Senate Democrats, upset at the insurance industry for working to oust Senate Minority Leader Tom Daschle (D-S.D.), have decided to drag their feet on one of the industry’s top legislative priorities.

Democrats on the Banking, Housing and Urban Affairs Committee stopped leading an effort to renew a federal terrorism reinsurance plan after lobbyists for the insurance industry began planning a fundraising dinner for Daschle’s Republican opponent, former Rep. John Thune, Democratic aides and lobbyists said.

The dinner — sponsored by the American Insurance Association, the Property Casualty Insurers Association of America, and several insurance companies — was subsequently postponed. Officially, organizers blamed scheduling conflicts, but sources said the Democratic outcry will make it hard for the dinner to be rescheduled.

Though Democrats still support the bill, the move effectively ends any chance that Congress will reauthorize the terrorism reinsurance plan this year. The insurance industry had been relying on Democrats to lead the drive for the legislation because Congressional Republicans and the Bush administration are wary of creating a permanent, new federal program.

Several Democratic aides and industry lobbyists confirmed the turn of events.

“It turns out that at the very same time that they are lobbying us, they are sending out a Thune fundraising invitation,” said one Democratic aide. “This is not a must-pass bill. They were coming around and looking for a favor. At this point, that hearing is the end of the road.”

The episode represents both a major misstep by the insurance lobby and an extraordinary example of Democratic lawmakers flexing their muscles to bolster the re-election prospects of a top party leader.

It’s unlikely that Daschle played a role in the change of strategy on the terrorism reinsurance bill. But several of his campaign’s top supporters serve on the Banking panel, including Sens. Jon Corzine (N.J.) and Debbie Stabenow (Mich.), who are running campaign operations for Senate Democrats. Sen. Tim Johnson, a South Dakotan like Daschle, also sits on the committee.

When Thune challenged Johnson in 2000, Daschle made it known he was keeping tabs on companies and business associations who worked to defeat Johnson.

Michael Meehan, a top political adviser to Daschle, said at the time that “it’s not the South Dakota way to put the screws to anybody.”

Likewise, Johnson said last week that “there is very strong loyalty to Senator Daschle in the Caucus.”

Johnson said the industry fundraiser for Thune had not tempered his support for the reinsurance bill, and that he still is “hoping to approve an extension of terrorism reinsurance coverage.”

The Thune fundraiser, originally scheduled for last Thursday, was later called off.

Joe Quigley, a lobbyist with the American Insurance Association who helped plan the event, said the dinner was postponed due to a scheduling conflict.

“The timing of the event really had nothing to do with any legislative activities,” Quigley said.

But the timing of the fundraising effort had everything to do with Democrats’ decision to temper their work for the reinsurance bill: At the same time that lobbyists for the insurance industry were asking Senate Democrats on Capitol Hill to press to reauthorize the terrorism reinsurance bill, they were soliciting money for Thune on K Street.

At issue is a fundraising letter circulated to more than 100 insurance industry lobbyists last month asking them to attend a $1,000-a-plate dinner at the Occidental Grille restaurant originally scheduled for June 10.

“We all know the importance of this Senate race, so please consider joining us,” wrote Eric Rizzo, a lobbyist for Farmers Insurance Group, in a personal note that accompanied the invitation.

Lobbyists for the insurance industry began circulating invitations to the dinner on May 13, just days before a Senate Banking Committee hearing on the terrorism reinsurance bill.

“It’s astonishing to everyone up here that so-called professionals would be so clumsy with respect to both timing and presentation of their efforts,” said a senior Democratic aide. “If lobbyists were subject to malpractice suits, [the insurance industry] would come out of the courtroom with treble damages on this case.”

The American Insurance Association and Property Casualty Insurance Association of America sponsored the fundraising event, along with Allstate Insurance Co., the Assurant Group, The Chubb Corp., Farmers, USAA Worldwide Insurance and Zurich Financial Services Group.

Insurance lobbyists hoped to raise about $25,000 for Thune at the dinner.

The insurance industry’s fundraising dinner for Thune is part of a series of events planned by Washington lobbyists to raise $500,000 to defeat Daschle in November.

Lobbyists started to plan the events for Thune, collectively dubbed “Team Thune,” earlier this year, after it became clear Daschle was raising far more money from corporations and Washington lobbyists than Thune.

Through the first three months of the campaign, Daschle raised three times as much money as Thune from businesses, according to fundraising reports. Since then, Thune and his allies in the business community have worked aggressively to close the gap.

The latest fundraising figures, covering the six weeks beginning April 1, show that Thune raised nearly $68,000 from corporations compared with $55,000 for Daschle.