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March 17, 2003

State’s workers’ compensation coverage includes acts of terrorism

TUMWATER - Washington taxpayers and the State Fund will get significant financial relief from the federal government in the event of an act of terrorism that results in catastrophic losses to the workers’ compensation system.

The law requires that workers’ compensation coverage include losses due to terrorism, and Washington’s workers and employers have always been covered. But under the Terrorism Risk Insurance Act of 2002, the federal government will now pay the bulk of a catastrophic loss that results from an act of foreign terrorism once the deductible has been paid.

Congress passed the act in response to what happened to the insurance industry following the Sept. 11, 2001, attacks on the Pentagon and World Trade Center. The attacks on the trade center have, so far, resulted in 5,000 workers’ comp claims in excess of $3.5 billion.

Following the attacks, a significant number of private insurers stopped writing workers’ compensation coverage because of the risk, and because reinsurance became too expensive or non-existent. Reinsurance is the way public and private insurers protect themselves against catastrophic losses by diversifying the risk.

Under the new law, Washington’s State Fund is responsible for paying a deductible that would amount to about $51 million. Once that deductible is met, the federally guaranteed reinsurance fund will cover 90 percent of any losses above that. The expense would be spread among the other states and commercial insurers. In the event of an attack in another state, Washington would share in the cost of paying that claim.

Labor & Industries manages the state’s workers’ compensation system. It provides coverage for 163,000 employers and more than 1.9 million workers - about 70 percent of the state’s labor force. The Terrorism Risk Insurance Act also will benefit the 30 percent of Washington’s workers employed by the 400 companies that are self-insured, by making it more affordable for those companies to reinsure against catastrophic losses that result from acts of terrorism.

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For media information, contact: 
Robert Nelson, L&I, 360-902-6043, nelq235@lni.wa.gov

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