When Eric Dinallo started his job in January as New York insurance superintendent, he discovered to his dismay that there were still at least $2 billion in outstanding claims related to the World Trade Center's destruction by terrorists on Sept. 11, 2001.
A fierce legal battle was being waged before a number of committees, mediators and both federal and state courts, with hundreds of attorneys bitterly arguing the claim disputes between Silverstein Properties and seven insurers.
"It was not a good overhang for anyone," he said, pointing out that the situation was making both the insurance and real estate industries look bad in the eyes of many.
To cut through the morass of mistrust and recrimination that had developed, he sent a letter to the insurers and Silverstein Properties telling them to bring two representatives from each party to a meeting at the insurance department's office with the purpose of reaching a settlement.
Once together, he said he feared the parties had grown into what he characterized as "a dysfunctional family" that had built up so much animosity over so many issues it could no longer focus on the core problem–getting the claims settled.
It looked bleak at first, Mr. Dinallo conceded. Once discussions with the insurance department were launched, it was four weeks before the parties arrived at "a zone of reasonableness" and began getting down to the main issues that would eventually lead to a settlement.
He said that once a few of the parties got close to an agreement, peer pressure in part prompted others to soon follow. He noted that any single insurer that held back would have been stuck supporting the legal apparatus built up to prosecute the litigation, which could have been crushing financially.
One major sticking point that had to be overcome was Silverstein Properties' push to collect pre-judgment interest on its claim to compensate for the long delay in payment. Once Silverstein made the concession to drop the interest demand, the whole process moved quickly toward resolution, according to Mr. Dinallo.
Eventually, as the end-game neared, Gov. Spitzer himself became involved to help close the deal.
However, contrary to editorial speculation in NU, the governor did not use his muscle to force the issue, according to Mr. Dinallo. Instead, Gov. Spitzer came in to analyze a few of the more difficult issues and provided creative ideas to close some of the remaining gaps.
Gov. Spitzer conducted three meetings, countless phone conversations and additional presentations, shocking the parties with his knowledge and involvement in the details while making it clear he wanted a resolution in everyone's best interest, according to Mr. Dinallo.
The state's mediation in the $2 billion settlement made the difference, he said, because once someone from the outside sat and listened to the entrenched positions of the various parties, the fresh perspective provided by him and Gov. Spitzer allowed the parties to get to the crux of the issues and finally reach an agreement.
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