“Legal Battle Unfolds: Swiss Re Challenges Silverstein's Audacious Bid to Double 9/11 Insurance Payout”
9/11 terrorist attacks on the World Trade Center (WTC)
September 11, 2001, a
date etched in collective memory, forever changed the landscape of Lower
Manhattan and the world at large. The horrific terrorist attacks on the World
Trade Center (WTC) claimed the lives of nearly 3,000 innocent people, leaving
behind a legacy of unimaginable loss and resilience.
The Claim and its Complexities:
Following the collapse of the
towers, Silverstein filed a $7.1 billion insurance claim, arguing that the
attacks constituted two separate occurrences – one for each tower – triggering
the full policy amount twice. Insurance companies, however, contested this
interpretation, arguing that the attacks should be considered a single event,
limiting the payout to $3.5 billion.
Legal Battles and Eventual Settlement:
The ensuing legal battle was
long and complex, involving multiple insurance companies and intricate
arguments about policy wording and intent. Finally, in 2004, a settlement was
reached for $4.5 billion, significantly lower than Silverstein's initial claim
but still the largest insurance payout in history at the time.
The Claim's Impact:
Silverstein's claim had a
profound impact on the insurance industry. It led to changes in policy wording
and terrorism coverage, as well as heightened scrutiny of potential loopholes
and ambiguities. The case also raised questions about the fairness and ethics
of large insurance payouts in the face of such immense tragedy.
INTRODUCTION
Around July 16, 2001, an investor group led by Larry Silverstein
finalized 99-year leases with the Port Authority of New York and New Jersey for
specific buildings within the World Trade Center complex, including the twin
towers. Swiss Re committed to offering a portion of approximately $3.5 billion
in property damage insurance coverage. However, Swiss Re's commitment to insure
was contingent on reaching an agreement on the terms of coverage. Notably, at
the time of the attack, specific policy wording had not been officially
settled, which is a common occurrence for substantial commercial risks
involving multiple insurers.
Swiss Re is prepared to fulfill its insurance obligations in the
aftermath of the September 11 attack, relying on the insurance policy terms
presented by Mr. Silverstein's representatives when Swiss Re undertook the
property insurance for the World Trade Center. Swiss Re has already conveyed to
Mr. Silverstein and his legal representatives its readiness to contribute its
proportionate share of a $75 million advance to all the insured parties.
However, the potential payment to the Silverstein group for the years of lost
rental income could diminish the coverage intended for other insureds under the
policy for rebuilding purposes. Due to the insufficient insurance to both
reconstruct the World Trade Center and cover the extended rent interruption to
the Silverstein group, Swiss Re seeks a judicial declaration of its rights and
obligations to all insured parties under the policy, aiming to ensure that none
of the insureds faces prejudice.
The Silverstein group, led by Mr. Silverstein, has put forth a
theory, labeled as "audacious" in the press, asserting that they are
entitled to double the face value of the insurance provided by Swiss Re and
other insurers for the World Trade Center coverage. More precisely, Mr.
Silverstein has framed the September 11 terrorist attack as two distinct
insurance losses, purportedly justifying a claim for twice the amount of
insurance that was originally purchased by the insureds.
Mr. Silverstein says that the assault constituted two distinct terrorists nattacks, doubling his $3.6 billion in insurance policies; the insurers say it was one coordinated attack. Experts call Mr. Silverstein's claim audacious. Why is he trying it? Perhaps because he thinks $3.6 billion won't be enough. Financial documents connected to a Trade Center bond issue earlier this year warned that Mr. Silverstein's casualty insurance policy amounted to "significantly less" than the cost of rebuilding.
Larry Silverstein Restates Resolve to Build W.T.C. Site, The New York Observer (October 22,2001).
Because there was no insurance policy in effect during the
September 11 attack, and Swiss Re retained the absolute right to negotiate
policy terms as a prerequisite to providing any coverage, this Complaint is
filed by Swiss Re to secure a legal determination of the terms and conditions
governing its insurance obligations. Furthermore, Swiss Re aims to obtain a
declaration affirming that the damage to the World Trade Center constitutes a
single insurance loss, contrary to Mr. Silverstein's assertions of multiple
separate and unrelated losses in the media. Additionally, given that there are
various entities with potential entitlements to the proceeds of the property
insurance on the World Trade Center, Swiss Re cannot responsibly disburse the
funds solely to Mr. Silverstein without considering the interests of other
entities. Consequently, Swiss Re seeks a Court declaration to allocate any
payments among the relevant parties.
