Trade Center Verdict Not A Big Hit Say Insurers

Insurers expressed surprise and disappointment at the verdict and said they will consider all legal options including post-trial motions and appeals if necessary. The carriers also assured, however, that no matter what happens, the verdict would not have any material impact whatsoever on their corporate bottom line.

"We were surprised by the verdict, because we were the only insurer with the final policy in place with our own policy language, and our definition of occurrence was very close to the Willis Property form's definition," said Ashraf El Sharkawy, spokesman for Allianz, the company with the largest stake.

At a previous trial some of the insurers for Trade Center leaseholder Larry Silverstein were found to be liable for only one event under the language in the Willis form.

"We are pretty disappointed, especially because this is contrary to the outcome of [the]Phase One [trial], which determined for two-thirds of the participants of the WTC insurance program that the 9/11 attack was one occurrence.

"We had a definition in place that is pretty similar to WilProp [Willis Form]. Yet for us, it's two occurrences." Mr. El Sharkawy said Allianz will "definitely appeal if necessary."

Mr. El Sharkawy emphasized that even if there is no appeal, the verdict doesn't automatically mean that the nine insurers are going to pay twice their per-occurrence amount.

"The actual insured-loss amount has not yet been determined. We have to wait and see the next proceeding, in the court-supported appraisal process." He also reassured that, in the event of a maximum payout, Allianz faced additional exposure of $80 million, which would have no material impact on the insurer's 2004 profit.

Allianz had a bigger, fronting policy for French-reinsurer Scor for $354.7 million per-occurrence coverage. So while Scor was not a party in the trial, it clearly had a financial stake in its outcome.

Shortly after the verdict was announced, Scor issued a statement slamming the jury's decision, calling it "contrary to the terms of the insurance coverage in force and to the intent of the parties." Scor said it would "fully support Allianz's efforts to overturn the verdict."

A representative from Industrial Risk Insurers said his company is still convinced that the attack on the World Trade Center was one occurrence. "The jury disagreed with our view," according to IRI spokesman John Novaria, "and we believe the evidence was to the contrary. We will examine our options."

Travelers, part of The St. Paul Travelers Companies Inc., is also looking into all its legal remedies after the verdict. The company announced that the impact of the jury decision, taking into account the company's reserve and reinsurance, will be "immaterial to the company."

"Taking into account our reserve position and reinsurance, we don't believe that this decision is material to the company," said Travelers spokesperson Marlene Ibsen.

Zurich North America and Royal Specialty also said they were considering whether to appeal. "We are looking at all our options, post-trial, but we can't comment at specifics until we look at all the options," said Zurich North America spokesman Keith Owens.

Zurich has already paid out the bulk of its $45.7 million per-occurrence coverage. And the company has stated that its maximum additional exposure would only be an extra $45.7 million before recovery under reinsurance policies, and the impact would be small after recovery under reinsurance, so the verdict would have no material impact on the company's results, Zurich announced.

For Royal Specialty and its parent Royal & Sun Alliance, the ruling might mean additional claims of $128 million before any recovery under reinsurance policies.

However, Royal & Sun Alliance announced that it's too early to assess the financial impact of the verdict, given the pending appraisal process.

"Now that a jury has determined it was two occurrences for certain insurers under certain policies, there will have to be a further determination as to the total value of the loss sustained by the insureds and, thereafter, an allocation of that total loss between the two occurrences," a company spokesperson said.

She explained that because of the WTC program's complex layering, and because nearly all of Royal's coverage participation is near the top layer of the structure, it won't be possible to assess the likely impact on Royal of a two-occurrence finding until all the valuation and allocation process is completed.

The Royal & Sun Alliance spokesperson noted the company has been seeing some analysts' estimate that it would need to boost reserves by $97 million if 9/11 attacks were treated as two events. "That's certainly what we've been reading," she said, but added that as far as Royal is concerned, "it's just too early to say."

For The Hartford Financial Services Group, while one of its units, Twin City, was involved in the second round, the amount involved, at $2.5 million, was relatively small.

"It was a very small portion, and we already paid $2.5 million for one occurrence. The verdict will not have a material impact on The Hartford," said Hartford spokesperson Cynthia Michener.

According to Ms. Michener, far more important for The Hartford is that, in Sept. 2003, it won a separate case affirming the one-occurrence limit of $32 million it had already paid to Mr. Silverstein through the Hartford Fire unit,.

One company that may see some financial impact from the WTC jury verdict is the Munich, Germany-based Munich Re, the world's largest reinsurer which had reinsured several of the nine insurers in the second round.

But Munich Re said last week its earnings won't be affected materially by the outcome of the trial.

"We have reinsured several of them, although we can't specify who is reinsured by Munich Re and to what extent. The verdict won't affect our 2004 earnings, nor our reserves for the Sept. 11 attacks," Munich Re spokeswoman Anke Rosumek, said. Ms. Romumek also said Munich Re had previously estimated Munich Re's overall burden for WTC attacks at $2.6 billion, and even after this decision, "the burden is still within our reserves, so we don't have to boost them."