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World Trade Center leaseholder Larry Silverstein’s hopes for a quick decision finding that the attacks on Sept. 11 constituted two occurrences rather than one for insurance purposes were dashed Monday. Southern District of New York Judge John S. Martin delivered an early victory to the insurance industry, ruling that the term “occurrence” as contemplated by the parties negotiating coverage for the twin towers was ambiguous, and that extrinsic evidence must be considered before deciding how much Silverstein should be compensated for the destruction. The stakes in the dispute are as high as $7.1 billion, the amount Silverstein would recover following a ruling or a verdict that the two hijackings constituted separate occurrences. A finding that the attacks amounted to a single occurrence would result in total payments to Silverstein’s World Trade Center Properties of half that amount. Monday’s decision paves the way for a jury trial in World Trade Center Properties v. Travelers Indemnity Company, 01 Civ. 12738. And while the ruling dealt only with a summary judgment motion brought against Travelers, which agreed to provide $210.6 million of coverage per occurrence, lawyers for the more than 20 other insurers involved in litigation with World Trade Center Properties regard the decision as dispositive on the issue of whether one or two occurrences were involved. Herbert M. Wachtell of New York-based Wachtell, Lipton, Rosen & Katz, representing Silverstein, has argued from the outset that “occurrence” is an unambiguous term under New York case law, and therefore Judge Martin had the authority to decide the issue as a matter of law. Martin disagreed, saying that “none of the relevant cases compels a finding that the term ‘occurrence’ has such an unambiguous meaning that, in its search for the truth, justice should blind itself to the wealth of extrinsic evidence concerning the parties intentions that is available in this case.” The problem presented to Martin was that, with “minor exceptions,” the parties were still negotiating the terms of coverage when the planes hit the World Trade Center. “Although Travelers had not issued a policy as of Sept. 11, three days later, it issued a policy providing $210,620,990 in property damage insurance for the World Trade Center ‘per occurrence,’” he said. “Despite the fact that the media had already reported the controversy over whether the attack on the World Trade Center constituted one or two ‘occurrences’ for insurance purposes, the policy Travelers issued did not define the term ‘occurrence.’” In a memorandum, Wachtell said the clear and unambiguous meaning of the term refers to the “immediate, efficient, physical, proximate cause of the loss, not some indirect or more remote cause or causes.” For Travelers, Harvey Kurzweil of New York-based Dewey Ballantine countered in arguments that the attack on the second tower, which occurred 16 minutes after the first plane hit the north tower of the World Trade Center, could hardly be considered a “remote cause,” in part because the destruction of either building would have resulted in the destruction of the supporting infrastructure of the other. And Kurzweil raised the possibility that expert testimony would show that the destruction of either one of the two towers would have brought the second to the ground. Moreover, among the extrinsic evidence that Kurzweil wants the court to consider is proposed policy language circulated by Silverstein’s insurance broker, Willis of New York Inc. That language states: “‘Occurrence’ shall mean all losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur.” PLAIN MEANING In considering whether to allow the case to go forward, Martin said that New York is among the states adhering to the strict rule that courts will not look beyond the plain meaning of the words in a contract. “However, the rule that the court will not consider extrinsic evidence that would vary the plain meaning of contract language only advances the search for the truth if the parties intent can clearly be determined from the words they used,” he said. “If contract language is ambiguous, then the courts should look to extrinsic evidence to determine the true intent of the parties.” Wachtell had argued that a swift resolution of the issue was critical to the effort to rebuild on the site. But Martin was unpersuaded. “While the court is not unmindful of the Silverstein Parties’ interest in obtaining a prompt decision concerning the amount of money the insurers will have to contribute to the rebuilding of the World Trade Center, that interest can not outweigh the interest of justice in insuring that the true extent of that liability is fairly and accurately determined,” he said. Kurweil’s co-counsel, Dewey Ballantine partner Saul P. Morgenstern, said in an interview Monday that “based on how discovery has gone to date, it seems unlikely that the parties will ever agree on some of the facts the judge has ruled will lead to decision on the ultimate issue.” SECOND ISSUE Morgenstern said there is a second issue pending that will have a critical impact on how discovery in the case proceeds. During depositions, Willis of New York Inc. has asserted the attorney-client privilege and declined to answer questions. But Morgenstern, who contends that communications between Willis just after the attacks clearly show a recognition that there was only one “occurrence,” has argued that Willis is not a party to the litigation and is not entitled to be included in the “privilege bubble” that protects World Trade Center Properties’ communications with its legal team. So Morgenstern has moved for an order compelling Willis to answer questions at deposition. Both sides are still awaiting a ruling from Martin.

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