Thursday, 

May 11, 2006 

Part III 

Department of the 

Treasury 

31 CFR Part 50 

Terrorism Risk Insurance Program; TRIA 

Extension Act Implementation; Interim 

Final Rule and Proposed Rule 


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27564 Federal Register / Vol. 71, No. 91 / Thursday, May 11, 2006 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

31 CFR Part 50 

RIN 1505–AB66 

Terrorism Risk Insurance Program; 

TRIA Extension Act Implementation 

AGENCY: Departmental Offices, Treasury. 

ACTION: Interim final rule. 

SUMMARY: The Department of the 

Treasury (Treasury) is issuing this 

interim final rule as part of its 

implementation of amendments made to 

Title I of the Terrorism Risk Insurance 

Act of 2002 (TRIA, or Act) by the 

Terrorism Risk Insurance Extension Act 

of 2005 (Extension Act). The Act 

established a temporary Terrorism Risk 

Insurance Program (Program) that was 

scheduled to expire on December 31, 

2005, under which the Federal 

Government shared the risk of insured 

losses from certified acts of terrorism 

with commercial property and casualty 

insurers. The Extension Act extends the 

Program through December 31, 2007, 

and makes other changes which are 

implemented by this rule. In particular, 

the rule addresses changes to the types 

of commercial property and casualty 

insurance covered by the Act, the 

requirements to satisfy the Act’s 

mandatory availability (‘‘make 

available’’) provision and the operation 

of the new ‘‘Program Trigger’’ provision 

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

Published elsewhere in this issue of the 

Federal Register is a notice of proposed 

rulemaking that proposes to adopt as a 

final rule the provisions of this interim 

final rule. 

DATES: This interim final rule is 

effective May 11, 2006. Comments may 

be submitted on or before June 12, 2006. 

ADDRESSES: Submit comments by e-mail 

to triacomments@do.treas.gov or by 

mail (if hard copy, preferably an original 

and two copies) to: Terrorism Risk 

Insurance Program, Public Comment 

Record, Suite 2100, Department of the 

Treasury, 1425 New York Avenue, NW., 

Washington, DC 20220. Because paper 

mail in the Washington, DC area may be 

subject to delay, it is recommended that 

comments be submitted electronically. 

All comments should be captioned with 

‘‘TRIA Extension Act Proposed Rule 

Comments’’. Please include your name, 

affiliation, address, e-mail address, and 

telephone number in your comment. 

Comments may also be submitted 

through the Federal eRulemaking Portal: 

http://www.regulations.gov. Comments 

will be available for public inspection 

by appointment only at the TRIP Office. 

To make appointments, call (202) 622– 

6770 (not a toll-free number). 

FOR FURTHER INFORMATION CONTACT: 

Howard Leikin, Deputy Director, or 

David Brummond, Legal Counsel, 

Terrorism Risk Insurance Program (202) 

622–6770 (not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Terrorism Risk Insurance Act of 2002 

On November 26, 2002, the President 

signed into law the Terrorism Risk 

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

116 Stat. 2322). The Act was effective 

immediately. The Act’s purposes are to 

address market disruptions, ensure the 

continued widespread availability and 

affordability of commercial property 

and casualty insurance for terrorism 

risk, and to allow for a transition period 

for the private markets to stabilize and 

build capacity while preserving State 

insurance regulation and consumer 

protections. 

Title I of the Act establishes a 

temporary federal program of shared 

public and private compensation for 

insured commercial property and 

casualty losses resulting from an act of 

terrorism which, as defined by the Act, 

is certified by the Secretary of the 

Treasury, in concurrence with the 

Secretary of State and the Attorney 

General. The Act authorizes Treasury to 

administer and implement the 

Terrorism Risk Insurance Program (the 

Program), including the issuance of 

regulations and procedures. 

Each entity that meets the Act’s 

definition of insurer (well over 2000 

firms) must participate in the Program. 

The amount of federal payment for an 

insured loss resulting from an act of 

terrorism is determined by insurance 

company deductibles and excess loss 

sharing with the Federal Government as 

specified in the Act and Treasury’s 

implementing regulations. An insurer’s 

deductible increases each year of the 

Program, thereby reducing the Federal 

Government’s share of compensation for 

insured losses each year until the 

Program expires. An insurer’s 

deductible is calculated based on the 

value of direct earned premiums 

collected over certain prescribed 

calendar periods. Once an insurer has 

met its individual deductible, the 

federal payments cover a percentage of 

the insured losses above the deductible, 

subject to an industry aggregate limit of 

$100 billion. 

The Act gives Treasury authority to 

recoup federal payments made under 

the Program through policyholder 

surcharges, up to a maximum annual 

limit. The Act reduces the Federal share 

of compensation for insured losses that 

have been covered under any other 

federal program. The Act also contains 

provisions designed to manage litigation 

arising from or relating to a certified act 

of terrorism. Section 107 of the Act 

creates an exclusive federal cause of 

action, provides for claims 

consolidation in Federal court, and 

contains a prohibition on federal 

payments for punitive damages under 

the Program. The Act provides the 

United States with the right of 

subrogation with respect to any 

payment or claim paid by the United 

States under the Program. 

B. Terrorism Risk Insurance Extension 

Act of 2005 

The Program was originally set to 

expire on December 31, 2005. On 

December 22, 2005, the President signed 

into law the Terrorism Risk Insurance 

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

119 Stat. 2660), which extends the 

Program through December 31, 2007. In 

doing so, the Extension Act adds 

Program Year 4 (January 1–December 

31, 2006) and Program Year 5 (January 

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

addition, the Extension Act made other 

significant changes to TRIA that 

include: 

• A revised definition of insurer 

deductible that adds new Program Years 

4 and 5 to the definition. The insurer 

deductible is set as the value of an 

insurer’s direct earned premium for 

commercial property and casualty 

insurance (as now defined in the Act) 

over the immediately preceding 

calendar year multiplied by 17.5 percent 

for Program Year 4 and 20 percent for 

Program Year 5. 

• A revised definition of property and 

casualty insurance that now excludes 

commercial automobile insurance; 

burglary and theft insurance; surety 

insurance; professional liability 

insurance; and farmowners multiple 

peril insurance. Though the definition 

excludes professional liability 

insurance, it explicitly retains directors 

and officers liability insurance. 

• Creation of a new Program Trigger 

for any certified act of terrorism 

occurring after March 31, 2006, that 

prohibits payment of Federal 

compensation by Treasury unless the 

aggregate industry insured losses 

resulting from that act of terrorism 

exceed $50 million for Program Year 4 

and $100 million for Program Year 5. 

• A change to the Federal share of 

compensation for insured losses. 

Subject to the Program Trigger, the 

Federal share is 90 percent of that 

portion of the amount of insured losses 

that exceeds the applicable insurer 

deductible in Program Year 4 and 


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1The Matrix can be found on the NAIC Web site 

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

decreases to 85 percent of such amount 

in Program Year 5. 

