Silverstein Wins Two-Occurrence Verdict In Second World Trade Center Trial
December 07, 2004
Copyright 2004 A.M. Best Company, Inc.
BestWire
December 07, 2004
1293 words
SILVERSTEIN WINS TWO-OCCURRENCE VERDICT IN SECOND WORLD TRADE CENTER TRIAL
NEW YORK (BestWire) - It was a reversal of fortune for insurers in the second World Trade Center trial, as a federal jury in New York agreed with leaseholder Larry A. Silverstein's argument that the nine insurers involved had bound under insurance agreements that allow the Sept. 11, 2001, destruction of the twin towers to be defined as two occurrences, rather than one.The verdict, after more than 10 days of jury deliberation in U.S. District Court for the Southern District of New York, opens the door for Silverstein to collect as much as twice the $1.1 billion aggregate insured amount per occurrence the nine insurers are liable for, according to Silverstein spokesman Bud Perrone.The nine insurers involved in the Phase II trial are Allianz Global Risks U.S. Insurance Co., a subsidiary of Allianz A.G.; Travelers Indemnity Co. and Gulf Insurance Co., both now part of St. Paul Travelers Cos. Inc.; General Electric subsidiary Industrial Risk Insurers; Royal Specialty, an affiliate of Royal & Sun Alliance Insurance Group plc; Fairfax Financial Holdings Ltd.'s TIG Insurance Co.; Tokio Marine & Fire Insurance Co., a unit of Millea Holdings Inc.; Twin City Fire Insurance Co., a subsidiary of Hartford Financial Services Group Inc.; and Zurich American Insurance Co., a unit of Zurich Financial Services Group.Also, part of Allianz's exposure was reinsured by French reinsurer Scor.
Perrone said the coverage amount each insurer is bound to -- per occurrence -- is as follows: Allianz, $432.6 million; Industrial Risk, $237.8 million; Travelers, $210.6 million; Royal Specialty, $127.8 million; Gulf, $64 million; Zurich, $45.6 million; TIG, $9.1 million; Twin City, $2.5 million; and Tokio Marine, $1.6 million."Given the two-occurrence verdict, each is now liable for double the amount--pending appeal, of course," said Perrone.Some of the insurers have said they are considering an appeal of the verdict. Scor said in a statement that is "considers the jury's verdict to be contrary to the terms of the insurance coverage in force and to the intent of the parties."Scor said that its ceding company, Allianz, believes a separate appraisal procedure to determine the amount of indemnification due from each insurer could arrive at a much lower figure than the verdict might suggest. "Allianz, Scor's ceding company, has stated its belief that the court-supported appraisal process will establish that the Silverstein parties did not sustain covered losses in excess of one policy limit," Scor said.Industrial Risk Insurers spokesman John Novaria said IRI is "convinced the attack on the World Trade Center" was one occurrence. "The jury disagreed with our view, and we believe the evidence is to the contrary," he said. Novaria said IRI will "examine our options."St. Paul Travelers said only that, given its reserve position and reinsurance arrangements, the impact of the verdict would be "immaterial" to its financial position.Both Zurich and Royal & Sun said they could not yet assess the impact of the decision on their balance sheets. Both said they are considering appeal as an option, and both echoed Scor in saying that the evaluation process could result in indemnification amounts much lower than what Silverstein expects.The verdict in this, the "Phase II" part of a protracted battle between Silverstein, who held a 99-year lease on the World Trade Center at the time of the terrorist catastrophe, offers a dramatic contrast to the outcome of the Phase I trial, when another jury in the same court in early May ruled that 13 other insurers and reinsurers had bound to coverage under a form that defined the twin towers' destruction as a single event (BestWire, May 4, 2004). In that trial, a group of insurers led by Swiss Re Group argued that they were bound under an insurance form used by broker Willis Group Holdings, rather than a rival form used by Travelers, and that the Willis form, known as WilProp 2000, had specific language that defined what happened to the World Trade Center as a single occurrence.The Phase I verdict in favor of the insurers meant that Swiss Re the largest of the participants in the property insurance program covering the World Trade Center with 25% of the exposure will have to pay $877.5 million in claims, rather than $1.76 billion, had the catastrophe been found to have been two events for insurance purposes. Had the Phase I verdict gone Silverstein's way, he would have been able to claim as much as $3.55 billion from the insurers involved in that phase.The just-concluded Phase II trial -- like the first phase heard in the courtroom of federal Judge Michael B. Mukasey -- determined how those insurers not bound by WilProp were bound to the Twin Towers coverage, and how their agreements defined the destruction of the World Trade Center in terms of number of occurrences. Unlike Phase I, the insurers in Phase II were bound under a variety of forms, each of which had to be evaluated by the jury as to the intent of its per-occurrence language.A third phase -- the evaluation process cited by some of the insurers involved in Phase II, will determine exactly how much each insurer is liable to pay.Three insurers involved in the Phase II trial were also part of the Phase I trial. Royal Indemnity, Zurich America and Twin City Fire all were found not to have been bound to coverage by the WilProp form by the Phase I jury.Commenting on the Phase II results, with which it was not directly involved, Swiss Re said the second verdict will not affect any appeal by Silverstein of the Phase I verdict. "In our view, Swiss Re's verdict in Phase I is unassailable," the reinsurer said in a statement. "To the extent Silverstein pursues an appeal of that verdict, Swiss Re is 100% confident that its verdict will be affirmed."Silverstein, who is in the thick of the planning to build a 1,776-foot "Freedom Tower" on the site of the World Trade Center, had always cast his fight with the insurers of the twin towers as an effort to recoup insurance payments as part of the effort to rebuild at the site. The Freedom Tower, expected to be the tallest building in the world once completed, is expected to be completed by 2009, he said.The Phase II verdict "means an additional billion dollars of insurance proceeds will be available, which, together with Liberty Bonds, will ensure a timely and complete rebuild of the World Trade Center," Silverstein said in a statement. "I strongly felt, and this jury agreed, that the destruction of the Twin Towers by two separate airplanes at two separate times was two separate occurrences and that these insurers have an obligation to pay their fair share to help make lower Manhattan whole again."According to Silverstein, work to rebuild one building in the World Trade Center complex -- 7 World Trade Center -- is ahead of schedule and is expected to be completed in 2006. The cornerstone for the Freedom Tower was laid on July 4, with Gov. George E. Pataki officiating.Tokio Marine & Fire Insurance Co. Ltd. is rated A++ Superior); Swiss Re Group, Travelers Indemnity Co. and Twin City Fire Insurance Co. are rated A+ (Superior); Allianz Global Risks U.S. Insurance Co., Industrial Risk Insurers affiliate Employers Re Group and Zurich American Insurance Co. are rated A (Excellent); Gulf Insurance Co. and Royal & Sun Alliance Insurance Group plc are rated A- (Excellent); Scor is rated B++ (Very Good); and TIG Insurance Co. is rated B+ (Very Good) by A.M. Best Co.(By David Pilla, senior associate editor, BestWeek: David.Pilla@ambest.com)
December 7, 2004
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