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World Trade Center leaseholder Larry Silverstein has lost his second attempt to have insurance companies cover the costs of defending him in suits over the Sept. 11, 2001, terror attacks. Southern District of New York Judge Alvin K. Hellerstein ruled Thursday that the terms of insurance binders that governed coverage for the Trade Center before the attacks, as well as other evidence produced in discovery, show clearly the parties did not intend Silverstein be compensated for defense costs. The judge said the evidence was “overwhelming” that lead insurer, Zurich American Insurance Co., had “refused, in the absence of adequate loss history data, to issue a policy that included defense cost coverage.” “To now impose a defense obligation would give a windfall to Silverstein and subject Zurich to a liability that it was unable to calculate or prepare for by an appropriate premium, and thus would work a manifest injustice,” the judge said in In Re September 11th Liability Insurance Coverage Cases, 03 Civ. 00332. The judge’s decision applied in equal measure to both the primary policy and the umbrella policy issued by Zurich. Both policies were finalized in the months following the attacks, but the binder controlled as to the intent of the parties prior to them. Hellerstein also ruled that all but one of the 13 so-called “excess” insurers, those who provided the next levels of coverage for the World Trade Center following Zurich, are free from the obligation. The lone exception was the policy issued by the Royal Insurance Co., issued on Aug. 1, which the judge said “contained a duty to defend beyond any exhausted limits of the underlying policies.” In 2004, Hellerstein ruled in the same suit that New York’s insurance law does not prevent the insurers from asserting the exclusion of defense costs as a defense. The parties then embarked on discovery, with Silverstein aiming to prove, in advance of motions for summary judgment, that the binders and policies in effect when the twin towers were leveled did not contain the exclusion. But Hellerstein said the “indisputable evidence” showed that, with the exception of one insurer, “the insurers refused to extend coverage” for the costs of defending the host of lawsuits filed against Silverstein. “Although the lessees continued to negotiate for defense costs to be included, and although the insurers did not foreclose the possibility that their policies might add defense coverage at a later time, the insurers did not bind to cover defense costs as of the date of liability and loss, September 11, 2001, when the terrorist-related aircraft crashes into Towers One and Two occurred,” he said. One e-mail message cited by the judge, sent by Zurich’s negotiator for the umbrella policy on June 20, 2001, indicated that it was only on the assumption that Zurich would not cover defense costs that the company was willing to extend liability coverage. “Had Zurich not been willing to extend liability coverage, Silverstein would not have been able to close its transactions with the Port Authority, purchasing leaseholds of the World Trade Center from the Port Authority,” the judge said. Contrary to an argument made by Silverstein that the motions for the excess insurers were premature, the judge said there were no material facts in dispute and an “adjudication is important for the surrounding Sept. 11 litigations.” There are some 3,000 cases now pending before Hellerstein — cases among insurance carriers with Silverstein and other insureds, cases alleging personal injury and wrongful death, property damage and business loss and suits over respiratory injuries suffered by cleanup, recovery and rescue crews who worked at the World Trade Center site following the catastrophe. “There is no time for further delay in this insurance litigation,” Hellerstein said. “These motions represent the second effort of Silverstein to gain coverage for defense costs that they were unable to gain in the context of contract negotiations. There is no sound reason to entertain a third round of motions.” Kevin Coughlin of Coughlin Duffy was the lead attorney for Zurich. David W. Steuber of Howrey in Los Angeles argued for Silverstein’s World Trade Center Properties. “We are disappointed in the decision and we think it’s wrong,” said Dara McQuillan, spokesman for Silverstein Properties. “However, this decision will have no impact on the WTC rebuilding effort.”

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