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WTC-related lawsuits far from resolved

Posted On: Sep. 10, 2006 12:00 AM CST

NEW YORK—The Sept. 11, 2001, terrorist attacks spawned insurance coverage litigation almost as fast as they did fear of further attacks, with disputes ranging from how many occurrences the World Trade Center's destruction represented to how business interruption losses should be calculated under manuscript policies.

The most widely publicized case was WTC leaseholder Silverstein Properties Inc.'s battle with its property insurers--launched by one of the insurers in October 2001--over Silverstein's contention that the complex's destruction by two hijacked jets was two occurrences, entitling it to two $3.55 billion policy limits.

After parsing the insurers' cover notes and other evidence, two separate juries reached what amounted to a split decision in 2004, finding most insurers liable for only one occurrence but some liable for two. The decisions, which leave Silverstein with a possible recovery of $4.68 billion, are being appealed by both sides.

The question of Silverstein's property recoveries was further complicated by a 2006 rebuilding agreement for the WTC site in which Silverstein ceded development rights to the planned Freedom Tower and one other building near Ground Zero and agreed to provide funding for those buildings from its insurance recoveries. Silverstein then sued several of its insurers for a judgment that the plan does not affect its recoveries; at least one insurer, though--Allianz Global Risks U.S. Insurance Co., which wrote about 10% of the WTC's limit--countered that Silverstein cannot transfer its insurance rights to another developer. The dispute is pending.

Another of the largest pending cases involves liability for health claims of more than 8,000 of the 44,000 workers who labored to clear the WTC site after the attacks. Litigation filed in U.S. District Court in New York names New York City and numerous contractors and subcontractors, all insured by WTC Captive Insurance Co., a New York-domiciled captive formed to insure the clean-up and capitalized with $1 billion from the Federal Emergency Management Agency. Motions by the city and the contractors to dismiss all claims on the basis of state and federal immunity laws are pending.

The worker health claims were not encompassed by the federal Sept. 11 Victim Compensation Fund, which Congress created to handle liability claims against airlines and other defendants by victims of the attacks or their survivors. The fund closed in 2004 after paying nearly $7 billion in settlements covering 5,531 death and injury claims. Claimants accepting settlements from the fund agreed not to sue over 9/11-related injuries.

Business interruption

The terrorist attacks also produced a flood of business interruption disputes, many of which have been resolved with mixed results for policyholders.

A federal appeals court in New York, for example, ruled last year that an engineering and janitorial services company that serviced the WTC complex is entitled to pursue more than $100 million in business interruption claims from one of its insurers even though the company did not own or lease WTC space. The court found that San Francisco-based ABM Industries Inc. had an insurable interest in the WTC property and was thus entitled to business interruption coverage.

In another decision earlier this year, though, the Virginia Supreme Court found that Tempe, Ariz.-based US Airways Group Inc. can not recover under both its business interruption coverage and a federal act passed to compensate airlines for 9/11-related losses. US Airways received $310 million under the 2001 Air Transportation Safety and System Stabilization Act, and must reduce any business interruption recoveries by that amount under the terms of its manuscript policy, the court ruled.