Aunit of Swiss Reinsurance Co has asked a federal judge to rule there was a single attack on New York's World Trade Center on Sept. 11.
Billions of dollars are riding on his decision.
Larry Silverstein, who acquired a 99-year lease on much of the Trade Center in July, disagrees with Swiss Re. He says there were two separate attacks, one on each tower.
The policy by Swiss Re and other insurers apparently contained a clause limiting its exposure to US$3.5 billion per occurrence. If Swiss Re prevails, it will pay no more than US$3.5 billion because only one incident occurred. If Silverstein wins, meaning the judge rules there were two separate occurrences, the insurers' liability has a limit of US$7 billion.
According to the suit, the projected replacement value of the two 110-story towers, along with buildings 4 and 5 and the Trade Center's retail space, is US$3.94 billion. Lost rental income over three years comes to an additional US$1.11 billion.
Sounds like the makings of one wingding of a lawsuit. It's probably something that, by its profile alone, is destined to end up in law school casebooks.
One can suppose that Swiss Re will argue the hijackers operated in coordination to achieve a single objective -- the destruction of the World Trade Center.
Suppose the town bully beats you up -- is it battery or does each punch count as a separate incident? Silverstein is bound to argue the towers were attacked 18 minutes apart and that different airplanes crashed into the north and south towers.
Whatever the outcome of the lawsuit, I have to think that both parties are wondering what they got into when the policies were written. And that makes me wonder about the nature of the casualty risk.
On one hand, there is the risk of an insured event happening, in this case the attack on the World Trade Center. Yet it is now apparent that both Swiss Re and Silverstein were running a second risk, namely the danger that the policy was subject to interpretation.
It is not so much that the policy may have been poorly drafted but rather that life is far more complex than words can capture.
Silverstein, if he loses, probably will always wonder if the insurance companies didn't find a way to nullify half of his coverage through a legal technicality.
And if Swiss Re loses, it probably will be left thinking that the nature of the Sept. 11 attack, or attacks, created an accidental and unexpected liability.
Either way, both parties seem to have been operating under an illusion. Each may have been unaware that such a tragedy could bring them to court for a US$3.5 billion decision.
As a rule, you can count on a big event to spawn new opportunities for the government to encroach on the private sector. This time the Real Estate Roundtable, an association of property developers, has asked President George W. Bush to involve the federal government in issuing terrorism reinsurance.
Their plan is to have Congress pass legislation to make the government responsible for terrorist damage that exceeds an insurance-backed fund.
The group appears to have obtained a hearing with Senator Christopher Dodd, a Connecticut Democrat, who is drafting such a bill.
On Oct. 9 Dodd said, "If we don't have this kind of an issue covered, they're going to find people unwilling to lend even to small businesses, let alone large industries."
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