GOT INSURANCE? A fable of the post-9/11 reconstruction BY CHIP BENSON

What do Santa Claus and the "US terrorism clause" (better known as terrorism risk insurance) have in common? In addition to the same last name, both are fairy tales that obscure something truly meaningful.

Within hours of the attacks on the World Trade Center buildings in 2001, the top executives of big American insurance companies convened via conference call to discuss whether their policies would cover damage from the 9/11 suicide hijackings. The first consideration was deciding if the events of September 11 were an act of war. Every major insurance contract in America has a "war exclusion clause" that exempts an insurer from responsibility for damages in the event of an "act of war." Essentially, the government is held responsible instead.

According to Robert P. Hartwig, chief economist for the Insurance Information Institute, a trade group, "Within hours of the attacks, it was quite clear that the argument that 9/11 was an act of war would never hold up in court." The insurance lawyers based their decision on hundreds of years of case law defining an act of war. Yet it was no small consideration. The decision would cost insurers plenty, as 9/11 damages have totaled more than $30 billion by some estimates.

On September 11, however, President George W. Bush said the exact opposite — that the attacks constituted an "act of war upon our country." These were not idle words, judging by how Bush launched the United States into wars in Afghanistan and Iraq — conflicts that many observers believe to be the first in a series of multi-generational battles.

Why didn’t the insurers cite the president as their chief witness to make an argument that 9/11 was an act of war? Doing so, after all, might have exempted them from billions in financial responsibility. According to a defense lawyer for one of the major insurers involved, "We viewed his statements as political rhetoric, and inconsistent with the law, and so, we performed an act of social responsibility."

When is an act of war not an act of war? In 2002, Congress created legislation to permit a new type of insurance called "the terrorism clause," in a clumsy attempt to bridge the divide between actual law concerning war and Bush’s interpretation of it. Except unlike the "war clause," the "terrorism clause" does not exempt insurers from responsibility for damages. Instead, it is a new way for insurers to make money by underwriting terrorism policies.

If a business does not carry the policy and suffers an attack of terrorism, it alone will be liable for the damage, instead of the government, which by the way, has deemed terrorism the greatest threat to the national security of the nation. The "terrorism clause," however, is a tectonic shift of responsibility — some might say of culpability — for issues of terrorism and national security. Hundreds of years of law are now at odds with Bush’s definition of war on 9/11 and his subsequent statements. Simply put, if he says it is war, why won’t it hold up in court?

The dubious legislation for the "terrorism clause" expires on Christmas 2005, unless it renewed by the politicians and insurance lobbyists that believe in it. Is it some sort of payback from the government to the insurance industry — in the amount of the industry’s 9/11 losses?

Perhaps some see this as a genuine conservative attempt at reducing the size and scope of government by outsourcing, or at the very least a privatizing, of the fiscal responsibility for terrorism. Maybe they also believe in Santa Claus.