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Last fall, on the eve of the second anniversary of the attacks of Sept. 11, 2001, the insurance industry joined the war on terror. A number of U.S. insurance carriers filed a lawsuit against five Middle Eastern countries, Osama bin Laden and other individuals, and al Qaeda and other organizations allegedly associated with worldwide terrorism. Presumably, the insurers plan to win. In the suit, filed in the U.S. District Court for the Southern District of New York and called Chubb v. al Qaida, the carriers have alleged a massive conspiracy culminating directly and indirectly in the Sept. 11 attacks. They seek some $300 billion in damages for sums paid out to, or reserved for, the victims of the Sept. 11 attacks. (A companion case was filed in the U.S. District Court for the District of Columbia.) Let’s be clear — this is an extraordinary lawsuit. The most immediate reaction by some of the insurance lawyers I’ve talked with is “Why are they doing this?” Or, put another way, “Do the carriers really hope to accomplish anything worthwhile, or is this just pure grandstanding?” These are serious questions, and I don’t necessarily have clear answers. But understanding something about the suit also clarifies the difficult kinds of judgment calls players in the industry need to make when they decide on what sort of litigation strategies to pursue. A LOOK AT THE COMPLAINT The plaintiffs are 29 insurance companies, all of which have asserted claims related to payments made or expected to be made in compensation for death, injuries, or property damage. Ten of the insurers assert workers’ compensation coverage claims. No real surprises here either as to the plaintiffs or their claims. The list of defendants, on the other hand, constitutes a frightening roll call of organizations, Middle Eastern countries, and individuals alleged to be engaged in a conspiracy to commit acts of international terrorism against the United States, its citizens, and its allies. The organizations are designated Foreign Terrorist Organizations under Section 219 of the Immigration and Nationality Act, as amended by the Anti-terrorism and Effective Death Penalty Act of 1996. This group of defendants includes al Qaeda, Egyptian Islamic Jihad, Hezbollah, Hamas, and nine other groups. The plaintiffs have named as defendants Iran, Iraq, Sudan, and Syria, all of which the U.S. government has designated as state sponsors of terrorism.The insurers accuse each of these countries of providing support of one kind or another to al Qaeda. The plaintiffs allege that Iran has been providing material resources and support to al Qaeda since the early 1990s, “when al Qaida officials met with Iranian intelligence officials to establish an anti-American partnership.” The insurers claim that “According to the U.S. government, Iran has harbored, and continues to harbor, senior members of the al Qaida terrorist network” and continues to permit them to recruit new members, train terrorist cells, and coordinate, plan and fund terrorist attacks throughout the world. Iraq is charged with providing training in document forgery and with bomb making, poison and gas production, harboring senior members of al Qaeda, permitting those operatives to recruit new members and train terrorist cells, as well as with coordinating, planning, and funding terrorist attacks throughout the world. Among other things, Iraq is accused of equipping a terrorist training camp with a commercial airline fuselage to train terrorist operatives, including, al Qaeda operatives, in hijacking techniques and procedures. The plaintiffs allege that Sudan has provided material support and resources to al Qaeda, including paramilitary training, indoctrination, money, travel documentation, safe passage, and refuge. The insurers further allege that between 1991 and 1996, Sudan openly harbored bin Laden and many of his top lieutenants and permitted them to establish al Qaeda training camps, and that Sudan is continuing to harbor members of al Qaeda and to re-establish training camps within Sudan. The plaintiffs charge Syria with providing material support and resources to Hezbollah to the point where Hezbollah is an “agency and instrumentality of the Syrian government.” The plaintiffs allege that Syria purchased crude oil from Iraq in violation of United Nations sanctions, enabling Iraq to pursue the development of weapons of mass destruction and to “maintain and expand its terrorist sponsorship programs, including its provision of material support and resources to al Qaida.” Interestingly, the plaintiffs also name Saudi Arabia as a defendant, although the U.S. government does not designate Saudi Arabia a state sponsor of terrorism. The insurers allege that the country gave extensive and even lavish support to al Qaeda through various Saudi “charities.” The plaintiffs also claim that Saudi Arabia failed to prevent the so-called charities from financing terrorism, with the result that terrorists and