• Revisions to the recoupment 

provisions. For purposes of recouping 

the Federal share of compensation 

under the Act, the insurance 

marketplace aggregate retention amount 

for the two additional years of the 

Program is increased from the level in 

Program Year 3. For Program Year 4 the 

insurance marketplace aggregate 

retention amount is established as the 

lesser of $25 billion and the aggregate 

amount, for all insurers, of insured 

losses during Program Year 4. The 

insurance marketplace aggregate 

retention amount for Program Year 5 is 

the lesser of $27.5 billion and the 

aggregate amount, for all insurers, of 

insured losses during Program Year 5. 

• A statutory codification of 

Treasury’s litigation management 

regulatory requirements in section 50.82 

of title 31 of the Code of Federal 

Regulations (as in effect on July 28, 

2004), which requires advance approval 

by Treasury of proposed settlements of 

certain causes of action involving 

insured losses under the Program. 

C. Previously Issued Interim Guidance 

To assist insurers, policyholders, and 

other interested parties in complying 

with immediately applicable 

requirements of the Extension Act, on 

December 29, 2005 Treasury issued and 

posted interim guidance on its Web site. 

A Notice containing that interim 

guidance (Interim Guidance IV) was 

published in the Federal Register on 

January 5, 2006 (71 FR 648). The notice 

stated that the guidance could be relied 

upon by insurers in complying with 

new statutory requirements prior to the 

issuance of regulations, but was not the 

exclusive means of compliance. The 

interim guidance is superseded by this 

interim final rule. 

II. Analysis of the Interim Final Rule 

This interim final rule incorporates 

certain changes to 31 CFR part 50 

required by the amendments to TRIA in 

the Extension Act, which extended the 

Terrorism Risk Insurance Program by 

two years, to December 31, 2007. The 

changes in the rules include new 

insurer deductible amounts for each of 

those Program Years, the extension of 

mandatory availability requirements, 

the deletion of certain types of 

insurance from the definition of 

property and casualty insurance, and a 

continued safe harbor for the use of 

model disclosure forms. The interim 

final rule also incorporates and clarifies 

statutory changes to the determination 

of the Federal share of compensation, 

taking into account the new Program 

Trigger. The interim final rule generally 

incorporates interim guidance 

previously issued by Treasury, except as 

described in this preamble. Treasury has 

consulted with the National Association 

of Insurance Commissioners in 

developing this rule. 

Although Treasury is issuing these 

requirements as an interim final rule, 

we are soliciting comments on all 

aspects of the interim final rule from all 

interested parties. Published elsewhere 

in a separate part of this issue of the 

Federal Register is a notice of proposed 

rulemaking proposing to adopt the 

provisions of this interim final rule as 

a final rule. 

A. Definitions (§ 50.5) 

The interim final rule incorporates 

revised definitions for insurer 

deductible, Program Years, and property 

and casualty insurance. The rule also 

adds definitions for professional 

liability insurance and Program Trigger 

event. 

The revisions to the definitions for 

insurer deductible and Program Years 

are straightforward changes based on 

the Extension Act. They implement that 

Act’s addition of Program Years 4 

(calendar year 2006) and 5 (calendar 

year 2007) and the percentages to be 

applied to an insurer’s direct earned 

premium for the immediately preceding 

calendar year in computing insurer 

deductibles for Program Year 4 (17.5 

percent) and Program Year 5 (20 

percent). 

Section 102(12) of TRIA was also 

amended to exclude additional types of 

insurance from the definition of 

property and casualty insurance under 

the Program. The Act now excludes 

from the definition commercial 

automobile insurance, burglary and 

theft insurance, surety insurance, 

professional liability insurance, and 

farmowners multiple peril insurance. To 

the extent the newly excluded types of 

insurance represent specific lines of 

business on the NAIC Annual 

Statement, Treasury is continuing to 

utilize NAIC line of business definitions 

in implementing the Act. The newly 

excluded types of insurance which may 

correspond to lines of business on the 

NAIC Annual Statement are: Line 3—

Farmowners Multiple Peril; Line 19.3—

Commercial Auto No-Fault (personal 

injury protection); Line 19.4—Other 

Commercial Auto Liability; Line 21.2—

Commercial Auto Physical Damage; 

Line 26—Burglary and Theft; and Line 

24—Surety. In addition, the interim 

final rule makes clear that these types of 

insurance are excluded from the 

definition of property casualty 

insurance, regardless of how their 

premiums may be reported. 

The only type of insurance that is 

newly excluded from the definition of 

property and casualty insurance in the 

Act, but is not a specific line of business 

on the NAIC Annual Statement, is 

contained in new subsection 102(12)(xi) 

of TRIA—professional liability 

insurance. In this interim final rule, 

Treasury is providing the following 

definition of ‘‘professional liability 

insurance’’: 

Professional liability insurance means 

insurance coverage for liability arising out of 

the performance of professional or business 

duties related to a specific occupation, with 

coverage being tailored to the needs of the 

specific occupation. Examples include 

abstracters, accountants, insurance adjusters, 

architects, engineers, insurance agents and 

brokers, lawyers, real estate agents, 

stockbrokers and veterinarians. For purposes 

of this definition, professional liability 

insurance does not include directors and 

officers liability insurance. 

Insurers are to use this definition in 

identifying policies excluded from the 

Program, as well as for determining 

which policies have premiums that 

should be subtracted from Line 17—

Other Liability on the NAIC Annual 

Statement when computing direct 

earned premium for Program purposes. 

This definition is derived from the 

definition of ‘‘Professional Errors and 

Omissions Liability’’ found in the 

Uniform Property & Casualty Coding 

Matrix currently utilized by the System 

for Electronic Rate and Form Filing 

(SERFF) sponsored by the National 

Association of Insurance Commissioners 

(NAIC).1 However, this definition is not 

meant to limit insurers to the filing code 

(17.0019) specified under SERFF for 

‘‘Professional Errors and Omissions 

Liability’’. Certainly, policies and 

coverages that employ the SERFF filing 

code will meet the interim final rule 

definition of professional liability 

insurance. Treasury acknowledges that 

many insurers and insurance support 

organizations do not utilize the SERFF 

mechanism for all their form filings. 

Thus, the definition in the interim final 

rule is intended to have a broader 

application than the SERFF filing 

process and should not be viewed as 

limited to one particular SERFF filing 

code. 

Directors and officers liability 

insurance, which is sometimes 

considered a type of professional 

liability insurance, is not included in 

the definition of professional liability 

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


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27566 Federal Register / Vol. 71, No. 91 / Thursday, May 11, 2006 / Rules and Regulations 

2Section 103(e)(1)(B) states: ‘‘In the case of a 

certified act of terrorism occurring after March 31, 

2006, no compensation shall be paid by the 

Secretary under subsection (a), unless the aggregate 

industry insured losses resulting from such certified 

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

respect to such insured losses occurring in Program 

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

insured losses occurring in Program Year 5.’’

now explicitly includes directors and 

officers liability insurance in the 

definition of property and casualty 

insurance. This change does not 

substantively modify the previous 

definition of property and casualty 

insurance under the Act, but is a 

statutory clarification that directors and 

officers liability insurance is distinct 

from professional liability insurance. 

