March 1, 2004

World Trade Center - One Claim or Two?

This is one of a series of "working articles".
As the story develops, this article will be updated & published accordingly. The latest changes in the article are distinguished with red text. Changes since original publication are in blue text.

Last Updated: May 25, 2004

No one incident has caused more event cancellations than the World Trade Center disaster on September 11th, 2001. Thousands of events across the country were cancelled or postponed resulting in hundreds of millions of dollars in insured claims and easily billions of dollars in uninsured claims.

Currently, there is an interesting court case ongoing pertaining to whether the World Trade disaster was one occurrence or two. Now on the surface, this seems to make little difference. Two planes plowed into the separate towers, causing their complete destruction. One occurrence or two, what difference does it make? Bottom line is thousands of lives were lost as well as the total destruction of two high rises valued at more than $3.5 billion dollars.

But, if the courts determine this was a two occurrence claim rather than a one occurrence one, Silverstein Properties, the World Trade Center owners, stand to reap twice the insurance benefits they would otherwise be entitled to.

What's at stake is whether Silverstein will have enough money to rebuild the site. If the courts determine it was a one occurrence claim, $3.5 billion is not enough to rebuild. However, if they rule it was a 2 occurrence claim, the owners would have $7 billion to work with.

Now, if you are like us, the first question you have is why would the owner of a $3.5 billion property not insure it to its full value? The only thing we can think of is they never imagined a situation where there would be a total destruction of both towers!

The resolution of the dispute, which may involve three trials, will determine how much money is available to rebuild the site where the Twin Towers once stood and could influence what actually gets built there.

The matter is complicated since Silverstein leased the World Trade Center less than two months before it was destroyed and the finer points of his insurance policy had not been fully ironed out.

The first trial now going on will determine which of two conflicting policy forms will be used to adjust the loss. A second trial is expected that would let a jury decide the issue of whether the destruction was one occurrence or two. Yet a third trial could become necessary to decide damages.

Silverstein is heading into the next phase of the World Trade Center property insurance litigation with a nearly unbroken string of courtroom losses. A federal jury found that the largest insurer on the property, Swiss Reinsurance, was bound by coverage that would treat the claim as a single event. This would prevent Silverstein from collecting twice. This decision followed an earlier verdict that nine other insurers were bound by the same terms. Together, these 10 insurers represented $2.41 billion of the property program's total limit of $3.55 billion.

The second phase of the litigation is expected to begin in August and will determine if the 10 remaining insurers (out of a total of 20) would be paying based on one occurrence or two. These insurers issued coverage on a variety of policy forms, some of which contained occurrence definitions and some which did not.

Even if Silverstein prevails against all of the remaining insurers, they would recover no more than $4.68 billion, far less than the $7 billion Silverstein said he needs to rebuild on the site.

The owners have reportedly spent $100 million in attorney fees so far arguing its case.

Our opinion? Based on the policies normally provided by all insurance companies, this was clearly one occurrence. Standard property policies define an occurrence as "losses attributable directly to one cause or to one series of similar causes".

Stay tuned. We'll let you know the outcome.