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Swiss Re says collapse of the World Trade Center is one insured loss, not two

The opening salvo in what is predicted to be a protracted legal battle to determine who pays the World Trade Center insurance claims of Sept. 11 — and how much — has begun. Swiss Re, the insurer responsible for 22 percent of the $3.5 billion worth of insurance covering the World Trade Center, has filed a lawsuit that says it will insist that the collapse of the twin towers stemmed from one single coordinated attack, not two separate incidents. If the attacks on the twin towers are considered two separate incidents, Swiss Re will have to pay policy limits twice.

Some attorneys will argue that each of the Sept. 11 plane crashes should be considered separate incidents, causing four insurable losses.

Swiss Re has filed the lawsuit in U.S. Federal Court for the Southern District of New York in Manhattan to "confirm that the Sept. 11 collapse of the World Trade Center is one insured loss" and to speed up the claims payment process. The lawsuit also asks the court to provide the insurer with some direction as to whom it owes an estimated $770 million — the investor group that leased the World Trade Center complex from the New York City Port Authority or to other businesses harmed by the disaster.

"Swiss Re has committed special resources to help clients manage these unprecedented claims and [our] move to expedite an initial payment is part of this ongoing effort," says Jacques Dubois, a member of Swiss Re's executive board.

But it's not going to be easy to determine if the collapse of the towers constitutes one loss or two, says Don Griffin, a spokesperson for the National Association of Independent Insurers. According to Griffin, there are few road maps to follow in this case. "Any event, such as an aftershock that occurs within 72 hours of an earthquake, is considered part of the original event," he says. "But that's a natural disaster rather than man-made."

Some attorneys will argue that each of the Sept. 11 plane crashes (two in New York City, one in Washington, D.C., and one in Pennsylvania) should be considered separate incidents, causing four insurable losses, according to Griffin. In that case, Swiss Re would be responsible for paying double the $770 million it currently says it owes.

Lawyers gird for battle

Even though Swiss Re has made a preemptive strike by filing its lawsuit, Larry Silverstein — the real estate developer whose companies hold a 99-year lease on the World Trade Center property — was not unprepared. Silverstein has hired top legal gun Herbert Wachtell to defend him in the tangle of litigation sure to come. Wachtell defended cigarette maker Philip Morris in a raft of lawsuits brought against Big Tobacco during the late 1990s.

Silverstein is seeking $7 billion in damages, claiming his investor group can collect twice on the $3.5 billion insurance covering the twin towers because they collapsed in two separate incidents. When negotiations between Silverstein's group and Swiss Re stalled, Swiss Re sued to limit how much it will have to pay in damages. Swiss Re is one of 22 insurers that provided coverage to the World Trade Center and carries the largest exposure of all the companies.

What makes the situation doubly complicated is the fact that there was no insurance policy yet issued on the towers when they collapsed.

What makes the situation doubly complex is the fact that there was no insurance policy yet issued on the towers when they collapsed. The New York City Port Authority had transferred management of the World Trade Center to Silverstein's group of investors only a few months before the attacks. While many of the insurers, Swiss Re included, have agreed to abide by the language of a binder, or proposed policy, the problem is in the interpretation of the contract language. The investors say the insurers agreed to pay a maximum of $3.5 billion in property and casualty losses for each incident of damage and that the two plane crashes constitute two insurable incidents.

While the litigation is bound to become complicated between the insurers and their clients, Griffin says the real battle for "who pays what" will be waged between the insurers and the reinsurers (companies that provide insurance to insurers). "It will depend on what the language says in the contracts between the insurers and reinsurers," says Griffin.

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