm. 

3Section 103(e)(1)(B) states: ‘‘In the case of a 

certified act of terrorism occuring after March 31, 

2006, no compensation shall be paid by the 

Secretary under subsection (a), unless the aggregate 

industry insured losses resulting from such certified 

act of terrorism exceed—(i) $50,000,000, with 

respect to such insured losses occurring in Program 

Year 4; or (ii) $100,000,000, with respect to such 

insured losses occurring in Program Year 5.’’ 4See 68 FR 9810. 

premiums that should be subtracted 

from Line 17—Other Liability on the 

NAIC Annual Statement when 

computing direct earned premium for 

Program purposes. 

This definition is derived from the 

definition of ‘‘Professional Errors and 

Omissions Liability’’ found in the 

Uniform Property & Casualty Coding 

Matrix currently utilized by the System 

for Electronic Rate and Form Filing 

(SERFF) sponsored by the NAIC.2

However, this definition is not meant to 

limit insurers to the filing code 

(17.0019) specified under SERFF for 

‘‘Professional Errors and Omissions 

Liability’’. Certainly, policies and 

coverages that employ the SERFF filing 

code will meet the interim final rule 

definition of professional liability 

insurance. Treasury acknowledges that 

many insurers and insurance support 

organizations do not utilize the SERFF 

mechanism for all their form filings. 

Thus, the definition in the interim final 

rule was intended to have a broader 

application than the SERFF filing 

process and should not be viewed as 

limited to one particular SERFF filing 

code. 

Directors and officers liability 

insurance, which is sometimes 

considered a type of professional 

liability insurance, is not included in 

the definition of professional liability 

insurance. Section 102(12)(A) of the Act 

now explicitly includes directors and 

officers liability insurance in the 

definition of property and casualty 

insurance. This change does not 

substantively modify the previous 

definition of property and casualty 

insurance under the Act, but is a 

statutory clarification that directors and 

officers liability insurance is distinct 

from professional liability insurance. 

Premium for directors and officers 

liability insurance may be already 

included in Line 17—Other Liability on 

the NAIC Annual Statement, one of the 

commercial lines of business listed in 

Treasury’s current regulations defining 

property and casualty insurance (31 

CFR 50.5(n)), if not otherwise excluded. 

Treasury recommends that insurers 

consult the definition of ‘‘Directors & 

Officers Liability’’ found in the Uniform 

Property & Casualty Coding Matrix now 

being utilized by SERFF if further 

guidance is needed on what constitutes 

‘‘Directors & Officers Liability’’

insurance. 

The Extension Act adds a new section 

103(e)(1)(B) to TRIA entitled ‘‘Program 

Trigger.’’ This new provision directs the 

Secretary not to compensate insurers 

under the Program unless the aggregate 

industry insured losses from a certified 

act of terrorism exceed certain insured 

loss or ‘‘trigger’’ amounts. 3To 

implement this provision, the interim 

final rule added a new definition for 

‘‘Program Trigger event’’. Such an event 

is ‘‘a certified act of terrorism that 

occurs after March 31, 2006, for which 

the aggregate industry insured losses 

resulting from such act exceed $50 

million with respect to such insured 

losses occurring in 2006 and $100 

million with respect to such insured 

losses occurring in 2007.’’ Unless an act 

of terrorism is a Program Trigger event, 

insured losses from that act of terrorism 

will not be considered in any 

determination of or calculation leading 

to any Federal share of compensation 

under the Act. The Program Trigger is 

discussed further in ‘‘E. Federal Share of 

Compensation’’ below. 

Farmowners Multiple Peril Insurance 

The Extension Act revision to TRIA 

section 102(12) specifically excludes 

‘‘farm owners multiple peril insurance’’, 

a particular type of insurance which is 

also a specific line of business on the 

NAIC Annual Statement, from the 

definition of property and casualty 

insurance. Prior to the issuance of the 

interim final rule, insurers asked 

whether monoline farm insurance 

coverages are similarly excluded. With 

no clear guidance in the legislative 

history of the Extension Act on this 

issue and, guided by the plain meaning 

of the statute, Treasury issued the 

interim final rule based on its 

interpretation that this exclusion is 

applicable only to multiple peril 

coverages insuring farm risks. Single 

peril or monoline coverages insuring 

farm risks generally would continue to 

be evaluated based on the line of 

business on the NAIC Annual Statement 

(or equivalent reporting system) where 

the premiums for such coverages are 

reported. Thus, if the premiums for such 

monoline coverages are usually 

reported, or otherwise allocated, to one 

of the commercial lines of insurance on 

the NAIC Annual Statement (or 

equivalent reporting system), unless 

otherwise excluded by the Act, the 

monoline coverage would be treated as 

falling within the definition of property 

and casualty insurance under Treasury’s 

regulations. 

