Published in Indiana Law Review 335 (2003)
Terrorism has existed in Israel in various manifestations and degrees for several decades now. This paper is being written as Israel is experiencing one of the most severe waves of terrorism in its history, killing hundreds of civilians, leaving behind thousands of wounded, and causing significant damage to much of the business community and to the economy. Israel has devised comprehensive legislative responses to two of the primary issues arising in the context of compensation for harm caused by terrorism: first, the Victims of Hostile Action (Pensions) Law, 1970 provides compensation for bodily injuries suffered in terrorist attacks, as well as compensating family members of deceased victims. Second, the Property Tax and Compensation Fund Law, 1961 provides compensation for property damage caused by terrorism. The resulting Israeli system of compensation has now reached stability, following several major modifications. The resulting system is unfortunately the product of significant experience in administration, both in terms of the time period involved and the number of events and victims. The main difference between the compensation scheme devised in the United States following the events of September 11, 2001 and the Israeli system is that the Israeli scheme is a permanent system, continually in place, the result of extensive and lengthy consultation, rather than an ad-hoc quick fix arrived at under severe time constraints in the emotional aftermath of major terrorist attacks, and causing multiple issues of inequity. Yet, not all types of harm caused by terrorism are covered by these permanent legislative schemes. The loss of income suffered by businesses is generally not compensated, except in some cases where it became the subject of ex-post negotiations between the business community, the government and regulators. Part I of this paper describes and analyses the compensation for bodily injuries and the compensation to family members of deceased victims offered by the Israeli government. Part II of the paper describes and analyses the compensation for property damage caused by terrorism. In the first two sections, I have provided a rather comprehensive account of the Israeli compensation schemes, primarily in the footnotes, for those readers who may be interested in the details. Part III of the paper provides observations on the advantages and disadvantages of a permanent compensation scheme such as the Israeli scheme as compared with the compensation scheme devised in the United States for the victims of the 9/11 tragedy.
Israel was born in a long independence war, followed by fifty-four years with five wars and frequent waves of terrorism. Both the wars and the terror acts affected Israel’s civilian population, and in certain cases could not be easily distinguishable from each other. Since the early days of the state, the Israeli legal system provided for compensation to civilians who were wounded and to the families of those killed as a result of war or terrorist attack. The original legislative scheme was limited to compensation for harm caused by war. When terrorism emerged as a permanent feature of the Middle East conflict, compensation was extended to civilian victims of terrorism. As correctly an Israeli professor of social work has observed, although most social welfare programs in Israel have been going through major financial cuts, the compensation schemes for victims of war and terrorism have been enlarged, adding more benefits to more recipients. On November 29, 1947, the United Nations decided to establish a Jewish state and an Arab state in the territory under a British mandate, and the state of Israel declared its independence on May 14, 1948 pursuant to the U.N. decision. Since Israel’s Arab neighbors refused to accept the U.N. plan or to recognize the state, Israel started its existence with a lengthy independence war, terminating with an armistice in February 1949. With the Declaration of Independence, the interim government established the Ministry of War Victims, which operated under emergency legislation to assist war victims and refugees. In 1951, the first law providing compensation for property damage was enacted. After the final armistice was signed in 1949, there was hope that the state would be secure enough to develop normally. Within a few years, however, it became clear that this was not the case. The primary security problems were border raids by individuals and small groups who caused death, injury and property damage in the border towns and villages. At first, the government provided compensation to some of the victims on a case-by-case basis and without any clear legislative criteria. As a result of the increase in cross-border attacks in 1956 the Government introduced legislation providing compensation to civilians residing or employed in frontier areas. The main problem with the 1956 law was that it only applied to those injured in geographical proximity to the border. Following the Six-Day War in 1967, anti-Israeli terror expanded to the streets of centrally-located Israeli cities as well as to Israeli establishments abroad and Israelis visiting abroad. As a direct result of the change in reality, the government introduced the Victims of Hostile Actions (Pensions) Law, 1970 (“VHAPL”), a more comprehensive compensation scheme, which, as amended, remains the basis of current law. During the Knesset’s deliberation on VHAPL, it was decided to equate the benefits given to injured civilians and to the families of victims of war or terrorism with the benefits provided to injured soldiers and to the families of soldiers killed in action, respectively. With that law, as amended over the years, a comprehensive scheme provides compensation for security-related harm caused to civilians.
