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Was the Sept. 11 attack on the World Trade Center one occurrence or two? That is the $3.55 billion question on the mind of every insurance lawyer as they watch the battle unfold between real estate magnate Larry Silverstein, who held a long-term lease on the complex, and his insurers. The lines were drawn Oct. 22, when Swiss Reinsurance Co., which provided the most insurance to the trade center, filed suit in the U.S. District Court for the Southern District of New York, asking for a declaratory judgment that the attack was one occurrence, meriting only one insurance payout. Silverstein countersued Swiss Re and, just before the new year, filed a separate suit against another insurer, Citigroup subsidiary Travelers Indemnity Co. He is arguing that, to the contrary, the attack was two separate occurrences, entitling him to two payouts, a total of $7.1 billion. Last week, U.S. District Judge John S. Martin, who is presiding over both cases, joined 18 of the 20 other trade center insurers as parties to the Swiss Re suit. The stakes, obviously, are enormous and the parties are firmly dug in on their respective sides, firing off court papers and press releases in what has become a highly public skirmish. But behind the posturing, the question remains, and it is not an easy one to answer. Much depends on how the facts play out in an extremely complicated deal that was finalized just a couple of months before the attack, with insurance coverage details to be worked out later. Most, if not all, of the insurers for the complex had not issued final policies before Sept. 11. And the law does not provide a definitive answer to the occurrence question. Although both sides claim they win under the governing law, other experts say the circumstances of the disaster are simply too unusual to call it either way. The factual dispute centers on which of two insurance forms was in force Sept. 11. Twenty-one of the trade center insurers, led by Swiss Re, contend it was the Wilprop form, so-called for Willis Ltd., Silverstein’s insurance broker. The Wilprop language defines “occurrence” as “damages that are attributable directly or indirectly to one cause or to one series of similar causes … irrespective of the period of time or area over which such losses occur.” According to insurance experts, the Wilprop language is not in widespread use and has yet to be interpreted by the courts. Yet, even Silverstein’s lawyer, Herbert Wachtell, of New York’s Wachtell, Lipton, Rosen & Katz, has conceded that, were the Wilprop language to control, the insurers “would have the better of the argument” that the attack was one occurrence. Of course, Silverstein and his lawyers claim the Wilprop language does not control. They argue that the policy in force was one written by Citigroup subsidiary Travelers Insurance Co. that does not define the word “occurrence.” Although both sides argue in favor of one form — either Wilprop or Travelers — governing the entire insurance program, insurance experts said that such uniformity was extremely unlikely, especially given the complexity and size of the deal. “It may seem logical that that’s how it was structured, said Jeannine Chanes, a New York-based partner at Fried & Epstein, “but that just isn’t how commercial insurance programs work.” “Quite a few questions of fact probably exist on who signed what contract when,” she said. Travelers, which is one of six primary insurers of the trade center, has admitted that its policy governs at least in its own case, which is why Silverstein’s lawsuit against it is proceeding separately. DUELING CASE LAW In the absence of a contractual definition of occurrence, as in Traveler’s case, the court will look to New York law. But the parties are just as bitterly divided over the law as the facts. “Even if the Travelers form applies, the case law would make this one occurrence,” said Barry R. Ostrager, a partner at Simpson Thacher & Bartlett, who is representing Swiss Re. Ostrager cites a panoply of New York cases in his support, as well as an English case he says offers the closest factual analogy to the trade center attack. In that case, Kuwait Airways Corp. v. Kuwait Insurance Co., [1996] 1 Lloyd’s Rep. 664 (Q.B. 1995), the court found that the capture of 15 Kuwaiti aircraft by invading Iraqi forces consisted of one occurrence of lost aircraft: the invasion of Kuwait. Here, too, as Ostrager argued in a Jan. 3 letter to the court, the destruction of the trade center was the result of “one coordinated, uninterrupted attack, targeted at one discrete location, and commenced and completed within a matter of minutes.” Wachtell contends that, to the contrary, under an old New York Court of Appeals case, Arthur Johnson Corp. v. Indemnity Insurance Co., 7 N.Y.2d 222 (1959), it is “crystal clear that there was more than one occurrence.” The case involved a heavy rain that caused the collapse of the walls of two adjoining buildings. The court found that since the collapse of the first wall did not cause the collapse of the second, there were two separate insured occurrences. At least one expert has joined Silverstein’s camp. In an article for the Law Journal, Mark Geistfeld, a professor at New York University School of Law, agreed that the Arthur Johnson case controlled, and that the collapse of the twin towers were two separate occurrences. “With $3.55 billion on the line, I understand why [Swiss Re] is litigating,” he said, “but it’s a long shot.” But other experts said neither party is giving the entire story. “There are dozens of cases on what an occurrence is, all very factually based,” said Vincent Vitkowsky, a partner at Edwards & Angell. “There’s no particular case to point to.” ONE-PLANE THEORY Adding to the mix is another argument raised by the insurers last week. In a hearing before Judge Martin, Swiss Re’s counsel submitted that there is “substantial engineering evidence” that even without the second plane, the first plane would have caused both towers to collapse “because of the common systems that connected.” But Wachtel, representing Silverstein, said the issue was “a total and complete red herring.” His client was equally dismissive. In a press release, Silverstein said that the twin towers stood on separate foundations, and the fact that underground concourses connected them did not make the foundations dependent upon each other. However the occurrence question plays out, Silverstein’s circumstances may prove unique. For those businesses in the underground concourses and elsewhere who were also affected by the events of Sept. 11, the answer to the occurrence question will probably not change their insurance payout, Fried & Epstein’s Chanes said. Chanes, who is assisting a number of businesses in and around ground zero with their claims, said that many the businesses in the concourse were still intact after the collapse of the towers, but were subsequently “condemned, bulldozed, scooped up and trucked to the Fresh Kills landfill.” As for adjacent properties, Chanes said that depending on location, damage was typically sustained from the collapse of one or the other towers, not both. American Airlines and United Airlines, each of which had two of its planes hijacked on Sept. 11, could also have a stake in the occurrence question. Late last week, families of six victims sued the airlines and the security firms at the three airports from which the planes took off. Chanes said she doubted the airlines would be affected, though. “Aviation insurance is usually written on a [per plane] basis,” she explained. The security firms, however, could be a different story. Liability insurance is commonly written on an occurrence basis, she said. Whichever way the court rules, experts agree it will take a while. “A standard dispute of this kind takes a year,” said Edwards & Angell’s Vitkowsky. “Even if the court really pushes and the parties really try, we’re still looking at 2003 for a decision.”

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