Aware of some concerns with this 

result on the part of some smaller 

insurance entities, such as farm and 

county mutuals, Treasury specifically 

sought comments on the practical 

implications of this issue and requested 

the articulation of a basis for any 

assertion that monoline coverages are 

excluded from the Program as part of 

the farmowners multiple peril 

exclusion. 

Three commenters addressed the 

treatment of ‘‘farm owners multiple 

peril insurance’’ in Treasury’s interim 

final rule. 

One Texas farm mutual insurer 

indicated it believed the monoline fire 

policies the insurer issues for farm risks 

in Texas ‘‘are residential in nature and 

not commercial’’. Texas farm mutuals 

generally are precluded from writing 

commercial insurance. To the extent a 

farm mutual insurer files an NAIC 

Annual Statement in Texas (not all farm 

mutuals file an NAIC Annual 

Statement), the premium for its 

monoline fire policies is reported on 

Line 1—Fire of the NAIC Annual 

Statement (an included line). But the 

farm mutual insurer explained that the 

‘‘Fire’’ line of business in Texas 

includes both personal and commercial 

lines. The insurer suggested that ‘‘an 

argument can be made’’ that the Texas 

Department of Insurance looks upon 

farm mutual policies as being 

residential policies and not commercial 

policies, and that these policies should 

not be subject to TRIA simply because 

of the line on which they are required 

to be reported. 

A Midwest reinsurer of county and 

town mutuals also raised concerns 

about Treasury’s interpretation of the 

meaning of ‘‘farm owners multiple 

peril’’. The reinsurer noted that ‘‘the 

practical implication of Treasury’s 

interpretation is that inclusion of 

exposures in the Program is made 

dependent upon the method by which 

premium is reported and not with 

regard to the actual exposure being 

insured.’’ The reinsurer further 

suggested that Treasury’s interpretation 

of the Extension Act was inconsistent 

with Treasury’s earlier treatment of 

commercial property and casualty 

insurance 4 that ‘‘was based on the 

exposure insured, not on the method of 

reporting premium.’’

The third commenter, which reports 

all farm policy premium under the farm 

owners multiple peril line of its Annual 

Statement, even premium for what 

might be considered monoline policies, 


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50344 Federal Register / Vol. 71, No. 165 / Friday, August 25, 2006 / Rules and Regulations 

5See 68 FR 41257. 

6See 68 FR 9810. 

7See § 50.5(d)(1)(ii). 

8See § 50.5(d). 

requested confirmation that under the 

rules, because of the way its premium 

is reported, the policy form it uses 

would be considered farm owners 

multiple peril insurance. 

As noted previously, there is no clear 

guidance in the legislative history of the 

Extension Act that suggests the meaning 

of ‘‘farm owners multiple peril 

insurance’’ should be interpreted 

broadly to include single peril, or 

monoline, farmowners insurance. 

Moreover, ‘‘farm owners multiple peril 

insurance’’ is a specific line of business 

on the NAIC Statement. Since the 

inception of the Program, Treasury has 

used Statutory Page 14 of the NAIC 

Annual Statement as the ‘‘best available 

point of reference’’ 5 to define what 

constitutes commercial property and 

casualty insurance, also applicable as 

guidance to insurers that do not report 

via Statutory Page 14 to the NAIC. 

Treasury’s rules generally define 

property and casualty insurance in 

terms of specified lines of business on 

the NAIC Annual Statement. Insurance 

for which premiums are reported on an 

excluded line of business is not 

included in the Program. Insurance for 

which premiums are reported on an 

included line of business is included, 

unless the particular type of insurance 

is otherwise excluded by the Act. 

Treasury believes that its earlier 

guidance on what constitutes 

commercial property and casualty 

insurance is consistent with its more 

recent interpretation of the Extension 

Act meaning of ‘‘farm owners multiple 

peril insurance’’. However, the 

preamble discussion of this issue in the 

interim final rule was fairly brief and we 

offer additional discussion below. 