When the first compensation was enacted in 1951, the rationale behind it was clear. As put by the Knesset’s (Israel’s Parliament) Finance Committee Chairman, M.K. David Pinkas: It is inconceivable that the damage from this war which we had to withstand will be borne by individuals and not by the whole public. Interestingly, the same principle had led then-British Prime-Minister Winston S. Churchill to determine, during the German Blitz against England in World War II, that it was “unfair for British society to place the entire burden of the destruction on those unlucky enough to be hit”. Churchill thus ordered that all damage from the fire of the enemy must be a charge upon the State and compensation be paid in full and at once. Thus the burden would not fall alone on those whose homes or business premises were hit, but would be borne evenly on the shoulders of the nation. The risk-spreading policy applicable to war holds true with respect to terrorism to an even greater degree. In most cases of war, the burden of casualties is borne by members of the military. Most countries provide benefits to the victims among their armed forces and their families. Terrorism, however, is a type of war in which the enemy, the terrorist organization, selects random civilians as its target. In the war declared by terrorist organizations, civilians are drafted involuntarily by the cruel decision of the enemy. They are hurt solely for being citizens of a certain country or visitors to that country. The rationale of providing compensation to those civilians may be viewed as an extension of customary compensation of members of the armed forces. A compensation scheme against terrorism damage may also be viewed as a result of the state’s duty to protect its citizens against terrorism. If that duty is viewed as absolute, the state would have to compensate its citizens. Traditional economic analysis of tort law, which looks for ways by which the victim could have minimized the risk of losses can be applied only in a limited way in terrorism cases. That analysis is hard to apply to innocent airline passengers or WTC employees who were murdered on 9/11. Leon Klinghoffer, the disabled 69-year-old American who was brutally murdered by terrorists merely took a cruise, where he met his killers. In Israel, where every restaurant and bus has become a potential frontline in terror’s war, the rationale of viewing the civilian victims of terrorism as involuntary soldiers has been taken even further. As mentioned above, under current law, the benefits provided to those wounded in terrorist attacks and the families of these killed in terrorist attacks were equated to the benefits provided to injured soldiers and to the families of soldiers killed in action, respectively.
Current Israeli law makes no distinction between civilians harmed by war and civilians harmed by terrorism. Both situations are now part of the definition of an “enemy-inflicted injury”, the central term of VHAPL. An “enemy-inflicted injury” is defined by that law as any of the following: 1. An injury caused through hostile action by military or semi-military or irregular forces of a state hostile to Israel, through hostile action by an organization hostile to Israel or through hostile action carried out in aid of one of these or upon its instructions, on its behalf or to further its aims (All hereinafter referred to as “Enemy Forces”.) 2. An injury inflicted by a person unintentionally in consequence of hostile action by Enemy Forces or an injury inflicted unintentionally under circumstances in which there were reasonable grounds for apprehending that hostile action as aforesaid would be carried out. 3. An injury caused through arms which were intended for hostile action by Enemy Forces or an injury caused through arms which were intended to counter such action, excluding an injury inflicted upon a person age 18 or older while committing a crime, or a felony involving willfulness or culpable negligence. The definition quoted above is quite wide. It encompasses not only harm inflicted by a terrorist act, but also harm caused by defensive measures aimed against terrorist aggression. “Friendly fire” is hence covered, as is the accidental explosion of ammunition stocked in anticipation of terrorist attacks. The required nexus is defense from Hostile Acts in general, rather than a specific, clear and present attack. The nexus needs to be a real one, though. The Supreme Court held that “arms used for military training are not intended, at that time, to counter hostile acts, whereas a mine laid near the border does serve that purpose.” The determination as to whether an event constitutes a “Hostile Act” is made by an “Approving Authority” appointed by the Minister of Defense. In many situations, the classification is not entirely clear, and an event may be viewed as either a criminal act or a terrorist act. For example, a terrorist may decide to attack a person whom they know and have a previous relationship with, such as an employer, a lover, or a co-criminal. The victim, or in case of death - his relatives, have a vested interest in having the event declared a “Hostile Act”. Not only would such classification provide significant monetary compensation, it would also carry a deeper meaning: the victim will be viewed by friends, family, and society at large as an innocent victim of political aggression; a martyr; rather than a mere crime victim whose own actions may have led to the attack. It should be noted that the offender, if caught, may also obtain advantages by characterizing the event as terror-motivated, rather than criminal. The VHAPL provides the following reputable presumption: Where a person is harmed in circumstances in which there is reasonable basis to assume that he was harmed by a Hostile Act, the harm will be presumed to be caused by a Hostile Act unless proven otherwise. The case of Coca v. the Approving Authority may serve to illustrate the borderline situations. In Coca the parents of a Jewish murder victim appealed the decision of the Authority to deny “Hostile Act” status of their son’s murder by a Palestinian male prostitute. The murderer had given conflicting reasons for the crime, ranging from criminal (theft) to nationalist. The Court held that the event was a Hostile Act based on the fact that the murderer took no money or valuables from the deceased’s apartment, where the crime took place, and on the cruelty of the murder. The Coca court encountered another legal hurdle: the Assailant was not a member in any organized terrorist organization. The Court first observes that under the law It is not enough that a person rises one clear morning [out of the blue] to kill another person out of nationalist motives to bring the murder within the framework of Hostile Action The problem encountered by the court is that of the lone terrorist, who is not affiliated with any organization. In order to overcome that hurdle, the court used a presumption, which appears to be stretching the law beyond its original intent. The Court first observes that one of the goals of terrorist organizations is the killing of Jews. Hence, the Court says, the murder of a Jew for a nationalist motive causes the promotion of the goals of terrorist organizations and may therefore be viewed as a Hostile Act. As demonstrated in the Coca case, courts are quite generous, in expanding the definition of Hostile Act. The courts’ approach is in line with the legislative purpose and with the legislative language, creating the presumption which makes it easier to reach “Hostile Act” status. It should be noted, however, that this wide definition of a hostile act is very different from the narrow definition that the courts gave to the word “hostilities” in exclusion clauses of insurance policies. The issue of Palestinian victims of Jewish terror is relatively new. Following a test-case law suit by a Palestinian attorney working with the Israeli Association for Civil Rights, the government chose to settle the case rather than have it decided by the court. The settlement requires that a solution be devised for similar cases, and the Attorney General has ruled that Palestinian victims of Jewish terrorism deserve equal treatment even if the language of the law does not seem to address that issue.
