"Without the threat of punitive damages, the corporation can decide it's more cost-effective to continue cutting corners despite the risk to American lives," said Sen. Patrick Leahy, D-Vt.
States already have their own laws about punitive damages, Leahy said, and rewriting them "for the benefit of private industry at the expense of future terrorist victims and their families is not right."
After Sept. 11, many insurers limited or dropped coverage for casualty and property losses in acts of terrorism because insurance companies faced record payouts of $30 billion to $50 billion.
The House last year passed legislation under which the government would help insurers continue to offer terrorism insurance by agreeing to pick up, for at least one year, 90 percent of losses in any major attack.
Under the Senate bill, however, the insurance industry would have to pay $10 billion of insurance costs for terrorism attacks for two years. Beyond that level, the government would cover 90 percent of costs; the insurance industry would pay the remaining 10 percent.
The Treasury secretary would have discretion to extend the program for a third year, in which case the industry would be responsible for the first $20 billion in costs. There would be a $100 billion cap; the secretary would have to go to Congress if costs exceeded that amount.
The bill also would consolidate civil lawsuits in federal courts and bar the use of government money to pay punitive damage awards.
—The Associated Press