Legislation was passed in the U.S. overnight that makes the government liable for damages from acts of terrorism.
Under the plan, individual states will decide the amounts to be paid. State laws also would be used to decide whether to impose punitive damages in lawsuits resulting from terrorism.
The Bush administration are disappointed by the deal which does not include a ban on punitive damages. However White House spokeswoman Claire Buchan said that Bush would sign the bill.
The agreement means insurance companies will pay the first £6.4bn in damages in the first year of the three-year bill, $8bn in the second year and £9.6bn in the last year. The federal government will pay the rest.
The legislation appoints one federal court to rule on all lawsuits involving terrorism. However, the court decides the cases based on the laws of the states where the terrorist acts occurred.
Senator Dodd said the proposed federal "backstop" on terrorism would lower insurance rates enough to make policies affordable for developers and builders. "It's very good for jobs, it's very good for the economy," he said.