GENERAL ALLEGATIONS
Defendants' Real Estate Interests:
The World Trade Center comprises seven commercial buildings.
Buildings 1 through 6, along with the underlying land, the retail mall beneath
the complex, and the ground beneath Building 7, are owned by the Port
Authority.
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Around July 16, 2001, the Port Authority executed 99-year leases
with 1 World Trade Center LLC, 2 World Trade Center LLC, 4 World Trade Center
LLC, and 5 World Trade Center LLC for Buildings 1, 2, 4, and 5, respectively
(referred to as the tower leases). Simultaneously, the Port Authority also
entered into a 99-year lease with Westfield WTC LLC for the retail mall
situated within and beneath the World Trade Center (referred to as the retail
lease). Each lessee of the towers is indirectly wholly owned by World Trade
Center Properties LLC, with Silverstein WTC Properties LLC serving as the
managing member. Larry Silverstein ultimately exercises control over
Silverstein WTC Properties LLC.
GMAC extended a mortgage loan to the lessees of the towers, secured by a mortgage on the tower leases. Subsequently, GMAC has purportedly assigned this loan to Wells Fargo in conjunction with the issuance of commercial mortgage-backed securities to institutional investors. Additionally, UBS Warburg has provided a mortgage loan to Westfield WTC LLC, the lessee of the retail space, secured by a mortgage on the retail lease. Swiss Re Underwrites the World Trade Center Property Coverage Based Upon the Policy Language Provided by The Lessee's Broker Plus Wording to Be Agreed:
The lessees, facilitated by their insurance broker Willis Limited ("Willis"), conducted a global survey of insurance markets to secure first-party property coverage for their leasehold. During this process, Willis estimated the replacement value of the two 110-story towers, along with Buildings 4 and 5, and the retail space covered by the lessees' lease obligations, to be $3,944,653,200. Additionally, Willis projected a loss in rental income over a three-year period, amounting to an additional $1,105,935,000, resulting in a total estimated coverage need of at least $5,050,588,200.
Despite
this projection, the lessees chose to obtain insurance for less than half of
the estimated amount, specifically $2.32 billion. Shortly after executing their
leases, the lessees sought to increase the coverage to $3.25 billion. Further,
at the behest of the lessees' bankers, the insurance limits were raised once
more, reaching approximately $3.5 billion. The coverage amounts ultimately
purchased fell significantly below the projected $5.05 billion required to both
replace the buildings and address potential rental income losses in the event
of a catastrophic loss. The lessees, instead, procured insurance primarily
sufficient for rebuilding without accounting for potential rental income
losses.
Swiss Re is among the insurers involved in the $3.5 billion
insurance program for the World Trade Center. In accordance with the terms
specified in the signed placing slips, Swiss Re committed to underwrite 22% of
the lessees' coverage, specifically in excess of the primary $10 million layer,
referred to as the "Silverstein Coverage."
On June 25, 2001, Willis forwarded an underwriting submission and
placing slip to Swiss Re, seeking their participation in underwriting a segment
of the first-party coverage for the lessees' interests. The underwriting
submission detailed the proposed coverages, along with the terms and conditions
for insuring the lessees' interests in the World Trade Center. The placing slip
specifically outlined the terms of the coverage sought by the lessees.
The underwriting submission incorporated a suggested policy form
known as "WilProp," as designated by Willis. The WilProp coverage
includes proposed terms and conditions, with a noteworthy provision being its
expansive definition of "occurrence." This definition is designed to
encompass losses stemming from any cause or series of causes, thereby
subjecting them to a single occurrence limit. Specifically, WilProp states:
"Occurrence" shall mean all
losses or damages that are attributable directly or indirectly to one cause or
to one series of similar causes. All such losses will be added together
and the total amount of such losses will be treated as one
occurrence irrespective of the period of time or area over which such losses
occur.
Swiss Re introduced several significant modifications to the
placing slip to accurately reflect the conditions under which Swiss Re would
provide coverage. One crucial alteration was Swiss Re's decision not to permit
the agreement of another insurer to bind Swiss Re to the pre-printed terms of
coverage circulated by Willis. Swiss Re's commitment to insure was contingent
on having an absolute right to approve the terms of coverage. Swiss Re manually
added the phrase "to be agreed by SRI" next to numerous terms and
conditions on the placing slip. For instance, Swiss Re revised the pre-printed
slip by striking out the language stating, "Agreement of wording
waived," and replaced it with the handwritten note, "to be agreed by
SRI." With these and other specified modifications, Swiss Re executed the slip-on
July 9, 2001, committing to assume 22% of the excess property coverage for the
World Trade Center lessees, expressly stating, "subject to wording to be
agreed."
