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Best’s News & Research Service - September 25, 2002 04:32 PM (EDT)

Three Insurers Win Ruling That WTC Disaster Was One Event

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NEW YORK //BestWire// - Three of the 20 insurers involved in World Trade Center litigation have won their case that the landmark property was destroyed in a single insured occurrence on Sept. 11, 2001.

U.S. District Judge John S. Martin Jr. granted summary judgement to Hartford Fire Insurance Co., Royal Indemnity Co. and St. Paul Fire & Marine Insurance Co., saying the three companies wrote coverage based on a form that defined "occurrence." That limits their exposure to a single claim from the loss of the property.

That leaves 17 of the original 22 insurers still in litigation over whether the property was destroyed in a single loss, worth a maximum of $3.55 billion, or two insured losses, worth a maximum of $7.1 billion.

Larry Silverstein, the leaseholder on the property, and Swiss Re, the lead insurer in the case, as well as 19 other companies-including five that sought summary judgement-have been fighting in court over whether the destruction of the property should be considered one or two insured events. Two of the original 22 insurers to take a piece of the liability have already settled out of court based on a single occurrence.

"The ruling speaks for itself," said Mike McNamara, a spokesman for Swiss Re.

In a statement, Gerald McKelvey, a spokesman for Silverstein, said Silverstein disagreed with the ruling and would consider an appeal. However, the three insurers' coverage amounts to a total of about $112 million, so limiting these insurers to a single occurrence doesn't have a material effect on the overall amounts of $6.7 billion that would be recovered in the litigation, McKelvey said.

Silverstein had signed a lease with the Port Authority July 24 with binders and slips of coverage totaling $3.26 billion, the judge wrote in his decision. Because no formal policy was in place Sept. 11, the lawsuit is based on the language used in a binder form, an initial document that described insurance terms and conditions. Silverstein and the insurers disagree on which binder form was used.

Swiss Re, which is responsible for 22% of the liability on the twin towers and Nos. 4 and 5 World Trade Center, said it bound itself on the basis of a form provided by Willis Group Holdings Inc. called WilProp 2000. That form specifies that "occurrence shall mean all losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur."

Silverstein's attorneys argue that coverage was bound by a Travelers form, which they said didn't define "occurrence." Silverstein could use that lack of definition to argue that two planes hitting two towers should count as two claims, or $7.1 billion instead of $3.55 billion.

Martin ruled that the three insurers--Hartford, Royal Indemnity and St. Paul--all based their coverage on the WilProp form. "While there is evidence indicating that, had the terrorist attack of Sept. 11, 2001, not occurred, the insurers would all have ultimately agreed to policies that did not define the term 'occurrence,' that possibility is irrelevant," Martin said in his decision."Under New York law, the question to be determined is not, 'What were the terms to which the parties might ultimately have agreed to become bound?' but rather, 'What were the terms to which they were bound?'"

Martin said he couldn't consider "the public interest in the rebuilding of the World Trade Center in deciding the question of whether the binders issued by these insurers entitle the Silverstein parties to recover twice the face amount of the insurance they purchased."

Hartford was pleased with the judge's decision and had already paid the $32 million it is responsible for relating to the World Trade Center, said Joyce Willis, a spokeswoman for Hartford.

A total of five insurers sought the summary judgement. The judge's opinion didn't mention Allianz Insurance and Zurich American, the two other insurers, but like Hartford, Royal Indemnity and St. Paul, Allianz and Zurich asked for summary judgment saying their circumstances were different from other insurers involved in the litigation and that they clearly wrote the coverage based on a single occurrence.

The litigation is far from over, and the bulk of the case is scheduled for trial in November.

Earlier this month, Martin ruled that Willis should reveal details about its own errors and omissions coverage. Swiss Re argued that if Willis was concerned about its own liability, it could impact its view on whether the World Trade Center disaster was one event or two. According to a court transcript, Martin said that while Willis isn't a party to the lawsuit, because it's a major player in the case, testimony should be presented (BestWire, Sept. 9, 2002).

This followed Martin's June decision ordering Willis to testify in the case. Swiss Re said in court papers that the more than $3.5 billion at stake has led Silverstein's counsel to exert "fantastic pressure" on Willis witnesses to agree with Silverstein's theory of the case-that the destruction should be considered two separate events (BestWire, June 19, 2002).

Martin has also ruled that Swiss Re's chief executive officer, Walter B. Kielholz, can be deposed by Silverstein. Silverstein said Kielholz made a recent speech in London in which he said Swiss Re viewed the World Trade Center's twin towers as "two separate towers." Swiss Re said his statements had been misconstrued (BestWire 20, 2002).

In February, two of the insurers agreed to settle claims by paying $365 million. Ace Bermuda Insurance Ltd., a subsidiary of Ace Ltd. (NYSE:ACE), agreed to pay $298 million, and XL Insurance (Bermuda) Ltd., a unit of XL Capital Ltd. (NYSE:XL), agreed to pay $67 million, for a total of $365 million (BestWire, Feb. 15, 2002). The two Bermuda insurers were the only participants in the insurance program that had signed binders expressly referencing the WilProp form, Silverstein has said.

(By Meg Green, senior associate editor, BestWeek:

Property And Liability Insurers Property Insurance Commercial Lines Commercial General Liability Insurance September 11

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