Premium for directors and officers 

liability insurance may be already 

included in Line 17—Other Liability on 

the NAIC Annual Statement, one of the 

commercial lines of business listed in 

Treasury’s current regulations defining 

property and casualty insurance (31 

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

Treasury recommends that insurers 

consult the definition of ‘‘Directors & 

Officers Liability’’ found in the Uniform 

Property & Casualty Coding Matrix now 

being utilized by SERFF if further 

guidance is needed on what constitutes 

‘‘Directors & Officers Liability’’

insurance. 

The Extension Act revision to TRIA 

section 102(12) specifically excludes 

‘‘farm owners multiple peril insurance’’, 

a particular type of insurance which is 

also a specific line of business on the 

NAIC Annual Statement, from the 

definition of property and casualty 

insurance. Insurers have asked whether 

monoline farm insurance coverages are 

similarly excluded. There is no clear 

guidance in the legislative history of the 

Extension Act on this issue. Based on 

the plain meaning of the statute, 

Treasury believes it is appropriate to 

interpret this exclusion as applicable 

only to multiple peril coverages 

insuring farm risks. Single peril or 

monoline coverages insuring farm risks 

would continue to meet the Act’s 

definition of property and casualty 

insurance. Treasury notes that the 

premiums for such policies are usually 

reported, or otherwise allocated, to one 

of the commercial lines of insurance on 

the NAIC Annual Statement (or an 

equivalent reporting system) listed in 

the definition of property and casualty 

insurance in Treasury’s regulations. 

Treasury is aware of some concerns 

with this result on the part of some 

smaller insurance entities, such as farm 

and county mutuals. With this in mind, 

Treasury requests that any comments on 

this issue focus on the practical 

implications of this issue and articulate 

a basis for any assertion that monoline 

coverages are excluded from the 

Program as part of the farmowners 

multiple peril exclusion. 

The Extension Act adds a new section 

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

Trigger.’’ This new provision directs the 

Secretary not to compensate insurers 

under the Program unless the aggregate 

industry insured losses from a certified 

act of terrorism exceed certain insured 

loss or ‘‘trigger’’ amounts.2 To 

implement this provision, the interim 

final rule adds a new definition for 

‘‘Program Trigger event’’. Such an event 

is a certified act of terrorism that occurs 

after March 31, 2006, for which the 

aggregate industry insured losses 

resulting from such act exceed $50 

million if occurring in 2006 or $100 

million if occurring in 2007.’’

The new Program Trigger provision 

applies only to acts of terrorism that 

occur after March 31, 2006. Note that 

the application of the Program Trigger is 

based on the date of occurrence and not 

the date of certification of an act of 

terrorism. For example, the Program 

Trigger provision shall not apply to an 

act that occurs prior to March 31, 2006, 

but which is certified after March 31. 

After March 31, unless an act of 

terrorism is a Program Trigger event, 

insured losses from that act of terrorism 

will not be considered in any 

determination of or calculation leading 

to any Federal share of compensation 

under the Act. For a further discussion 

of the Program Trigger, see ‘‘E. Federal 

Share of Compensation’’ below. 

B. Interim Guidance Safe Harbors 

(§ 50.7) 

Section 50.7 of the current regulations 

provides that ‘‘[a]n insurer will be 

deemed to be in compliance with the 

requirements of the Act to the extent the 

insurer reasonably relied on Interim 

Guidance prior to the effective date of 

applicable regulations.’’ The interim 

final rule adds ‘‘Interim Guidance IV 

issued by Treasury on December 29, 

2005, and published at 71 FR 648 

(January 5, 2006)’’ to the list of 

applicable Interim Guidance. 

C. Disclosure (§§ 50.12 and 50.17) 

The interim final rule incorporates 

guidance on compliance with disclosure 

requirements and revised safe harbor 

language with regard to the use of NAIC 

model disclosure forms. 

The Extension Act retains, as a 

condition for federal payments under 

the Act, the existing requirements 

contained in section 103(b) to provide 

clear and conspicuous disclosure to 

policyholders of the premium charged 

for insured losses covered by the 

Program and of the Federal share of 

compensation for insured losses under 

the Program. These disclosures must be 

made ‘‘at the time of offer, purchase, 

and renewal of the policy’’. Treasury is 

aware of certain operational difficulties 

some insurers faced with regard to 

policies processed in the latter part of 

Program Year 3 (2005) for issuance or 

renewal effective in 2006. In some cases 

policies were issued or renewed in 2006 

in a form that already included coverage 

for terrorism risks regardless whether 

TRIA was extended. Because TRIA 

would have ended on December 31, 

2005, disclosures were not provided 

with these policies. 

The Extension Act made no change to 

the requirement that disclosures are 

required as a condition for payment of 

the Federal share of compensation for 

insured losses. However, given the late 

date of enactment of the Extension Act, 

the interim final rule provides in section 

50.12(e) that ‘‘[i]f an insurer made 

available coverage for insured losses in 

a new policy or policy renewal in 

Program Year 3 for coverage becoming 

effective in Program Year 4, but did not 

provide a disclosure at the time of offer, 

purchase or renewal, then the insurer 

must be able to demonstrate to 

Treasury’s satisfaction that it has 

provided a disclosure as soon as 

possible following January 1, 2006.’’

Treasury anticipates that these insurers 

will already have provided the 

disclosures by the time this rule is 

published. 

For an insurer to demonstrate to 

Treasury’s satisfaction that it has 

provided disclosures as soon as possible 

following January 1, 2006, Treasury will 

expect an insurer to have provided 

disclosures by 30 days after publication 

of this interim final rule in the Federal 

Register, barring unforeseen or unusual 

circumstances. If not completed by that 

time, an insurer will be expected, when 

submitting a claim for the Federal share 

of compensation, to clearly demonstrate 

why such disclosures could not be made 

by that date and why the insurer should 

be deemed to be in compliance with the 

Act’s disclosure requirement. 

Pursuant to 31 CFR 50.17, insurers 

that have used NAIC Model Disclosure 

Forms that were in existence on April 

18, 2003, were deemed to satisfy the 

disclosure requirements of section 

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

Extension Act made no change to the 

TRIA disclosure requirements, revisions 

were made to the Act that required 

rewording of the NAIC Model 

Disclosure Forms. The NAIC has since 

issued revised Model Disclosure Forms, 

dated January 26, 2006, which if used 

by insurers, will be deemed to satisfy 


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3See 68 FR 59725 (October 17, 2003). 

disclosure requirements of the Act and 

Treasury regulations. The interim final 

rule continues the safe harbor approach 

for use of the most current NAIC Model 

Disclosure forms deemed by Treasury to 

meet Program requirements. Insurers 

may also continue to use other forms to 

comply with the disclosure 

requirements. 