terrorist organizations, particularly al Qaeda, directly benefited from Saudi permissiveness. The naming of Saudi Arabia as a defendant is particularly significant in light of the U.S. government’s delicate relationship with that country. The list of individuals and organizations designated as supporters and associates of terrorists by the U.S. government goes on for five pages. The list of individuals and organizations apparently not designated as supporters and associates of terrorists — but who nevertheless allegedly aided, abetted, and conspired with al Qaeda and other designated foreign terrorist organizations and with terrorist individuals — runs another five pages. The plaintiffs predicate jurisdiction on the basis of a federal question, diversity, and the Alien Tort Claims Act. The plaintiffs further allege that their claims against Iran, Iraq, Sudan, Syria, and Saudi Arabia fall within exceptions to the Foreign Sovereign Immunities Act. The factual allegations of the overall conspiracy are sparse and conclusory, and are set out in three paragraphs. As one states: The September 11 attacks were a direct, intended and foreseeable product of a larger conspiracy to commit acts of international terrorism against the United States, its nationals and allies; the conspiracy included the provision of material support and resources to Al Qaeda and affiliated foreign states, organizations, commercial entities and other parties; and absent this material support, Al Qaeda would not have had the financial resources, physical assets, membership base, technical knowledge, communication skills and global reach to conceive, plan and execute the September 11 attacks. In the remainder of the complaint, the plaintiffs set out in summary fashion the amounts spent and to be spent by way of insurance payouts. These allegations run some 25 pages. Finally, the plaintiffs bring formal causes of action, alleging trespass, wrongful death, survival actions, assault and battery, intentional and negligent infliction of emotional distress, conspiracy, aiding and abetting the conspiracy, international terrorism, and negligence, along with violations of the Torture Victim Protection Act and the civil sections of the Racketeer Influenced and Corrupt Organizations Act. Not surprisingly, the plaintiffs demand a jury trial, and have sued for punitive damages. NOT A NORMAL LAWSUIT The complaint, said to be two years in preparation, is quite a piece of work. It is not my purpose to analyze the drafting of the complaint. That said, the conspiracy allegations as to the overwhelming majority of defendants are broadly drawn and do little to tie each individual defendant to the overall conspiracy pleaded. If put to the task, the plaintiffs would have a significant burden to prove that each defendant, directly or indirectly, conspired to produce the Sept. 11 attacks and resulting deaths, injuries, and property damage. If this were a normal civil suit, it would yield legions of defense counsel, and present the court with a significant case-management challenge. But this is anything but a normal lawsuit. To begin with, it is highly unlikely that all the defendants will challenge the plaintiffs — will bin Laden really appear in a U.S. court to contest liability? So assume that the insurers will get default judgments against many of the defendants. But even then, the plaintiffs will have a difficult, if not impossible, task executing on the judgments against the defendants. And that formidable difficulty is compounded by the fact that the U.S. government itself has actively and successfully opposed the private attachment of Iraqi assets, taking the position that those assets are now needed to help rebuild Iraq. It is also compounded by the government’s position that a provision of the Foreign Sovereign Immunities Act that authorizes private rights of action against foreign government officials does not authorize such suits against foreign governments for the same acts. And it is compounded again by the fact that the insurers will no doubt be competing against individual victims of terror for those terrorist assets available for attachment. This potential dispute between insurers and victims, actually, is the elephant in the courtroom. If there are assets to be had, who should have the priority claim on them? The insurance carriers who wrote the insurance, received substantial premiums for the risk transfer and who were called upon to honor their insurance contracts? Or the private individuals, many of whom have filed similar suits against similar defendants, and who have incurred serious and very personal damages as a result of the terrorists’ actions? This crucial issue hinges on the long-recognized principle of subrogation. Simply put, subrogation is the legal vehicle by which insurance carriers are permitted to pay an insurance claim, and then seek reimbursement from those responsible for the policyholder’s injury. Normally, subrogation is a vital and noncontroversial pillar of insurance