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When Congress wrote a check for $1 billion in federal emergency money to buy insurance for New York City contractors and subcontractors who worked in the aftermath of the Sept. 11 attacks, they expected the firefighters and cleanup crews to get paid for illnesses allegedly caused by unsafe working conditions. Instead what they got is an insurance company that refuses to settle claims. The ongoing court battle pitting more than 8,000 workers against the World Trade Center Captive Insurance Co. is at a standstill after initial discovery, and awaits New York federal Judge Alvin Hellerstein’s decision on Captive’s immunity defense. If successful, Captive’s insureds — the construction companies, the city of New York, and others — would not be liable for damages, despite the fact that Congress set aside money for such claims. The plaintiffs have filed suits based on illnesses they allege resulted from cleanup efforts in and around the World Trade Center site. Meanwhile, Captive’s refusal to pay claims has been met with frustration by congressional leaders such as Sen. Charles Schumer (D-N.Y.), who helped set up the insurer. Schumer and others, including New York Reps. Carolyn Maloney (D) and Jerrold Nadler (D), have voiced criticism over Captive’s large legal bills and have called on it to pay claims and stop stalling. But Captive maintains it is fulfilling its duty and that it was not set up like the Sept. 11 Victims Compensation Fund, which used a private lawyer to examine claims and avoided the tort system by making claimants sign a legal waiver upon payment. “We are not a victims compensation fund. It’s not what we were set up to do,” says David Biester, general counsel for Captive. “That’s why we aren’t behaving like one. Our insurance policy obligations are specific; it requires us to defend our insureds — that is our primary duty.” CUTTING-EDGE ISSUES In the aftermath of the cleanup of Ground Zero, contractors such as Bovis, Tully, AMEC, and Turner Construction and other subcontractors could not get a commercial insurance provider to cover them for any liability from injured workers. Fearing impending lawsuits would bankrupt them, they turned to Congress for help. After a series of negotiations, in 2003, Congress agreed to use $1 billion in federal emergency money to set up a new insurance company to cover potential claims. Captive would accept the $1 billion, which would be available to pay claims and expenses for coverage, with all unused funds ultimately being returned to the Federal Emergency Management Agency. Headed by Christine LaSala, a former partner at insurance brokerage firm Johnson & Higgins, Captive put out a request for proposals from law firms looking to be hired as primary outside counsel and litigation counsel to handle the growing number of claims. After having a “beauty contest,” Captive selected a team from McDermott Will & Emery as outside counsel, led by D.C.-based litigator Margaret Warner and Chicago-based partner Thomas Jones, who specializes in captive insurance companies. Then- Latham & Watkins partner James Tyrrell, now at Patton Boggs, was selected as lead trial counsel. Tyrrell has run mass tort cases such as the Agent Orange defense for agribusiness giant Monsanto and was national counsel in the Y2K litigation. Since then, the legal team and the New York City Law Department have worked closely on defense strategy. The suits, which are all individually filed, were mired in a jurisdiction dispute, which Captive won last year when it succeeded in having the cases moved to federal court. The court is currently focused on Captive’s motion to dismiss. According to court documents, the defense is arguing that total immunity should be granted to New York City and its contractors based on state and federal laws. Citing specific federal law and general principles of federal immunity in favor of granting immunity to civil defense efforts in times of crisis, Captive argues that the insurance was obtained to “guard against potential losses and is neither an admission of liability nor a guarantee of recovery for any claimant.” The plaintiffs argue that the city should be given only limited immunity under the Air Transportation Safety and System Stabilization Act of 2001, which was passed after Sept. 11 and allowed for federal immunity in the debris removal. The act was later amended, giving New York City partial immunity and making it responsible for $350 million in damages. Recent efforts to lobby Congress to set new immunity standards in the wake of catastrophes failed. So Captive’s lawyers have argued for immunity based mostly on New York law. “These are cutting-edge issues of what the law will be in the world of terrorism,” says Tyrrell. “One of the