D. Make Available (§§ 50.20 and 50.21) 

For Program Year 4 (Calendar 2006) 

and Program Year 5 (Calendar 2007) 

insurers are required to continue to 

‘‘make available’’ coverage for insured 

losses as required by TRIA and Treasury 

regulations. Amendments to the ‘‘make 

available’’ requirement in section 103(c) 

of the Act are simply conforming 

amendments that continue the 

requirements through Program Years 4 

and 5. Thus, insurers issuing or 

renewing commercial property and 

casualty insurance policies in Program 

Years 4 and 5 must continue to offer 

coverage for insured losses resulting 

from an act of terrorism, as required by 

section 103(c) of the Act and 31 CFR 

50.20 to 50.24 if they wish to have their 

insured loss claims eligible for the 

Federal share of compensation in the 

extended Program Years. 

In its Interim Guidance IV issued on 

December 29, 2005, Treasury addressed 

‘‘make available’’ requirements with 

regard to the transition from Program 

Year 3, originally the last year of the 

Program, to the extended Program Years 

4 and 5. In that issuance, Treasury noted 

that the Extension Act made no changes 

to the ‘‘make available’’ requirement for 

insurers. Treasury provided guidance on 

how insurers could comply with 

Program requirements given operational 

difficulties arising from the Extension 

Act passage late in the year. 

Treasury clarified that no additional 

‘‘make available’’ offer is required if 

terrorism coverage for the duration of 

the policy term was offered for policies 

issued or renewed in 2005. No 

additional action is required because the 

‘‘make available’’ provision of section 

103(c) of the Act and 31 CFR 50.20 to 

50.24 has been satisfied for coverage 

periods extending into Program Year 4. 

For example, policies with 

‘‘conditional’’ terrorism coverage 

exclusions that do not arise or become 

effective on or after January 1 are 

policies in which the terrorism coverage 

portion continues to cover insured 

losses within the meaning of the Act. In 

such situations, no additional action is 

required for insurers to remain in 

compliance with the Act’s ‘‘make 

available’’ provision until the time of 

policy renewal for insurers. 

Treasury also provided guidance as to 

how an insurer could comply with 

‘‘make available’’ requirements under 

three scenarios where: 

(1) A policy did not provide terrorism 

coverage after December 31, 2005, but the 

policyholder had rejected an offer of 

terrorism coverage for the portion of the 

policy term up to December 31, 

(2) A policy’s terrorism coverage expired 

on December 31, 2005, but the remainder of 

the policy continued in force in 2006, and 

(3) A policy renewal or application was 

processed in 2005 for coverage becoming 

effective in 2006 and the insurer did not 

‘‘make available’’ terrorism coverage for 

Program Year 4 as contemplated by the 

Extension Act. 

In the case of scenario (1) above, 

Treasury advised that an insurer was 

not required to make another offer of 

coverage for the remainder of the policy 

term. In the other two scenarios, 

Treasury advised insurers that TRIA as 

extended requires them to make offers 

of terrorism coverage for the policy 

terms continuing or beginning in 

Program Year 4 (2006). However, 

Treasury recognized the late date of 

passage of the Extension Act and the 

administrative difficulties this posed for 

some insurers who otherwise had 

complied with the ‘‘make available’’

provision in 2005. Treasury said it 

expected all insurers to make a good 

faith effort to provide policyholders 

whose terrorism coverage expired as of 

January 1 with a new offer of terrorism 

coverage along with the appropriate 

disclosures by January 1, 2006, or as 

quickly as possible following that date. 

In this regard, Treasury stated it 

considered January 31, 2006, to be the 

latest reasonable date for offers of 

coverage to midterm policyholders, 

barring unforeseen or unusual 

circumstances. If the January 31 date 

was not met by an insurer, Treasury 

indicated it would expect the insurer to 

explain any delay as well as its good 

faith efforts when submitting a claim for 

the Federal share of compensation 

under the Program. In its discretion, 

Treasury would determine whether 

good faith efforts to comply had been 

made. 

The interim final rule generally 

incorporates the foregoing guidance into 

the TRIA ‘‘make available’’ provisions. 

Section 50.21(b) has been added to 

address the special Program Year 4 

requirements for scenarios (1) and (2) 

above. For scenarios (2) and (3), where 

an insurer must make an offer of 

coverage, section 50.21(d) (formerly 

50.21(c)) has been amended to provide 

that the insurer must be able to 

demonstrate to Treasury’s satisfaction 

that it has provided an offer of coverage 

for insured losses by January 1, 2006, or 

as soon as possible following that date. 

In demonstrating to Treasury’s 

satisfaction that it has provided an offer 

of coverage for insured losses as soon as 

possible after January 1, 2006, Treasury 

considers January 31, 2006, to be the 

latest reasonable date for offers of 

coverage, barring unforeseen or unusual 

circumstances. If not provided by 

January 31, 2006, Treasury would 

expect an insurer to demonstrate why 

the offer could not be made by that date 

when submitting a claim for Federal 

compensation under the Program. 

The interim final rule incorporates 

technical amendments to section 50.20 

that extend the ‘‘make available’’

requirements into Program Years 4 and 

5. Section 50.20(c) also provides that 

‘‘property and casualty insurance 

coverage for insured losses does not 

have to be made available beyond 

December 31, 2007 (the last day of 

Program Year 5), even if the policy 

period of insurance coverage for losses 

from events other than acts of terrorism 

extends beyond that date’’. 

As a result of the Extension Act’s 

deletion of certain types of insurance 

from the definition of property and 

casualty insurance, some uncertainty 

has arisen regarding the ‘‘make 

available’’ and disclosure requirements 

for excess or umbrella liability policies. 

As a general rule, excess or umbrella 

liability policies are property and 

casualty insurance within the meaning 

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

defines the term ‘‘property and casualty 

insurance’’ as meaning commercial lines 

of property and casualty insurance 

‘‘including excess,’’ unless otherwise 

excluded from the definition under 

Section 102(12)(B). Premiums for 

commercial excess and umbrella 

insurance policies are normally reported 

on Line 17—Other Liability in the NAIC 

Annual Statement.3 Nonetheless, excess 

or umbrella insurance is commercial 

property and casualty insurance 

included in the Program only to the 

extent it provides coverage above 

primary or underlying coverage that is 

a type of insurance included in the 

Program. Thus, if an excess or umbrella 

policy provides an upper layer of 

coverage for a type of insurance 

specifically excluded from the Program 

(e.g., commercial auto, professional 

liability, medical malpractice), the 

excess or umbrella liability policy is 

also excluded. 

Additional uncertainty has arisen 

with respect to excess or umbrella 

liability policies to the extent that the 

underlying policies they cover may 


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4See 31 CFR 50.5(d)(1)(iii) and (iv); 68 FR 41256–

41258 (July 11, 2003). 

