Silverstein Claims Pair of Losses in WTC Disaster

The man who held the master lease on the World Trade Center is standing by his claim that the loss of the Twin Towers on Sept. 11 was two losses, not one, despite the call by insurer Swiss Re that there was only one loss involved. Now, Larry Silverstein waits for a court decision to sort out the matter.

On Nov. 6, Silverstein filed suit against Swiss Re, demanding prompt payment from the company and re-asserting his claim that the destruction of the Twin Towers occurred as two separate losses.

Just over two weeks earlier Swiss Re announced that it would offer an initial payment to all those insured for the WTC property, including The Authority of New York and New Jersey, so that they could meet term obligations. On Nov. 6, Swiss Re advanced its share of a $75 million initial payment.

In a move to speed up the claims process, Swiss Re asked the U.S. Federal Court for the Southern District of New York in Manhattan to confirm that the collapse of the buildings is one insured loss. If Swiss Re is successful, its total payout for the loss will be around $750 million, a figure that could double if Silverstein prevails.

Silverstein Properties and Westfield America, who acquired the master lease on the WTC last July, are hoping to recover more than $7 billion for the loss of both buildings as separate loss incidents, as opposed to recovering $3.5 billion for the loss of one property.

Making the matter all the more difficult to determine is the fact that there wasn’t an insurance policy completed at the time of the property’s destruction. Swiss Re has acknowledged that it is liable for 22 percent of the loss(es), with an additional 22 companies who were part of negotiating the final terms of coverage at the time of the attack.

On Nov. 5, Silverstein filed suit against Bermuda insurers ACE Ltd. and XL Capital Ltd., seeking resolution of disputes over the Sept. 11 claims. That lawsuit requests a federal court in New York to rule that all disputes related to the attacks be settled there, challenging both ACE and XL Capital, which are insisting that the disputes be settled by arbitration in the United Kingdom.

According to a spokesperson for ACE, the policy issued by the company stipulates that any disputes be handled through arbitration in London.

Marv Garrett, a senior litigation partner for Allen Matkins Leck Gamble & Mallory in Los Angeles, commented that while he has not seen the legal pleadings, it appears Silverstein is taking the position that the two separate airplanes crashing into the two towers are separate incidents.

“It would seem to me that [Silverstein] has an enormous problem of proof that those were not interrelated acts,” Garrett said. “If there is an interrelated acts provision in the policy which you would expect, I think it will be a very difficult case for him to win. I suspect this is something that will take time. If you’re on Silverstein’s side, you’re going to want to force the carriers to deal with this, put reserves up. That would help you get some leverage. In terms of winning the case based on the facts we’re all aware of surrounding Sept. 11, and with regard to what I would expect to be the customary language for interrelated acts, I suspect he has a very tough case. If there is no interrelated acts provision, then it is a very different analysis. He wouldn’t have filed that suit unless there was.”

Garrett added that he talked to several people and noted that the premium that Silverstein paid to the carriers when the policy was taken out in August was based on the combined value of both towers.

In a court challenge filed in late October, Swiss Re claims that Silverstein made comments to the media that Silverstein Properties is entitled to double the face value of insurance that Swiss Re and other insurers provided under the trade center coverage. The suit alleges that Silverstein has characterized the attack as two separate losses, entitling the insureds to twice the amount of insurance they purchased.

In its argument for a single loss, Swiss Re maintains that it will honor its insurance obligations, but the possible payment to the Silverstein group for years of lost rental income could evaporate the coverage to which other insured parties are entitled for purposes of rebuilding. Swiss Re remarked that there is insufficient insurance for both rebuilding the center and funding years of rent interruptions to the Silverstein group. In a statement from the insurer, Swiss Re remarked that it “cannot responsibly pay the proceeds over to Mr. Silverstein without regard for the interests of other entities. For this reason, Swiss Re is seeking a declaration from the court apportioning any payments among the parties in interest.”

Garrett noted that insurers for years have wrestled with the definition of just what are interrelated acts. He added that when you’re dealing with something the magnitude of the Twin Towers, it is usually customary to have every aspect of the placement negotiated, which would include policy language.

Garrett said this case will eventually be settled, but not to expect any quick solutions. “The stakes are so high that eventually it will be beneficial to settle,” Garrett commented. “The other part here that will work in Silverstein’s favor is that insurers are in tune to the political reality of Sept. 11. They just can’t come out and deny coverage.”

For Silverstein, Garrett said time probably works against him. “He probably has a better position if he pushes it now. Therefore, if I were on his side, I’d be very public and very vocal at this point in time.”

No matter the outcome, Garrett said the events of Sept. 11 have changed the industry forever. “It will have an impact in the insurance market in every aspect of every policy/type ofcoverage in the insurance world,” he concluded.

Topics Carriers New York Profit Loss Claims Swiss Re