Best’s News & Research Service - March 04, 2004 03:08 PM (EST)
Twin Towers Trial: Swiss Re Underwriter Testifies Coverage Bound by WilProp
NEW YORK //BestWire// - As the federal civil trial to determine how insurance coverage was placed on the World Trade Center wound down its fourth week in Manhattan, a reinsurance underwriter for Swiss Reinsurance Co. testified that, despite all the last-minute changes and lingering questions involved, he was sure Swiss Re had agreed to be bound under a form that defined the terrorist catastrophe that destroyed the twin towers as a single event.
Daniel Bollier, a managing director for underwriting based in Swiss Re's Zurich, Switzerland offices, said that, despite the contention of World Trade Center leaseholders, he had never agreed to switch Swiss Re's coverage from a form issued by broker Willis Group Holdings Ltd. (NYSE:WSH) to a rival form used by Travelers Property Casualty Insurance Co. (NYSE:TAPa).
Which form bound the insurers before the Sept. 11 catastrophe is the critical question before Judge Michael B. Mukasey and a jury in U.S. District Court for the Southern District of New York. The Willis form, known as WilProp, provides a definition of "occurrence" that prior court rulings already established would define the twin towers' destruction as a single occurrence. A rival form submitted by Travelers less than two months before the Sept. 11 terrorist catastrophe leaves the definition of occurrence open.
Swiss Re, the lead insurer in the case against World Trade Center leaseholders Silverstein and Westfield Properties, is on the hook for 22% of the $3.55 billion in coverage. If the destruction of the twin towers is proved to be two events, that figure would approach $7 billion-discounting claims already paid. Silverstein and Westfield contend that most, if not all, of the insurers bound by the WilProp form in late July eventually agreed to adopt the Travelers form by Sept. 11.
Under questioning about what he discussed with Willis broker Paul Blackmore before Sept. 11 about the coverage on the World Trade Center, Bollier testified emphatically that he had "never" discussed the Travelers form. Bollier said there were a number of outstanding issues to be resolved related to coverage limits, but a series of phone calls and e-mails between himself and Blackmore never touched on the subject of switching from the WilProp form to any other form.
The leaseholders' contention is that, when Travelers agreed to participate in coverage on the World Trade Center, it insisted on using its own form to be bound to the coverage. Other insurers agreed in principle to go along with the Travelers form as well, they said.
Much of Bollier's testimony concerned a July 23 e-mail received from Blackmore's office-five days after Swiss Re had been bound to coverage of the twin towers-that contained a revised insurance slip for Bollier's examination. That e-mail was followed by a phone conversation that same day between Blackmore and Bollier. Among other changes, the revised slip showed that Swiss Re's premium for its coverage would rise from $4 million to $4.4 million, and the coverage limit rose by $1 billion to $3.4 billion.
The July 23 e-mail also contained a Travelers specimen policy form, though Bollier testified that the form contained no useful information, such as what was insured, who would be insuring it or policy numbers. Bollier testified that he did not know at the time that it was the Travelers form.
Bollier said that, from July 23 to July 25, he and Blackmore discussed several sublimits Bollier wanted in the Swiss Re policy-an issue that was resolved on the 25th. On that day, Bollier signed and stamped the insurance slip for Swiss Re coverage and sent it back to Blackmore.
Asked by Swiss Re attorney Mary Kay Vyskocil what the significance of the signing and sealing was, Bollier said, "It was still the same placement; it was still the same risk. Nothing changed except the limit, which went up by approximately $1 billion. The premium changed as well. And some of our handwritten notations on the previous slip were now inserted into this version of the slip.
"It was our confirmation that Swiss Re is bound...on the higher limit and at the higher premium," he said.
"On the basis of what policy form?" asked Vyskocil.
"On the basis of the WilProp form," Bollier answered. "WilProp was our governing form." Bollier had also testified that Blackmore "never said anything" about the Travelers form.
Under questioning by Silverstein attorney Herbert Wachtell earlier in the week, Blackmore had testified that he sent Bollier the Travelers form in the July 23 e-mail, and that Bollier had subsequently never mentioned the WilProp form before Sept. 11, suggesting Bollier had accepted the Travelers form.
During the first three weeks of the trial, risk managers and insurance consultants for the World Trade Center's two leaseholders, as well as brokers for Willis, painted a picture of intense scrambling to place coverage as Silverstein pressed to close on a 99-year lease with the twin towers' owner-the Port Authority of New York and New Jersey. Willis brokers testified that Swiss Re and other insurers were bound to the WilProp form by July 18, just days before the closing on the lease (BestWire, Feb. 27, 2004).
Lawyers for Swiss Re are trying to prove the WilProp form was still the governing form when the twin towers collapsed on Sept. 11. Lawyers for the leaseholders contend there was a de facto shift to the Travelers form before the catastrophe.
The trial was approaching the end of the fourth of what could be as many as eight weeks of testimony. A jury of 12 is to decide which of the insurers involved were bound by the WilProp form, and which, if any, by the Travelers form. In a second phase, any insurers found not to be bound by WilProp would have to state their case that the destruction of the World Trade Center was one event rather than two under the insurance form used-presumably the Travelers form. If that phase were to determine that the insurance form used defined the catastrophe as two events, a third phase would determine how much those insurers should be liable to pay.
The financial strength of Swiss Re Group is rated A+ (Superior) by A.M. Best Co.
(By David Pilla, senior associate editor, BestWeek: David.Pilla@ambest.com)