Best’s News & Research Service - June 03, 2005 11:35 AM (EDT)
London Market Insurers Sue to Block Port Authority WTC Claim
NEW YORK //BestWire// - A new round of litigation is opening in connection with the Sept. 11, 2001 destruction of the World Trade Center, as a group of London market insurers filed a lawsuit against the property's owner, the Port Authority of New York and New Jersey, over the Port Authority's claim that it is still owed $2.1 billion in insurance payouts related to the catastrophe.
A lawsuit filed in U.S. District Court for the Southern District of New York argues that the claim is without merit, since the Port Authority "effectively sold much of the World Trade Center complex in July 2001 to a group of investors led by Larry Silverstein under 99-year lease agreements." The insurers contend that "the Silverstein interests" are required to rebuild the destroyed property for $3.546 billion - more than twice the amount of insurance previously covering the property, the plaintiffs said.
According to the complaint, the Port Authority bound to coverage with a limit of $1.5 billion on the World Trade Center properties under a one-year policy on June 1, 2001. Underwriters at Lloyd's of London and more than 20 different insurers participated in the coverage. The London insurers collectively wrote about $527 million of that limit, the complaint said.
The complaint further contends that the World Trade Center property leased by Silverstein's interests was excluded by the Port Authority's own coverage once Silverstein's lease took effect, which was in July 2001. Under the lease agreement, Silverstein and his partners were required to take out coverage at least equal to the $1.5 billion that the Port Authority had.
"The World Trade Center property sold to the Silverstein interests under these 99-year leases is not covered as claimed under the Port Authority's insurance," said Kenneth W. Erickson in a statement. Erickson, an attorney with New York law firm Ropes & Gray, which is representing the insurers, said the Port Authority is "not entitled to recover for the same property under both the Silverstein and the Port Authority insurance or to obtain double its own insurance to make up for a 'shortfall' in its litigation against the Silverstein insurers."
Efforts to reach Port Authority spokespeople for comment were not immediately successful.
According to the complaint, the Port Authority acknowledged after the Sept. 11 attack that insurance obtained by the Silverstein interests, and not its own, did cover the claims related to the leased properties. The complaint said the Port Authority, 3 1/2 years after the catastrophe, then informed the insurers that "it now believes it is entitled to recover under Port Authority insurance for losses to the Silverstein-leased property, and that the physical damage and related losses to its own property, as well as the Silverstein-leased property, is insured for two full $1.5 billion limits."
The Port Authority's current claim, minus the $950 million it already had collected from the London market and other insurers, comes to $2.1 billion, the complain said.
The lawsuit seeks to limit the Port Authority's claims to the $1.5 billion it originally took out, and to exclude the agency from collecting from "property protected by indemnification agreements or insured by third parties, including the property covered under the Silverstein insurance."
The insurers acting as plaintiffs in the lawsuit include Lloyd's of London underwriters Hiscox Dedicated Corporate Member Ltd., CDCM Ltd.; Wellington (Five) Ltd. and Markel Capital Ltd.; Axa Global Risks U.K. Ltd.; Copenhagen Reinsurance Co. Ltd.; Great Lakes Reinsurance (U.K.) plc; Houston Casualty Co.; QBE International Insurance Ltd.; Sirius International Insurance Corp.; Wurttembergische Versicherung A.G.; Zurich Specialties London Ltd. All are identified as "London market companies" in the complaint.
Last year, Silverstein and his partners went through two trials against two groups of insurers over claims related to the World Trade Center catastrophe, winning one and losing another. In those trials, both heard in the U.S. Southern District, the issue was whether the coverage he and his partners obtained had contract language that interpreted the destruction of the Twin Towers as one event or two. In the first round, a jury ruled a group of 10 insurers led by Swiss Reinsurance Co. bound under a policy form that defined the catastrophe as one event - giving Silverstein half the $3.5 billion he sought (BestWire, May 4, 2004).
In the second round, another nine insurers were found to have bound under other agreements that defined the catastrophe as two events, giving Silverstein an opening to claim double the $1.1 billion per-event aggregate those insurers were exposed to (BestWire, Dec. 9, 2004). That verdict is under appeal by the insurers.
The current Best's Financial Strength Ratings of the insurance companies involved are as follows: Swiss Reinsurance Co., Great Lakes Reinsurance (U.K.) Ltd. and Houston Casualty Co., A+ (Superior); Lloyd's of London and Sirius International Insurance Corp., A (Excellent); QBE International Insurance Ltd., A- (Excellent); and Zurich Specialties London Ltd., B++ (Very Good).
(By David Pilla, senior associate editor, BestWeek: David.Pilla@ambest.com)