Willis then circulated to Swiss Re a revise placing slip that
incorporated Swiss Re's modifications, making Swiss Re's agreement to the terms
of the insurance coverage a condition of Swiss Re's obligation to insure. Swiss
Re signed the revised placing slip on July 26, 2001.
During the September 11 terrorist attack, specific policy wording had not been conclusively established, and no policy had been issued. Nevertheless, in the underwriting submission, Willis (representing the 2000 lessees) had assured Swiss Re that WilProp would serve as the "starting point" for any policy crafted by Swiss Re.
The Attack on The World Trade Center:
Al-Qaeda, an organization led by Osama bin Laden, is determined to harm Americans and target United States interests.
On the morning of September 11, individuals believed to be members of the Al-Qaeda organization commandeered multiple commercial airplanes, directing two of them into Buildings 1 and 2 of the World Trade Center. Around 8:45 a.m. on September 11, 2001, the first plane collided with Building 1. In less than 20 minutes, a second plane crashed into Building 2. The consequence of these attacks was the collapse of Buildings 1 and 2, with Buildings 4 and 5 suffering substantial structural damage.
The Lessees Unilaterally Attempt to Change the Terms of Coverage:
Three days following the September 11 attack, a consortium of
insurers, headed by Travelers, issued a policy covering the $10 million primary
layer of coverage. On September 24, the lessees, represented by Willis,
asserted that the Travelers policy governed the coverage underwritten by Swiss
Re, despite significant disparities in its terms compared to those in WilProp
and the signed slips.
In a September 24 email to Swiss Re, Willis (representing the
lessees) attached a notice of loss and a policy issued by Travelers for the
initial layer of coverage. The cover letter from Willis mistakenly asserts that
the Travelers policy offers the "pertinent" wording for the
Silverstein Coverage:
We ... have our clients' instructions to present a revised Notice of Loss and issue you the relevant Travelers' wording, both of which are attached.
The Travelers policy lacks numerous terms that were agreed upon in
the signed slips and WilProp. One of several significant distinctions is that
the Travelers policy does not provide a definition for the term "occurrence."
The Travelers policy introduces new policyholders that were not
previously identified in WilProp or the signed slips. As per the signed slips,
the named insured is World Trade Center Properties LLC (the indirect owner of
the tower lessees) and its affiliates. The coverage also encompasses loss
payees, mortgagees, and additional named insureds as outlined below.
Loss Payees and Mortgagees and
Additional Named Assureds automatically included herein with advice to
Underwriters waived and permission given to Willis, New York to issue evidence
of insurance, if required.
According to WilProp, additional named insureds include the Port Authority, GMAC, and Westfield, Inc. Under the Travelers policy, Silverstein Properties, Inc. and Silverstein WTC Management Co. LLC are newly listed as named insureds. Additionally, the retail lessee (Westfield WTC LLC), its affiliates (Westfield Corporation, Inc., and Westfield America, Inc.), and the tower lessees (1 World Trade Center LLC, 2 World Trade Center LLC, 4 World Trade Center LLC, and 5 World Trade Center LLC) are designated as additional named insureds.
Swiss Re did not sign the Travelers policy and never consented to its terms. Following the September 24 email, Swiss Re promptly informed Willis that it did not agree to have its coverage governed by the Travelers policy. Additionally, counsel for Swiss Re conveyed to counsel for the Silverstein group, in a letter dated October 15, 2001, that Swiss Re had never agreed to be bound by the terms of the Travelers policy form.
Swiss Re did not reach an agreement on the final contract language
for the World Trade Center property coverage before the loss, and certainly, it
did not consent to the Travelers policy language asserted by the Silverstein
group to be applicable. Swiss Re's commitment to provide insurance was grounded
in the Willis underwriting submission, which included WilProp, and the explicit
understanding between the parties that Swiss Re retained an absolute right to
approve the terms of coverage. Under no circumstances did Swiss Re agree to the
Travelers policy language as claimed by the Silverstein group to be applicable.
The Lessees Seek Payment Under the Silverstein Coverage:
On October 8, 2001, the Silverstein and Westfield groups jointly
executed a "Preliminary Proof of Partial Losses No. 1" (referred to
as the "Partial Proof of Loss"), aiming to obtain coverage for
"business income losses" spanning from September 12, 2001, to March
31, 2002. The Silverstein group sought a payment of $136,758,297 to GMAC,
serving as the servicer of the leasehold mortgage loan on Buildings 1, 2, 4,
and 5. The lessees have indicated their intention to file subsequent claims for
these "business income losses." Currently, there is no policy wording
delineating the allocation of insurance proceeds among the insured parties.
