Judge Rules Swiss Re Can Question GMAC on WTC Settlement

July 4, 2002

Swiss Re won another round in its lawsuit with Silverstein Properties over the amount of the recovery for the WTC losses, when Judge John Martin ruled that conversations between Silverstein’s lawyers and GMAC’s Commercial Mortgage Corp. were not covered by the attorney-client privilege.

The ruling opens the way for Swiss Re’s lawyers and other insurers involved in the dispute to question GMAC and its representatives, notably Harbor Group, which the company retained immediately following the Sept. 11 attacks to assess the amount of insurance coverage it had.

GMAC was one of the principal investors in Silverstein’s acquisition of the master lease on the WTC, lending the company approximately $560 million, which it subsequently securitized in the form of mortgage bonds, backed up by the property, which it sold to institutional investors.

Silverstein and GMAC settled their conflicting claims over who would receive the majority share of the insurance recovery in April, with GMAC getting the most of it on condition that it would make funds available to Silverstein to pay ongoing expenses.

The terms of that agreement, and the negotiation and conversations which led up to it, were the subject of the dispute ruled on by judge Martin. GMAC sought to protect them as being part of its information gathering activities at the behest of its lawyers, and should be protected from discovery either the attorney-client or attorney work product privilege.

The judge ruled, however, that they could be relevant to the issues presented in the case between Swiss Re and Silverstein, principally whether the collapse of both towers constituted one “occurrence” or two separate “occurrences,” and could not become protected simply because they had been disclosed to GMAC’s attorneys.

Judge Martin’s ruling is in line with one he made last month, when he ordered that Traveler’s, Swiss Re and the other insurers be allowed to question Willis’ brokers on their dealings with Silverstein, and the nature of the forms to be used to formalize the insurance policies on the WTC. (See IJ Website June 20)

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