The main purpose of the compensation schemes was to cover Israeli citizens and residents. Since Israelis have been the target of terrorist attacks outside Israel, they are covered both in Israel and while abroad. The schemes were extended to cover certain foreign nationals who may become victims by reason of their association with Israel or Israeli entities. Thus, the law covers all foreign nationals harmed by a Hostile Act while in Israel or in the Territories administered by Israel provided that they entered Israel legally. That coverage extends inter alia to tourists, business travelers, and legal foreign workers. Illegal foreign workers are generally not considered covered by the law, although a legislative glitch may have created a loophole. The terror acts accompanying the Palestinian uprising, which started in September 2000 found Israel at a point in which tens of thousands of illegal foreign workers resided in the country. Since many terror attacks were directed at public transportation, illegal foreign workers were wounded on several occasions. They received medical treatment and humanitarian aid, but were not considered entitled to the full financial benefits under the law. Another class of foreign nationals exposed to anti-Israeli terrorist attacks are employees of Israeli entities abroad. Not all employees of Israeli companies are covered; only those employed by the state of Israel (embassies, consulates, and other formal delegations representing the state) or by an employer pre-approved for that purpose by the Minister of Labor. The Minister of Labor has to date approved 33 employers, consisting mainly of banks, Zionist organizations, airlines, media, and shipping companies. An attempt to apply the same analysis to the U.S. may prove quite difficult. Anti-American sentiments often take the form of attacking American-owned fast-food restaurants overseas. Would an attack on a McDonald’s restaurant, certainly inspired by anti-American sentiment, qualify as terrorism? The inclusion of foreign nationals provides a layer of protection, which, in many cases, acts to partially replace acts-of-war, or terrorism exclusions under private insurance policies. Although the coverage under Israeli law does not overlap with the individualized privately acquired policies, it provides a safety net for the cases where other means of compensation are excluded. It is unclear if the existence of government insurance would influence individuals considering visiting Israel. It appears, however, that institutional tours (such as support groups by synagogues) are easier to organize when the inability to purchase commercial travel insurance is compensated for by the government insurance.
Victims who are injured by a hostile act are entitled to medical care, and to a stipend while receiving medical care. Those who remain permanently disabled are entitled to disability benefits. All benefits under VHAPL are administered by the National Insurance Institute (“NII”), which is the equivalent of the Social Security Administration in the United States. 1. Medical Care – Injured victims are entitled to state-funded medical care. Medical care is defined widely to include hospitalization, clinic visits, dental care, medicines, medical devices, medical care-related travel expenses, medical rehabilitation and recuperation. Although Israel has a national medical insurance plan, the benefits provided under the law exceed the benefits under the national insurance. Foreign residents injured in a hostile act in Israel and returning to their own country may receive the necessary medical care at the expense of the Israeli government unless they receive the medical care from the country in which they reside. The coverage will even include an increase in medical insurance premiums paid the victim because of the deterioration of his health due to the hostile act. 2. Living Stipend While Receiving Medical Care – An injured victim who is unable to work while receiving medical treatment is entitled to a stipend during that period, provided he is not collecting his salary, or in the case of a self employed individual, if he stops working. The stipend is based on the victim’s pre-injury income, subject to a limit set at a rate of 5 times the average salary in Israel. Victims who are unemployed at the time of the injury receive a stipend based on the (relatively low) salaries of mid-level government employees, factoring in their age and family situation. The living stipend during medical treatment is provided for an unlimited amount of time as long as the victim is unable to work because of the medical treatment. 3. Disability Compensation – An independent medical committee determines whether the victim is temporarily or permanently disabled, and at what rate (expressed as a percentage of disability). Victims rated 20 percent or more disabled qualify for monthly disability benefits. The amount of compensation is calculated by multiplying the rate of disability by 105.1% of the salary of a low-level government employee. A 40% increase is paid to victims of specific and very severe types of disability. Victims who are, or who become, 55 years old or older, are paid an age-based supplement. Victims rated between 10 and 19 percent permanently disabled are given a one-time disability grant rather than monthly benefits. Disability benefits are paid regardless of any other sources of income the victim may have. There are, however, several categories of victims with little or no additional income, who may be eligible for additional benefits. Thus, some victims may be classified as “Needy Disabled” and receive significantly higher benefits, based on their level of disability, family situation and other sources of income. Similar benefits are paid to victims who, because of the irreversible physical or mental disability suffered as a result of the hostile act, have permanently lost their ability to earn a living. In certain cases, a short-term unemployment supplement and an early retirement supplement are also available. When a disabled person dies and the death is not considered to be as a result of the injury, the NII continues to pay the disability benefits to the victims’ heirs for three additional years after the death, and in certain cases, makes additional payment to dependents. 4. Additional Monetary Benefits – The law provides for a host of additional benefits, each with its own criteria and limitations. The most important among them are: the care-taking benefit; home purchasing grants and loans; financial assistance in the purchase of a medically necessary car; monthly mobility payments; appliances, special equipment and other household items to paraplegics and the blind; a yearly clothing allowance; a heating or cooling grant; yearly convalescence grants; income tax and national health tax breaks; college education grants for children of the victim; a marriage grant and telephone expenses. The immediate family members of the victim are entitled to reimbursement of their expenses and loss of wages while the victim’s medical situation requires the presence of a family member near his or her bed. 5. Rehabilitation – Victims with no profession, or who need to change profession because of the injury or because of other reasons, may be eligible for professional rehabilitation. Rehabilitation is given in one of three forms: vocational training, higher education or rehabilitation in an independent business. In vocational training and higher education, the victim’s full tuition will be paid. If the course of studies does not allow the victim to work during his studies, a subsistence allowance is paid monthly, based on the victim’s degree of disability and family situation. Victims may opt to seek assistance for starting their own business. If they chose that route, they may be eligible for a grant to purchase commercial equipment and a loan in an amount that varies with the victim’s degree of disability. The loan is conditional on the approval of a business plan that has taken into account the victim’s limitations.
