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Jury hears insurance battle over Twin Towers

One catastrophe or two? - for insurance purposes Keystone

A court case has begun in New York to decide how much insurers should compensate the leaseholder of the World Trade Center for the September 11 attacks.

The WTC leaseholder says the felling of the twin towers means he can collect twice on his insurance policy. Swiss Re is one of the insurers which disputes the claim.

Over the next eight weeks, the jury in a New York district court will have to decide how to interpret the insurance policies for the WTC. Its decision will ultimately determine how much the 22 insurers will have to fork out.

As the most exposed insurer, Swiss Re could see its bill increase by $780 million, if the jury agrees with the leaseholder of the destroyed WTC, Larry Silverstein.

Silverstein’s claim rests on the fact that two insurance policies existed on September 11, 2001. The jury must now decide which one should apply.

At first sight, the issue seems one of legal hair-splitting, but with so much money at stake, emotions on both sides have been running high.

Indeed, the judge, Michael Mukasey, has appealed to both to tone down the rhetoric. For the moment, they appear to be listening – neither Silverstein nor the insurers were commenting ahead of the jury selection.


The relationship between insurers and insured has deteriorated steadily since the attacks. At one point, the normally staid and proper Swiss Re described Silverstein’s claim as a “swindle”.

In early 2003, the re-insurer accused Silverstein of trying to enrich himself personally, saying that from an investment of $14 million, Silverstein was seeking to make a profit of $1 billion.

Silverstein’s lease holding agreement says that, in the event of the WTC being destroyed and Silverstein deciding not to rebuild it, he would be entitled to pocket the insurance money.

Swiss Re says this would leave Silverstein with $1 billion, after paying interest and rent to the port authority.


The re-insurer says that, a day after the attacks, on September 12, Silverstein and his public relations team had already decided to press for a memorial to be built on the WTC site to make sure there was no possibility of the WTC being resurrected.

It added that Silverstein also paid his lawyers $100 million to prepare for the ensuing court battle.

For his part, Silverstein has accused Swiss Re of cynical and manipulative tactics. His lawyer says that, if Silverstein loses the case against the insurers, the prospects of the WTC being rebuilt would be significantly reduced.

In summer 2001, Silverstein took over from the New York port authority a 99-year lease on the WTC. He commissioned a broker called Willis Group to arrange insurance cover for the site, and a standard building insurance contract was agreed.

Such contracts tend to be better value for the insured because they cover all manner of potential damage.


On July 9, 2001, Swiss Re underwrote 22 per cent of the policy, which set a maximum payout of $3.5 billion. For Swiss Re, the maximum liability was $780 million. The policy came into effect ten days later.

However, Silverstein’s mortgage provider – GMAC Commercial Mortgage – demanded that the policy be underwritten by an insurer with an “A” credit rating.

Willis then approached Travelers Property Casualty, but it refused to underwrite the policy that was then in force, insisting that it negotiate its own separate policy. It did not insist, however, on a clear definition of the types of damage which would be insured against.

Silverstein’s position now is that the Travelers insurance contract – and not the previous agreement – be applied to all insurers involved. But Swiss Re and the other firms are sticking firmly to the terms of the original policy.

Silverstein’s risk manager, Robert Strachen, has admitted in memos that the maximum value of the policy is $3.5 billion. And previous court rulings (see related stories) have ruled in favour of five insurers against Silverstein’s claim that the attacks constitute two rather than one insured event.

One or two events?

If Silverstein loses the next case, he will receive $3.5 billion from the WTC insurers over the next ten years. If he wins, and the court decides that the Travelers contract applies, a second court case will have to decide whether the attacks constituted one or two separate insured events.

A third case would then rule on how much insurance money Silverstein was entitled to. For two insured events, this would rise to $6.6 billion, pushing Swiss Re’s liability to $1.4 billion.

Swiss Re’s strategy of handing the decision over to a court, and therefore a jury, is not without risk. The judge has already instructed the jury to consider only the question of which insurance policy should apply, and not to think about what their decision would mean for the site of the WTC.

That’s likely to be a tough call for 12 New Yorkers, who saw the twin towers destroyed and lost 2,752 of their fellow citizens.

swissinfo, based on an article previously published in NZZ

Swiss Re is the most exposed of the 22 insurers of the World Trade Center.
The WTC was insured for $3.5 billion.
Insurers’ liability could be double that amount if the leaseholder prevails.
Swiss Re’s will in any case have to pay out at least $780 million.

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR

SWI - a branch of Swiss Broadcasting Corporation SRG SSR