War Of Words Rages Over WTC Cover

Firing another salvo in the complex insurance battle involvingthe World Trade Center loss, Swiss Re has declared that there is noway payouts for Sept. 11 attack claims can exceed $3.5 billion.

Swiss Re said its experts have established the “true value” ofWTC leaseholder Larry Silverstein's claim as in the range of $2.4billion. New York-based Swiss Re said this is consistent with Mr.Silverstein's own internal calculations.

Specifically, Swiss Re said that Pearson Partners, anindependent real estate appraiser, has estimated the actual cashvalue of the WTC complex at $2.156 billion under the WillisProperty form (Wilprop), which Mr. Silverstein used to bind atleast some of the insurance coverage just before Sept. 11.

In any event, Mr. Silverstein is not entitled to actual cashvalue proceeds at this time, said Swiss Re, because the Wilpropform mandates that he first disclaim any intention to rebuild.Swiss Re said that Mr. Silverstein's only recourse is to seekreplacement cost value proceeds up to the $3.5 billion policylimit.

Regardless of what form it takes or who rebuilds it, “the WTCwill be rebuilt over eight or nine years,” Swiss Re predicted.Calculating rebuilding costs at slightly less than $300 per squarefoot, Swiss Re said the replacement cost value of the property willapproach the policy limit of $3.5 billion. When discounted to netpresent value, the amount is approximately equal to Mr.Silverstein's own pre-litigation estimate of $2.4 billion,according to Swiss Re.

Swiss Re cautioned that not all of these proceeds will beavailable for rebuilding, due to the amounts ofbusiness-interruption proceeds that would be paid from the samepolicy limit.

Swiss Re America Holding Company Chairman and CEO Jacques Duboissaid that when seeking coverage in 2001, Mr. Silverstein “told usthat the value of the property, including business interruptioninsurance, was $5 billion,” but he declined to pay the premium forthat and instead bought $3.5 billion of coverage.”

He added that “the WTC was destroyed only once, and under theproperty insurance coverage purchased–in fact, under any propertyinsurance coverage–Silverstein is entitled only to a maximum of thepolicy limit of $3.5 billion.” Mr. Dubois said that Mr. Silversteinhimself “admitted that the coordinated attack on Sept. 11 was asingle occurrence in his one-occurrence settlements with insurersACE and XL.”

Mr. Dubois was referring to a $365 million settlement announcedin February between Mr. Silverstein and two Bermuda-based WTCinsurers–ACE Ltd. and XL Capital Ltd. Mr. Silverstein conceded inthat settlement that there was only one WTC attack on Sept. 11.

At the time, a Silverstein official said the real estatedeveloper had agreed to settle because the ACE and XL policies wereworded differently from other insurers. Swiss Re countered that allWTC insurers had agreed to the same policy.

Marc Wolinsky, an attorney in Wachtell, Lipton, Rosen &Katz, the New York law firm representing Mr. Silverstein'sinterests, dismissed Swiss Re's latest comments as a mere reactionto an Aug. 2 statement. On Aug. 2, Silverstein Properties statedthat reports by Tishman Construction Company–which originallyerected the WTC–and accounting firm Deloitte & Touche put theactual cash value of rebuilding the WTC complex at $5.7 billion.Mr. Wolinsky said that this figure represents replacement costminus depreciation of the two towers and surrounding edifices.

The Silverstein statement also indicated that businessinterruption losses for the office components of the complex wouldexceed $2.5 billion. The statement said that the expert reports hadbeen submitted to the WTC insurers.

Mr. Wolinsky said he didn't understand what Swiss Re meant bythe “policy interpretation issue” it raised. “The Traveler's policyhas a definition of actual cash value that is not substantivelydifferent from the Wilprop, and we think the proper reading is youget the value to replace what was there,” he stated.

Regarding the settlement with ACE and XL, Mr. Wolinsky citedstrategic and business reasons for taking a single policy limitfrom them, including the existence of a mandatory arbitrationclause that would have required taking the matter to London. “Thebottom line is that everyone agrees ACE and XL were never toldabout the Travelers form, and that their binder has an expressreference to Wilprop,” Mr. Wolinsky stressed. He explained that theACE and XL documents expressly stated that “the form is Wilpropuntil something else comes along.”

He said that “rather than buck the fact that they had thisunique language in their binder, we settled.” Best of all, “we gotmoney–there's nothing wrong with money,” Mr. Wolinsky stated.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, August 12, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.