World Trade Center Claim Settlement Seen As Smartest PR Move For Insurers

The decision by seven carriers to end six years of litigation and rancor and settle claims by the developer of the World Trade Center site's reconstruction is a positive move for insurers, removing a major public relations thorn in the industry's side, insurance leaders say.

The seven carriers–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–recently agreed to pay $2 billion to settle outstanding claims over the WTC's destruction by terrorists on Sept. 11, 2001.

The settlement came after New York state officials–including Gov. Eliot Spitzer and Insurance Superintendent Eric R. Dinallo–stepped in to personally mediate an agreement.

“I think that all the parities are happy to put this behind them,” said Robert P. Hartwig, president and chief economist for the New York-based Insurance Information Institute. “Obviously, the cost and uncertainty associated with litigation works to nobody's benefit.”

Noting that the total payout of claims by the industry from the 9/11 attack with this latest settlement stands at about $38 billion (in 2006 dollars), Mr. Hartwig said the settlement was within the range of what insurers expected, based on a 2004 court decision about their respective liabilities.

The settlement amount should be within insurers' reserves, according to Mr. Hartwig, meaning little impact on 2007 earnings. (For more details, see NU, May 28, page 6.)

Mr. Hartwig said he expects no adverse reaction from investors, noting that the industry is financially strong today.

He added that one of the lessons from the WTC claim dispute is the need to continue the federal terrorism reinsurance backstop under the Terrorism Risk Insurance Act–due to expire at year's end–as well as elimination of ambiguities in contract language that led to the litigation.

“It's good for the industry to get this done and over with,” said Donald Light, an insurance consultant with Boston-based Celent. “Insurers had some good legal grounds [to pursue], but from a public relations standpoint it was not a good sequence of events.”

The dispute over funds had threatened reconstruction efforts at the site and the building of the proposed Freedom Tower.

Randy J. Maniloff, an attorney for the law firm White & Williams in Philadelphia, which represents insurers, said the WTC dispute resembled the legal battles that arose after Hurricane Katrina.

“This is another example of insurers being a big target for these kinds of situations,” he said. “There is a lot of pressure put on them to ignore their right to litigate a dispute when things like this happen.”

He added that it would not have been surprising to see litigation drag on for another six years in this case if a settlement had not been reached.

“It's good for insurers to be seen agreeing to pay claims because it is too easy to demonize the industry as having no soul, when legally we have to raise questions about whether there is coverage,” Ann W. Spragens, senior vice president, secretary and general counsel for the Des Plaines, Ill.-based Property Casualty Insurers Association of America, said in an e-mail.

She said that such a characterization of the industry is “too common a theme in current public discourse, and it simply isn't the truth.”

As for public officials stepping in to reach a settlement, she said they “can help facilitate such a resolution.” She noted that Mississippi Insurance Commissioner George Dale helped resolve homeowners' claims from Hurricane Katrina in his state.

She added that the WTC settlement “may help remind both industry and government officials that there is a positive role that can be played in commercial lines situations, too, so it sets a good example from that perspective.”

The WTC claim dispute may not be over, however. Paris-based reinsurer SCOR said it would seek arbitration over its reinsurance coverage for Allianz, saying the settlement “does not respect the terms and conditions” of its contract.

A representative of Allianz said the company could not comment on its reinsurance contracts. Several observers, however, said SCOR's decision would have no bearing on its payment under the settlement.