Judge Backs Insurers On WTC Coverage

In their separate motions, Hartford Fire Insurance Company, Royal Indemnity Company in Nashville, and The St. Paul Fire and Marine Insurance Company had argued that in issuing coverage binders to the WTC leaseholders just before the Sept. 11 terrorist attack, they had agreed to be bound by the so-called "WilProp" form.

The WilProp form--a propriety policy form provided by the Willis Group of New York, which brokered the deal for the Silverstein Properties and other WTC leaseholders--unambiguously defined "occurrence" as a single insurable event, the three insurers argued.

In making that argument, the three insurers sought to limit their liability to their proportionate share of the approximately $3.5 billion in maximum per-occurrence coverage purchased by the Silverstein parties.

The Silverstein parties have maintained that the toppling of the twin towers of the WTC constituted two separate insurable events for a total of about $7 billion. The Silverstein parties have refused to concede that the WilProp definition of occurrence was incorporated in the insurance binders.

District Judge John S. Martin, sitting in Manhattan, found that the three insurers were bound by the WilProp form. The judge also concluded that "occurrence" was susceptible to only one reasonable definition that rendered the three liable for only one payment in the face amount of the policy.

As explained by Judge Martin, the Silverstein parties had argued that in signing binders, the three insurers as well as several others knew that they would ultimately agree to be bound by the contract terms negotiated by the insured and lead underwriter--Travelers Insurance Company of Hartford. To the Silverstein parties, this meant that all of those insurers were bound to the terms to which Travelers and the insureds had agreed as of Sept. 11, Judge Martin wrote.

Judge Martin rejected the Silverstein parties' argument that the binders were mere "binding preliminary commitments." The judge said that "a binder is not an agreement to agree to terms in the future." Instead, under case law, binders are present contracts of insurance, and binder terms are not subject to future negotiation, he wrote.

The judge also wrote that New York law on binders does not consider the negotiations of the parties to determine what terms ultimately might have been incorporated into a formal policy. In fact, the state's highest court has ruled that once a binder is signed, the insurance contract is closed, and the binder effectively becomes the same as a regular insurance policy, Judge Martin wrote.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Judge Backs Insurers On WTC Coverage

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