5See 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.’’

include types of insurance that are both 

included and excluded from the Act’s 

definition of property and casualty 

insurance. For example, an excess or 

umbrella liability policy might cover 

both an underlying professional liability 

policy (generally excluded from the 

Program) as well as underlying general 

liability policy (generally included in 

the Program). In such cases, the 

treatment of these hybrid excess and 

umbrella policies follows the same 

analysis as the treatment of hybrid 

policies generally under existing 

Treasury regulations.4

Thus, where the included commercial 

property and casualty coverage segment 

of an excess or umbrella liability policy 

is merely incidental to the remaining 

excluded coverage under the policy, an 

insurer may treat the entire policy as not 

providing property and casualty 

insurance within the meaning of TRIA 

and Treasury’s regulations.5 In such 

circumstances, the TRIA ‘‘make 

available’’ and disclosure requirements 

will not apply and no losses from the 

commercial coverage segment of the 

policy will be paid by Treasury. 

E. Federal Share of Compensation 

(§ 50.50) 

The interim final rule adds several 

provisions to section 50.50 to reflect the 

addition of the new Program Trigger 

provision to the Act. Under section 

103(a) of TRIA, the Secretary is required 

to pay the Federal share of 

compensation for insured losses in 

accordance with section 103(e) of the 

Act. The Extension Act amended 

subsection (e) to provide, in part, that 

no compensation shall be paid by the 

Secretary under subsection (a) unless 

the aggregate industry insured losses 

from a certified act of terrorism 

occurring after March 31, 2006, exceed 

certain amounts. This provision was 

intended to ensure that there would be 

no Federal compensation unless the 

aggregate industry losses from an act of 

terrorism exceed these amounts. 

The interim final rule incorporates a 

technical amendment to renumbered 

section 50.50(a) (formerly 50.50(d)) to 

provide that the Federal share of 

compensation in Program Year 5 shall 

be ‘‘85 percent of that portion of the 

insurer’s aggregate insured losses that 

exceed its insurer deductible during 

Program Year 5,’’ (subject to any 

adjustments in section 50.51 and the 

cap of $100 billion as provided in 

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

provision has also been added to 

renumbered section 50.50(d) (formerly 

50.50(a)) that reiterates, as a condition 

for Federal compensation for insured 

losses, a basic insurance principle that, 

‘‘[t]he insurer offered the coverage for 

insured losses and the offer was 

accepted by the insured prior to the 

occurrence of the loss’’. 

New section 50.50(b) incorporates the 

Program Trigger limitations on the 

amount of Federal compensation 

payable under the Act. To implement 

these limitations, section 50.50(g) states 

that Treasury will determine the amount 

of aggregate industry insured losses, and 

that if the aggregate industry insured 

losses exceed the applicable Program 

Trigger amounts, Treasury will publish 

notice in the Federal Register that the 

act of terrorism is a Program Trigger 

event. As noted in the previously issued 

Interim Guidance, Treasury also expects 

to provide notification through press 

releases and postings on the TRIP Web 

site. 

Consistent with Treasury’s Interim 

Guidance, section 50.50(c) clarifies that 

in the provisions dealing with claims 

procedures, Subpart F, insured losses or 

aggregate insured losses for acts of 

terrorism after March 31, 2006, will be 

limited to those insured losses resulting 

from Program Trigger events. This 

limitation on insured losses controls 

any determinations of, or calculations 

leading to, a Federal share of 

compensation under the Act including 

any adjustments of the Federal share, 

and applies to submissions of an insurer 

in conjunction with Initial Notices of 

Loss and Certifications of Loss and 

payments of the Federal share. 

As Treasury indicated in its Interim 

Guidance, the Program Trigger 

provision also has a direct bearing on 

which insured losses count towards 

satisfaction of the insurer deductible. In 

Program Year 4, for example, for 

certified acts of terrorism occurring after 

March 31, only an insurer’s insured 

losses resulting from Program Trigger 

events will count towards satisfaction of 

the insurer deductible for that year. 

Similarly, in Program Year 5, only an 

insurer’s insured losses resulting from 

Program Trigger events in that year will 

count towards satisfaction of the insurer 

deductible. 

F. Determination of Affiliations (§ 50.55) 

Section 50.55 provides that for the 

purposes of claims procedures and the 

determination of the Federal share of 

compensation ‘‘an insurer’s affiliates for 

any Program Year shall be determined 

by the circumstances existing on the 

date of occurrence of the act of terrorism 

that is the first act of terrorism in a 

Program Year to be certified by the 

Secretary for that Program Year.’’ The 

purpose of this regulation, when 

promulgated in 2005, was to clarify the 

point in time when insurer affiliations 

would be determined in order to 

facilitate the calculation of insurer 

deductibles and the payments of the 

Federal share of compensation for 

Program Years in which affiliations 

could change over time. Since this has 

meaning only if there is a potential 

Federal share of compensation, the 

interim final rule incorporates an 

amendment clarifying that if the first 

certified act of terrorism occurs after 

March 31, 2006, it must also be a 

Program Trigger event to be used for 

determining affiliations under the rule. 

G. Federal Cause of Action; Approval of 

Settlements 

The Extension Act added section 

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

procedures and requirements 

established by the Secretary under 31 

CFR 50.82, as in effect on the date of 

issuance of that section in final form 

[July 28, 2004], shall apply to any 

Federal cause of action described in 

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

been added to new section 50.85. 

Section 50.82 of the regulations 

requires insurers to submit to Treasury 

for advance approval certain proposed 

settlements involving an insured loss, 

any part of the payment of which the 

insurer intends to submit as part of its 

claim for federal payment under the 

Program. Thus, Treasury would not 

expect insurers to submit any proposed 

settlement if the insured losses would 

not be eligible for payment, as would be 

the case if the losses resulted from a 

post-March 31, 2006 certified act that 

was not a Program Trigger event. 

However, if there is uncertainty whether 

or not a certified act will become a 

Program Trigger event, an insurer may 

wish to err on the side of caution and 

submit a proposed settlement for prior 

approval in order to preserve any 

subsequent eligibility for Federal 

compensation for insured losses under 

the Program. Otherwise the insured 

losses will be ineligible for later 

payment if the Program Trigger is 

reached. 

III. Procedural Requirements 

The Extension Act extended the TRIA 

Program, which provides for loss 

sharing payments by the Federal 

Government for insured losses resulting 

from certified acts of terrorism. The 

Act’s extension became effective 


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immediately upon the date of enactment 

(December 22, 2005). Changes in the 

Extension Act applied immediately to 

those entities that come within the Act’s 

definition of ‘‘insurer’’. 

The Extension Act revised the 

definition of property and casualty 

insurance to exclude certain types of 

insurance previously covered under the 

Program. The Extension Act also added 

a Program Trigger provision limiting the 

Federal compensation for certified acts 

of terrorism after March 31, 2006, unless 

the aggregate industry losses exceed 

certain amounts. These provisions, 

which go to the scope of the Program 

and the conditions for payments by the 

Federal Government, resulted in the 

need to provide immediate guidance to 

insurers, policyholders, and regulators. 

