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World Trade Center developer Larry Silverstein suffered a setback in ongoing litigation with his insurers when a Southern District of New York judge ruled that some of the insurance companies will pay actual cash value only if Silverstein decides not to rebuild the site, something he has publicly vowed to do. The latest round of the lawsuit between Silverstein and two of the 24 insurers of the World Trade Center site — SR International Business Insurance Co. and Employers Insurance of Wausau — centered on whether the insurers would pay actual cash value or the replacement cost of rebuilding the site. In SR International Business Insurance Co. v. World Trade Center Properties, 01 civ. 9291, Silverstein argued that the insurers were required to pay actual cash value for the site. For SR International, which had underwritten 25 percent of the total insurance coverage — making it one of the largest players involved — that meant it owed $796 million plus interest. The replacement costs of the building were unclear at this stage of the process but were presumed to be lower than the actual cash value. Wausau’s share of the overall insurance coverage was far smaller. The insurers countered that they would owe the amount requested by Silverstein only if he did not elect to rebuild the site and that Silverstein had failed to submit definitive proof of loss necessary to process the payment. Silverstein entered into a 99-year lease with the Port Authority in July 2001. The Sept. 11, 2001, terror attacks that destroyed the Twin Towers and much of the World Trade Center occurred before he completed insurance policies with two dozen insurers. The parties had not made final the terms of their insurance binders, leaving in doubt how the attack would be interpreted under the inchoate agreements. In the first round of litigation, a jury sitting before Southern District Judge Michael Mukasey held that the events of Sept. 11 constituted one “occurrence” for insurance purposes even though two planes were used. The WilProp form, a standard contract used in the industry, governed the 10 insurers involved in this verdict. Three additional carriers won summary judgment motions and two settled with Silverstein. This reduced the amount Silverstein could recover under the WilProp form. Three carriers involved in the first trial but not covered by the WilProp form, and six others that sat out the first trial, combined to form the nine remaining insurers in a second round of litigation. In that case, a different jury also sitting before Mukasey found that the terror attack constituted two occurrences under the unfinished binders used by the nine remaining insurers, a victory for Silverstein. Like the first two rounds of litigation, the resolution of this dispute rested upon the application of the WilProp form. Under this form, which applied to SR International and Wausau, Mukasey found that the insurers were not required to pay actual cash value unless Silverstein decided not to go ahead with the rebuilding of the site. “In order to prevail on their summary judgment motion, the Silverstein Parties must demonstrate that their proposed interpretation of WilProp is the only reasonable one,” the judge wrote. LIMITED CHOICE Mukasey’s analysis focused on two elements of the contract. SR International pointed to clauses stating that the default method of payment was based on the cost of replacement or rebuilding the site. Actual cash value would only be paid if Silverstein elected not to rebuild. Silverstein pointed to another clause, which under his interpretation, would have allowed him to collect actual cash value even if he decided to rebuild. Mukasey sided with the insurers. Looking at the “plain language” of the contract, he found that “WilProp differs from many insurance company forms that present the insured with an explicit choice between [actual cash value] and replacement cost recovery.” Under these forms, which another set of insurers had used to underwrite the World Trade Center, Silverstein could shift from collecting the actual cash value to asking for replacement costs. The WilProp form offered no such choice, Mukasey held. Because Silverstein planned on rebuilding the site, he could only recover for those replacement costs under the WilProp form, the judge held. Barry Ostrager of Simpson Thacher & Bartlett represented SR International. Christopher Finazzo of Budd Larner of Short Hills, N.J., represented Wausau. Herbert Wachtell of Wachtell, Lipton, Rosen & Katz and John Gross of Proskauer Rose represented Silverstein.

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