Legislative Updates from the AHC

Periodically, the THP receives updates from the American Horse Council (AHC) regarding legislation that may impact the horse racing industry. The following are a few such updates received by the THP recently:

Terrorism Insurance Legislation Passed
Date: December 31, 2002


One of the final acts performed by the 107th Congress before it adjourned was the passage of the Terrorism Risk Insurance Act of 2002, a bill to ensure the continued financial capacity of insurers to provide coverage for risks from terrorism. Because of the fear of catastrophic losses from damages caused by terrorist attacks, insurance companies had refused to offer such coverage after September 11, 2001. Not only did this effectively chill the interest in new construction of buildings and other projects, but it also raised the possibility of large uncovered losses from attacks on existing activities.

The horse industry, along with other sports interests, was concerned over the inability to afford insurance coverage for the risk of losses arising from possible terrorist attacks on equine events held in large facilities and new construction of facilities, like racetracks, convention centers and similar exhibition halls. This legislation is intended to address that problem by ensuring the continued availability of commercial property and casualty insurance and reinsurance for terrorism-related risks. This will allow insurance carriers to offer such insurance with a federal backstop.

The legislation was signed into law by President Bush on November 26, 2002.

What Does the New Law Cover?

The new law is essentially intended to encourage existing insurance companies to offer terrorism insurance. Under the new law, insurance companies must make terrorism coverage available during the next two years in the following manner: if a policy otherwise covers a particular type of loss, the insurer must make coverage available for that same type of loss if it occurs as the result of a terrorist act. This requirement applies to existing and new insurance policies. Business interruption is included. Workers’ compensation is covered not only for terrorist acts, but also for acts of war.

Under the new program, the federal government is responsible for paying 90% of each insurer's primary property-casualty losses above the insurer's annual program deductible. The deductible is determined through a comparison of the insurer's covered losses in a year to its direct earned premium for lines of business covered by the program in the prior year. The amount of the deductible increases each year of the program, rising from 1% in 2002 to 15% in 2005.

All licensed primary insurers are covered under the program.

What Are the Limits and Exclusions?

First, this law only applies to acts of international terrorism, defined to include any act:

“committed on behalf of any foreign person or foreign interest where the damage from the event is in excess of $5 million and the event was not committed n the course of a war declared by the United States.”

The Secretary of Treasury has the authority to certify an act of terrorism and this certification is not subject to judicial review. To be covered, the act of terrorism must have caused at least $5 million in damages.

Domestic acts of terrorism are excluded from coverage under the new program.

The program has an annual cap of $100 billion. Losses which exceed $100 billion are not covered.

This program only provides coverage for commercial lines of insurance. There are no exclusions for sporting activities, wagering activities or agricultural activities, although there are specific exclusions for crop insurance, mortgage guarantee, monoline financial guaranty, medical malpractice, national flood insurance, life and health insurance.

State-approved exclusions for international acts of terrorism that were in effect prior to the Act’s enactment are now void. The law does not, however, abrogate a state’s authority to disapprove an insurance terrorism rate if its is considered excessive, inadequate or unfairly discriminatory.

How Long Does This Last?

This is a three-year program going through 2005.

Adverse Wagering Provision in Bush Budget
Date: January 14, 2003

The 2004 Administration budget, which is to be sent to Congress in three weeks, includes a “withholding” provision that is tied to the “dead beat dads” issue.

A provision to be in the Bush budget would expand the collection of overdue child support payments by requiring gambling establishments, including racetracks, casinos and other forms of wagering, to deduct amounts owed for child support from “gambling winnings.” The proposal would require gambling businesses to check a federal database of individuals delinquent in child support payments and deduct whatever they owe, plus a fee, before paying out winning proceeds.

In announcing the proposal Health and Human Services Secretary Tommy Thompson said that the new federal provision would ensure that “gambling winnings may be returned to where they rightfully belong – to children.” The requirement might also deter delinquent parents from gambling, he suggested.

Under present law, the federal government can seize the lottery winnings from parents who are behind on child support. This provision would extend that authority to other forms of gambling.

Since the budget has not been released we do not know the specifics of the proposal, including what is considered “winnings,” whether there is a threshold amount that triggers the withholding, how a track would determine that it should check the federal database and similar issues. As we get more details, we will share them with you.

Unlawful Internet Gambling Funding Prohibition Act – H.R. 21
Date: January 14, 2003

Congressman Jim Leach (R-IA) has reintroduced his bill to prohibit the use of credit in connection with Internet gambling. This is the same bill that passed the House by voice vote in the last Congress. The Unlawful Internet Gambling Funding Prohibition Act (H.R. 21) has been referred jointly to the Committee on Financial Services and the Committee on the Judiciary.

The bill prohibits the use of credit for “unlawful Internet gambling,” which is defined in the bill to mean:

“..to place, receive, or otherwise transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State in which the bet or wager is initiated, received, or otherwise made.”

The bill excludes from the definition of a “bet or wager:”

“Any lawful transaction with a business licensed or authorized by a State.”

These provisions are intended to distinguish between state-sanctioned and regulated activities, such as what pari-mutuel horse racing is doing, and unregulated, off-shore gaming on the Internet. The language is included as an additional clarification that the bill is not intended to affect lawful, domestic activities.

The bill still includes a very broad definition of credit that encompasses virtually every means of transferring funds, including credit cards, fund transfers, checks, drafts, money orders or wire transfers that are used in connection with any wagering that involves the Internet, even in a technical, minimal way.

There are 14 original cosponsors of the bill: Mike Oxley (R-OH), Spencer Bachus (R-AL), Sue Kelly (R-NY), Paul Gillmor (R-OH), Bob Goodlatte (R-VA), Mike Rogers (R-MI), Charles Pickering (R-MS), Charlie Norwood (R-GA), Frank Wolf (R-VA), Tom Osborne (R-NE), Joseph Pitts (R-PA), Marion Berry (D-AR), John Spratt (D-SC), Rick Boucher (D-VA). Congressman Michael Oxley (R-OH) is the Chairman of the Committee on Financial Services. Mr. Leach is on the Committee.

No hearings on the bill have been scheduled. Because there have been numerous hearings on this issue in the last two Congresses and this bill has been reported out of the Committee before, it is possible that the Financial Services Committee may not conduct hearings, moving directly to a mark-up of the bill.

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