law. Prohibiting an insurance carrier from attempting to recover its loss payouts from the individuals or entities responsible for the loss would have severely adverse consequences. First, it gives the perpetrator a free ride, by permitting it to transfer the risk of wrongful or negligent actions to the insurance company on the back of the policyholder who has actually paid the premium. And second, it would punish all policyholders who must pay higher premiums, because the insurance company would be forced to write off all loss payouts without hope of recovery. THINKING THROUGH SUBROGATION But if subrogation is generally a sound policy, there is still room to question whether it makes sense in the insurers’ action against the terrorists. Does anyone really think this lawsuit, and others like it, will act as a deterrent to these defendants and to others of their ilk? Do the insurers have any real hope of recovery? And who should have the priority claim on the assets? As to the deterrence question, the answer must be a resounding no. To think otherwise is to commit the logical fault of “mirroring,” i.e., assuming that terrorists will act reasonably, and when faced with the same risks as others, be likely to perform a rational, cost-benefit analysis and thus be deterred from acting badly by the possibility of being pursued by insurance companies. After all, in addition to the insurers’ lawsuit, the terrorists are being targeted by a worldwide real war on terror. Does the lawsuit really provide additional deterrence? Fat chance. The answer to the question of recovery also indicates that subrogation won’t achieve its traditional goals in this case. The government has been working assiduously to track down terrorist financial assets. It knows full well, as do the insurance carriers, that an effective attack on the financial resources of terrorists will serve as a real deterrent to potential future attacks. The government may already have done what it can, or at the very least will continue to try to do so in the immediate future, to seize terrorists’ assets, thus making them unavailable for claims by private parties. There may or may not be more the insurance companies can add to the effort and, therefore, little for them to recover that has not already been found. As to who should get priority on any assets available for private parties, there are strong arguments both favoring and opposing the insurers’ interests. On the side of giving terror victims a kind of super priority on any assets identified, seized, and made available for execution, it can be fairly argued that those parties did not collect premiums to absorb the risk of their losses. To the contrary, many paid premiums for that very transfer of risk. So if there is to be any kind of payout in addition to what they were able to recover from their insurance companies, the victims should be first in line to receive it. The insurance carriers, however, will likely advance the argument that the private parties have already received the benefit of whatever insurance bargains they struck before suffering their loss. Therefore, tragic as the victims’ losses are, the insurance companies should be entitled to recover their own losses through the time-tested rule of subrogation. ROOM FOR NEGOTIATION The solution must come through serious and good faith negotiations between all parties concerned: the U. S. government — at all relevant levels including specifically the departments of State, Defense, and Homeland Security; the terror victims; and the insurance carriers. Maybe the solution will be a settlement. Or maybe legislative action could better take into account the competing interests of the major players. The negotiations, or the drafting of effective legislation, will not be easy. There are a lot of moving parts and strongly held, well-founded viewpoints. What is needed is a strategic plan, uniting public and private entities and individuals and their considerable assets and resources, to effectuate any eventual agreements or legislation. Lawsuits may be an effective way to start the discussion to lead to such a negotiated solution, but, eventually, the insurers will have to move to a different forum if they hope to gain any real relief in a timely manner. Despite all these obstacles to the suit, it would also be unfair to call it grandstanding. The insurers do have a real hope of recovering at least some of their own very great financial losses. Moreover, the case sends an important, if not strictly legalistic, message to terrorists everywhere: It’s not just the U.S. government that’s fighting the war on terror — it’s all of us. Edward M. Dunham Jr. is of counsel in the Philadelphia office of Duane Morris LLP, and is head of the firm’s insurance coverage and risk management practice group. The opinions expressed in this article are solely his own, and do not in any way reflect the views of Duane Morris, its affiliates, or its clients.

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