Insurers Move to Block N.Y.-N.J. Port Authority $2.1B Claim From 9-11

June 3, 2005

Responding to a new claim by the Port Authority of New York and New Jersey that it is separately insured for a $2.1 billion “shortfall” in Silverstein property insurance following the Sept. 11, 2001 terrorist attack, a group of insurers has filed a complaint in federal court contending the claim is without merit.

The Port Authority sold much of the World Trade Center complex in July 2001 to a group of investors led by Larry Silverstein under 99-year lease agreements. The Silverstein interests are required to rebuild the destroyed property, and they also insured the property for $3.546 billion – more than twice the amount of insurance previously maintained on the same property.

The Port Authority joined the Silverstein interests in litigating in the New York federal court for more than three years their rights to coverage under the Silverstein insurance. Citing the outcome of that litigation, the Port Authority recently stated that there is at least a $2.1 billion “shortfall” in the amount necessary to rebuild 10 million square feet of commercial space at the World Trade Center.

The group of insurance underwriters opposing the claim includes Underwriters at Lloyd’s, Axa Global Risks Ltd., Copenhagen Reinsurance Company, Great Lakes Reinsurance (UK) Ltd.; Houston Casualty Company, QBE International Insurance, Sirius International Insurance Corp., Wurttembergische Versicherung AG and Zurich Specialties London Ltd.

The Port Authority maintained its own insurance on other property at the site and throughout the New York metropolitan area and has already received payments of $950 million from its insurers for damage on 9/11 to WTC property not controlled by the Silverstein interests, according to lawyers for the insurers. The Port Authority now claims, however, that this insurance separately covers its interest in the supposed “shortfall” in the Silverstein property insurance and that it is entitled to double the $1.5 billion limit of its insurance – or a total of $3 billion.

“The World Trade Center property sold to the Silverstein interests under these 99-year leases is not covered as claimed under the Port Authority’s insurance,” said Attorney Kenneth W. Erickson of Ropes & Gray, the Boston law firm representing the insurers bringing the action. “The Port Authority is not entitled to recover for the same property under both the Silverstein and the Port Authority insurance or to obtain double its own insurance to make up for a ‘shortfall’ in its litigation against the Silverstein insurers. Our clients collectively underwrote the largest portion of the Port Authority insurance and, when presented with this new position, they told the Port Authority that it was wrong and now file this action to seek confirming judgment from the same federal court that heard the prior case.”

Among other things, the insurers’ complaint contends:

* The Port Authority’s claimed interests in the World Trade Center property sold to the Silverstein interests under 99-year leases are protected both by Silverstein’s obligation to rebuild and by the Silverstein insurance. The Port Authority is an additional named insured on the Silverstein insurance.
By its terms, the Port Authority insurance does not cover property that a third party has either promised to rebuild or has insured.

* Insurance brokers representing the Port Authority and the Silverstein interests told insurers that the Silverstein insurance would replace the Port Authority insurance for this property and that they would not be at risk for a loss under both insurances as the Port Authority now claims.

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