Jury to get WTC occurrence dispute

by DOUGLAS McLEOD

* Published on April 19, 2004

NEW YORK-World Trade Center leaseholder Silverstein Properties Inc. and a dozen of its insurers offered sharply conflicting versions of the WTC insurance placement last week as the two sides summed up their cases in the $3.55 billion coverage dispute after 10 weeks of testimony.

Attacking the credibility of each other's witnesses, lawyers for the two sides sparred over the trial's single issue: whether broker Willis Group Holdings Ltd. shifted the WTC program in the weeks before the Sept. 11, 2001, terrorist attacks from Willis' own policy form to a form produced by Travelers Property Casualty Corp.

The Travelers form, Silverstein contends, would treat the Sept. 11 loss as two $3.55 billion events, while courts have ruled the Willis form, known as WilProp, treats the loss as a single occurrence.

Herbert Wachtell, a lawyer representing Silverstein, told jurors last Wednesday that the insurers either knew of the switch to the Travelers form or had waived their right to agree.

"After 9/11, everybody's got a story," said Mr. Wachtell of Wachtell, Lipton, Rosen & Katz. "But before 9/11, none of these insurers bound to WilProp. If these insurance companies really wanted WilProp back in the summer of 2001, their underwriters could very easily have written a single word on their binders or slips: 'WilProp.' Not one of them did."

The insurers countered that they were never told of any such form switch, never agreed to the Travelers form and in most cases never even received a copy of a proposed Travelers policy before Sept. 11.

Swiss Reinsurance Co., the program's principal insurer, "never agreed to switch its binder contract from WilProp to any other basis of coverage," Barry Ostrager, a lawyer for Swiss Re, told jurors.

The alleged shift to Travelers, he charged, was a post-loss invention of Willis brokers who realized that the WilProp form's occurrence definition would restrict Silverstein's recovery to a single policy limit.

"Willis manufactured a story," charged Mr. Ostrager of Simpson Thacher & Bartlett L.L.P. "The position the Silverstein parties are sponsoring against Swiss Re cannot be reconciled with the true facts."

David Boies, a partner with Boies, Schiller & Flexner L.L.P. representing London underwriters, pointed out that Willis continued to send the WilProp form to London and other underwriters after the broker had allegedly decided to use the Travelers form. In addition, Mr. Boies said that Silverstein Risk Manager Robert S. Strachan faxed sections of the WilProp form the day after the terrorist attacks to Silverstein's lender and the WTC's owner in response to requests for coverage documents.

"You have to believe all that's a mistake to believe what the Silverstein parties want you to believe," Mr. Boies told the jury.

Jurors are expected to begin deliberations April 19, after U.S. District Judge Michael B. Mukasey instructs them on the law that applies to the case.

Swiss Re launched the coverage litigation in October 2001, in the wake of a developing dispute over whether the Twin Towers' destruction was one $3.55 billion occurrence or two. The dispute arose in part because no final policy had been issued by Sept. 11, despite the program having been bound effective July 18, 2001.

In his closing argument, Mr. Wachtell told jurors that Willis brokers, led by Assistant Vp Timothy Boyd, decided on July 12, 2001, that the program would have to be shifted to the Travelers form from the WilProp form that Willis had included in its underwriting submission to insurers.

The reason, he said, was that Travelers insisted on using its own form for its primary and excess layer participation, and Willis needed concurrency on the terms governing the program's roughly two dozen participants.

Swiss Re initially signed a binder for its 22% quota share of all layers excess of the primary on July 9. Swiss Re underwriter Daniel Bollier had raised several objections to terms in the WilProp form, though, and issued the binder "subject to wording to be agreed."

"It is crystal clear that Swiss Re...was not willing to bind to the WilProp form unless substantial changes were made," said Mr. Wachtell, arguing that this meant that Swiss Re never actually agreed to the form.

On July 23, 2001, Willis' London office sent an e-mail to Mr. Bollier that attached a blank Travelers declaration page and a specimen property form. Three days later, Mr. Bollier signed a revised binder that incorporated, among other things, changes to the program's limits and premiums.

With this revised binder, Mr. Bollier committed Swiss Re to the Travelers form, Mr. Wachtell told jurors. Although the July 23 e-mail did not mention a form change-and no written evidence was introduced that a switch was ever discussed-Willis executive Paul Blackmore testified that he told Mr. Bollier of the switch in a phone conversation.