Treasury has maintained that 

premium reported on the specified 

commercial lines on Statutory Page 14 

of the NAIC Annual Statement is only 

considered to be commercial premium 

subject to the Act ‘‘to the extent 

coverage provided is for commercial 

property and casualty exposures’’ 6 (and 

provided it is not otherwise excluded by 

the Act). The definition of property and 

casualty insurance in § 50.5(n)(1) 

provides, in part, that it means 

‘‘commercial lines within’’ certain 

specified lines of insurance. We have 

specifically noted that personal 

insurance (insurance primarily designed 

for personal, family or household 

purposes) that is reported on one of the 

specified commercial lines of Statutory 

Page 14 should be excluded from an 

insurer’s calculation of its direct earned 

premium.7 We have likewise applied 

this analysis in clarifying what 

constitutes commercial property and 

casualty insurance coverage for 

purposes of paying insured losses and 

determining compliance with the ‘‘make 

available’’ provision of the Act. 

In applying the foregoing to the farm 

risks described by the farm mutual 

commenters, if the premium for a 

monoline policy written by such 

insurers is reported on one of the 

specified commercial lines of Statutory 

Page 14 of the NAIC Annual Statement 

(Fire, Allied Lines, etc.), the monoline 

coverage as a general rule is subject to 

TRIA. However, if the monoline policy 

only insures a personal insurance 

exposure (residential dwelling), or is 

otherwise excluded by the Act, the 

policy is not commercial property and 

casualty insurance within the meaning 

of the Act and is not subject to the Act. 

To the extent a monoline policy is a 

hybrid policy that insures both personal 

and commercial exposures, farm mutual 

insurers should look to Treasury’s 

treatment of the direct earned premium 

for hybrid policies as a guide for how 

to treat the hybrid policy for other 

purposes under TRIA (determining 

claims for insured losses, complying 

with the ‘‘make available’’ provision, 

etc.).8

Consistent with the Extension Act, the 

interim final rule excludes farm owners 

multiple peril insurance from the 

definition of property and casualty 

insurance. In response to the commenter 

that raised the question about its policy 

form, we note that the interim final rule 

does not directly address policy forms 

or how various state regulators treat 

particular forms for NAIC Annual 

Statement reporting purposes. Treasury 

assumes that the forms and reporting 

practices are appropriate under 

applicable state law. Whatever 

treatment is afforded particular policies 

by insurers in compliance with relevant 

state law is generally the guide for how 

such policies are treated under 

Treasury’s regulations for what 

constitutes commercial property and 

casualty insurance, unless expressly 

excluded by the Act. Farm policies for 

which premiums are reported on the 

farmowners multiperil line are excluded 

from the Program. 

Since the concerns of the three 

commenters related to ‘‘farm owners 

multiple peril insurance’’ are addressed 

by applying Treasury’s previous 

rulemaking and guidance, no changes 

have been made to the definition of 

property and casualty insurance in 

section 50.5(n)(2) of the interim final 

rule. 

B. Interim Guidance Safe Harbors 

(§ 50.7) 

Section 50.7 of the current regulations 

provides that ‘‘[a]n insurer will be 

deemed to be in compliance with the 

requirements of the Act to the extent the 

insurer reasonably relied on Interim 

Guidance prior to the effective date of 

applicable regulations.’’ The interim 

final rule added ‘‘Interim Guidance IV 

issued by Treasury on December 29, 

2005, and published at 71 FR 648 

(January 5, 2006)’’ to the list of 

applicable Interim Guidances. 

C. Disclosure (§§ 50.12 and 50.17) 

The interim final rule incorporated 

guidance on compliance with disclosure 

requirements and revised safe harbor 

language with regard to the use of NAIC 

model disclosure forms. 

The Extension Act continues, as a 

condition for federal payments under 

the Act, the existing requirements 

contained in section 103(b) to provide 

disclosures ‘‘at the time of offer, 

purchase, and renewal of the policy’’. 

Some insurers faced certain operational 

difficulties with regard to policies 

processed in the latter part of Program 

Year 3 (2005) for issuance or renewal 

effective in 2006. In some cases, policies 

were issued or renewed in 2006 in a 

form that already included coverage for 

terrorism risks, whether or not TRIA 

was extended. Because TRIA would 

have sunset as of December 31, 2005, 

disclosures were not provided with 

these policies. 

