Insurance Lessons from 9/11 Continue 

publication 

April 2007 - (Lang Michener Fall InBrief )

Lang Michener Fall InBrief
Also published in Canadian Insurance Law Reporter, April 2007 Issue 676, and CCH Legal eMonthly, May 2007 
Zach Kerbel
Less than two months before the terrorist attacks on the World Trade Center, Larry Silverstein leased the buildings for 99 years from the Port Authority of New York and New Jersey and took out property insurance. However, the actual policy was not issued at the time that the buildings were attacked and collapsed and the resulting insurance litigation is still ongoing. 

In previous issues of In Brief, we examined this litigation and the lessons that it holds for insurers, insureds and their brokers. The issue was whether the two planes attacking the two towers constituted "one or two occurrences or events." The difference between the two positions was $3.5 Billion (U.S.). Some 19 insurers were involved and the juries in two separate trials have had to decide which contractual provisions apply based on the negotiations that preceded the binding of coverage. 

Round 1

In the first round of litigation, Jury 1 held that a group of 10 of 13 insurers were bound by the form put out by Willis, Silverstein's broker, under which the events of September 11 were a single insurable event. As a result, these carriers – including Swiss Re, which had the largest single share of the risk – were only liable up to the maximum amount insured by them. That was a victory for the insurance companies and a loss for Silverstein. 

Round 2

This did not end the matter, however. Jury 1 held that the remaining three of the 13 carriers were not governed by the Willis form. The liability of these three insurers and six others was the subject of a second trial. After a six-week trial, Jury 2 found for Silverstein and held that he was entitled to be compensated for the destruction of the two towers as two separate events. This group of nine insurers, collectively liable for a maximum $1.1 Billion (U.S.) per occurrence, was thereby found liable for $2.2 Billion (U.S.) in total. 

How do we explain these divergent outcomes? Perhaps the simplest explanation lies in the clarity of the language used in the insurance agreements. In the first trial, the Willis form had explicit language defining an occurrence for insurance purposes. But in the second trial, the void left by the lack of clear contractual language was filled in partly by the complexities of New York insurance law and partly by evidence as to how the insurers, in other cases around the country, had variously argued the "single occurrence" as opposed to the "multiple occurrence" issue in different cases to suit the insurer's economic interest. 

Round 3?

It seems the saga is not yet over for the insurers of the World Trade Center. Earlier this month, several insurers brought a suit against the Port Authority (the owner of the World Trade Center) alleging that the Port Authority is seeking to collect double the $1.5 Billion (U.S.) limit of its own property insurance program in light of the Jury 2 Silverstein verdict. The Port Authority has already collected $950 million (U.S.) from the insurers, but it has recently notified its insurers that its World Trade Center claims will now exceed $2.1 Billion (U.S.) for the "two occurrences." 

The insurers also allege that the Port Authority is trying to recoup losses on property that was leased to, and separately insured by, Silverstein. 

As in the Silverstein case, the Port Authority had not received/agreed to the final wording of its policy when the attacks of September 11 occurred. 

As we have written earlier, the practice of binding coverage and then issuing the policy/contract some time later – a practice common in the insurance industry – is fraught with uncertainty and danger and is needlessly ripe for expensive litigation. 

We'll keep you posted on how this aspect of September 11 eventually plays out.