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Industry Lawyers Argue WTC Was Underinsured

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Jurors Deal World Trade Center Leaseholder Major Setback
$1.06 billion in coverage will not double

Mark Hamblett
New York Law Journal

World Trade Center leaseholder Larry Silverstein suffered a major defeat Thursday when a federal jury found that several insurers were governed by a temporary policy that limited the payment for the destruction of the twin towers to one occurrence.

In the second week of deliberations, a jury told Southern District of New York Judge Michael B. Mukasey that it had reached a verdict on the facts for all but one insurance company, albeit the one with the largest stake in the dispute.

Silverstein claims that the attacks were two occurrences and he should therefore be paid double the almost $3.5 billion all parties agree he is owed at a minimum.

Thursday's partial verdict reduced the amount that could be doubled by $1.06 billion, leaving the rest in doubt.

The outcome fell into three categories:

  • Silverstein scored a victory on the facts for three insurance companies that will now have to participate in a second trial before Judge Mukasey. The issue will be the number of occurrences when the buildings were destroyed by terrorists flying hijacked planes on Sept. 11, 2001. His victory consisted of convincing jurors that the temporary policies in place left open the question of the number of occurrences.

  • The so-called London insurers won outright. They will have to pay $678.9 million to Silverstein, and not double that amount. The jury found that the companies were bound by the so-called WilProp form -- the policy language being used by Silverstein's insurance brokers as they negotiated a multi-level insurance package in the months leading up to the attacks by the al-Qaida terror group.

    Joining the London insurers in the winner's circle were Federal Insurance Co., $254.3 million; Employers Insurance of Wassau, $64.9 million; Great Lakes Reinsurance, $38 million; QBE International Insurance Ltd., $12.5 million; Lexington Insurance Co., $5 million, Copenhagen Reinsurance (UK) Ltd., $4 million; and Houston Casualty Co., $2.4 million.

  • Jurors were unable to reach a verdict on Swiss Re International Business Insurance. Late Thursday afternoon, Judge Mukasey urged them to return to their deliberations with renewed intensity, emphasizing that a no-verdict would only require the parties to retry the case. Swiss Re concedes that it owes Silverstein $877.5 million, an amount that Silverstein hopes to double should the undecided jury goes his way.

    The three companies found by the jury as not bound by the WilProp form are Royal Indemnity Co., $127.8 million; Zurich American Insurance co., $45.7 million; and Twin City Fire Insurance Co., $2.5 million.

    Those three companies will now be joined by seven others in the second trial to determine whether the attacks on the Trade Center were one or two occurrences. The seven insurers were not part of this trial because they were previously found not governed by the WilProp.

    The three insurance companies that lost will attempt to convince a second jury that the attacks were one occurrence. They will join seven companies that claim they owe Silverstein a total of $956.4 million, and not double that amount.

    Herbert Wachtell, of Wachtell, Lipton, Rosen & Katz, lead attorney for the Silverstein parties, declined to comment after the announcement of the partial verdict. The Silverstein parties include the Port Authority, which owns the property leased by Silverstein; Westfield Properties, which operated the commercial space at the Trade Center; and lenders involved with Silverstein.

    The London insurers presented a joint defense with two other insurance companies and were represented by Boies, Schiller & Flexner and Ropes & Gray.

    Kenneth W. Erickson of Ropes & Gray said after the verdict that the case, where the sides argued about contract formation, was particularly difficult because there were so many parties and so much information presented to the jury over the three-month trial.

    Erickson said the challenge for his legal team, led by David Boies, was to keep the jury focused with a "thematic" presentation that made the case "as clear and straightforward as possible."

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