The Extension Act made no change to 

the requirement that disclosures are 

required as a condition for payment of 

the Federal share of compensation for 

insured losses. However, given the late 

date of enactment of the Extension Act, 

the interim final rule provided in 

section 50.12(e) that ‘‘[i]f an insurer 

made available coverage for insured 

losses in a new policy or policy renewal 

in Program Year 3 for coverage 

becoming effective in Program Year 4, 

but did not provide a disclosure at the 

time of offer, purchase or renewal, then 

the insurer must be able to demonstrate 

to Treasury’s satisfaction that it has 

provided a disclosure as soon as 

possible following January 1, 2006.’’

For an insurer to demonstrate to 

Treasury’s satisfaction that it has 

provided disclosures as soon as possible 

following January 1, 2006, Treasury 

expects that an insurer will have 

provided disclosures by 30 days after 

publication of the interim final rule in 

the Federal Register (June 10, 2006), 

barring unforeseen or unusual 


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Federal Register / Vol. 71, No. 165 / Friday, August 25, 2006 / Rules and Regulations 50345 

9See 68 FR 59725. 

10See 31 CFR 50.5(d)(1)(iii): ‘‘For purposes of the 

Program, commercial coverage combined with 

coverages that otherwise do not meet the definition 

of property and casualty insurance is incidental if 

less than 25 percent of the total direct premium is 

for such coverage.’’

circumstances. If not completed by that 

time, an insurer will be expected, when 

submitting a claim for the Federal share 

of compensation, to demonstrate why 

such disclosures could not be made by 

that date and why the insurer should be 

deemed to be in compliance with the 

Act’s disclosure requirement. 

Pursuant to 31 CFR 50.17, insurers 

that have used NAIC Model Disclosure 

Forms that were in existence on April 

18, 2003, were deemed to satisfy the 

disclosure requirements of section 

103(b)(2) of the Act. Although the 

Extension Act made no change to the 

requirements for clear and conspicuous 

disclosure to policyholders of the 

premium charged for insured losses 

covered by the Program and of the 

Federal share of compensation for 

insured losses under the Program, 

revisions were made to the Act that 

required rewording of the NAIC Model 

Disclosure Forms. The NAIC has since 

issued revised Model Disclosure Forms, 

dated January 26, 2006, which if used 

by insurers, will be deemed to satisfy 

disclosure requirements of the Act and 

Treasury regulations. The interim final 

rule continued the safe harbor approach 

for use of the most current NAIC Model 

Disclosure forms deemed by Treasury to 

meet Program requirements. Insurers 

may also continue to use other forms to 

comply with the disclosure 

requirements. 

D. Make Available (§§ 50.20 and 50.21) 

For Program Year 4 (Calendar 2006) 

and Program Year 5 (Calendar 2007) 

insurers are required to continue to 

‘‘make available’’ coverage for insured 

losses as required by TRIA and Treasury 

regulations. Amendments to the ‘‘make 

available’’ requirement in section 103(c) 

of the Act are simply conforming 

amendments that continue the 

requirement through Program Years 4 

and 5. Thus, insurers issuing or 

renewing commercial property and 

casualty insurance policies in Program 

Years 4 and 5 must continue to offer 

coverage for insured losses resulting 

from an act of terrorism, as required by 

section 103(c) of the Act and 31 CFR 

50.20 to 50.24, if they wish to have their 

insured loss claims eligible for the 

Federal share of compensation in the 

extended Program Years. 

In its Interim Guidance IV published 

on January 5, 2006, Treasury addressed 

the ‘‘make available’’ requirement with 

regard to the transition from Program 

Year 3, originally the last year of the 

Program, to the extended Program Years 

4 and 5. In that issuance, Treasury noted 

that the Extension Act made no changes 

to the ‘‘make available’’ requirement for 

insurers. Treasury provided guidance on 

how insurers could comply with 

Program requirements given operational 

difficulties arising from the Extension 

Act passage late in the year. 