VHAPL also provides for benefits for families of victims killed as a result of Hostile Acts. The structure of benefits is based on the benefits paid to the families of soldiers who die during and as a result of active duty. 1. Monthly Benefits for a Widower/Widow, Bereaved children and Bereaved Parents – Widowers, widows, bereaved children and bereaved parents of victims killed as a result of Hostile Acts are entitled to a regular monthly benefit. The amount of the benefit is expressed as a percentage of the salaries of a low-level government employee and is determined according to the age of the widow/widower, and whether they have children. Since the amounts are linked to the wages of government employees, they are updated following labor agreements and the Israeli mandatory cost of living increases. In some cases, the Law provides for the State to pay the victim’s divorcee the alimony she was entitled to from the deceased. The issue of a widow (widower) remarrying received a significant amount of attention in recent years, given past policy that the widow would lose her benefits after remarriage. Critics felt that the regulation was preventing rehabilitation rather than encouraging it. Consequently, the law significantly shifted in favor of the widows to assure that the potential loss of benefits does not become an obstacle preventing a widow from remarrying and building a new life. Therefore, although under current law, a widow who remarries is no longer entitled to the monthly benefits in her own right, she (1) receives a generous, non-refundable, marriage grant; (2) continues to receive benefits for her children until the children reach 21; and (3) may become re-entitled, should she get divorced or widowed again before the age of 65 years old, to the same benefits she received before she remarried. Bereaved parents are entitled to a regular monthly benefit, independently of whether or not there are a widow/widower and/or bereaved children. The amount of the benefit is expressed as a percentage of the salaries of a low-level government employee, and is determined according to the age and family situation of the bereaved parents.  A portion of the benefit is phased out if the bereaved parents have other income. A bereaved child receives a marriage grant upon getting married or reaching the age of 30 without getting married. A widow/widower who must be put in a nursing home or who wishes to live in an assisted living environment may receive partial or full funding of this arrangement in lieu of monthly benefits. Certain additional benefits are provided only to needy widow/widowers or bereaved parents, based on their income and the availability of other relatives to help. Thus, the law serves as a safety net, under the assumption that the deceased son or spouse would have provided for these needs had he or she not died. 2. Burial and Mourning Expenses – Burial expenses are reimbursed at cost (up to a ceiling) to the family member who paid for them. Burial expenses include death notices, transfer of the body, and a tombstone. Special provisions increase the reimbursements for a foreign citizen killed in Israel but buried abroad, or, alternatively, cover the expenses of bringing siblings, children, parents, widow or widower to participate in the funeral if the deceased is buried in Israel. A one-time grant for mourning expenses is paid to a widow/widower and bereaved parents. The grant is intended to help cover expenses involved in the mourning but does not cover all expenses. Expenses associated with yearly memorial services at the cemetery, including transportation, are also reimbursed, as are expenses associated with acts intended to memorialize the deceased, such as a memorial book, memorial events etc. Finally, the law provides for a grant to allow a bereaved parent, widow or widower to purchase a gravesite next to that of the victim. 3. Additional Monetary Benefits – The law provides for a host of additional benefits, each with its own criteria and limitations. The most important among them are the funding of psychological assistance; housing assistance; financial assistance in the purchasing of a car; yearly convalescence grants; tax breaks; school grants; college grants; grants and loans to start a business; Bar-Mitzvah grants; a variety of health-related expenses and telephone expenses.