weaknesses of the current scheme is, in significant measure, that it is dependent on laws of the individual state.” The court’s slow pace also led to frustration over the amount of money being paid to lawyers handling the litigation. According to Captive’s most recent quarterly report, by the end of June 2006 it had spent $28.5 million on legal bills — or about $4,300 per case — since its inception in 2004. The average number of claims filed also increased 60 percent in the second quarter of 2006. In August, Schumer sent a letter to Captive, telling it to “abandon its efforts of fighting every claim tooth and nail. . . . No one, including myself, involved with the establishment of this fund expected it to behave like a stingy, bottom-line obsessed corporation.” LaSala responded to Schumer’s letter, writing that Captive must “provide and pay for legal counsel for the WTC Captive’s insureds in the event of any lawsuits” and that if Captive was an actual victims fund instead of an insurance company, it would avoid both costs of defense and contingency fees for plaintiffs’ counsel. “Our insureds are Patton Boggs’ clients,” says LaSala. “We pay their fees, but they represent our insureds in this litigation.” Not only is Captive responsible for Patton Boggs’ and McDermott Will & Emery’s legal bills, it is also billed by the city of New York’s legal department. So far, the city has not received payment from Captive, but, according to city officials, the law department has submitted a $20 million bill to Captive for post-Sept. 11 legal costs. “The magnitude of legal and administrative issues caused by the Sept. 11th attacks necessitated the creation of a new Law Department unit dedicated solely to Sept. 11th issues,” said Kenneth Becker, chief of the World Trade Center Unit, in a statement. “The unit employs specialized attorneys, and new legal systems and processes to ensure a fair and equitable result for the City, its citizens and others affected by the attacks.” The plaintiffs’ co-liaison counsel — Marc Bern of Worby Groner Edelman & Napoli Bern and Andrew Carboy of Sullivan Papain Block McGrath & Cannavo — argue that the legal fees have been excessive, taking away from their clients’ potential settlements. “We dispute absolutely what they believe their mission to be,” says Bern. “This was not set up as an insurance company. This wasn’t the city of New York, Bovis, and Tully purchasing insurance. This was a request by these people, for lack of another term, for indemnification. They didn’t pay for this. This was paid for by the taxpayers of the U.S.” In a letter to Schumer, Denise Rubin, a lawyer at Worby Groner, wrote that the plaintiffs, in an effort to decrease the costs of the case, had offered to use a tolling agreement, which would allow cases to be negotiated before they are filed, and volunteered to exchange medical records to determine which claims could be paid immediately and which needed more information. But Tyrrell, the lawyer for Captive, says the plaintiffs’ lawyers are to blame for the rising costs. “Serious questions can be asked whether or not all those affected by natural disaster should wind up having a group of plaintiffs lawyers representing them,” he says. “It raises questions of the significant transactional costs to defend, because liability and causation have to be proven. It’s a very expensive process to prove 8,000 cases, and it raises the question, Is the tort system the way to go to deal with these kinds of issues?” And Tyrrell disagrees that the legal-fee payments are out of bounds. “We’re defending approximately 8,000 separate lawsuits with individual filings,” he says. “You can’t do that cheaply.” With future payouts to claimants in question, Congress has started taking action. Reps. Maloney and Vito Fossella (R-N.Y.) introduced a bill to reopen the Sept. 11 Victims Compensation Fund. And Nadler also put forward legislation for comprehensive medical insurance for first responders, rescue workers, and others after Mount Sinai Medical Center issued a report on Sept. 6 finding that 70 percent of almost 10,000 workers suffer from health issues related to Sept. 11. With everyone waiting for Judge Hellerstein’s decision on the motion to dismiss, Rep. Christopher Shays (R-Conn.), chairman of the House Subcommittee on National Security, Emerging Threats and International Relations, traveled to New York to hold a Sept. 8 field hearing on public health and safety responders since the terrorist attacks. Ground Zero responders and nearby residents along with officials from New York City, the Government Accountability Office, and the National Institute for Occupational Safety and Health were expected to testify.
Anna Palmer can be contacted at [email protected].

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