Despite recent court ordered settlement procedures, the legal dispute pitting Swiss Re and 21 other insurance companies against Silverstein Properties, the master leaseholder on the twin towers of the World Trade Center, seems destined to go to trial.
The litigation began in October when Swiss Re filed a lawsuit in the U.S. District Court in Manhattan asking for a declaration that the destruction of the twin towers of the World Trade Center constituted a single occurrence.
The importance of the decision has been clear from the outset. As the leader of the group that had executed “binders” preliminary to the preparation and signing of formal policies, Swiss Re contends that the loss constituted “one event” not two. Silverstein has maintained from the beginning that two planes, destroying two buildings constitutes two occurrences, and mandates recovery for the value of both towers; i.e. double any figure Swiss Re et. al. might be willing to pay.
Swiss Re’s attorney Barry Ostrager explained that “binders are predicated on underwriting; they’re a shorthand for the [eventual] policy.” They contain only the bare essentials—property description, policy limits, premium rate etc., and don’t actually indicate exactly which form will be used to draft more complete policy provisions, which are agreed to by referencing the policy form.
This has led to a collateral dispute over whether the parties planned on using a form prepared by Traveler’s, which doesn’t specifically define an “occurrence,” or a form prepared by the Willis Group, the WilProp form, that refers to all losses from a single occurrence “or series of occurrences” as being one loss, i.e. one single event. Willis, who acted as the lead broker in the placement of insurance on the WTC, has become embroiled in the dispute.
The controversy involves the actions of Willis broker Timothy Boyd. According to Swiss Re, Boyd originally indicated that the WilProp form was referenced when the coverage was bound. In subsequent court proceedings the insurer charged that Boyd was pressured to recount a different version. His deposition testimony indicated that the Travelers form was referenced. Silverstein’s lawyers asserted that Willis’ own attorneys had assured them that the Travelers form was always the one to be applied to the WTC coverage. Swiss Re has filed motions to eliminate claims of an “attorney client privilege” between Silverstein and Willis and to compel further discovery.
Under orders from Judge John Martin to come up with a settlement offer, both sides submitted figures, which exactly reflected their positions. Silverstein and his associates demanded $7 billion; Swiss Re and the other insurers maintained they were liable for a maximum of $3.55 billion.
Swiss Re, however, issued a statement shortly before the submission of the settlement offer, which questioned even that figure, stating that, “there are no circumstances under which World Trade Center leaseholder Larry Silverstein can ever recover more than $3.5 billion of insurance proceeds under the coverage purchased.” Under this reasoning the actual amount is closer to $2.4 billion. According to Swiss Re this figure is actually “consistent with Silverstein’s internal calculations.” It also stated that “Pearson Partners, an independent real estate appraiser has estimated the actual cash value of the WTC complex at $2.156 billion under the Willis Property form (WilProp) that Silverstein used to bind the insurance coverage.”
That assertion begs the question on two grounds. First, one of the key issues in the case is which form the parties referenced when the binders were signed. Second there appears to be sufficient evidence and legal precedent to show that the attacks on the two towers were separate “occurrences,” which would produce two loss events.
This view was endorsed by a “Big ‘I’ Virtual University Paper, ‘One vs. Multiple Occurrences,'” written by University director Bill Watson, and published by the IIAA in July. The study concluded that based on applicable law, notably the New York case of Johnson v. Indemnity Ins. Co., “courts have held that events separated by space and time are separate ‘occurrences’ even if caused by the same general exposure to peril.”
The paper, which can be obtained at http://vu.iiaa.net/1vs2.htm, states that, “Because the World Trade Center losses were caused by two separate aircraft controlled by two separate groups that struck two separate buildings, the author of the Big ‘I’ Virtual University paper concludes the claim is two losses.”
It points out that, “A central tenet of insurance is that a loss must be definite in time and place. As a result, it seems more proper to consider the direct perils that resulted in the losses (aircraft, arson, etc.) to constitute the ‘occurrence(es).'” The basis of this line of reasoning rests on the assumption that the terrorist cells which carried out the two attacks committed two separate acts, even though they were linked by a common plan.
For example: If a group of commandos had arrived at the WTC, split up and destroyed both buildings, it could be seen as one act, but the common goal shared by two separate groups of aircraft hijackers, acting independently, is insufficient to create one proximate cause for two separate acts of destruction, and therefore two losses occurred. That is the ultimate question the court will have to decide, and that’s why the form used is so important.
Jacques Dubois, chairman of Swiss Re America Holding Corp., stated in May that, “It is now obvious that Silverstein’s Travelers form two-occurrence confection is nothing but a post-loss creation by Silverstein and his counsel and bears no relation to the actual placement history.” The company added, “it is crystal clear that virtually all of the insurers bound coverage on the WilProp form and no fully negotiated Travelers form existed prior to September 11 and, in fact, neither Willis nor Silverstein wanted the Travelers form.”
In a more recent statement Dubois again attacked Silverstein’s veracity, accusing him of refusing to purchase the $5 billion in coverage that the WTC was estimated to be worth, and opting for the $3.5 billion policy limit. “The WTC was destroyed only once and under the property insurance coverage purchased, in fact, under any property insurance coverage, Silverstein is entitled only to a maximum of the policy limit of $3.5 billion,” Dubois stated.
He added that, “Silverstein himself has already admitted that the coordinated attack on September 11 was a single occurrence in his one-occurrence settlements with insurers Ace and XL.” At the time those settlements were made, however, Silverstein pointed out that the policies were based on different terms from those he had concluded with Swiss Re.
Neither party appears willing to compromise. Perhaps it’s even appropriate that the biggest peacetime disaster in U.S. history should give rise to one of the biggest commercial property insurance disputes.
Editor’s note: On Aug. 22, Judge John S. Martin ruled at a hearing that he will split the World Trade Center trial into two parts. The first, scheduled to begin in November, will determine whether the attacks represented two separate occurrences, and the second, slated for March, would determine the value of the damages if necessary.