A victim who has a claim under VHAPL and who may have a separate personal injury claim for compensation under another law, may choose between compensation and rights according to the VHAPL and compensation according to the other law. Hence, the law provides for a choice of remedy, rather than an exclusivity of remedy. Although at first glance, the “carrot and stick” mechanism here is reminiscent of the one used in the U.S. Air Transportation and Safety and System Stabilization Act, there are major differences between the two schemes. First, whereas under the U.S. scheme, the barring of a personal injury lawsuit is limited only to airlines and certain other defendants the Israeli scheme prevents the simultaneous recovery from any defendant. Second, the choice under the Israeli scheme only applies to the actual recovery of damages under the two causes of action, rather than to the pursuing of both causes of action. The choice to accept state benefits under VHAPL may be revoked by the victim, with NII’s consent, in order to recover better compensation in the alternative lawsuit. Until recently, the NII adopted a stringent policy, under which it would not allow the victim to pursue the alternative lawsuit and return the state benefits except in very limited cases. The NII position was based on paternalistic considerations, believing that a one-time payment under a personal injury lawsuit may be less advantageous than the very generous, and permanent, safety net created by the Law. In order to deter victims from pursuing the alternative route, NII adopted the position that its approval is needed prior to filing the alternative lawsuit, and that such action would require returning all benefits and stop the payment of benefits before the alternative lawsuit is settled. In 1999, however, the Supreme Court held that NII’s position was unconstitutional. The Supreme Court held that NII’s approval is only necessary after the alternative lawsuit is pursued, and that NII should generally agree to the victim’s decision to return the benefits in exchange for the right to collect on the personal injury lawsuit. One of the main reasons for the difference is, of course, the difference in the main purpose of the legislation. The U.S. scheme was primarily intended, as even its name attest, to defend the two major airlines involved in the 9/11 events from lawsuits by victims and their families. The Israeli scheme was primarily intended to compensate the victims, and in most cases, there are no feasible legal ways under Israeli law to recover personal injury damages from the assailants or third parties. From a policy standpoint, it makes sense to allow the victims to recover for full damages, including, where applicable, punitive damages. From a practical standpoint, it became more feasible for victims to attempt to recover damages from assets identified as belonging to terrorist groups or even from states who sponsor terrorism.
The Law prescribes relatively short statute of limitations periods for filing claims for bodily harm and death and for appealing the decisions of the NII. The claim for a living stipend during medical care must be presented within one year from the date of injury. Appeals against the decisions of the Medical Committee must be filed within 30 days from the time the decision is communicated to the victim. Appeals against the decisions of the NII must be filed with the Labor Tribunal within six months from the date of the appealed decision. Legal aid is provided, subject to significant exceptions and conditions, to applicants whose claim was rejected by the NII. A 1997 amendment to the law authorized the establishment of a representative organization, funded by a deduction from the monthly benefits paid under the law.
As with damage for personal injury, the compensation of victims of terror for property damage is an extension of the compensation to civilians for war damage. A brief history of that compensation is therefore in order. Prior to the establishment of the State of Israel, the area now known as Israel was part of the British mandate, and deeply affected by British law. Great Britain was one of the first nations to legislate compensation and mandatory insurance for war property damage, and it legislated a limited mandatory insurance. The Jewish organizations preparing for the establishment of the State of Israel followed their lead. A few weeks before the Declaration of Independence took place, the Jewish Agency, together with several trade unions, organized a voluntary insurance scheme against damage caused by war to civilian property. The fund, which had no binding power, was created for a limited period of two years. The scope of events covered by insurance covered terrorist actions. Following the end of the War of Independence, the Knesset legislated the Law of Tax for War Damage, 1951. That law levied a tax (in essence, a compulsory insurance) on all business property and real property which could be damaged by war, and provided for compensation of the same assets. The regulations promulgated under the law broadened the definition of covered events beyond acts of war by including damage due to “other hostile actions.” The main ideology behind the law was spreading the loss by means of compulsory insurance, since “the damage is not unique to a specific property owner who was unfortunate enough to be damaged by war or hostile acts.” The insurance theory had significant practical importance when it caused the Court to reject a regulation providing for contributory negligence by the victim as unreasonable and ultra vires. In 1961 Israel adopted the Property Tax and Compensation Fund Law, 1961, (the “Compensation Law”) consolidating and replacing several older laws. The law created a fund, originally funded by a corresponding property tax, to compensate victims of war or terrorist activities. The Compensation Law and the regulations promulgated thereunder, are the basis of the current compensation system for property damage caused by war and terrorism. Although the Compensation Law continued the practice of incorporating the compensation fund and property tax into the same law for the political purpose of justifying the tax as a type of insurance, only a small percentage of the property tax collected was actually used for the compensation fund. Over the years, and especially since 1981, the link between the assets subject to the property tax and the assets covered by the compensation provisions was completely detached, and the property tax was used, until repealed in 2001, to achieve unrelated economic goals. One interesting remaining result of the link between the tax and the compensation is that the compensation scheme is still administered by the income tax authorities, the equivalent of the United States Internal Revenue Service. Thus, the tax authorities take the role of helping hand, quite an unusual phenomenon. Following Israel’s involuntary participation in the Gulf War, the issue of harm to civilian property arose again, and the compensation scheme was expanded to increase the amounts paid. The main increase was in setting the compensation for damage to household items at full replacement value rather than at the depreciated value of the assets affected. Since the Regulations set certain quantity, value and total compensation limitations on the covered assets, citizens were allowed to voluntarily insure their household items with the government authority up to far higher amounts. The voluntary insurance scheme does not apply to business property. Hence, the compensation scheme gradually shifted from compulsory mutual insurance, aimed primarily to operate in the vacuum created by the insurance companies’ refusal to act, to a social support system funded by the general taxpaying public.