In addition, extension of the disclosure 

requirements and the ‘‘make available’’

requirements to policies currently in 

effect in late December 2005 raised 

transition issues that need to be 

addressed immediately. Given the 

significance of these changes made by 

the Extension Act, there is a need to 

issue immediately effective regulations 

that incorporate and clarify these 

requirements. 

Accordingly, pursuant to 5 U.S.C. 

553(b)(B), Treasury has determined that 

it would be contrary to the public 

interest to delay issuance of this interim 

final rule. For the same reasons, 

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

has determined that there is good cause 

for this interim final rule to become 

effective immediately upon publication. 

While this rule is effective immediately 

upon publication, Treasury is seeking 

public comment and will consider all 

comments in developing a final rule. 

This interim final rule is a significant 

regulatory action and has been reviewed 

by the Office of Management and 

Budget under the terms of Executive 

Order 12866. For applicability of the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6), refer to the notice of 

proposed rulemaking published 

elsewhere in this issue of the Federal 

Register. However, the Act and the 

Program are intended to provide 

benefits to the U.S. economy and all 

businesses, including small businesses, 

by providing a federal reinsurance 

backstop to commercial property and 

casualty policyholders and spreading 

the risk of insured loss resulting from an 

act of terrorism. 

List of Subjects in 31 CFR Part 50 

Terrorism risk insurance. 

Authority and Issuance 

■ For the reasons set forth above, 31 

CFR part 50 is amended as follows: 

PART 50—TERRORISM RISK 

INSURANCE PROGRAM 

■ 1. The authority citation for 31 CFR 

part 50 is revised to read as follows: 

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

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

U.S.C. 6701 note), as amended by Pub. L. 

109–144, 119 Stat. 2660 (15 U.S.C. 6701 

note). 

Subpart A—General Provisions 

■ 2. Section 50.1(a) of subpart A is 

revised to read as follows: 

§ 50.1 Authority, purpose and scope. 

(a) Authority. This Part is issued 

pursuant to authority in Title I of the 

Terrorism Risk Insurance Act of 2002, 

Pub. L. 107–297, 116 Stat. 2322, as 

amended by the Terrorism Risk 

Insurance Extension Act of 2005, Pub. L. 

109–144, 119 Stat. 2660. 

* * * * * 

■ 3. Section 50.5 is amended as follows: 

■ a. Paragraph (g) is revised. 

■ b. Paragraphs (j) through (p) are 

redesignated as paragraphs (k), (m), (n), 

(o), (p), (q), and (r), respectively. 

■ c. New paragraphs (j) and (l) are 

added. 

■ d. Newly designated paragraphs (m) 

and (n) are revised. 

The revisions and additions read as 

follows: 

§ 50.5 Definitions. 

* * * * * 

(g) Insurer deductible means: 

(1) For an insurer that has had a full 

year of operations during the calendar 

year immediately preceding the 

applicable Program Year: 

(i) For the Transition Period 

(November 26, 2002 through December 

31, 2002), the value of an insurer’s 

direct earned premiums over calendar 

2001, multiplied by 1 percent; 

(ii) For Program Year 1 (January 1, 

2003 through December 31, 2003), the 

value of an insurer’s direct earned 

premiums over calendar year 2002, 

multiplied by 7 percent; 

(iii) For Program Year 2 (January 1, 

2004 through December 31, 2004), the 

value of an insurer’s direct earned 

premiums over calendar year 2003, 

multiplied by 10 percent; 

(iv) For Program Year 3 (January 1, 

2005 through December 31, 2005), the 

value of an insurer’s direct earned 

premiums over calendar year 2004, 

multiplied by 15 percent; 

(v) For Program Year 4 (January 1, 

2006 through December 31, 2006), the 

value of an insurer’s direct earned 

premiums over calendar year 2005, 

multiplied by 17.5 percent; 

(vi) For Program Year 5 (January 1, 

2007 through December 31, 2007), the 

value of an insurer’s direct earned 

premiums over calendar year 2006, 

multiplied by 20 percent; and 

(2) For an insurer that has not had a 

full year of operations during the 

calendar year immediately preceding 

the applicable Program Year, the insurer 

deductible will be based on data for 

direct earned premiums for the 

applicable Program Year multiplied by 

the specified percentage for the insurer 

deductible for the applicable Program 

Year. If the insurer does not have a full 

year of operations during the applicable 

Program Year, the direct earned 

premiums for the applicable Program 

Year will be annualized to determine 

the insurer deductible. 

* * * * * 

(j) Professional liability insurance 

means insurance coverage for liability 

arising out of the performance of 

professional or business duties related 

to a specific occupation, with coverage 

being tailored to the needs of the 

specific occupation. Examples include 

abstracters, accountants, insurance 

adjusters, architects, engineers, 

insurance agents and brokers, lawyers, 

real estate agents, stockbrokers and 

veterinarians. For purposes of this 

definition, professional liability 

insurance does not include directors 

and officers liability insurance. 

* * * * * 

(l) Program Trigger event means a 

certified act of terrorism that occurs 

after March 31, 2006, for which the 

aggregate industry insured losses 

resulting from such act exceed $50 

million with respect to such insured 

losses occurring in 2006 or $100 million 

with respect to such insured losses 

occurring in 2007. 

(m) Program Years means the 

Transition Period (November 26, 2002 

through December 31, 2002), Program 

Year 1 (January 1, 2003 through 

December 31, 2003), Program Year 2 

(January 1, 2004 through December 31, 

2004), Program Year 3 (January 1, 2005 

through December 31, 2005), Program 

Year 4 (January 1, 2006 through 

December 31, 2006), and Program Year 

5 (January 1, 2007 through December 31, 

2007). 

(n) Property and casualty insurance 

means commercial lines of property and 

casualty insurance, including excess 

insurance, workers’ compensation 

insurance, and directors and officers 

liability insurance, and: 

(1) Means commercial lines within 

only the following lines of insurance 

from the NAIC’s Exhibit of Premiums 

and Losses (commonly known as 


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27570 Federal Register / Vol. 71, No. 91 / Thursday, May 11, 2006 / Rules and Regulations 

Statutory Page 14): Line 1—Fire; Line 

2.1—Allied Lines; Line 5.1—

Commercial Multiple Peril (non-liability 

portion); Line 5.2—Commercial 

Multiple Peril (liability portion); Line 

8—Ocean Marine; Line 9—Inland 

Marine; Line 16—Workers’

Compensation; Line 17—Other Liability; 

Line 18—Products Liability; Line 22—

Aircraft (all perils); and Line 27—Boiler 

and Machinery; and 

(2) Does not include: 

