WTC Insurance Issues

Main 9/11 links page 

WTC Claims Dispute, $7.1 Billion at Stake
Silverstein Jury's Decision Favors the Insurers
Silverstein, PA sue for WTC insurance billions
Silverstein May Use Insurance Money to Pay Bondholders
August 2006: Five insurers still withholding payment from Silverstein
WTC Swiss RE insurance appeal Oct 2006
JREF: LashL WTC Insurance breakdown

World Trade Center Property Risk Report Prepared for Silverstein Properties in anticipation of the WTC lease (PDF. Released via FOIA request) Excerpt from page 29, bolding mine:
Maximum Forseeable Loss

1993 Terrorist Bombing [excerpt]
The 1993 terrorist bombing of the WTC resulted in a maximum forseeable property loss. This event shut Tower 1 down for 6 weeks and Tower 2 for 4 weeks. The explosion, that occurred in the garage area of B-2, caused portions of the Plaza and two Subgrade floors (about 4 bays by 4 bays) to collapse on to the B-6 level damaging mechanical and electrical equipment of the Chiller Plant. As large a blast as it was, there was negligible structural damage done to structural members. Damage was limited to the replacement of these concrete floors, repairing spalled concrete where reinforcing steel had been exposed and rebuilding non-bearing walls.

The magnitude of this type of MFL loss can be estimated at 5 weeks rent or 1/10th of the $364m annual rent or $35m. Plus property damage to the building from the 1993 incident is estimated to be $175m and equipment damage of $120m or a total of $330m.

Aircraft Striking a Tower
This scenario is within the realm of the possible, but highly unlikely.

In 1946 a military aircraft struck the Empire State Building. Since that time the manner in which aircraft are "controlled" has dramatically changed. In the event such [sic] an unlikely occurrence, what might result? The structural designers of the towers have publicly stated that in their opinion that either of the Towers could with stand such an impact from a large modern passenger aircraft.

The ensuing fire would damage the "skin", in this scenario, as the spilled fuel would fall to the Plaza level where it would have to be extinguished by the NYC Fire Department. The replacement of the "skin" is estimated at 35% Of the building replacement value or $420m. Loss of rents for 1 year or $150m for a total estimate of <$600m.
For MFL (maximum forseeable loss) determination methodology, see page 88 of the pdf.

Con Ed and Insurers Sue Port Authority Over 7 World Trade ($ NYT Sept 11, 2002)
The Con Ed suit, Mr. Green said, ''is being brought now in order to protect their legal right to sue the Port Authority within the one-year period allowed by law.''

Silverstein Sending Tower Data to U.S. Agency (NIST / Weidlinger / Insurers. $ NYT Oct 1, 2002)
Expert Report Disputes U.S. On Collapse (Weidlinger study refutes FEMA. Collapse inevitable due to structural damage and fires, not to WTC design defects. NYT Oct 22, 2002)

An Agreement Is Formalized on Rebuilding at Ground Zero ($ NYT Sept 22, 2006)
There is also outstanding litigation with insurers over the $4.6 billion in insurance proceeds at ground zero. The money, including $973 million for the Freedom Tower, is needed for construction. So far, the insurers have paid only about $2.2 billion, and $1.6 billion has been spent.

From "A Hole in the City's Heart" ($ NYT Sept 11, 2006)
"In May 2004, after a 52-day trial involving some of his many insurers, Mr. Silverstein lost his first effort to claim that the two planes represented two attacks and required double payments. At the end of 2004, however, after a separate 35-day trial, he won the right to collect double payments from another set of insurers. He had spent about $100 million paying lawyers to fight this particular fight, which critics said was an unconscionable siphoning of money that should have been used for rebuilding. But in his mind, that $100 million produced an additional $1.1 billion for rebuilding ground zero, which was worth it.

The insurers had portrayed Mr. Silverstein as -- ''What the hell phrase did they use?'' Mr. Silverstein said. ''Not greedy. Not overreaching. Begins with an 'r' '' -- rapacious in his scheme to recover as much insurance money as possible. But in an indication that his legal position was not that exotic, the Port Authority, after Mr. Silverstein won the second case, quietly filed its own lawsuit seeking a double payout on its own insurance policy.

...When Mr. Silverstein applied for $3.35 billion in tax-exempt Liberty Bonds to help finance the Freedom Tower and his other buildings on the site, Mr. Bloomberg found a lever. The city and the state each control half those bonds, and the mayor said that he would not agree to the city's half unless Mr. Silverstein made certain concessions.

Mr. Silverstein needed the Liberty Bonds because insurance proceeds, which amounted to about $4.6 billion, would not nearly cover the expected costs of the five towers.

Mr. Silverstein and the Port Authority together had spent more than $1.5 billion of the insurance money already, including more than $500 million for Mr. Silverstein's rent to the Port Authority; about $190 million for the Port Authority to buy out Westfield America's retail rights; and more than $700 million to repay Mr. Silverstein's lender, GMAC, and to repay Mr. Silverstein and his partners most of their equity."

