The Second Circuit just made it harder for terrorism victims and their insurers to recover losses from frozen Taliban-controlled assets.
On March 19, 2026, the United States Court of Appeals for the Second Circuit declined to rehear a pair of consolidated cases that had tested whether victims of terrorism and their insurers could seize roughly $7 billion in frozen Afghan central bank funds held at the Federal Reserve Bank of New York.
Federal Insurance Co. was among the plaintiffs seeking recovery. The court's refusal to revisit the case leaves intact an August 2025 panel decision that shielded those assets behind sovereign immunity, a result that five of thirteen circuit judges openly opposed.
The dispute traces back to the Taliban's return to power. When the group recaptured Kabul on August 15, 2021, the U.S. Treasury Department immediately froze assets belonging to Da Afghanistan Bank, the former central bank of Afghanistan, which were held in a New York Fed account. A subsequent executive order from then-President Biden blocked the Taliban from accessing the funds. The Taliban, which no country recognizes as Afghanistan's legitimate government, went on to install loyalists – including designated terrorists – into the bank's leadership after seizing the capital, banning women from working there and requiring the Taliban flag at meetings.
Two groups of plaintiffs moved to claim those frozen funds. Victims of the 1998 US embassy bombings in Kenya and Tanzania, along with Federal Insurance Co. and other insurers, sought to attach the assets before judgment. Separately, families of September 11 victims who already held a judgment against the Taliban sought a turnover order for the same money. Both sets of claims were dismissed at the district court level, and the panel affirmed.
The case turned on two statutes that matter a great deal to the insurance industry. The first is the Foreign Sovereign Immunities Act, which generally shields foreign states and their agencies from lawsuits in American courts. The panel concluded that because the Executive Branch still recognizes a state of Afghanistan – distinct from the Taliban – as a sovereign entity, the former central bank's assets enjoy that protection, even though the Taliban, not any recognized government, actually runs the bank.
The second statute is the Terrorism Risk Insurance Act of 2002 (TRIA), a law the insurance industry knows well. Congress enacted TRIA to ensure that terrorism judgments could be enforced against blocked assets in the United States, preventing the executive branch from standing in the way. The statute allows plaintiffs to go after the frozen assets of a terrorist party, including those of any agency or instrumentality of that party. The panel, however, ruled that a court must determine whether an entity qualifies as a terrorist agency at the moment the assets were frozen – not when plaintiffs actually seek recovery. Because the Treasury froze the funds on the day Kabul fell, before the Taliban had formally taken over the bank's operations, the panel found TRIA did not reach the assets.
That reasoning drew pointed criticism from the dissenters. Judge Sullivan, writing for four judges, argued the panel had gutted both statutes. On the FSIA question, he contended the panel had confused the president's diplomatic recognition of a country with a court's separate duty to determine whether statutory immunity applies in a particular lawsuit – a task Congress specifically assigned to judges, not the White House. On the TRIA question, he argued that the statute uses intentionally broad language to advance its goal of ensuring terrorism judgments can be enforced against any available assets in the United States, and that the panel's narrow reading flows not from the text or purpose of the law but from the court's own sense of how Congress should have acted.
Judge Menashi dissented separately, agreeing that the president's recognition of Afghanistan as a state should stand but arguing the bank itself no longer qualifies as an agency of that state. He pointed out that the Afghan banking law the panel relied on – which says the bank's capital belongs to the state of Afghanistan – is effectively inoperative, and that a 2017 doctoral dissertation cited by the panel simply repeated those now-defunct legal formalities without reflecting who actually controls the institution today. On the TRIA question, Menashi highlighted what he described as a perverse result: under the panel's timing rule, if the government had waited to freeze the assets until after the Taliban formally took over the bank, the funds would be available to victims, but because the government acted quickly to block the assets as the Taliban was seizing power, the victims cannot recover. Menashi observed that the statute concerns actual ownership, not ownership frozen in time.
Judge Nardini, joined by Judge Lohier, concurred with the denial, siding with the view that the executive branch holds the authority to recognize foreign governments. Judges Cabranes and Calabresi, who authored the original panel majority, issued a brief statement standing by their decision.
For the insurance industry, the practical takeaway is significant. TRIA was designed to give terrorism victims – and the insurers pursuing recovery alongside them – a clear path to blocked terrorist assets in the United States. This decision narrows that path considerably by pegging the analysis to the moment of asset freezing rather than the moment a court is asked to hand over the funds. If the ruling stands, insurers seeking to recover terrorism-related losses under TRIA may find that the government's speed in freezing assets works against them, locking in a snapshot that does not reflect who actually controls the money when recovery is sought.
