Business Interruption Estimates Fall For WTC
Although some tallies indicate there are $8.6 billion in open claims for business interruption related to the 9/11 attacks, two consulting firm executives said their study indicates the eventual paid loss is far from determined and could be much less.
"Maybe $5-to-$6 billion will be paid," said Steven Kessler of PricewaterhouseCoopers, who wrote an Investigations & Forensic Services report with John Petzold. The two are directors for the companys insurance claims practices unit.
Their report said, as of June, possibly 768 business interruption claims were still being adjusted or litigated as disputes erupt over several issues. The issues include the questions of how far from the attack points claims can be made, whether restoration or replacement is required, and whether comparable locations can be found.
Speaking with National Underwriter, the two mentioned a host of other complicated and wide-ranging issues that have led to delays and disputes in settling claims.
In their report, they noted that as of June, Insurance Services Office in Jersey City, N.J., had put the number of claims for business interruption that had been paid at $3.4 billion. Combining that result with a total business interruption loss estimate of $12 billion from last years PwC analysis would imply $8.6 billion in future payments.
However, the two authors said they believed the numbers that come in next year would indicate a lower total figure.
Mr. Kessler noted that there is a wide variance in the wording of business interruption policies. "Some have dollar limits, some have time period limits, some have a policy limit. Each policy is a little bit different," he said.
Claims that have been settled so far, the report noted, generally did not involve contentious coverage issues. Other factors that closed claims had in common, the authors said, included a policyholder sustaining direct physical damage in an amount that was readily determinable.
Also, a relatively short or easily identifiable period of interruption, a low claim amount and/or a loss exceeding policy limits were common factors.
Mr. Petzold said that in the coming months there should be some momentum to close outstanding claims among business entities seeking to conclude matters so they can be recorded in their 2003 financial results.
He said that by this time next year the majority of the open cases will be in litigation.
According to the authors, some suits were already filed to meet a time limit for litigation, but in many cases the parties have agreed to postpone the deadline while negotiations are underway.
"There are claimants out there continuing to work through the process. Insurers have been cooperative in extending the time limit," said Mr. Petzold.
Among some of the disputes they noted were differences over how long the interruption actually lasted and how much it cost the insured.
Among the more high-profile disputes they pointed to was one between Paxson Communications and Zurich American Insurance Company. Paxson owns the New York City TV station WPXN, which lost its antenna atop the World Trade Center. According to the broadcaster, with the Trade Center facility gone, it can only broadcast at 10 percent of its former power and has lost 50 percent of its New York market.
According to legal filings, the insurer has paid $2.6 million advances against a $19 million loss claim for business interruption. The broadcaster and Zurich are now litigating the case, which also includes an $18 million property claim on which Zurich has paid $1.7 million.
Another point that can come up for interpretation, the authors noted, is how to factor in the effect of an economy that saw an overall drop in revenues in the months after the attacks.
Mr. Kessler mentioned there have been "a couple of claims by airports that are remote from ground zero who are saying the closure of air space and airports was triggered by physical damage at ground zero."
He said that "carriers are resisting this, saying they need proximity between the airport and the physical damage."
Concerning claims based on civil authority, service interruption and contingent business interruption triggers, Mr. Kessler noted a variance in civil authority language in policies. "Some is so broad [that] one might be able to make a case for an airport 1,000 miles away, because there is no narrowing language."
Mr. Petzold said, on the issue of distance, that "some professional services firms are taking the position that their offices outside ground zero were affected," and this could take the claim nationally.
According to the report, the business interruption period of indemnity was still running even one year or more after Sept. 11, so claims are uncertain.
For former tenants of the World Trade Center "who could relocate to a comparable location, might their period of interruption last until the WTC complex is rebuilt?" the report speculated.
The authors said, for retail stores, the highly-trafficked Trade Center in Manhattan with a vast professional population was a unique location that is not replaceable with, for example, two stores in the Bronx. Mr. Kessler said he knew of one retail chain that is in litigation "over that very issue."
Coverage interpretations by insureds and carriers are being interpreted differently "due to an unusual convergence of two key factors–a unique event(s) coupled with policy coverages that never contemplated anything even remotely like what occurred on Sept. ll, 2001."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 24, 2003. Copyright 2003 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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