(i) Federal crop insurance issued or 

reinsured under the Federal Crop 

Insurance Act (7 U.S.C. 1501 et seq.), or 

any other type of crop or livestock 

insurance that is privately issued or 

reinsured (including crop insurance 

reported under either Line 2.1—Allied 

Lines or Line 2.2—Multiple Peril (Crop) 

of the NAIC’s Exhibit of Premiums and 

Losses (commonly known as Statutory 

Page 14); 

(ii) Private mortgage insurance (as 

defined in section 2 of the Homeowners 

Protection Act of 1988) (12 U.S.C. 4901) 

or title insurance; 

(iii) Financial guaranty insurance 

issued by monoline financial guaranty 

insurance corporations; 

(iv) Insurance for medical 

malpractice; 

(v) Health or life insurance, including 

group life insurance; 

(vi) Flood insurance provided under 

the National Flood Insurance Act of 

1968 (42 U.S.C. 4001 et seq.) or 

earthquake insurance reported under 

Line 12 of the NAIC’s Exhibit of 

Premiums and Losses (commonly 

known as Statutory Page 14); 

(vii) Reinsurance or retrocessional 

reinsurance; 

(viii) Commercial automobile 

insurance, including insurance reported 

under Lines 19.3 (Commercial Auto NoFault (personal injury protection)), 19.4 

(Other Commercial Auto Liability) and 

21.2 (Commercial Auto Physical 

Damage) of the NAIC’s Exhibit of 

Premiums and Losses (commonly 

known as Statutory Page 14); 

(ix) Burglary and theft insurance, 

including insurance reported under 

Line 26 (Burglary and Theft) of the 

NAIC’s Exhibit of Premiums and Losses 

(commonly known as Statutory Page 

14); 

(x) Surety insurance, including 

insurance reported under Line 24 

(Surety) of the NAIC’s Exhibit of 

Premiums and Losses (commonly 

known as Statutory Page 14); 

(xi) Professional liability insurance as 

defined in section 50.5(j); or 

(xii) Farmowners multiple peril 

insurance, including insurance reported 

under Line 3 (Farmowners Multiple 

Peril) of the NAIC’s Exhibit of Premiums 

and Losses (commonly known as 

Statutory Page 14). 

* * * * * 

■ 4. Section 50.7 of subpart A is revised 

to read as follows: 

§ 50.7 Special Rules for Interim Guidance 

Safe Harbors. 

(a) An insurer will be deemed to be 

in compliance with the requirements of 

the Act to the extent the insurer 

reasonably relied on Interim Guidance 

prior to the effective date of applicable 

regulations. 

(b) For purposes of this section, 

Interim Guidance means the following 

documents, which are also available 

from the Department of the Treasury at 

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

(1) Interim Guidance I issued by 

Treasury on December 3, 2002, and 

published at 67 FR 76206 (December 11, 

2002); 

(2) Interim Guidance II issued by 

Treasury on December 18, 2002, and 

published at 67 FR 78864 (December 26, 

2002); 

(3) Interim Guidance III issued by 

Treasury on January 22, 2003, and 

published at 68 FR 4544 (January 29, 

2003); and 

(4) Interim Guidance IV issued by 

Treasury on December 29, 2005, and 

published at 71 FR 648 (January 5, 

2006). 

Subpart B—Disclosures as Conditions 

for Federal Payment 

■ 5. Section 50.10(d) of subpart B is 

revised to read as follows: 

§ 50.10 General disclosure requirements. 

* * * * * 

(d) Policies issued more than 90 days 

after the date of enactment. For policies 

issued on or after February 25, 2003, the 

disclosure required by the Act must be 

made on a separate line item in the 

policy, at the time of offer, purchase, 

and renewal of the policy. For policies 

issued in late 2005 with coverage 

extending into 2006, see § 50.12(e)(2). 

■ 6. Section 50.12(e) of subpart B is 

revised to read as follows: 

§ 50.12 Clear and conspicuous disclosure. 

* * * * * 

(e) Demonstration of compliance. (1) 

An insurer may demonstrate that it has 

satisfied the requirement to provide 

clear and conspicuous disclosure as 

described in § 50.10 through use of 

appropriate systems and normal 

business practices that demonstrate a 

practice of compliance. 

(2) If an insurer made available 

coverage for insured losses in a new 

policy or policy renewal in Program 

Year 3 for coverage becoming effective 

in Program Year 4, but did not provide 

a disclosure at the time of offer, 

purchase or renewal, then the insurer 

must be able to demonstrate to 

Treasury’s satisfaction that it has 

provided a disclosure as soon as 

possible following January 1, 2006. 

* * * * * 

■ 7. Section 50.17(e) of subpart B is 

revised to read as follows: 

§ 50.17 Use of model forms. 

* * * * * 

(e) Definitions. For purposes of this 

section, references to NAIC Model 

Disclosure Form No. 1 and NAIC Model 

Disclosure Form No. 2 refer to such 

forms as were in existence on April 18, 

2003, or as subsequently modified by 

the NAIC, provided Treasury has stated 

that usage by insurers of the 

subsequently modified forms is deemed 

to satisfy the disclosure requirements of 

the Act and the insurer uses the most 

current forms that are available at the 

time of disclosure. These forms may be 

found on the Treasury Web site at 

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

Subpart C—Mandatory Availability 

■ 8. Sections 50.20 and 50.21 of subpart 

C are revised 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. In accordance with the 

determination of the Secretary 

announced June 18, 2004, an insurer 

must comply with paragraphs (a)(1) and 

(a)(2) of this section during Program 

Year 3. 

(c) Program Years 4 and 5—calendar 

years 2006 and 2007. Under section 

103(c) of the Act, an insurer must 

comply with paragraphs (a)(1) and (a)(2) 

of this section during Program Years 4 


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and 5. Notwithstanding paragraph (a)(2) 

of this section and § 50.23(a), property 

and casualty insurance coverage for 

insured losses does not have to be made 

available beyond December 31, 2007 

(the last day of Program Year 5) even if 

the policy period of insurance coverage 

for losses from events other than acts of 

terrorism extends beyond that date. 

§ 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 to new policies 

issued and renewals of existing policies 

in Program Years 3 through 5 (calendar 

years 2005 through 2007). Except as 

provided in paragraph (b) of this 

section, the requirement applies at the 

time an insurer makes the initial offer of 

coverage as well as at the time an 

insurer makes an initial offer of renewal 

of an existing policy. 

(b) Special Program Year 4 

requirement for certain new policies 

issued and renewals of existing policies 

in Program Year 3. If coverage for 

insured losses under a policy of 

property and casualty insurance (as 

defined by the Act, as amended) expired 

as of December 31, 2005, but the 

remainder of coverage under the policy 

continued in force in Program Year 4, 

then an insurer must make available 

coverage as provided in § 50.20 for 

insured losses for the remaining portion 

of the policy term in the manner 

specified in paragraphs (d)(1) and (d)(2) 

of this section. This requirement does 

not apply if during Program Year 3 a 

policyholder declined an offer of 

coverage for insured losses made at the 

time of the initial offer of coverage or 

offer of renewal of the existing policy. 