In addition Treasury Interim 

Guidance IV clarified that no additional 

‘‘make available’’ offer is required if 

terrorism coverage for the duration of 

the policy term was offered for policies 

issued or renewed in 2005. It also 

explained how an insurer could comply 

with ‘‘make available’’ requirements 

under the following scenarios where: 

(1) A policy’s terrorism coverage 

expired on December 31, 2005, but the 

remainder of the policy continued in 

force in 2006, 

(2) A policy did not provide terrorism 

coverage after December 31, 2005, but 

the policyholder had rejected an offer of 

terrorism coverage for the portion of the 

policy term prior to December 31, and 

(3) A policy renewal or application 

was processed in 2005 for coverage 

becoming effective in 2006 and the 

insurer did not ‘‘make available’’

terrorism coverage for Program Year 4 as 

contemplated by the Extension Act. 

The interim final rule generally 

incorporated this interim guidance into 

the TRIA ‘‘make available’’ provisions. 

Section 50.21(b) was added to address 

the special Program Year 4 requirements 

for scenarios (1) and (2) above. For 

scenarios (1) and (3), where an insurer 

must make an offer of coverage, section 

50.21(d) (formerly 50.21(c)) was 

amended to provide that the insurer 

must be able to demonstrate to 

Treasury’s satisfaction that it has 

provided an offer of coverage for 

insured losses by January 1, 2006, or as 

soon as possible following that date. In 

demonstrating to Treasury’s satisfaction 

that it has provided an offer of coverage 

for insured losses as soon as possible 

after January 1, 2006, Treasury 

considers January 31, 2006, to be the 

latest reasonable date for offers of 

coverage, barring unforeseen or unusual 

circumstances. If not provided by 

January 31, 2006, Treasury would 

expect an insurer to demonstrate why 

the offer could not be made by that date 

when submitting a claim for Federal 

compensation under the Program. 

The interim final rule incorporated 

technical amendments to section 50.20 

that extend the ‘‘make available’’

requirements into Program Years 4 and 

5. Section 50.20(c) also provided that 

‘‘property and casualty insurance 

coverage for insured losses does not 

have to be made available beyond 

December 31, 2007 (the last day of 

Program Year 5), even if the policy 

period of insurance coverage for losses 

from events other than acts of terrorism 

extends beyond that date’’. 

Umbrella and Excess Policies 

In the Supplementary Information 

section of the preamble accompanying 

the interim final rule, Treasury provided 

guidance regarding the ‘‘make 

available’’ and disclosure requirements 

for excess or umbrella liability policies 

in light of the Extension Act’s deletion 

of certain types of insurance from the 

definition of property and casualty 

insurance. The guidance reflected 

earlier rulemaking and that as a general 

rule, excess or umbrella liability 

policies are property and casualty 

insurance within the meaning of TRIA. 

Section 102(12)(A) of the Act defines 

the term ‘‘property and casualty 

insurance’’ as meaning commercial lines 

of property and casualty insurance 

‘‘including excess,’’ unless otherwise 

excluded from the definition under 

Section 102(12)(B). Premiums for 

commercial excess and umbrella 

insurance policies are normally reported 

on Line 17—Other Liability in the NAIC 

Annual Statement.9 Although generally 

reported on a line which is included in 

the Program, in interim guidance 

Treasury advised that excess or 

umbrella insurance is commercial 

property and casualty insurance only to 

the extent it provides coverage above 

primary or underlying coverage that is 

a type of insurance included in the 

Program, and not specifically excluded 

from the definition of property and 

casualty insurance itself. However, 

where the commercial property and 

casualty coverage segment of an excess 

or umbrella liability policy is merely 

incidental to the remaining non-TRIA 

coverage under the policy, an insurer 

may treat the entire policy as not 

providing property and casualty 

insurance within the meaning of TRIA 

and Treasury’s regulations.10 In such 

elections, the TRIA ‘‘make available’’

and disclosure requirements will not 

apply and no losses from the 

commercial coverage segment of such 

policies will be paid by Treasury. 

One comment submitted by an 

insurance trade organization requested 

that Treasury give ‘‘due consideration to 

the possibility that property casualty 

insurers, in good faith, might have 

treated commercial umbrella and excess 

insurance policies differently under the 

TRIA Extension than the Federal 

Register guidance’’. As an example, the 

comment states that, ‘‘as premiums from 


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50346 Federal Register / Vol. 71, No. 165 / Friday, August 25, 2006 / Rules and Regulations 

these policies are reported on line 17 of 

the NAIC annual Statement (a line that 

is included within the Federal program), 

insurers could have reasonably assumed 

that those policies would either be 

included entirely in the program or that 

the policies would be included unless 

there was no possibility of a covered 

claim from the underlying policy’’. 

