Losses from Terror Produce Moral, Economic Puzzles

D. J. Tice

      D. J. Tice is an editorial page writer with the St. Paul Pioneer Press. This article is reprinted from the Pioneer Press.

      If you have to suffer a tragedy in your life, it's best to suffer it in company with a lot of other people, as part of a highly publicized disaster.
      Victims and survivors of large-scale public catastrophes-most commonly natural disasters such as hurricanes, tornadoes, floods and earthquakes-often benefit from generous outpourings of private charity and emergency government aid.
      Meanwhile, the far more numerous (and equally unfortunate) people who suffer lonesome losses-from auto accidents, illness, or street crime-are usually on their own. Most receive no extraordinary help.
      There is no intentional unfairness in this. High-profile tragedy simply gets people's attention and stimulates their compassion. But society probably could not afford to give all sufferers the level of assistance victims of mass disasters often receive. And it's not entirely clear why some losses are more deserving than others.
      The September 11 terrorist attacks have set a whole new standard for exceptional compassion toward victims of high-profile loss. The federal government has established a special $6 billion September 11th Victim Compensation Fund to help the families of those killed in the attacks. The average base award is expected to be $1.65 million-tax-free. Private insurance and pension benefits will be subtracted, but charitable aid will not.
      Debate is predictably intensifying over whether the compensation formula is too lavish or too stingy, whether the plan is unfair to the families of high-income stock analysts who died, or to families of young dishwashers whose potential will never be known.
      Meanwhile, a nagging question lingers: Why do these victims of misfortune, unlike so many others, automatically deserve lifetime security at government expense? No such fund exists to compensate the victims of the Oklahoma City bombing or other terrorist attacks, to say nothing of everyday victims of crime, or of other kinds of tragedy.
      The cliché that "everything has changed" since September 11 sometimes seems an overstatement. But this controversy over the victims' fund is a symptom of one way the world really has changed.
      America faces a new and confounding challenge in a suddenly more dangerous era. It is the challenge of managing huge, unpredictable risks we didn't know we faced.
      The truth is, the September 11th fund did not arise from a conviction that these sufferers deserve extraordinary aid unavailable to others. It arose from an urgent desire to protect United and American Airlines from catastrophic liability claims. The $15 billion airline bailout package, enacted within weeks of the attacks, created the fund in connection with a provision that guaranteed air carriers could not be held liable for more in terrorism-related damages than they had insurance to cover.
      If not for this partial immunity, it is probable, though not certain, that most survivors eventually could have won large awards by suing the airlines and others. To collect from the victims' fund, survivors must relinquish the right to sue anyone except terrorists.
      So, in a sense efforts to morally justify the special treatment of these victims-they were killed in an attack explicitly meant to wound all America, etc.-are after-the-fact rationalizations. The real reason for this generosity is that the damage from these attacks, if managed though the usual process of lawsuits and jury awards, threatened to do ruinous economic harm. (When the bailout was enacted, estimates of September 11 deaths were more than twice what they are today.)
      Other economic damage from the attacks has yet to be repaired, or even fully measured. Last week, Minnesota joined a number of other states in permitting insurance companies to exclude terrorism from their policies. It appears that private insurance coverage for damage from terrorism may soon all but disappear.
      It's not hard to see why. American insurers are on the hook for some $35 billion in losses from September 11. It is a measure of how innocent the nation recently was that insurers-rather a tough-minded bunch-awoke only after the attacks to the reality that they had not anticipated the horrendous potential scale of damage from terrorism, and had not realistically priced insurance against such damage.
      Fact is, nobody knows how to price terrorism insurance now. So nobody wants to sell it. The resulting exposure to uninsured risks could destabilize much economic activity.
      The federal government will almost certainly have to create a program to protect private insurers from unlimited losses, at least temporarily, until the marketplace can adjust and calculate sensible prices for terrorism insurance.
      The war on terrorism-living up to its billing as a new kind of war-is having some of its most profound effects by forcing these kinds of dramatic government interventions in matters the marketplace or traditional legal processes have long regulated quite effectively. But the danger is real of government doing more harm than good in these unfamiliar undertakings.
      Will government generosity to September 11 victims set a costly precedent for future victims? If not, will it foster resentment? By protecting airlines and insurers from terrorism losses, will government destroy private incentives to take prudent precautions?
      The answers are among the many things we don't know just now.