Was WTC Loss Just One Occurrence?

Was WTC Loss Just One Occurrence?

The $3.5 billion question concerning Sept. 11 is whether the terrorist attack (or was it attacks?) that destroyed New York's World Trade Center should be considered one occurrence or two for insurance coverage purposes. A federal judge has decided to allow a jury trial to decide the issue, but whatever the outcome, an appeal could keep the debate alive for years to come.

It is tempting to sit by silently and let the courts handle the one occurrence versus two argument. But since this is an insurance issue as well as a legal one, it is appropriate for those in the insurance industry to voice an opinion.

An informal poll of the FC&S editors brought out diverse opinions. One editor believes the disaster was definitely two occurrences; others think the attack can reasonably be seen as one occurrence.

The rationale for either opinion is well known. Those who back the two-occurrence view note there were two planes involved, two structures hit, two separate bands of terrorists (albeit part of one large organization), and a separation of time and space between the events.

On the other hand is the view that Sept. 11 was one coordinated attack led by one organization, resulting in one huge complex being destroyed. Add to this the idea that perhaps the first plane alone caused enough damage to make both buildings collapse. So, both sides have reasonable arguments, and both have their strengths and weaknesses.

However, one of the main problems contributing to this conundrum is the fact that, at the time of the disaster, the insureds property policies did not all clearly define the scope of an occurrence. If policies with definite wording had been in effect, it might help decide the one versus two occurrences dispute.

Consider the following wording from ISOs 1973 comprehensive general liability policy: “For the purpose of determining the limit of the companys liability, all bodily injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence. These words were used by a court in Florida to help decide a case that in some ways is similar to the WTC attack.

In American Indemnity Company v. McQuaig, a Florida appeals court used that wording to question whether “there was but one proximate, uninterrupted and continuous cause which resulted in all of the injuries and damages.

In this case, a police officer was shot and then a minute later, another was shot, and then forty-five seconds later, the second officer was shot again. The insurer contended that this shooting was one occurrence because the injuries were caused by one instrument of danger (a shotgun) and occurred in one very specific location in one brief time period of less than two minutes. The court ruled against the insurer and said the injuries were caused by separate causes (three shotgun blasts)–there was not just one uninterrupted and continuous cause.

Applying this analysis to the WTC attack, it can be said that two separate planes hitting two different buildings approximately 13 minutes apart is not one uninterrupted and continuous cause of loss; in other words, not one occurrence.

The insurer in the WTC dispute is arguing that a preliminary contract document described an occurrence as “all losses or damages that are attributable directly or indirectly to one cause or one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur. Applying this to the WTC attack, it can be said the damage was caused by one series of similar causes (planes) and that the 13-minute gap is not relevant. In other words, one occurrence.

The problem with the insurers stance is that there is no guarantee that a court would decide that the preliminary contract document is binding on the insured or part of the final insurance contract. And even if this did happen, the wording on this document can be subject to various interpretations.

For example, it is not clear to what the phrase “irrespective ofthe area refers. Maybe the “area encompasses the whole WTC complex, or maybe just one building. Also, “damagesattributableto one cause or one series of similar causes–does this refer to the damages at one building or both buildings? After all, one plane did not damage two buildings, nor did two planes crash into one building.

Furthermore, it is not as if there is no language that could have been used to really clarify the scope of occurrence. CP 10 30, causes of loss–special form, states that all volcanic eruptions that occur within any 168-hour period will constitute a single occurrence. And CP 10 65, flood coverage, states that all flooding in a continuous event will constitute a single flood. So, if the insurer of the WTC had wanted to explicitly define “one occurrence,” it had the tools to do so.

In the final analysis, the question of one occurrence versus two will be decided by the courts. However, the insurers failure to use available language expressly describing an occurrence leaves the insurer in a weakened position. Add to this the fact that there was not one uninterrupted and continuous cause of loss to just one building–there were two different buildings damaged, two planes involved, and two crashes–and the insurers position is weakened further.

Add one more item to the mix–the fact that a study by the American Society of Civil Engineers determined that the buildings could have survived being struck by the planes but succumbed to the ensuing fire–and there were definitely two separate fires–and the one occurrence idea becomes nearly untenable.

Based on this, and for what it is worth, in the opinion of this FC&S editor, the WTC disaster was two occurrences.

David D. Thamann is managing editor

of the FC&S Bulletins, published by the National Underwriter Company in Erlanger, Ky. The FC&S editors welcome comment and questions and may be reached by fax at 859-692-2293 or via e-mail at FCS@NUCO.COM.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 9, 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.