The law covers “War Damage” (direct damage to property) and “Indirect Damage”. Both terms are defined as to include terrorist acts as part of the expression “other hostile actions against Israel”. Borderline situations, where it is hard to determine whether an event is a hostile event or a crime, exist in the case of property damage just as in the case of bodily injury, discussed above. These have been the subject of much of the litigation surrounding the Compensation Act. One difference, however, is that the Compensation Law does not provide a presumption similar to that of VHAPL that borderline events would be considered as Hostile Acts. In 1998, the Supreme Court set some guidelines on what would constitute a hostile action in Bekaot v. Manager of Property Tax. Bekaot involved the simple theft of an automobile from Israel into the Palestinian authority, where the car was “stripped” to be sold as car parts. It should be noted that the time, a very high percentage of all car theft in Israel was done into what were referred Palestinian “car slaughterhouses”. Claimant, the corporation which owned of the stolen car, produced a formal police document stating that Palestinian car thieves should be viewed as activists in the Palestinian anti-occupation “uprising”, and claimed that it was accordingly entitled to compensation for damage caused by a Hostile Act. The Supreme Court held that theft may be considered property damage, but that is not enough to be compensated under the law. A claimant under the law must also prove a “motive of hostility”, to be interpreted as hostility against the State of Israel. The hostility can be the result of revenge for an act by the Israeli government, or an act with the goal of frightening the citizens of Israel, or an intent to affect Israel’s future actions. In all of these cases, the Supreme Court held that the claimant must prove that the Israeli identity or nexus were the justification for causing the damage to the property. In this case, there was no such evidence, and the claim was rejected. Direct damage to property is covered in accordance with the Property Tax and Compensation Fund Regulations (Payment of Compensation) (War Damage and Indirect Damage) 1973 promulgated under the law. Under the regulations, the compensation is limited to the “Real Damage”, defined as the lower amount of the following: (i) the difference between the value of the asset before the damage occurred and the market value of the asset immediately after the damage occurred; or (ii) the cost of restoring the asset to its prior condition. In addition, compensation will be paid for reasonable expenses incurred during the occurrence of the damage and aimed at mitigating the damage. Although the law calls for the compensation to be made by way of reimbursement, the practice in terrorist acts which affected many victims (such as bombs exploding in commercial areas) has been that the Tax Authority sends loss adjusters who hire contractors to fix the damage for all businesses involved. In other cases, the owner of the property hires contractors who are paid directly by the Tax Authority. The system described reduces significantly the amount of time it takes for life to return to normal following a terrorist attack. In the absence of the compensation scheme, one may assume that some business owners would be insured (assuming insurance against terrorist acts is available) while others would not be. One can also assume that estimators from different insurers may disagree on their respective share, and take their time to issue compensation. Contractors working for different employers may also conflict with each other. Since one of the goals of the Israeli government is to return life to normal as quickly as possible following a terrorist attack, it appears that the scheme provides a rather effective means to achieve that goal. Indirect damage, including business interruption and loss of earnings, is usually not compensated except for damages sustained by businesses in Border Settlements. Where applicable, indirect loss is computed in accordance with a detailed set of rules attempting to cover the real economic loss. In 2001, with the beginning of the current wave of hostilities, the Compensation Law was amended to allow the Government to compensate for indirect damages cased by hostile acts. Compensation would be available provided: (i) the damage was caused by actions which the Minister of Defense declared as hostile actions; (ii) the damage occurred in a location which the Minister of Finance, with the approval of the Knesset’s Finance Committee, declared as an area damaged by hostile actions. Where both conditions are met, the law authorizes the payment of compensation for damage to assets, loss of earnings, or the inability to use assets located in the affected area. Until now, no appropriate declarations were made, nor were new regulations issued under the amended law. The Hostility Damage thus remains, for now, a legal tool enabling the Government, if it elects to do so, to compensate for indirect damage under the existing scheme. Special rules apply to compensation for damage to assets owned by Israeli entities, which are located out of Israel, and to oil tankers. The Regulations provide that in the event that the owner of the property is entitled to receive compensation for the same damage from another source, such as an insurance company, the compensation paid by the Tax Authority will only cover the difference between the amount received from the other source and the amount of damage.
Although Israel has one of the most generous terror-compensation schemes in the world, terror causes economic harm that is currently not compensated by the government, or for that matter, by any other entity. The economic damage to the Israeli GNP resulting from terror events between September 2000 and March 2002 has been estimated by the Israeli government at NIS 24 billion (approximately US $5.1 billion). A survey by Israel’s leading business daily found that 46% of respondents said that they were affected economically by the recent unrest. The endless wave of suicide bombers in recent months reduced business in main urban shopping areas by as much as 80%, while increasing the business’ expenses. The highly developed tourism industry suffered substantial damage as a result of tourists’ fear of terror. Currently, the significant damage described in the preceding paragraph is not covered under any compensation scheme. Trade unions are pressuring the government to compensate business owners for these losses, but thus far, no general compensation scheme has been devised. The lack of a unified compensation policy means that regulated industries may obtain concessions from their regulators on a case-by-case basis. A striking example is that of the operators of commercial television, which in Israel is a heavily regulated industry subject to stringent requirements to produce expensive, Hebrew language programming. Since the operators lost millions by having to abort regular programming in order to broadcast breaking news of terrorist attacks, and since during the news broadcasts the operators could not broadcast commercials, the regulators are now considering significant reductions in the operators’ commitment for original production of television, thus reducing the operators’ expenses and ensuing losses. If the regulatory concessions go forward, not only would the television operators be able to fully recoup all their losses from the recent waves of terrorism unlike most other business entities, but they will in essence simply pass the burden to the actors, directors, and producers who are supposed to benefit from the mandatory requirements to invest in local television production. The fairness of such measure is questionable, but in the absence of a general compensation scheme, each business is left to fend for itself and can be expected to pull every string with the regulators.
