9/11 Five Years Later: Insurance Lessons 


Winter 2006 - (Lang Michener InBrief )

Lang Michener InBrief 
Reprinted in Canadian Insurance Law Reporter, Issue 677, May 2007
As we had previously written in In Brief, in July of 2002, Larry Silverstein had signed a 99-year lease with the Port Authority of New York for both towers of the World Trade Center. As required, Silverstein obtained insurance covering the property, but the policies were not issued before the terrorist attacks resulted in the destruction of the towers. Because of the magnitude of the loss, the number of players and the complexities involved in rebuilding, five years later the fight still rages on in the courts and in the press. Are there lessons to be learned from this? 

The main issue fought and being fought in three actions is whether the coordinated terrorist attack involving two planes hitting two towers at separate times constituted "one event" or "two events" for the purposes of the "per occurrence" policy limits. For Silverstein, the answer to this question meant the difference between receiving $3.5 billion (U.S.) and $7 billion (U.S.). Because the policies had not been issued, a lot of the legal effort centred on trying to show which policy wording would have applied had the policies been issued. 

The First Three Rounds

In the first round, involving 10 insurers with an aggregate "per occurrence" limit of $2.4 billion (U.S.), the jury found that in negotiating the coverage, the parties had agreed to use Silverstein's broker's form which defined "per occurrence" in a manner that resulted in the 9/11 attacks being treated as a "single occurrence." 

In the second round, however, involving 9 insurers with an aggregate "per occurrence" limit of $1.1 billion (U.S.), the jury found that the parties had agreed to use the Travelers form which left "per occurrence" undefined. As a result, the jury found that for the purposes of those policies, the 9/11 attacks constituted "two events" entitling Silverstein to double the "per occurrence" policy limits. Two important factors may have lead the jury to that conclusion:

  • The laws of New York have an "unfortunate events test" that falls somewhere between the "cause test" which looks at the root cause of the event(s), which, in this case, was the planning of al-Qaeda and thus one event; and the "effects test" which looks at each incident of damage to determine the number of occurrences, and in that case, two planes and hence two occurrences. The "unfortunate events test" like the "cause test" looks at the root cause of the event giving rise to the damage, but requires that the cause be located close to the loss event and thus the al-Qaeda planning in Afghanistan may have been considered to be too remote.
  • Silverstein's lawyers were successful in showing to the jurors that the insurance industry was inconsistent in various cases in arguing one event or two. In cases where the damage was small, insurers tended to argue multiple events to get the benefit of multiple deductibles. In cases of large losses, they tended to argue single event to get the benefit of the "per occurrence" limit.


The jury resolved the uncertainty in favour of the insured. The appeal of that decision is yet to be dealt with. 

The third round involves the Port Authority seeking to collect on its $1.5 billion (U.S.) property coverage. The issues involved in this litigation include:

  • the same "one event" or "two events" issues that were involved in the Silverstein litigation; (Like Silverstein, the Port Authority also had not received its policies at the time of the attacks.), and
  • determining what the Port Authority policy covers. (While Silverstein leased and took insurance responsibility for most of the World Trade Center complex, the Port authority retained interest and responsibility for its own leased offices, the subway stations and tunnels and a building in the Center leased by the federal government.)

Round Four?

And will there be a round four? Another issue involves allegations that some insurers are resisting paying their coverage limits arguing that the changed plans for the rebuilding are outside the scope of what they insured. Under the current framework, Silverstein would build three towers on the site with some leasing guarantees from the Port Authority and the Port Authority would take over Freedom Tower and a fifth tower on the site, as well as the construction of the memorial to those whose lives were lost on September 11, 2001. The Mayor, the Governor and the Senior Senator of New York, recognizing the importance and difficulties involved in rebuilding the World Trade Center, have all come out publicly against insurers dragging their feet or relying on technicalities. 

The Lessons

What lessons can be taken from this unfortunate, indeed, tragic set of events?

  • Insurance policies are important and complex legal agreements. Are one's interests served by relying only on the broker to ensure that the form of contract adequately addresses the particular organization and its likely risks? In Silverstein's case, granted with the benefit of hindsight, the language proposed by its broker arguably cost $2.4 billion (U.S.). Accordingly, it may be prudent for anyone needing insurance coverage to consult legal counsel familiar with insurance contract interpretation as well as the broker and possibly the accountant/auditor to review the terms of the coverage to ensure that it addresses the particular situation. Insurance underwriters, especially when the market is soft, are willing to discuss and agree to changes to the wording of the policy to reasonably reflect the risks that they understand and underwrite. Once a claim arises, claims managers and coverage counsel are understandably resistant to changing the words of the policy. This applies not only to property and liability coverage, but also to other kinds of coverage – for example, directors and officers, business interruption and product liability.
  • While yearly review might be overkill, the risk profile may change from time to time so a periodic review is advisable. For example, the threat of terrorism continues as recent events in Toronto and England have shown. There also seems to be a general consensus among the scientific community that a pandemic of some sort (avian or other) is going to happen in the foreseeable future. How will your organization fare if a terrorist attack or a pandemic hits and your workers, suppliers or customers are caught up in it? Or if the borders are closed?
  • Even if insurance coverage for a particular risk cannot be obtained, there may be alternative ways of addressing the risk and reducing the exposure.
  • In all cases, it is wise to insist on receiving the policy wording in a timely manner. In Silverstein's case, no one would have agreed to a 99-year lease without having finalized and signed the contractual documents. Why should one accept different treatment for insurance contracts?


The old adage of "an ounce of prevention is worth a pound of cure" applies to the risks that any organization faces. There is an opportunity here to learn from the lessons of others.