In SR International Business Ins. Co. Limited v. World Trade Center Properties LLC, No. 01 Civ. 9291 (HB), 2006 WL 3073220 (S.D.N.Y. Oct. 31, 2006), the U.S. Court for the Southern District of New York ruled that, under six policies bound by Travelers, ISO, and IRI, recovery for the World Trade Center properties is to measured on an “as was” basis.
The insurers moved for summary judgment seeking a declaration that replacement costs recovery for the World Trade Center properties destroyed by the September 11, 2001, terrorists attacks should be capped “at the amount it would cost to rebuild the WTC precisely as it existed on September 11, 2001.”
Insureds sought a declaration that “additional expenses that would be required to adapt the structure's design to the changed legal, physical, and political environment of post-9/11 New York” should be considered in determining replacement cost.
Insureds did not appear to seek recovery under ordinance or law provisions of the policies but argued that Lease Section 6 expenses (provisions required by their lease for rebuilding) are recoverable as part of the replacement cost.
The Travelers policy stated that the insurer will not pay more than the cost to repair, replace, or rebuild at the same site with property of comparable size, material, and quality. The ISO form specified that replacement cost is the cost to replace “as of the time of loss or damage.” It also promised to replace with property of comparable material and quality. The IRI policy stated that coverage is provided “to the amount actually expended by or in behalf of the Insured to repair, rebuild or replace within two (2) years from the date of loss or damage, at the same or another site.”
All parties agreed that the Lease Section 6 expenses were not from enforcement of ordinances or laws since the WTC site is not subject to New York City codes or New York state laws.
The court found no ambiguity in the policy provisions. It stated that the provisions in the Travelers policy said “the most the Insureds can recover on a replacement cost basis is the amount it would cost to reproduce the WTC beam-for-beam, pane-for-pane, as it stood early on the morning of September 11, 2001.”
The court said:
Boiled down to its essence, the logic of the Insureds' claim is that the WTC was considered safe, modern, and politically acceptable when it was built; therefore, the measure of replacement cost is the amount that would be required to erect safe, modern, and politically acceptable buildings today. This is incorrect. Insurance against technological change and shifts in the political winds may very well exist in the marketplace. But no court has ever found that such coverage is included in a replacement cost policy.
Thus, the insurers' motion was granted and replacement cost is to be measured on an “as was” basis.