World Trade Center Insurance Case Yields Several 'Lessons Learned' Wood & Bender Partners Note
CAMARILLO, Calif., May 5, 2004 -- "The first phase of the World Trade Center case reveals several 'lessons learned' for corporations, nonprofits and public entities when seeking to cover against significant risks," Dave Bender, co-founder of Wood & Bender LLP, notes. Wood & Bender is the nation's leading law firm in the fast-growing practice of insurance policy enforcement.
The case centered around which insurance policy form was in place at the time of the 9/11 tragedy. Silverstein Properties acquired the rights to develop the World Trade Center site in July 2001 and initiated negotiations to secure insurance coverage under a form developed by its broker, Willis (which became known as the Wilprop form). This form represented an effort to aggregate claims to avoid multiple deductions, Silverstein Properties believing the primary risk to the complex existed from multiple, small injury and similar type claims. Under the Wilprop definition, the two attacks would be classified as a single occurrence with a single coverage limit. Travelers Insurance, one of the carriers involved in the negotiations, insisted on its own form, and Silverstein, trying to use the same form for all carriers, then attempted to substitute the Travelers form for the Wilprop one.
The language of the Travelers form allowed for characterization of each tower's loss as a separate occurrence with its own coverage limit. The jury found that most carriers were bound by the Wilprop form and therefore obligated to pay for a single occurrence, approximately $3.5 billion.
Lessons Learned
"This first phase reveals three lessons risk managers, CFOs and in-house counsel at corporations, nonprofit institutions and public entities should remember when negotiating insurance coverage with carriers," David Wood, co-founder of Wood & Bender adds.
Minimize Lag Times between Binders and Policy Issuance
In the World Trade Center case, nearly 90 days elapsed between the binder date and the date of loss, yet no final policy had been issued. This created the opportunity for ambiguity and dispute as to which terms had been agreed to by which insurers. The insurance binder was issued as part of a major real estate purchase and time for closing was probably of the essence. However, had the final policy been issued on, or immediately after the date of Silverstein’s purchase of WTC, the current litigation might well have been avoided and the policies might have been enforceable at higher limits.
"These verdicts underscore the importance of finalizing insurance negotiations before completing a major business transaction," says Wood & Bender LLP partner David Wood. Further, he says, this advice is not limited to property insurance or to real estate purchases, but applies equally in other insurable situations. "If a company or other entity is embarking on a course of action that creates an insurable risk, then management needs to define and quantify the risk, and finalize insurance negotiations before proceeding," advises Wood.
Seek Uniformity in Multiple Carrier Policies
Frequently, to secure coverage for expensive assets, organizations must pursue a strategy multiple insurance carrier participation to ensure adequate coverage. However, coinsurance and reinsurance situations can be fraught with challenges. "Seek uniformity wherever you can," counsels Wood & Bender's partner Dave Bender. "The more distinctions there are between the terms of coverage for the various carriers, the more confusion and complexity there will be in an enforcement action."
In this case, says Bender, "Part of the problem was the use of multiple forms. Silverstein and Willis sought to impose a single form on all carriers, and that was absolutely the right call. But it seems they did not go far enough in confirming the agreement of each carrier." Noting the jury’s delay in issuing a verdict as to Swiss Reinsurance and their requests for help from the judge, Bender stated, "the jury clearly struggled with how to vote on Swiss Reinsurance. It appears from their notes to the judge that they were bothered by the fact that Swiss Reinsurance’s underwriter had received the Travelers form in an email and disregarded it. If Silverstein’s broker had followed up that email with a demand for acknowledgement of the new form, it might have cleared the way for a two-occurrence recovery. That’s an $877 million difference in result."
Avoid Binder Reservations Whenever Possible
Several of the participating carriers signed the insurance binder subject to reservations as to the wording of the final policy. This virtually guaranteed a challenge to enforcement in the event that a loss occurred before final policy issuance.
"Obviously, the best way to avoid this situation would have been for Silverstein and its brokers to get final policy language in place right away," says Wood. Failing that, however, they absolutely should have attempted to resolve any reservations as to wording before accepting the binder. "Never, ever engage in a risk producing activity under protection of a policy that is ambiguous as to its wording," Wood cautions. "If brokers ask if it’s acceptable to agree to such a binder, it isn't. Get an extension of an expiring policy, or interim coverage from a new carrier following the prior year’s form – anything to avoid being forced to accept a binder for an un-issued policy whose wording and description of carrier duties is still embryonic. Resolve the wording dispute, get the final policy language in place, and then proceed. A delay in policy issuance might be aggravating in the short term, but if it avoids enforcement headaches later on, it’s worth it."
About Wood & Bender LLP
Wood & Bender LLP is the nation's leading law firm in the fast-growing practice of insurance policy enforcement. The firm focuses on five critical services: analyzing and recommending optimal insurance strategies, negotiating with carriers and customizing clients' insurance portfolios, evaluating and enforcing claims of loss, developing clients' business settlement and litigation strategies, and preparing the litigation defense of clients to compel insurers to assume their responsibilities. Wood & Bender serves mid-sized to Fortune 1000 corporations, large non-profit institutions and public entities, as well as partners with attorneys at mid-sized and large law firms who require support in insurance enforcement expertise. The firm is headquartered in Camarillo, Calif. with an office in Los Angeles.