Treasury acknowledges that, if an 

insurer, prior to the publication of the 

interim final rule, relied on the 

assumptions in the above example in 

carrying out its ‘‘make available’’ and 

disclosure obligations (if any) the 

insurer would be considered to be 

reasonably compliant with Program 

requirements. However, in no 

circumstance can losses associated with 

an underlying coverage that is excluded 

from the Program form the basis for a 

claim for the Federal share of 

compensation. 

Commenters asked Treasury to 

reconsider the position that ‘‘excess or 

umbrella insurance is commercial 

property and casualty insurance 

included in the Program only to the 

extent it provides coverage above 

primary or underlying coverage that is 

a type of insurance included in the 

Program’’. One of these comments 

suggests that ‘‘this position makes some 

sense within the insurance context of 

how umbrella/excess and the 

underlying coverage are typically 

consistent, [but] one could also make a 

case for commercial umbrella/excess 

being totally included under TRIA—

even when written over exempted 

coverages—if the goal was to make the 

provisions of TRIA apply as broadly as 

the law will allow and thus encouraging 

as much terrorism coverage as possible 

in the marketplace’’. 

Treasury considered and rejected this 

alternative prior to issuing the interim 

final rule. After reconsideration based 

on the comments, we continue to 

believe that the better interpretation of 

the statutory authority and intent, given 

that the Extension Act restricted the 

types of insurance included under the 

Program, is as stated in the preamble to 

the interim final rule. Therefore, no 

change is being made to the final rule. 

E. Federal Share of Compensation 

(§ 50.50) 

The interim final rule added several 

provisions to section 50.50 to reflect the 

addition of the new Program Trigger 

provision to the Act. Under section 

103(a) of TRIA, the Secretary is required 

to pay the Federal share of 

compensation for insured losses in 

accordance with section 103(e) of the 

Act. The Extension Act amended 

subsection (e) to provide, in part, that 

no compensation shall be paid by the 

Secretary under subsection (a) unless 

the aggregate industry insured losses 

from a certified act of terrorism 

occurring after March 31, 2006, exceed 

certain amounts. This provision was 

intended to ensure that there would be 

no Federal compensation unless the 

aggregate industry losses from an act of 

terrorism exceed these amounts. 

The interim final rule incorporated a 

technical amendment to renumbered 

§ 50.50(a) (formerly 50.50(d)) to provide 

that the Federal share of compensation 

in Program Year 5 shall be ‘‘85 percent 

of that portion of the insurer’s aggregate 

insured losses that exceed its insurer 

deductible during Program Year 5,’’

(subject to any adjustments in § 50.51 

and the cap of $100 billion as provided 

in section 103(e)(2) of the Act). A new 

provision was also added to renumbered 

§ 50.50(d) (formerly 50.50(a)) that 

reiterates, as a condition for Federal 

compensation for insured losses, a basic 

insurance principle that, ‘‘[t]he insurer 

offered the coverage for insured losses 

and the offer was accepted by the 

insured prior to the occurrence of the 

loss’’. 

New § 50.50(b) incorporated the 

Program Trigger limitations on the 

amount of Federal compensation 

payable under the Act. To implement 

these limitations, § 50.50(g) stated that 

Treasury will determine the amount of 

aggregate industry insured losses, and 

that if the aggregate industry insured 

losses exceed the applicable Program 

Trigger amounts, Treasury will publish 

notice in the Federal Register that the 

act of terrorism is a Program Trigger 

event. As noted in the previously issued 

Interim Guidance, Treasury also expects 

to provide notification through press 

releases and postings on the TRIP Web 

site. 

Section 50.50(c) clarified that in the 

provisions dealing with claims 

procedures, subpart F, insured losses or 

aggregate insured losses for acts of 

terrorism after March 31, 2006 will be 

limited to those insured losses resulting 

from Program Trigger events. This 

limitation on insured losses controls 

any determinations of, or calculations 

leading to, a Federal share of 

compensation under the Act including 

any adjustments of the Federal share, 

and applies to submissions of an insurer 

in conjunction with Initial Notices of 

Loss and Certifications of Loss and 

payments of the Federal share. 

The Program Trigger provision also 

has a direct bearing on which insured 

losses count towards satisfaction of the 

insurer deductible. In Program Year 4, 

and similarly, in Program Year 5, only 

an insurer’s insured losses resulting 

from Program Trigger events in the year 

will count towards satisfaction of the 

insurer deductible. 