Swiss Re has consented to contribute its proportionate share of a
$75 million advance to all the insured parties.
The payment of these amounts is contingent upon and diminishes the
$3.5 billion per occurrence limit designated for the loss incurred by Buildings
1, 2, 4, and 5, along with the retail mall resulting from the September 11
attack (referred to as the "World Trade Center Loss"). Given the
inadequacy of insurance coverage to address both the property loss to the
structures and the lessees' economic loss stemming from lost rental income
during the rebuilding period, disbursing insurance proceeds to cover the
lessees’ rental income losses has adverse effects on other insured interests.
Entities such as the defendants Port Authority, GMAC/Wells Fargo, and UBS
Warburg, who may have priority in receiving the proceeds of available insurance
secured by the lessees for Buildings 1, 2, 4, and 5, and the retail mall, are
impacted. Under no circumstances should Swiss Re be exposed to conflicting
obligations due to the divergent interests of the insured parties.
The Lessees' "Audacious" Bid to Double Their Coverage:
As evident from Willis' underwriting submission materials, the lessees acknowledged that the insurance coverage for the World Trade Center was insufficient to address both the replacement cost of the leased structures and the loss of rental income. However, during a meeting with insurers on October 2, the lessees' representatives indicated that the determination of the number of occurrences was still an open "issue" and suggested that Mr. Silverstein might seek to augment the insurance coverage by asserting a claim exceeding one per occurrence limit for the loss. Subsequently, Mr. Silverstein publicly asserted on multiple occasions that the lessees are entitled to twice the face value of insurance coverage by contending that the attack on the World Trade Center constituted two separate insurance losses. For example:
Mr. Silverstein said that he was
entitled to S3.6 billion in insurance
to cover the losses in each terrorist
attack, and that since there were
two, he was counting on $7.2 billion.
Trade Center Leaseholder Pledges to Rebuild, The New York Times (October 5, 2001)
Mr. Silverstein told insurers that he
views the attack as two
separate incidents, which would mean
his group would be eligible
for $7 billion in property damage
insurance. The group has
coverage of $3.5 billion "per
incident,"
No Insurance Yet, The Wall Street Journal (October 10, 2001).
Silverstein's insurance policies
provide about $3.6 billion in
coverage "per incident." The
developer is saying that each plane
crash was a separate incident,
entitling him to S7.2 billion.
Silverstein Snags Super-Lawyer for Insurance Fight, New York Daily News (October 15, 2001).
Mr. Silverstein hopes to collect $7
billion in damage insurance, but
that depends on whether his insurance
carriers agree that the
terrorist attack amounted to two
separate incidents. If it was only
one incident for insurance purposes,
Mr. Silverstein will get only
$3.5 billion in damage claims,
probably not enough to finance his
rebuilding plan.
Brookfield
and Silverstein Hold Talks on Future of World Trade Center Site, The Wall
Street
Journal (October
16, 2001).
Despite Mr. Silverstein's media campaign, the attack on the World
Trade Center is considered a single occurrence for Swiss Re's obligations.
Under this framework, Swiss Re is committed to paying 22% of the overall excess
coverage for the resultant loss. The occurrence language in the WilProp policy
specifies that "all losses or damages that are attributable directly or
indirectly to one cause or to one series of similar causes" and further
states that "all such losses will be added together and the total amount
of such losses will be treated as one occurrence irrespective of the period of
time or area over which such losses occur." This language unmistakably
restricts Swiss Re's obligation for the destruction of the World Trade Center
to the face amount of its commitment to insure.
In accordance with the lease terms, if the lessees opt not to reconstruct Buildings 1, 2, 4, and 5, along with the retail space, the Port Authority and the lenders have precedence in reclaiming any insurance proceeds. Consequently, Mr. Silverstein would probably receive only a portion of the overall insurance recovery.
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Projected total insured losses for the World Trade Center (WTC)
are estimated to surpass $40 billion, categorized as follows:
·
Business Interruption: $11 billion
·
Liability Claims: $10 billion
·
Property Claims
·
WTC Towers: $3.5 billion
·
Other Losses: $6 billion
·
Aviation Liability: $3.5 billion
·
Life Insurance: $2.7 billion
·
Workers Compensation: $2 billion
·
Event Cancellation: $1 billion
·
Hull Losses: $500 million
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