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Dismissal of insurer's WTC suit affirmed

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NEW YORK--A federal appeals court has affirmed a decision to dismiss Industrial Risk Insurers' subrogation lawsuit against Citigroup Inc. over property losses caused by the collapse of 7 World Trade Center.

The 2nd U.S. Circuit Court of Appeals upheld a district court's decision to dismiss IRI's claim of gross negligence against Citigroup, the largest tenant in 7 WTC. The lawsuit alleged that the New York-based financial services company chose to design, construct and install a diesel fuel powered generator that aggravated the fire damage caused by the terrorist attacks on the nearby Twin Towers on Sept. 11, 2001, and the ultimate collapse of the building.

IRI provided property insurance to Silverstein Properties Inc. for 7 WTC and paid more than $400 million in property losses. The insurer became a unit of Zurich, Switzerland-based Swiss Reinsurance Co.

IRI sued Citigroup as a subrogee of Silverstein Properties, but a judge in the U.S. District Court for the Southern District of New York dismissed the lawsuit in 2005, finding that New York's "subrogation waiver" doctrine precluded IRI from asserting a claim of gross negligence against Citigroup. The appeals court remanded IRI's motion to vacate part of the district court's decision in relation to IRI's charge that the district judge erred in applying the doctrine of assumption of risk to bar IRI's gross negligence claim. The district judge found Silverstein Properties expressly assumed the risk of the emergency power system in its lease with a unit of Citigroup.

IRI moved to vacate that part of the decision because it feared that the district court's holding on assumption of risk might have "collateral estoppel" effects in other litigation arising out of the Sept. 11 attacks. The collateral estoppel doctrine refers to situations in which a judgment in one case prevents a party to that suit from trying to litigate the issue in another legal action.

"Since we are affirming the district court's decision solely on the 'subrogation waiver' holding and refusing to consider its assumption of risk ruling, it would seem that IRI has not had the opportunity to contest fully the merits of the assumption of risk issue," the appeals court said in its decision.

Spokespeople and lawyers for the parties involved in the litigation could not be reached for comment.