F. Determination of Affiliations (§ 50.55) 

Section 50.55 provides that for the 

purposes of claims procedures and the 

determination of the Federal share of 

compensation ‘‘an insurer’s affiliates for 

any Program Year shall be determined 

by the circumstances existing on the 

date of occurrence of the act of terrorism 

that is the first act of terrorism in a 

Program Year to be certified by the 

Secretary for that Program Year.’’ The 

purpose of this regulation, when 

promulgated in 2005, was to clarify the 

point in time when insurer affiliations 

would be determined in order to 

facilitate the calculation of insurer 

deductibles and the payments of the 

Federal share of compensation for 

Program Years in which affiliations 

could change over time. Since this has 

meaning only if there is a potential 

Federal share of compensation, the 

interim final rule incorporated an 

amendment clarifying that if the first 

certified act of terrorism occurs after 

March 31, 2006, it must also be a 

Program Trigger event to be used for 

determining affiliations under the rule. 

G. Federal Cause of Action; Approval of 

Settlements 

The Extension Act added section 

107(a)(6) to TRIA, which provides that 

procedures and requirements 

established by the Secretary under 31 

CFR 50.82, as in effect on the date of 

issuance of that section in final form 

[July 28, 2004], shall apply to any 

Federal cause of action described in 

section 107(a)(1). This provision was 

added to new § 50.85 of the interim final 

rule. 

Section 50.82 of the regulations 

requires insurers to submit to Treasury 

for advance approval certain proposed 

settlements involving an insured loss, 

any part of the payment of which the 

insurer intends to submit as part of its 

claim for federal payment under the 

Program. Thus, Treasury would not 

expect insurers to submit any proposed 

settlement if the insured losses would 

not be eligible for payment, as would be 

the case if the losses resulted from a 

post-March 31, 2006 certified act that 

was not a Program Trigger event. 

However, if there is uncertainty whether 

or not a certified act will become a 

Program Trigger event, an insurer may 

wish to err on the side of caution and 

submit a proposed settlement for prior 

approval in order to preserve any 

subsequent eligibility for Federal 

compensation for insured losses under 

the Program. Otherwise the insured will 


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Federal Register / Vol. 71, No. 165 / Friday, August 25, 2006 / Rules and Regulations 50347 

be ineligible for later payment if the 

Program Trigger is reached. 

III. Procedural Requirements 

Executive Order 12866, ‘‘Regulatory 

Planning and Review’’

This 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. 

Regulatory Flexibility Act 

Pursuant to the Regulatory Flexibility 

Act, 5 U.S.C. 601 et seq., it is hereby 

certified that the final rule will not have 

a significant economic impact on a 

substantial number of small entities. 

The final rule implements changes 

prescribed or authorized by the 

Extension Act. The Act itself requires all 

insurers receiving direct earned 

premium for any type of property and 

casualty insurance, as defined in the 

Extension Act, to participate in the 

Program. This includes all insurers 

regardless of size or sophistication. The 

Extension Act also defines property and 

casualty insurance to mean commercial 

lines of insurance without any reference 

to size or scope of the insurer or the 

insured. The disclosure and ‘‘make 

available’’ requirements are required by 

the Act. The rule allows all insurers, 

whether large or small, to use existing 

systems and business practices to 

demonstrate compliance. Treasury is 

required to pay the Federal share of 

compensation to insurers for insured 

losses subject to the new Program 

Trigger provisions in the Act. The 

requirement that insurers seek advance 

approval of certain settlements is now 

required by the Act. Any economic 

impact associated with the final rule 

flows from the Extension Act and not 

the final rule. 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 insurance policyholders and 

spreading the risk of insured losses 

resulting from an act of terrorism. 

Accordingly, a regulatory flexibility 

analysis is not required. 

List of Subjects in 31 CFR Part 50 

Terrorism risk insurance. 

Authority and Issuance 

■ For the reasons set forth above, the 

interim final rule revising subparts A, B, 

C, F, and I of 31 CFR part 50, which was 

published at 71 FR 27564 on May 11, 

2006, is adopted as a final rule without 

change. 

Dated: August 9, 2006. 

Emil W. Henry, Jr., 

Assistant Secretary of the Treasury. 