(c) Changes negotiated subsequent to 

initial offer. If an insurer satisfies the 

requirement to ‘‘make available’’

coverage as described in § 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. 

(d) Demonstrations of compliance. (1) 

If an insurer makes an offer of insurance 

but no contract of insurance is 

concluded, the insurer may demonstrate 

that it has satisfied the requirement to 

make available coverage as described in 

§ 50.20 through use of appropriate 

systems and normal business practices 

that demonstrate a practice of 

compliance. 

(2) If an insurer must make available 

coverage for insured losses as required 

by paragraph (b) of this section for a 

policy whose coverage period began in 

Program Year 3 but extends into 

Program Year 4, then the insurer must 

be able to demonstrate to Treasury’s 

satisfaction that it has offered such 

coverage by January 1, 2006, or as soon 

as possible following that date. 

(3) If an insurer processed a new 

policy or policy renewal in Program 

Year 3 for coverage becoming effective 

in Program Year 4, but did not make 

available coverage for insured losses as 

required by § 50.20 by January 1, 2006, 

then the insurer must be able to 

demonstrate to Treasury’s satisfaction 

that it has provided an offer of coverage 

for insured losses as soon as possible 

following that date. 

■ 9. Section 50.50 of subpart F is revised 

to read as follows: 

Subpart F—Claims Procedures 

§ 50.50 Federal share of compensation. 

(a) General. (1) The Treasury will pay 

the Federal share of compensation for 

insured losses as provided in section 

103 of the Act once a Certification of 

Loss required by § 50.53 is deemed 

sufficient. The Federal share of 

compensation under the Program shall 

be: 

(i) 90 percent of that portion of the 

insurer’s aggregate insured losses that 

exceed its insurer deductible during 

each Program Year through Program 

Year 4, and 

(ii) 85 percent of that portion of the 

insurer’s aggregate insured losses that 

exceed its insurer deductible during 

Program Year 5. 

(2) The percentages in paragraphs 

(a)(1)(i) and (ii) are both subject to any 

adjustments in § 50.51 and the cap of 

$100 billion as provided in section 

103(e)(2) of the Act. 

(b) Program Trigger amounts. 

Notwithstanding paragraph (a) or 

anything in this Subpart to the contrary, 

no Federal share of compensation will 

be paid by Treasury unless the aggregate 

industry insured losses resulting from a 

certified act of terrorism occurring after 

March 31, 2006 exceed the following 

amounts: 

(1) For a certified act of terrorism 

occurring after March 31, 2006 and 

before January 1, 2007: $50 million; 

(2) For a certified act of terrorism 

occurring in calendar year 2007: $100 

million. 

(c) Insured losses after March 31, 

2006. For all purposes of subpart F, 

insured loss or insured losses or 

aggregate insured losses resulting from 

acts of terrorism after March 31, 2006 

shall be limited to those insured losses 

resulting from Program Trigger events. 

(d) Conditions for payment of Federal 

share. Subject to paragraph (e) of this 

section, Treasury shall pay the 

appropriate amount of the Federal share 

of compensation to an insurer upon a 

determination that: 

(1) The insurer is an entity, including 

an affiliate thereof, that meets the 

requirements of § 50.5(f); 

(2) The insurer’s insured losses, as 

defined in § 50.5(e) and limited by 

§ 50.50(c) (including the allocated dollar 

value of the insurer’s proportionate 

share of insured losses from a State 

residual market insurance entity or State 

workers’ compensation fund as 

described in § 50.35), have exceeded its 

insurer deductible as defined in 

§ 50.5(g); 

(3) The insurer has paid or is prepared 

to pay an underlying insured loss, based 

on a filed claim for the insured loss; 

(4) Neither the insurer’s claim for 

Federal payment nor any underlying 

claim for an insured loss is fraudulent, 

collusive, made in bad faith, dishonest 

or otherwise designed to circumvent the 

purposes of the Act and regulations; 

(5) The insurer had provided a clear 

and conspicuous disclosure as required 

by §§ 50.10 through 50.19; 

(6) The insurer offered coverage for 

insured losses and the offer was 

accepted by the insured prior to the 

occurrence of the loss; 

(7) The insurer took all steps 

reasonably necessary to properly and 

carefully investigate the underlying 

insured loss and otherwise processed 

the underlying insured loss using 

appropriate insurance business 

practices; 

(8) The insured losses submitted for 

payment are within the scope of 

coverage issued by the insurer under the 

terms and conditions of the policies for 

commercial property and casualty 

insurance as defined in § 50.5(n); and 

(9) The procedures specified in this 

Subpart have been followed and all 

conditions for payment have been met. 

(e) Adjustments. Treasury may 

subsequently adjust, including requiring 

repayment of, any payment made under 

paragraph (d) of this section in 


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27572 Federal Register / Vol. 71, No. 91 / Thursday, May 11, 2006 / Rules and Regulations 

accordance with its authority under the 

Act. 

(f) Suspension of payment for other 

insured losses. Upon a determination by 

Treasury that an insurer has failed to 

meet any of the requirements for 

payment specified in paragraph (d) of 

this section for a particular insured loss, 

Treasury may suspend payment of the 

Federal share of compensation for all 

other insured losses of the insurer 

pending investigation and audit of the 

insurer’s insured losses. 

(g) Aggregate industry losses. Treasury 

will determine the amount of aggregate 

industry insured losses resulting from a 

certified act of terrorism. If such 

aggregate industry insured losses exceed 

the applicable Program Trigger amounts 

specified in paragraph (b) of this 

section, Treasury will publish notice in 

the Federal Register that the act of 

terrorism is a Program Trigger event. 

■ 10. Section 50.55 of subpart F is 

revised to read as follows: 

§ 50.55 Determination of Affiliations. 

For the purposes of subpart F, an 

insurer’s affiliates for any Program Year 

shall be determined by the 

circumstances existing on the date of 

occurrence of the act of terrorism that is 

the first act of terrorism in a Program 

Year to be certified by the Secretary for 

that Program Year. Provided, however, 

if such act of terrorism occurs after 

March 31, 2006, the act of terrorism 

must also be a Program Trigger event to 

determine affiliations as provided in 

this section. 

■ 11. A new § 50.85 is added to subpart 

I as follows: 

§ 50.85 Amendment related to settlement 

approval. 

Section 107(a)(6) of the Act, added 

December 22, 2005, provides that 

procedures and requirements 

established by the Secretary under 

§ 50.82 (as in effect on the date of 

issuance of that section in final form) 

shall apply to any cause of action 

described in section 107(a)(1) of the Act. 

Dated: May 4, 2006. 

Emil W. Henry, Jr., 

Assistant Secretary of the Treasury. 

[FR Doc. 06–4348 Filed 5–10–06; 8:45 am] 

BILLING CODE 4811–15–P 


cchase on PROD1PC60 with RULES3