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The multibillion-dollar insurance dispute over the destruction of the World Trade Center started as a simple case. But with trade center leaseholder Larry Silverstein now seeking appeals of two key rulings by federal Judge John S. Martin of the U.S. District Court for the Southern District of New York, lawyers for the multiple parties in the dispute describe it as a case of mushrooming complexity. The heart of the conflict is Silverstein’s contention that the leveling of the two towers by two hijacked airplanes on Sept. 11 amounts to two occurrences for insurance purposes, and a win for Silverstein would double the amount of coverage from $3.5 billion to almost $7.1 billion. The issue is less than clear because, while some of the 24 insurance companies in the case signed insurance binders before Sept. 11, 2001, the final policy form for the purported lead underwriter in the case, Travelers Indemnity, had yet to be completed when the planes hit. In June, Judge Martin denied summary judgment for Silverstein, finding that the terms of the Travelers policy form were ambiguous, and the actual intent of the parties was a question of fact to be decided by a jury. In September, Martin dealt a second setback to Silverstein when he granted summary judgment for three insurance companies, including Royal Indemnity Co., a decision, if it stands, that will contain Royal’s liability to $178 million. Finding that insurance forms signed by Royal and the other companies before the attacks were binding contracts, Judge Martin said the contract terms were capable of only one reasonable interpretation: that “the ordinary businessman would have no doubt” the destruction of the two towers “resulted from ‘one series of similar causes.’” Silverstein decided to cast his lot with the 2nd U.S. Circuit Court of Appeals. Lawyers in the case say that the different procedural posture of the two appeals, as well as the interaction between the issues presented in both, could produce a variety of results. The September ruling is a final judgment, and therefore appealable under Rule 54(b) of the Federal Rules of Civil Procedure. The 2nd Circuit is obligated to take the appeal, although some attorneys say the court could accept it but stay a ruling until the case involving Travelers and the other insurers concludes. Attorney Barry R. Ostrager, who represents Swiss Re International Business Insurance Co., which has $778 million at stake — or double that amount — in the litigation, cautions that the summary judgment rulings for the three insurers “each address a discreet fact pattern.” “It’s self-evident to me that the ultimate disposition of those appeals won’t necessarily affect the discreet fact patterns,” said Ostrager, of New York-based Simpson Thacher & Bartlett. “It’s up to the 2nd Circuit to decide whether they are going to hear those appeals that don’t resolve the entire case and only involve issues affecting a couple of parties — or whether they want to decide the whole case.” The appeal of the Travelers ruling is different because the denial of a summary judgment motion is not a final judgment. Under 28 USC � 1292(b), Judge Martin must first grant a Silverstein motion to certify the appeal. Although the judge said he is inclined to do so, Travelers has been given one last shot to fight certification at an Oct. 22 hearing. Should Silverstein obtain certification, he must still convince the 2nd Circuit to accept the appeal. “That’s a far more dubious undertaking from the 2nd Circuit’s point of view,” Ostrager said. “It’s entirely discretionary. Appeals from orders denying summary judgment are very, very rare.” Should it elect to accept the appeal, the 2nd Circuit could decide that the occurrence issue is a question of law, and then decide the issue itself. It is a result that, given the language used by Judge Martin in both opinions, is avidly sought by Silverstein. However, the circuit could take the appeal, decide that the occurrence issue is a question of fact for the jury, and remand the case for trial. And, of course, the circuit could decide the Silverstein appeal on Royal’s case and decline to accept his appeal on the Travelers issue. “I’d like to see them take both and, God willing, reverse both,” said Silverstein attorney Eric M. Roth, of New York-based Wachtell, Lipton, Rosen & Katz. The Silverstein appeals are based on the time line of events that began with the three insurance companies signing the so-called WilProp forms in August 2001. LAYERED INSURANCE POLICIES In a large, “layered” insurance program such as the one developed for the World Trade Center, insurance brokers try to avoid gaps in coverage by seeking consistency in the policies of several insurance companies. The custom of individual insurers in layered insurance programs, Silverstein argues, is to issue insurance binders with the understanding that the final terms of the policy are still subject to negotiation and will, in most cases, be decided by the policy form of the lead insurer. Because of this practice, he contends, the term “occurrence” as used by the three insurers who signed the WilProp forms must be considered ambiguous, because lead insurer Travelers had yet to come to the table. Thus, he argues, the appeals court should remand for a jury trial. And for lead counsel Herbert Wachtell and Roth, should the appeals court make that ruling, it would have a tremendous impact on the Travelers issue, even if the court declined to take the Travelers appeal. Michael H. Barr of Sonnenschein Nath & Rosenthal’s New York office, who represents Royal Indemnity Co., is mindful of the impact that a ruling on his case alone could have on the rest of the dispute. For that reason, Barr said, the issues in the dual appeals place the case in “an unusual procedural posture.” “Judge Martin’s opinion assessed in detail the factual issues involving each of the three insurers,” he said. “But the court also laid out certain legal principles.” As the appeals court decides whether to hear both appeals, or decides whether and how to handle Royal’s appeal alone, Barr said, the 2nd Circuit “will have to assess, in their view, whether it’s appropriate to rule on factual and legal issues.”

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