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With billions of dollars in claims on the line, fights over insurance coverage in the wake of the World Trade Center disaster are all but inevitable, most insurance lawyers agree. What remains unclear, though, is how numerous and significant these lawsuits will be and how fast insurers will move to settle claims. Within 24 hours of the blast, the owners of the World Trade Center had contacted Washington, D.C.-based Howrey Simon Arnold & White to discuss hiring the firm to help with insurance issues, confirms managing partner Robert Ruyak. Two other D.C. firms — Dickstein Shapiro Morin & Oshinsky and McKenna & Cuneo — also have been consulting with corporate clients on insurance issues related to the catastrophe. “The potential for coverage fights is extremely high,” says Scott Gilbert, a name partner at Gilbert Heintz & Randolph, a D.C.-based boutique that represents policyholders in insurance coverage disputes. “It’s going to be immensely complicated. You can’t compare this with something as devastating, but simple, as a natural disaster.” President George W. Bush and members of Congress have repeatedly called the attacks “an act of war,” raising questions about whether insurers may attempt to invoke wartime exclusions to deny coverage. The Pentagon, which is owned by the government, is not believed to be privately insured, although wartime exclusions could be an issue in payment of life insurance policies to members of the military who may have been killed in the explosion. Also, some industry experts say tenants at the World Trade Center, which was subject to a previous terrorist attack in 1993, may have clauses that could let insurers off the hook in the event of terrorism. Claims are likely to arise in almost every insurance category: property, liability, aviation, workers’ compensation, business interruption, and contingent business interruption. Other claims may be filed based on errors and omissions by the towers’ designers and builders. Even vehicle and homeowner’s insurance policies are likely to be invoked by people in the surrounding neighborhood. Robert Carter Jr., an insurance recovery specialist at McKenna & Cuneo, predicts that the World Trade Center management will face liability claims for allegedly instructing tenants not to evacuate the south tower in the minutes before it was struck by the second plane. He also anticipates that emotional distress, mental anguish, and wrongful death claims will be filed against employers and the Trade Center owners. The insurance companies may sue each other as well, notes J. Robert Hunter, director of insurance for the Consumer Federation of America. For example, the World Trade Center insurers could sue the airlines, alleging that they should have prevented the attack. “The claims are going to be humongous. Billions and billions of dollars,” says Matthew Jacobs, head of Kirkpatrick & Lockhart’s D.C. insurance practice. Industry experts say virtually every major American insurance company is likely to have some exposure, as will reinsurance giants Lloyd’s of London, Swiss Re, Munich Re, and Berkshire Hathaway Inc. Total damage estimates vary from $10 billion to $30 billion, on par with or surpassing the record $15.2 billion in insurance payments in 1992 ($19 billion, adjusted for inflation) after Hurricane Andrew. But despite the huge sums of money and many kinds of insurance involved, Craig Berrington, general counsel of the D.C.-based American Insurance Association, says he does not believe there will be extensive litigation. “That’s not to say I predict nobody will file a lawsuit,” he continues, “but there is no reason for insurers to increase costs by begging for litigation.” He adds, “We in the industry are perfectly prepared and have already created emergency teams to make sure all goes smoothly.” A MATTER OF HONOR Dickstein Shapiro name partner Jerold Oshinsky, who represents policyholders in insurance disputes, also has faith that the insurance companies will “act honorably.” “My belief is that given the enormity of the tragedy and the way it has united America, at least where American insurers are concerned, everyone will try to do the right thing,” he says. Still, he acknowledges that there are “bound to be some honest disputes.” Other plaintiffs-side lawyers are more skeptical. “Based on my experience over the last 20 years, when the dollars are as staggering as they will be here, you will find insurers taking different interpretations of their exclusions and policies,” says Gilbert of Gilbert Heintz. “Maybe this is too cynical a view, but I’d be surprised to see major insurers simply writing checks.” Lawyers are divided over the likelihood that insurers will attempt to invoke the exclusion for acts of war. Under a standard first-party property insurance policy, coverage is denied for “hostile or warlike action in time of peace or war … by any government or sovereign power (de jure or de facto) or by any authority maintaining or using military, naval or air forces.” While this would appear to create some question whether suspected mastermind Osama bin Laden and his estimated 25,000 