Best’s News & Research Service - May 04, 2004 02:16 PM (EDT)
Swiss Re Wins Twin Towers Verdict
NEW YORK //BestWire// - The final piece of the World Trade Center trial puzzle fell into place late on the afternoon of May 3, as a federal jury ruled in favor of Swiss Reinsurance Co., the largest of the insurers involved in property coverage for the destroyed twin towers.
The jury in U.S. District Court for the Southern District of New York found that Swiss Re, like eight of 11 other insurers taking part in the trial, bound to coverage using a form issued by broker Willis Group Holdings Inc., rather than a rival form issued by Travelers Insurance Co. A prior ruling from the U.S. Court of Appeals for the 2nd Circuit in New York had previously ruled that the Willis form, known as WilProp 2000, defined the terrorist catastrophe that destroyed the World Trade Center as one event, rather than two, as the leaseholders on the twin towers had claimed.
The verdict means Swiss Re-the largest of the participants in the property insurance scheme covering the World Trade Center with 25% of the exposure-will have to pay $877.5 million in claims, rather than $1.76 billion, had the catastrophe been found to have been two events for insurance purposes.
Jacques E. Dubois, chairman of Swiss Re America Holding Corp., said the verdict ends two and a half years of legal wrangling by vindicating Swiss Re's contention that it bound to the WilProp form and never even considered another form. "The way we see it, it came down to a simple story between two people-their broker and our underwriter, and who agreed to what," he said.
"Swiss Re is grateful for the jury's full consideration and attention throughout the trial," said Dubois. "We are pleased that the jury has confirmed the contractual basis of our coverage. We have always been convinced that the maximum payout under a loss limit property policy could never exceed the sum insured, in this case $3.5 billion."
Dubois said Swiss Re hasn't concluded that the way it negotiated coverage on the World Trade Center property was faulty. Regarding the binders, or temporary coverage agreements, that were at the center of the dispute, he said "they have worked well, and will continue to work well."
The defendants in the 10-week trial before Judge Michael B. Mukasey, leaseholders Silverstein Properties and Westfield Properties, had contended that the destruction of the World Trade Center was two events, which would double the $3.5 billion coverage payout.
Larry Silverstein, principal of Silverstein Properties, said the outcome of the trial will not deflect him from taking a lead role in the rebuilding of the World Trade Center site. "A defeat in the courtroom is not a defeat for rebuilding," he said in a statement. "Whatever happens in court, we are determined to rebuild the World Trade Center, under Gov. Pataki's leadership and in keeping with the master plan."
Gov. George E. Pataki outlined redevelopment plans for lower Manhattan, including the World Trade Center site, in a speech before the Association for a Better New York a year ago. In his speech, Pataki talked of the Freedom Tower as the "new icon" of lower Manhattan.
In his statement, Silverstein made no mention of a possible appeal of the jury verdict.
Silverstein said construction on one building-Seven World Trade Center-is under way, with 20 of 52 stories already built. That building is expected to be completed in 2005. Construction on the "Freedom Tower," which at 1,776 feet is expected to be the tallest building in the world, will start with groundbreaking "in the coming months," and is expected to be completed by 2009, he said.
The just-ended trial was the first phase in a three-phase proceeding. In the first trial, the jury determined whether each of the 12 insurers contending the leaseholders' position bound under the WilProp form-which had already been determined by another court decision to have a definition of occurrence that found the twin towers' destruction to be a single event.
In the second phase, another jury will determine whether the three insurers who lost the first trial, plus seven others, bound under the Travelers form. That jury will also have to determine how the Travelers form defines occurrence. In a third phase, if any insurer is found to be liable for claims based on two events, a jury will have to determine how much each will have to pay.
The seven insurers who did not participate in the Phase I trial, but who will be involved in the second phase, according to Silverstein, have an aggregate exposure of $956.4 million per occurrence. They are Allianz A.G. (fronting for French reinsurer Scor), with $355 million of exposure; IRI, with $237.2 million; Travelers Insurance Co., with $210.6 million; Allianz, with $77.9 million; Gulf, with $65 million; TIG, with $9.1 million; and Tokio Marine and Fire, with $1.6 million.
The three insurers who will move on to the second phase from the first, with a total per-occurrence exposure of $176 million, are Royal Indemnity, Zurich America and Twin City Fire, a unit of Hartford Financial Services Group. Slightly more than $1 billion is still on the line for Silverstein in Phase II, who can win more than $2 billion if all insurers are found to be liable for two occurrences.
Silverstein said he intends to pursue the second phase of the trial. "We feel the evidence is strongly in our favor and look forward to our next day in court," he said. "And we're looking forward to the day when this litigation ends, so we can focus all of our attention on rebuilding."
(By David Pilla, senior associate editor, BestWeek: David.Pilla@ambest.com)