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PHILADELPHIA-The owner and insurer of a Philadelphia skyscraper ravaged by a 1991 fire settled a $100 million dispute last week.
The former Aetna Casualty & Surety Co., now part of Travelers/Aetna Property Casualty Corp., and E/R Associates Inc., the owner of One Meridian Plaza, agreed to a confidential settlement shortly before a scheduled trial in Manhattan, where the insurance contract was negotiated.
E/R was demanding $261 million for repair costs and other losses while Aetna was offering $115 million for the repair costs, not including other covered losses, said Joseph P. Dougher, a partner at Obermayer Rebmann Maxwell & Hippel L.L.P. in Philadelphia, who represented E/R.
The "real difference" between the two parties was closer to $100 million, Mr. Dougher said.
None of the parties would comment on the amount.
E/R is a partnership consisting of Richard I. Rubin & Co., a Philadelphia-based real estate company; Equitable Real Estate Investment Management Inc., a unit of Equitable Life Assurance Co. of the United States; and a Dutch pension fund.
One Meridian Plaza, where a fire blazed for 19 hours Feb. 23-24, 1991, was covered under a $1 billion blanket property and business interruption program underwritten by Aetna, of which about $131 million of the property limit was applicable to the office tower.
However, all of the blanket policy limits could be applied to losses stemming from the fire. Aetna leads the $100 million liability program for the building owners (BI, March 18, 1991; March 4, 1991).
Eight of the building's 38 floors were destroyed in the fire, which happened when oil-soaked rags left by a cleaning crew caught fire. The building was made safe after the fire but has remained unoccupied while Aetna and E/R argued over the level of restoration needed.
The legal battle started two years after the fire, when Aetna filed a suit alleging that E/R had failed to exercise due diligence and reasonable speed in the repair of the building, according to Peter Kanaris, a partner at law firm Kostow & Daar in Chicago, who represented Aetna.
The dispute between the insurer and E/R soon escalated into an argument over the cost of repairing the building and the level of repair or renovation needed.
E/R had claimed the steel columns supporting the building had moved four inches during the fire and could not be certified as safe, so the building needed to be torn down to the 19th floor and rebuilt.
Aetna argued the columns were unaffected by the fire and, therefore, the building damage could be repaired without tearing down half of it.
Last July a court-appointed engineer assessed the building; his report favored Aetna's analysis.
Aetna argued that as a result of the independent report, E/R's repair estimate should be deemed unscientific and excluded from a trial.
However, the judge ruled that the E/R estimate could go before a jury at trial, according to Jeremy G. Epstein, a partner at law firm Shearman & Sterling in New York, who also represented E/R.
The two parties also disagreed over the cost of environmental cleanup for the building, which was reflected in the difference in their overall cost estimates.
E/R estimated the cleanup would cost $51 million, which included between $15 million and $19 million in demolition costs, while Aetna estimated that a $14 million cleanup would suffice, said Mr. Dougher.
The building's fate still is unknown.
In a statement released last week, E/R said it is reassessing the building's physical status with consultation from architects, engineers and other experts and will weigh alternatives for the building's future.