Silverstein Properties Inc., along with the Port Authority and other insureds, has filed two briefs with the United States Court of Appeals for the Second Circuit establishing that the attacks on the World Trade Center constitute two occurrences for purposes of the $3.55 billion “per occurrence” insurance coverage of the Twin Towers, and that the lower court erred in ruling that three of the 24 insurers of the World Trade Center could limit their payments to a single occurrence.
If there are two occurrences, Silverstein and its co-insureds will reportedly be able to recover up to $6.7 billion for use in rebuilding; if there is one occurrence, recovery would be limited to $3.55 billion, an amount substantially less than the anticipated cost of rebuilding the World Trade Center site.
The first brief asks the Second Circuit to rule that under a policy form issued by the lead insurer of the complex, Travelers Indemnity, that leaves the term “occurrence” undefined, the events of Sept. 11 constitute two occurrences as a matter of law. The brief establishes that in determining the number of occurrences, controlling and long-established New York precedent provides that a court must look to the immediate, efficient, physical cause of the loss, and not to some indirect or remote cause of causes. Under this test, the events of Sept. 11 – in which two separate planes struck two separate buildings at two separate times, starting two separate fires that led to two separate collapses – constitute two occurrences.
Among the precedents cited in the brief is a federal appellate court decision in which Travelers successfully argued that four separate court house fires set by a single arsonist with a hatred for the judiciary should be treated as four separate occurrences, even though all four fires were set as part of a single plot and even though two of the four fires were set six minutes apart in court houses across the street from each other. Because Travelers was an excess insurer of the damaged court houses and several of the fires caused damages in an amount below the point at which Travelers would have to pay, it was in Travelers’ interest to argue that each fire was a separate occurrence. Accordingly, Travelers argued that:
The undefined term “occurrence” is “unambiguous” and there were four occurrences as a matter of law. Whether there was a “Common Scheme or Plan” or common “motivation” was “Irrelevant.” Each fire was required to be deemed a separate “occurrence” as a matter of law because “one fire did not cause any of the other fires, and each fire was set at separate times.” In a ruling that, ironically, was issued on Sept. 11, 2001, the federal appellate court hearing that case sided with Travelers, and ruled that the four fires should be treated as four separate occurrences.
Howard Rubenstein, a spokesman for Silverstein, noted, “Travelers cannot change the meaning of the word ‘occurrence’ depending on what is best for its balance sheet. If four separate court house fires started by a single arsonist counts as four separate occurrences as a matter of law, then the two separate fires started in two separate buildings as a result of two separate airplane crashes count as two occurrences as a matter of law as well, whether or not those fires were the result of a single terrorist plot.”
In the second brief, Silverstein establishes that the district court hearing the insurance dispute erred in ruling that three of the insurers of the Twin Towers – Hartford, Royal and St. Paul – had signed onto a particular “WilProp” form that contained a unique definition of the term “occurrence” and that under that definition, recovery was limited to a single “occurrence.” The brief shows that the insurers were told before they agreed to bind coverage for the Twin Towers that the WilProp form would not be used on the program and had been replaced with the Travelers form at Travelers’ insistence. It also shows that in ruling that these three insurers had bound to the superseded WilProp form, the district court erroneously failed to credit a mountain of evidence establishing that these three insurers intended and agreed to follow the form negotiated by Travelers as the lead carrier.
The brief also points out that the ruling by the district court judge hearing the case, Judge John S. Martin, Jr., in favor of Hartford, Royal and St. Paul was inconsistent with a subsequent Dec. 19 ruling by Judge Martin that three other insurers – Federal Insurance, a unit of Chubb; Lexington, a unit of AIG; and Zurich American – could not take advantage of the WilProp form because they had been told prior to binding that the WilProp form was not going to be applicable. Federal, Lexington and Zurich represent approximately 8.5 percent of the entire coverage of the World Trade Center buildings leased by Silverstein affiliates from the Port Authority, committing to a total of $305 million of the $3.55 billion “per occurrence” in coverage. In contrast, the three insurers that successfully argued at the district court level that their exposure should be limited to a single occurrence represent only approximately 3 three of the total coverage.
The briefs were filed jointly by the Port Authority, Silverstein and other insureds. The Second Circuit previously granted Silverstein’s motion for expedited treatment of the appeals, and has scheduled a hearing on the appeals for the week of March 24.