No Winners On WTC

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The trial over coverage for the World Trade Center was not theindustry's finest hour, despite the fact that the verdict wastechnically a “victory” for the 10 carriers let off the hook.

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No insurer would be so insensitive as to dance in the streets tocelebrate the jury's decision to deny WTC leaseholder LarrySilverstein's double-payment claim for the Sept. 11 terroristattack. However, I would bet there were plenty of sighs of reliefand a few high-fives in the executive suites of the carriers toldtheir policy form only provided for a single-occurrence limit. Theverdict saved the industry some $2 billion in potentialpayouts.

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Three carriers that took part in the 10-week trial remain injeopardy after phase one but the trio is only at risk for about$176 million. Six additional carriers which did not take part inphase one, but might join the other three in phase two could owe anadditional $956 million should a new jury find that 9/11 was infact two separate events for insurance purposes under the governingforms.

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I have to hand it to the jury in this case. For a layperson tohave to sit through weeks of conflicting testimony and be forced toread the techno-babble in all the insurance documents involved inthe WTC coverage program had to be overwhelming. Indeed, early onin the trial, the poor jury passed a note to Judge Michael Mukaseyasking, “What is this case about?”

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My gut feeling about the case was that in the end the jury wouldthrow up their hands in frustration and say, essentially, “The hellwith it! We can't make heads or tails of this nonsense. Mr.Silverstein needs the money to rebuild, the city needs the siterebuilt, the insurers were as clueless as the broker and the WTC'srisk manager as to what forms and definitions appliedJust give themthe extra money already!”

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But the jury did its duty, looking strictly at the “facts” (asconvoluted as they were) and setting aside any sympathy they mighthave felt for the plaintiff or the city.

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No one came out of this trial looking good. Mr. Silverstein'srisk manager, Robert Strachan, appeared confused about his owninsurance program. The brokers on the placement could not seem toget their stories straight.

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As for the underwriters, good grief! Even though the verdictbasically came out in the industry's favor, most of the insurers onthis exposure did not appear to have a firm grasp of the coveragedetails. Indeed, the program was still a work in progress on9/11?well after the coverage was bound. That fact alone might haveswayed the jury the other way. If the insurers did not know forsure how the coverage was written, who did?

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The trial exposed one of the industry's biggest shortcomings itsinability to deliver policies in a timely fashion, error-free. Inour “State of the Market” survey (covered at length starting onpage 12), more buyers and brokers feel their carriers are gettingthe job done in this regard, but the large majority still complainthey are being left hanging.

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Buyers deserve better service than this. Perhaps the jurors inphase two will take that into account and order the insurersinvolved to pay double. But no matter how this case turns out, thelesson for all parties involved is to clean up your act!

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Sam Friedman

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Editor-In-Chief


Reproduced from National Underwriter Edition, May 21, 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.


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