[FR Doc. E6–14180 Filed 8–24–06; 8:45 am] 

BILLING CODE 4811–37–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

[DoD–2006–OS–0182; 0720–AA97] 

32 CFR Part 199 

TRICARE Program; TRICARE Prime 

Remote for Active Duty Family 

Members and TRICARE Prime 

Enrollment Period 

AGENCY: Office of the Secretary, DoD. 

ACTION: Final rule. 

SUMMARY: This final rule implements 10 

U.S.C. 1079(p), as added by section 

722(b) of the Floyd D. Spence National 

Defense Authorization Act for Fiscal 

Year 2001. The rule provides coverage 

for medical care for active duty family 

members who reside with an active duty 

member of the Uniformed Services 

assigned to remote areas and eligible for 

the program known as TRICARE Prime 

Remote. Active duty family members 

who enroll in TRICARE Prime Remote 

for Active Duty Family Members 

(TPRADFM) will enjoy benefits 

generally comparable to TRICARE Prime 

enrollees including access standards, 

benefit coverage, and cost-shares. 

This final rule also implements 

Section 702 of the NDAA for FY 2003, 

which establishes circumstances under 

which dependents of Reserve 

Components and National Guard 

members called to active duty in 

support of contingency operations may 

enroll in TRICARE Prime Remote for 

Active Duty Family Members, and 

dependents of TRICARE Prime Remote 

service members may remain enrolled 

when the service member receives 

orders for an unaccompanied follow-on 

assignment. 

Finally, this final rule establishes 

circumstances under which eligible 

beneficiaries may enroll in TRICARE 

Prime for a period of less than 1 year. 

DATES: Effective Date: This rule is 

effective October 24, 2006. 

ADDRESSES: TRICARE Management 

Activity (TMA), Program Requirements 

Division, 16401 East Centretech 

Parkway, Aurora, CO 80011–9066. 

FOR FURTHER INFORMATION CONTACT: John 

J.M. Leininger, Program Requirements 

Division, TMA, (303) 676–3613 for 

questions on the TPRADFM portion of 

this rule. Ann Fazzini, Medical Benefits 

and Reimbursement Systems, TMA, 

(303) 676–3803 for questions on the 

TRICARE Prime Enrollment Period 

portion of this rule. 

SUPPLEMENTARY INFORMATION: 

I. Summary of Final Rule Provisions 

On October 30, 2000, the Floyd D. 

Spence National Defense Authorization 

Act (NDAA) for Fiscal Year 2001, Public 

Law 106–398 was signed into law. This 

final rule implements section 722(b) of 

this Act, which amended section 1079 

of Title 10, United States Code, by 

adding subsection (p). It requires a 

TRICARE Prime-like benefit for active 

duty family members residing with their 

active duty Uniformed Services sponsor 

eligible for TRICARE Prime Remote, as 

defined by section 1074(c)(3) of Title 10, 

United States Code. The reader should 

refer to the interim final rule that was 

published on February 6, 2002 (67 FR 

5477). 

This final rule implements Section 

702 of the NDAA for FY 2003, which 

amended section 1079 of Title 10, 

United States Code, by adding 

subsection (3) to subsection (p) which 

establishes circumstances under which 

dependents of Reserve Components and 

National Guard members called to 

active duty in support of contingency 

operations may enroll in TRICARE 

Prime Remote for Active Duty Family 

Members, and dependents of TRICARE 

Prime Remote service members may 

remain enrolled when the service 

member receives orders for an 

unaccompanied follow-on assignment. 

The reader should refer to the interim 

final rule that was published on July 31, 

2003 [68 FR 44882] and was effective 

September 29, 2003. 

This final rule also establishes 

circumstances under which eligible 

beneficiaries may enroll in TRICARE 

Prime for a period of less than one year. 

Enrollment in TRICARE Prime normally 

must be for a period of one year. Section 

199.17(v), provides for the 

establishment of administrative 

requirements and procedures to ensure 

reasonable implementation and 

operation of the TRICARE program. 

Under this authority, an exception to 

the one-year enrollment requirement 

has been provided for Reservists and 

members of the National Guard who are 

called or ordered to active duty for a 

period of 179 days or more. A second 

exception has been established for those 

beneficiaries who are eligible to enroll 

in Prime but have less than one year of 

TRICARE eligibility remaining. For 

example, the dependents of an active 

duty member may enroll in Prime even 

though the member has less than one 

year of active duty remaining, and the 


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