The United States had not provided federal support for compensation to victims of terrorism until the tragedy of September 11, 2001. As noted above, the compensation scheme put in place after 9/11 was primarily aimed to protect the airlines involved from potentially-devastating law suits. It was specifically designed as an ad-hoc action, and does not appear likely, at the time of this paper, to turn into a permanent federal compensation scheme for victims of terrorism. One may assume, however, that the issue of compensation will reappear, at least on an ad-hoc basis, if and when terror strikes the United States again. As one commentator puts it: Congress passes terrorism legislation in response to individual episodes of terrorism. Lawmakers working to pass legislation in the emotional aftermath of a terrorist event are not necessarily concerned with how, or even whether these laws coordinate with other similar laws. This part of the paper attempts to provide an analysis of a permanent system of compensation, such as the Israeli system described in this paper, and the ad-hoc approach taken so far by the United States. Two main differences should be noted before any comparison is even attempted. First, that Israel has experienced significant waves of hostile actions over an extended period of time, while, the United States civilian population has, to date, been the target of far fewer terrorist attacks. Sadly, the number of casualties in the United States has been extremely high in some of the events and the effect on certain segments of the economy, such as the airline industry, has been significant. Yet, these were isolated events. Unlike Israel, the United States has not had to deal with frequent terrorist attacks, disrupting every aspect of daily life, and significantly threatening all parts of the population for extended periods of time. The difference in frequency and spread of the risks associated with terror is quite significant. An American does not ask herself daily whether or not it is safe to go the mall or to a restaurant; an Israeli does. Second, a permanent system aimed at compensating terror victims must be viewed in the context of the general welfare policy of the society involved. Israel has an extensive welfare system, providing generous state support (many people would say too generous) to large populations that would not receive the same benefits in the United States. Clearly the willingness of the government to provide financial support, and public opinion as to the “entitlement” of terror victims to public support must be evaluated against that yardstick.
1. Equity Considerations – The first and most intriguing problem in the American scheme of a case-by-case legislation is the evident inequality between victims similarly situated. The issue has been raised regarding the compensation fund set by the U.S. Air Transportation and Safety and System Stabilization Act to compensate the 9/11 victims. While that compensation scheme provided an average award of $1.65 million to families of those killed on 9/11, the families of victims of past terrorist attacks received nothing. The generous 9/11 victim compensation fund was made possible for two main reasons: the desire to bail the airlines out, and the horrible magnitude of the events. The public was much more open to the idea of a compensation fund for thousands of victims, than it was when terrorism hit only small numbers of victims. If we are to accept a rationale that the society, rather that the individual innocent victim, should bear some of the cost of the terrorist attack, this rationale should apply to all victims of terrorism, regardless of the number of victims in a specific attack, and regardless of the external motive to bail out the airline industry. In 1993, terrorists tried to blow up the World Trade Center (WTC) using trucks full of explosives. The attack failed to blow up the buildings, but killed eight victims. Since the number of casualties was small, and there were no airlines to defend, no compensation scheme was devised for the victims’ families. From an equity standpoint, it is very difficult to explain why a 2001 WTC victim should receive millions in government compensation while a 1993 victim should receive none. Attempts in the U.S. Senate to broaden the victims eligible for compensation were also very limited in nature, applying to victims of past, specific, terrorist events. The inequity can be even better demonstrated with the Victims of Terrorism Tax Relief Act of 2001. That law provides substantial tax benefits to the victims of three terrorist events: the 9/11 attacks, the Oklahoma City Bombing and the terrorist attacks involving anthrax occurring shortly after September 11, 2001. What is notable about this law is that, first, that the Oklahoma City victims were not deemed worthy of tax concessions in the six years between the time of their tragedy and the larger tragedy of 9/11. Secondly, the inclusion of the anthrax victims is significant given the fact that the perpetrators of that crime have not been caught and therefore, the question of whether there acts qualify as terrorism (or qualifies as terrorism to a greater extent, than the victims of “Unabomber” Theodore Kaczynski for example, who were not included in the law) is quite uncertain. Clearly, the only reason that the anthrax victims were included was the timing of the anthrax attacks, which occurred so shortly after the 9/11 attacks and therefore raised the assumption (or speculation) that they were related. Thirdly, the victims of the 1993 World Trade Center Bombing were not included in the new law, and neither were many other victims of acts that were clearly terrorist, but smaller, and less dramatic in nature. What is even more striking, in an analysis of equity, is that the victims of September 11 received not only the largest compensation ever paid by the U.S. government, but also the benefit of the “extraordinary in breadth and nature” charitable response, probably related directly to the magnitude of the 9/11 attacks. Hence, the government aid in an ad-hoc system is more likely to be given to those who might not be the most needy. 2. Acceptance of Value Judgments by the Victims – As was widely publicized, Kenneth Feinberg, who is overseeing the 9/11 Victim Compensation Fund has had to make every possible value-based decision when deciding how to divide the fund among the victims’ families.  Many of Mr. Feinberg’s decisions proved controversial, and the Justice Department received thousands of comments on the rules as proposed, and then promulgated, by Mr. Feinberg. A permanent system would hopefully have long-term and well-thought equality superior to that of an ad-hoc system that was created under daily pressure from interested parties. Value-based judgments should be made after due deliberation. Furthermore, value judgments expressed in permanent rules may be more acceptable to the victims and to the general public than the decisions of a person with final and uncontestable authority to split a given budget equitably and fairly. It would be much easier to accept long-established rules legislated by Congress than what appears to be arbitrary decisions by one person. 