World Trade Center Building Lawsuits Multiply

Several new fronts have opened in the ongoing battle over World Trade Center coverage. On Dec. 28, 2001, Silverstein Properties (SP), the master leaseholder, filed a lawsuit against Travelers to recover the losses it insured for both towers. A week later, Germany’s Allianz AG elected to enter the dispute by joining Swiss Re and Chubb in seeking to have the destruction of the twin towers declared “one occurrence” rather than two.

SP also asked the Federal District court hearing Swiss Re’s declaratory relief action for approval to join most of the other 22 insurance companies involved. Under the Federal Rules of Civil Procedure judges have broad discretion, but it appears likely that the petition will be approved, as it would bring all parties which may be affected by any eventual decision under the court’s jurisdiction, and give them the opportunity to present their case.

Swiss Re’s suit, filed last October, was limited to determining whether its position, or SP’s, was correct. It asked the court to validate that the terrorist conspiracy, which resulted in the destruction of both towers, constituted a single loss event. In which case only one of the buildings would be covered for around $3.6 billion.

Larry Silverstein promptly disputed the assertion. He maintains that, as two airplanes flew into two buildings, both of which collapsed at different times, there were two “occurrences” within the meaning of the binding memorandum of coverage agreed to by a group of 22 insurance companies, headed by Swiss Re. If he wins, SP, its minority partner Westfield America and the Port Authority of New York & New Jersey could receive as much as $7.2 billion.

The two sides have been firing salvos back and forth (See IJ /West, Dec. 24, 2001), but a recent court decision called for an April 30 deadline to complete discovery proceedings, which could bring the case to trial by June. However, as it now appears likely that all the insurers directly involved in WTC coverage will eventually be brought into Swiss Re’s declaratory relief action, that goal may be untenable.

While the issue is fairly straight forward, no one can say with certainty how the court will rule, or how an appellate court would consider the question. The Associated Press reported that Mark Geistfeld, a professor of insurance law at NYU, was certain that SP was correct, based on his analysis of a New York court decision that found the collapse of two walls from the same rainstorm to be “two accidents.”

The same article quoted Robert Hartwig, chief economist for the Insurance Information Institute, as stating that the insurers “are standing on a very strong foundation.” Hartwig pointed out that the policy language defines “occurrence”, as “all losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes,” which would seem to be Swiss Re’s position.

SP didn’t seek to include either ACE Ltd. or XL Capital in the New York lawsuit, as it is still in settlement negotiations with them. However, it’s already sought a court order to prevent any claims arbitration in London, a provision that would have been part of the formal insurance policies, which were being drafted when the WTC was destroyed. That action, also filed in New York, asks that all questions involving WTC claims be heard in Manhattan; therefore, it’s likely, if the settlement talks fail, that SP would seek to combine its claims against ACE and XL with the others.

In addition to their ongoing dispute over the insurance claim, the parties may be facing an even more fundamental conflict: What exactly should be constructed on those 16 charred acres of lower Manhattan? Many Americans, led by the surviving family members of those who died there, consider the site sacred ground. Even though the remains of some 600 victims have been recovered, the area is likely to remain the final resting-place for over 2,000 people, more than are entombed on the Titanic.

Individuals and organizations in growing numbers are calling for “ground zero” to be preserved as a permanent memorial to those who lost their lives; they are increasingly opposed to any commercial construction that doesn’t include a significant part of the site as a memorial. No one would presume to put up a shopping mall at Gettysburg, or an office building in Arlington National Cemetery, so why desecrate the memory of the victims of Sept. 11 by reconstructing commercial buildings on their graves, they ask?

Nearly everyone, including Larry Silverstein, is reconciled to the fact that a reconstruction of the twin towers—pre Sept.11—won’t happen. He’s been discussing a plan to build four 50-story buildings, but that raises some thorny questions.

SP has retained the right to rebuild by continuing to pay rent to the Port Authority, which would have to approve any structures that differ substantially from the original. The Port Authority is primarily interested in restoring its underground PATH and subway lines, but doesn’t want to lose rental income either. Suggestions have been made to dedicate a certain portion of the site as a memorial, and give SP an equivalent space in Midtown to replace it, but that raises all sorts of additional questions.

The dilemma helps explain why SP presented Swiss Re with a “Preliminary Proof of Losses” last November and demanded payment for the actual value of the twin towers at the time of their destruction. It also explains why Swiss Re immediately took the position that SP had forfeited its rights to rebuild. If it pays the value of the loss, neither Swiss Re, nor any of the other companies involved, would be responsible for the costs of rebuilding, whether it’s the original buildings or something else; nor would they be involved in calculating different rental values, etc. They’d also be free of the increasing controversy over what plan will eventually be adopted.

That analysis brings everybody back to the lawsuit(s), and the ultimate $3.6 billion question of whether one or two losses “occurred” on Sept.11.

Topics Lawsuits New York Swiss Re