WTC Risk Managers Credibility Challenged

Michael Ha

The judge in the $3.5 billion World Trade Center insurancedispute allowed carriers to introduce evidence last week that mightdamage the credibility of the facility's risk manager–a key witnessfor Twin Towers leaseholder Larry Silverstein.

U.S. District Court Judge Michael Mukasey, who withheld adecision on the issue for several weeks, permitted attorneys forthe 13 insurers in the case to show the jury handwritten notes thatcounter earlier testimony from Mr. Silverstein's WTC riskmanager.

Mr. Silverstein is contending that the Sept. 11, 2001 terroristaction that destroyed the WTC was two insurable events, therebydoubling the amount of coverage that insurers say was in place.

During the trial's first week, WTC risk manager Robert Strachantestified that–in what he described as an accident–he had twicefaxed copies of the Willis Property form (which defines the WTCclaim as a single event with a $3.5 billion limit) to let lendersand others know the extent of coverage. Mr. Strachan said when hesent the faxes a day after the Sept. 11 attack, he was “upset andconfused” and he faxed that form because “it was the only policy Ihad in my office” at the time.

But last week, attorneys for the insurers were allowed tointroduce notes, made on the day the faxes were sent, by Beth AnnHerrmann, director of insurance operations for GMAC, a major lenderfor Mr. Silverstein.

Ms. Herrmann's notes described her conversations that day withone of the fax recipients–Peter Lefkowitz, a GMAC insurancerepresentative who also spoke with Mr. Strachan on that day. Hernotes read, in part: “Bob Strachan faxing manuscript form that it[the policy] was to be written on” and “Lloyd's [one of theinsurers represented in the trial] accepted the policy form.”

Those notes appear to support the contention of insurers thatthey are bound to agreements based on the Willis Property form(also called the “Wilprop” form) rather than a Travelers propertyform that would support Mr. Silverstein's contention that twoairplanes crashing into the Twin Towers constitute two occurrencesfor insurance purposes. Final policy documents were not signedbefore the Sept. 11 terrorist attack.

Ms. Herrmann, on the witness stand a few weeks ago, said thatdespite her extensive notes, she couldn't remember her Sept. 12,2001 conversation with Mr. Lefkowitz or the contents of themeetings and discussions she participated in immediately afterSept. 11. At the time of her testimony, her notes were not allowedin evidence.

Judge Mukasey told jurors that Ms. Herrmann had, “as she put it,no present recollection of that conversation, but she testifiedthat she took notes of what Mr. Lefkowitz told her. And Mr.Lefkowitz testified that he conveyed truthfully what Mr. Strachanhad told him. So, what you are seeingis Ms. Herrmann's notes ofthat conversation.”

Judge Mukasey also told lawyers that one of the reasons Ms.Herrmann's notes were now admitted as evidence was because her mindhad been “messed with” by Mr. Silverstein's attorney before shetestified. Her notes “are in [evidence], in part, because Beth AnnHerrmann's mind got messed with, and the record is clear on thatand explicit–that's part of the reason those notes are in,” thejudge commented.

But Herbert Wachtell, the lead attorney for Mr. Silverstein,challenged the judge's characterization of Ms. Herrmann and saidthat her memory lapse was caused by a common “psychologicalphenomenon” which can occur when people are busy taking noteswithout listening to the content of the conversation.

“If we ever had to go into the issue of why there was a lack ofrecollection of Beth Ann Herrmann, I would like to do it bybringing a psychologist in,” Mr. Wachtell told the judge. “It's thepsychological phenomenon that afflicted Beth Ann Herrmann, notanybody tampering with her.”

In other action at the trial, Mr. Silverstein's attorneyscontinued to attack insurers' one-event argument. In across-examination of underwriters from Lloyd's syndicates, lawyersrepresenting Mr. Silverstein noted that Lloyd's underwriters hadwaived their right to change the wording on the slip and agreed “toabide by and accept decisions of the lead underwriter with respectto underwriting, policy administration and claims,” and that Mr.Silverstein's broker–Willis Group Holdings–was allowed to pick thelead underwriter.

“Is it your position that this provision designating anunspecified insurance company as the lead underwriter and Faraday[a Lloyd's syndicate] agreeing to abide by and accept decisions ofthat lead underwriter was part of what Faraday bound to?” Mr.Silverstein's lawyer, Peter Hein, asked Nick Jones, a Faradayunderwriter, who took the stand last week. “There is no limitationat all in this provision as to who may be the lead underwriter,correct?” he continued.

However, Mr. Jones replied: “This is a draft form–it's clearlynot finalized,” adding that Wilprop was the only policy form he wasever shown. Mr. Jones added that those waiver clauses only apply tothe final policy document, which wasn't signed before the Sept. 11terrorist attack.

Mr. Jones also contended that Willis wasn't free to change thewording or form that accompanied the binder. “I believe the finalwording would be based on the wording that I was shown in theunderwriting submission. And therefore, if that had changed, Iwould have expected the broker to bring that back,” Mr. Jonessaid.

Neil Chapman, the underwriting director with Wellington, aLloyd's syndicate, also testified under cross-examination from Mr.Hein that “we waived the agreement, provided it did not altermaterially from what was contained in the submission and theslip.”

As the trial continues, there will be plenty more fireworks incoming days.

In what could turn out to be the beginning of blockbustertestimony, there are now talks circulating in the courtroom thatthe person at the epicenter of this entire dispute, LarrySilverstein, may take the stand later this week or next. Also thisweek, jurors will hear from some of the U.S. insurers thatparticipated in the WTC coverage program.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, March 12, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.