3. Efficiency – The discussion of efficiency addresses two separate issues: first, I will argue that a permanent system would achieve better allocative efficiency. This is so, because the level of compensation is more likely to be set at its optimal level in a permanent system than by an ad-hoc system. Second, the cost of administration (which in this case is the main part of a productive efficiency analysis) will be considered. the efficiency of administering a permanent system will be considered against the administering an ad-hoc compensation scheme. Here, I will argue that the efficient solution depends on the number of compensable events and victims eligible for compensation, and make a specific proposal adaptable to the United States, should it chose to adopt a permanent compensation system. a. Allocative Efficiency – As discussed above, the 9/11 victim compensation fund, by far the most generous terror compensation scheme ever in U.S. history, was created primarily in order to protect the airline industry from countless law suits, since claimants who chose to receive the compensation forgo any right to sue the airlines and certain other parties. In that respect, at least some of the money budgeted for the fund may be viewed as part of the subsidy that the government decided to give the airline industry following the traumatic events of September 11. Although it was possible not to compensate victims of past attacks while the 9/11 victims were compensated, I assume that it would be very difficult politically not to compensate the victims of a high-casualty terror attack should it unfortunately occur in the near future. I also believe that the amount set for the 9/11 victims is likely to serve as precedent, or at least as a starting point, for the unfortunate victims of future similar-size attacks, should they occur. However, that precedential amount has been set at a level significantly higher than the public, through its representatives, would have set had it been set without the influence of the desire to protect the airlines. Put differently, the allocation of Federal resources to the Victims Compensation Fund partially reflects the compassionate feelings towards the victims’ families, and the remainder is attributed to the airline bailout. The premium provided to help secure the assistance to the airlines is the excess by which the level of compensation exceeds the optimal level. Setting a compensation standard by public and congressional opinion created by one event could also lead to under-compensation, if the defining event is such that causes the public opinion to act only half-heartedly to provide the compensation. Finally, if the level of compensation differs from one terrorist attack to the other based on external factors such as the airlines involvement or a change in the economic climate, the inefficient result will also emphasize the inequality between victims of different attacks. b. Cost of Administration – As mentioned above, Israel administers victims benefits through its NII, the equivalent of the Social Security Administration in the United States. NII, which administers many of the social welfare plans in this non-federal state, has a permanent department administering the claims and the benefits. By contrast, the United States had to create a special office within the Department of Justice to administer the Victims Compensation Fund. The same government unit, headed by Kenneth Feinberg, made the rules and administers the claims. Since the U.S. system is based on a one-time payment to the victims’ families, the office administering the fund is expected to wind down within a few years. Should the need arise, a similar office will have to be created anew. Whether it may be more efficient to have a permanent set of rules consistently applied and administered by a professional, permanent, agency rather than having create an ad-hoc administration every time the need may arise depends heavily on the scope and frequency of compensable terrorist attacks. It is quite possible that the extended time between major terrorist events in the United States does not justify, at this time, the creation of a permanent agency. The Unites States may, however, have an existing agency which could potentially administer the benefits with very little additional cost. My proposal is to consider the administration of a permanent program by the Veterans’ Administration. As noted above, the Israeli system is based on the rationale equating the benefits of civilian victims to those of military personnel injured or killed in action. If a similar rationale was to be adopted in the United States, for the reasons explained above, it could provide an efficient means to administer the benefits at relatively low cost through the existing Veterans Administration. 4. Psychological Effect – Terror is a tool of intimidation, and it is generally intended to have a damaging effect far greater than the actual damage caused. In a country hit hard by terrorism, the knowledge that there is a fairly comprehensive safety net provided to victims is somewhat comforting. By contrast, a country where there is no compensation system adds a significant economic fear to the general fear caused by terrorism. That economic uncertainty is significantly increased at a time when insurance companies hurry to exclude terrorist acts from their coverage, or charge a significant premium to cover that risk.
1. Cost of Operation – Permanent systems generally require a bureaucracy, which may be costly. This consideration has been discussed under “efficiency” in the discussion of advantages of a permanent system. As noted, supra, the issue is really one of fact, depending mainly on the number of harmful terrorist attacks and how far apart they are. 2. Untouchable Rights – One drawback of a permanent system is that it appears to be causing the gradual increase in benefits over time. Once a permanent system is in place, it is very hard, politically, to reduce the benefits provided. If the Israeli experience is any precedent, the very existence of a permanent scheme creates frequent and successful demands to increase those included under the scheme and their respective benefits. Conclusion At the end of the day, the main issue remains that which was raised by the Israeli Finance Minister when introducing the first Compensation Law in 1951: Who should bear the brunt of terrorism, the individuals who happened to be in the wrong place at the wrong time, or the general taxpaying public? The Israeli answer to that question is unequivocal, if not entirely efficient. The U.S. answer to the same question has yet to be determined. Although the September 11 Victims Compensation Fund provided generous support to many of the victims’ families, the general U.S. position as to the right of victims to government compensation has remained open, perhaps with the hope that it will remain an academic topic.