In his own testimony, Mr. Bollier denied this and said he attached "no significance" to the July 23 e-mail. Although he looked at the Travelers attachments, Mr. Bollier said he disregarded them, expecting other unrelated changes he had requested in the WilProp-based binder.

"He insists this supposedly came out of the blue," Mr. Wachtell said of Mr. Bollier. "Is that credible?

"He knew exactly what he had received," contended Mr. Wachtell. "Paul Blackmore had told him that it was coming, and there it was."

All but one of the London insurers on the WTC program, meanwhile, bound coverage on slips providing that the policy form would be "as per co-insurers, agreement of wording waived."

The WilProp form was part of Willis' underwriting submission to the London market, and Mr. Wachtell acknowledged that London underwriters were never told about the shift to Travelers.

Nevertheless, he argued, many underwriters never looked at the submission and didn't care which form was used before the loss. "They didn't remotely believe that they were binding themselves to the WilProp form," he said.

In addition, the phrase "agreement of wording waived" effectively means that neither WilProp nor Travelers was in force as of Sept. 11, he argued. In this case, the court may impose terms of an insurer's standard form policy, he told jurors.

Most of the other insurers in the case-including Federal Insurance Co., Employers Insurance of Wausau, Lexington Insurance Co. and Zurich American Insurance Co.-were told verbally by Willis' Mr. Boyd before they issued binders that the Travelers form would be used for the program, Mr. Wachtell said.

Underwriters for these companies denied the alleged conversations with Mr. Boyd during trial testimony.

Summing up Swiss Re's case, Mr. Ostrager asserted that the insurer was bound on WilProp at the time the WTC coverage went into effect July 18 and that had never changed, despite the Willis July 23 e-mail with the Travelers attachments.

Willis' Mr. Blackmore conceded at trial that Mr. Bollier never expressly agreed to the Travelers form, Mr. Ostrager noted, and Mr. Bollier in fact spent considerable time reviewing the WilProp form and negotiating changes to the binder on which it was based.

"Negotiation, ladies and gentlemen, is not rejection," he told jurors, rebutting Mr. Wachtell's claim that Swiss Re never agreed to WilProp.

Willis' July 23 e-mail, he added, had nothing to do with a form switch. Instead, it was following up on discussions between Mr. Bollier and Mr. Blackmore about adding a computer virus exclusion, and the Travelers language was meant to address that point, Mr. Ostrager argued.

Mr. Ostrager went on to point out several inconsistencies in the testimony of Willis witnesses. Mr. Boyd, for example, initially testified that Willis was forced to use the Travelers form for the entire program because Travelers insisted on it, but later conceded that Travelers only insisted on its form for its own participation. Mr. Boyd also testified that he told a Willis Bermuda broker of the Travelers form switch, but was later contradicted by the Bermuda broker, who testified that he was never informed. The program's two Bermuda insurers-ACE Ltd. and XL Capital Ltd.-have already settled with Silverstein on a one-occurrence basis.

The notion that the program had been shifted to the Travelers form, Mr. Ostrager charged, was invented by Willis brokers who were stranded at a meeting in Nashville, Tenn., in the wake of the Sept. 11 attacks, and who focused almost immediately on the program's occurrence definition.

While Silverstein's Mr. Strachan was faxing the WilProp form to WTC business partners on Sept. 12, "the Willis brokers are down in Nashville and they are trying to determine whether a form other than WilProp would be more advantageous to their client Silverstein," Mr. Ostrager charged.

Mr. Boies, representing the London insurers, told jurors that the waiver of agreement to wording applies only to the wording of a final policy-which was never issued in this case-and not to the coverage during the binder period.

"When you know that the WilProp form was the only form exchanged, you must conclude that that is the form that governs," said Mr. Boies.

"Nobody did or would agree to no form," he added.

Mr. Boies also rebutted the idea that Willis had decided before Sept. 11 to shift the program to the Travelers form. Even if it did, "that's irrelevant, because it was never communicated to us," he said.

"If they really thought people would be happy to switch and they were really trying to get people to switch, why didn't they ever ask?" Mr. Boies asked the jurors.