Spitzer Spearheads $2 Billion Deal Settling All World Trade Center Claims

New York Governor Eliot Spitzer personally entered negotiations and helped close a deal between the World Trade Center's leaseholder and seven insurers on a $2 billion settlement of all remaining claims arising from the Sept. 11, 2001 destruction of the twin towers by terrorists. The agreement between Silverstein Properties and the carriers was described by Gov. Spitzer and Insurance Superintendent Eric R. Dinallo as the largest settlement in regulatory history.

Their announcement–made in the New York Insurance Department's Neil D. Levin Hearing Room in Manhattan–was symbolic, the governor noted, because the room was named in honor of the former insurance superintendent who lost his life in the Sept. 11 attack. The room was packed with city, state, Port Authority officials and insurance executives.

The agreements made last week settle all outstanding court cases and related proceedings involving World Trade Center claims, officials said. This concludes nearly six years of legal conflict and removes the last major obstacle to development at the Ground Zero WTC site.

According to the governor and superintendent, resolution of the claims means that Silverstein Properties and the New York and New Jersey Port Authority that share the site can now obtain financing and forge ahead with a rapid construction schedule.

The insurance companies involved in the settlement are Allianz Global Risks US Insurance Company, Employers Insurance Company of Wausau, Industrial Risk Insurers (now owned by Swiss Reinsurance Company), Royal Indemnity Company, Swiss Reinsurance Company, Travelers Companies Inc. and Zurich American Insurance Company.

Pierre Ozendo, chief executive officer of Swiss Re America; Andreas Shell, claims crisis coordinator of Allianz Group; and Ken Spenze, general counsel of Travelers, were on hand to personally praise the settlement.

The governor called the agreement that he and Mr. Dinallo helped negotiate a reflection of his administration's commitment to World Trade Center redevelopment as a top priority.

He said resolution of these claims would permit the rebuilding to go ahead with certainty and allow the World Trade Center to once again be “a symbol of New York's global commercial leadership.”

Silverstein Properties Inc. leased the World Trade Center from the Port Authority in July 2001. When terrorists destroyed the twin towers on Sept. 11, 2001, paperwork on the insurance policies for the Trade Center had not been completed.

Suits were filed in October 2001 to resolve disputes over how much the insurance companies owed and whether one or two separate insurable events were involved.

The courts eventually determined that the most Silverstein Properties could collect from the insurers in the suits was $4.68 billion. Until now, the insurance companies had paid more than half of that total, leaving the remaining sum in dispute.

State officials said that in late March, Mr. Dinallo began holding dozens of meetings with Silverstein Properties and the insurance companies to resolve the stalemate.

“This had to come to an end. It was hurting the public confidence in government and the insurance industry,” Mr. Dinallo said during last week's settlement announcement.

“We are very happy to reach this resolution and see that this scar left by the terror attack will finally be healed,” said Mr. Shell of Allianz.

This month, with several outstanding issues remaining unresolved, Gov. Spitzer decided to become personally engaged in the settlement negotiations.

He described the process that took place as “two hockey teams who have just finished a very hard series. At the end of the series they shake hands. We have been to a very tough hockey game and there have been tussles, there have been disagreements…but I want to say that everyone here has played in good faith and diligence to get to where we have today.”

This might not be the end of WTC-related coverage disputes, however. The day following the agreement, Paris-based reinsurer SCOR announced it would seek arbitration over its share of its reinsurance contract with Allianz, saying the settlement “does not respect the terms and conditions” of its reinsurance contract.

“SCOR has already informed Allianz that this settlement exceeds the contractual requirements and contains exgratia elements,” the company said in a statement, indicating it felt the settlement payment was made voluntarily, and not out of any legal obligation under its contract.

Terms of the settlement were not disclosed. Indeed, as part of the agreement, Silverstein Properties and the insurance companies signed confidentiality agreements requiring that specific amounts paid by each company not be made public.

However, a clue about the individual company liabilities could be that during the trials in 2004 to determine if insurer contracts would have to pay for one or two events in the Sept. 11 attack, it was revealed that Swiss Re had the largest stake (including Industrial Risk) at $1.11 billion.

Of the other companies in last week's settlement, Allianz had an exposure of $433 million. Travelers (including Gulf Insurance, which it acquired) faced a total of $276 million in exposure.

Royal Indemnity anticipated a $128 million maximum loss, while Wausau's potential liability was $65 million, and Zurich American's was $46 million.

All those estimates together would total just over the $2 billion announced in last week's settlement.

Overall, this latest settlement would bring total 9/11-related insured losses to nearly $37 billion, according to the Insurance Information Institute, which reported that up until last week's deal, the insurance industry as a whole had paid, in 2006 dollars, $35.9 billion in claims for terrorist attacks in New York, Washington, D.C., and Pennsylvania. (See accompanying pie chart for the coverage breakdown.)

Silverstein Properties and the Port Authority reached a global agreement last September for comprehensively rebuilding the World Trade Center site. The agreement called for the Port Authority to construct Towers 1 and 5, and for Silverstein Properties to construct Towers 2, 3 and 4 along the eastern portion of the site.

The arrangement called for the Port Authority to prepare the “East Bathtub” foundation for construction of those towers.

To help finance this rebuilding, Silverstein Properties and the Port Authority agreed to a split of the remaining insurance proceeds of approximately 56 percent to Silverstein and 44 percent to Port Authority.

Larry Silverstein, the World Trade Center leaseholder and developer, said that with the settlement, building can now go ahead with certainty and be completed on schedule.

In announcing the settlement, it was noted that the two sides have spent hundreds of millions of dollars on legal fees and other court-related costs. The authorities said the agreements will save additional tens of millions in further legal costs.

The governor and Mr. Dinallo had words of praise for a number of officials they said had been integral in helping reach an agreement, including New York's Democratic U.S. Senators Chuck Schumer and Hillary Clinton, Democratic Assembly Speaker Sheldon Silver, Rep. Anthony Weiner, D-N.Y., New York City Mayor Michael Bloomberg and others.

Mr. Dinallo added that “this is government at its best, working with industry to solve a problem, rather than using the courts or fines or other adversarial procedures. This case highlights the essential role that insurance plays in modern society.”

Mr. Silverstein said that “Gov. Spitzer and Superintendent Dinallo deserve huge credit for recognizing the importance of settling all outstanding insurance issues, and their tireless work made sure we got it done.”