followers can be considered a military force, lawyers agree that the public relations fallout for attempting to duck coverage on this basis would be intense. “If that’s their only defense, I would hope they would have better business judgment than to use it,” says Jacobs of Kirkpatrick & Lockhart. “Could they? Yes. Would they? I hope not.” Berrington of the American Insurance Association doesn’t think it likely, and notes, “Generally speaking, war exclusions are limited to situations where war has been declared.” He also notes that the tenants in the World Trade Center most likely had customized insurance policies, “carefully and comprehensively negotiated by very sophisticated parties on both sides,” which makes it all but impossible to generalize about coverage. Still, Carter of McKenna & Cuneo points to a 25-year-old precedent from the 2nd U.S. Circuit Court of Appeals in Pan Am World Airways v. Aetna Casualty. In that case, a Pan Am jet was hijacked over London by a Palestinian terrorist group. The plane was then destroyed in Egypt. Aetna attempted to deny coverage based on the acts of war exclusion, but was struck down by the court because the hijacking wasn’t a warlike operation. “That should give policyholders some peace of mind,” says Carter. MEASURING THE PRICE OF LOSS The most likely kinds of disputes will center around how to value the losses, lawyers say, especially when it comes to business interruption insurance. Such insurance covers the fixed costs, extra expenses, and loss of profits and costs associated with damage to the structure — which is often tricky to gauge. Such claims are also likely to come from businesses in the surrounding neighborhood rendered inaccessible to employees and customers. Another potentially large area is contingent business interruption insurance, which covers losses sustained by suppliers or customers of the affected businesses, says Covington & Burling insurance specialist William Greaney. If, for example, a brokerage customer was relying on a transaction to be conducted at a precise time, and it did not occur because of the damage to the property, such a loss could be covered. “This creates a cascading effect because all clients could assert claims,” says Greaney. “It could be a significant collateral boomerang effect.” Life insurance may also prove to be a significant expense, since many of those killed were highly paid professionals who may have been insured both through their employers and privately. Relatively few life insurance policies today include an exclusion for acts of war, says Jack Dolan, a spokesman for the American Council of Life Insurers, and those that do generally apply to military personnel. Of course, Dolan acknowledges that some who lost their lives at the Pentagon may have been military personnel, but he stresses that they were the victims of terrorist activity, not war between sovereign nations. And while some life insurance policies do include terrorism exemptions, Dolan says these almost always relate to travel abroad in countries with terrorist activity. “This tragedy occurred in the U.S.,” he says. “No exclusions apply under these circumstances.” Another potential obstacle is the recovery of identifiable remains, upon which payment is generally contingent. But Dolan notes that life insurers confronted this issue in the Oklahoma City bombing. “We’re at the point where we can identify virtually everybody,” he says. “We’re not dealing with a situation where we anticipate any issues as a result of this.” Hunter of the Consumer Federation, though, argues that insurance companies ought to create a simple way to process claims without waiting to identify remains — a process that could take months and may not be feasible in all cases. His suggestion: that claimants demonstrate someone had reason to be in the building Sept. 11 and sign an affidavit that they are missing. Insurers “are going to have to pay,” Hunter says. “And I think most companies will, because they couldn’t stand the outrage if they didn’t.” The timing of all insurance claims and payments may be another issue. Lawyers note that courts in New York tend to be quite strict about the timeliness of filing notice of property damage claims, which generally must come within 60 to 90 days of the event. As for inevitable payouts, Carter of McKenna & Cuneo speculates that companies may try to put them off. “Generally,” Carter says, “when you get into the kinds of numbers we’re talking about here, even the ability to hold on to payments for six months can [positively] impact a quarterly report — and the stock price.” But in general, insurance lawyers agree that the industry will be able to weather the hit, even in the wake of higher than anticipated payouts for asbestos cases in recent years. “The international insurance system is designed to have the capacity to absorb disaster,” says Thomas Brunner, who heads Wiley Rein & Fielding’s insurance practice and represents insurance companies. The Sept. 11 attack, he continues, “is without precedent in terms of the nature of the event, but not in terms of the magnitude of dollar loss.”

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