World Trade Center developers sue British insurer
March 8, 2007 (Reuters) - The developers of the World Trade Center, including Silverstein Properties and the Port Authority of New York and New Jersey, have sued British insurer Royal & Sun Alliance and its U.S. spinoff for up to $1 billion in unpaid claims and damages from the Sept. 11, 2001, attacks.

The suit was filed on Feb. 23 in New York State Supreme Court, before Britain's second-largest commercial insurer sold off its U.S. unit to Arrowpoint Capital Corp. The sale to Arrowpoint, which was set up by the unit's management, was approved on Feb. 20 by the Delaware insurance commissioner -- over Silverstein's objections.

Silverstein and the other plaintiffs claimed in their suit that Arrowpoint would not be able to meet its obligations to pay off Silverstein's claims against Royal & Sun. They claim those damages total $255.6 million, of which only $5.6 million has been paid.

Silverstein and the Port Authority also seek punitive damages of $750 million. Royal & Sun could not be reached for comment immediately. On Thursday, Royal & Sun posted an operating profit of $1.5 billion (780 million pounds), beating analyst estimates. Underwriting results rose 18 percent. Royal & Sun, along with other insurers, has been tangled in litigation with Silverstein for years.

In October, Silverstein won a battle when a U.S. appeals court ordered some of the insurers, including Royal & Sun, to pay an additional $1.1 billion to the developer because there were two separate attacks, not just one. Royal & Sun, along with Allianz Insurance Company, is still disputing these payments because of an agreement that Silverstein has with the Port Authority.

Silverstein leased the World Trade Center complex from the Port Authority just two months before the attacks. "More than five years after 9/11, it is time for Royal & Sun to stop its posturing and pay what it owes," said Bud Perrone, a spokesman for Silverstein.

Insurers agree to pay billions (NYT May 24, 2007)
The Spitzer administration announced the settlement of all insurance claims at ground zero yesterday, ensuring that $4.55 billion will be available for rebuilding the World Trade Center site.

The agreement, which the insurers described as the largest single insurance settlement ever undertaken by the industry, ended a protracted legal battle with insurers over payouts related to the terrorist attack.

New York State and Port Authority officials said yesterday that the deal removed any uncertainty over how much money would be available for rebuilding and would enable them to obtain private financing for the $9 billion project.

Officials had worried that the insurance dispute might drag on for years, eating up millions of dollars in lawyers’ fees and potentially delaying reconstruction. The settlement is the culmination of a two-month campaign by the state insurance superintendent, Eric R. Dinallo, and involved meetings in Geneva, Paris and Delaware.

The agreement was reached with seven of the two dozen insurers for the trade center who had not already settled — Allianz Global Risks, Travelers Companies, Zurich American, Swiss Re, Employers Insurance, Industrial Risk Insurers and Royal Indemnity. They agreed to pay a total of $2 billion. The other insurers had already made good on their claims and paid about $2.55 billion.

See also Insurance Journal National News Stories September, 2001

Terrorism Insurance Issues

Frequently Asked Questions about Terrorism Insurance (pdf)
[Excerpt] Were acts of terrorism insured against losses prior to the events of 9/11?

Prior to September 11, very few, if any, insurance policies excluded from coverage damage caused by terrorism. Typically, property and casualty (P&C) policies insured against “all -risks,” with the exception of certain specific types of losses such as those caused by “acts of war.” While there were acts of terrorism committed in the U.S. prior to 9/11, these acts were viewed as isolated attacks of fringe organizations, and unlikely to cause the type of damage that could undermine the stability of the insurance industry. The coordinated attacks of the World Trade Centers and Pentagon by a group of international terrorists forever changed this view.

GAO Report: Terrorism Insurance: Rising Uninsured Exposure to Attacks Heightens Potential Economic Vulnerabilities (pdf, Feb., 2002)

Terrorism Insurance: Pray As You Go (CFO Magazine, Feb., 2002)

Info on TRIA: Federal Terrorism Risk Insurance Act (extended through 2007), from the U.S. Department of the Treasury

Arup roundtable discussion: Risk and Security for New York City Buildings (pdf, Sept. 2004)

Can a Commercial Borrower be Required to Obtain Terrorism Insurance? (, yes...maybe. New York State court judgments, 2004)

New York City and Terrorism Insurance in a Post-9/11 World (pdf, Sept., 2004)
[Excerpt] In 2002, the New York City Comptroller conducted a survey of insurance agents and brokers serving businesses located throughout New York City. The City Comptroller’s report discussed rate increases and availability for nine lines of property and casualty coverage in the year before 9/11 and the year following the attack (New York City Comptroller, 2002). The survey found that premiums for business of all sizes increased dramatically following 9/11. For large accounts (more than $1 million in premiums), the average premium increase jumped from 11.4 percent to 73.3 percent. Hartwig (2002b) shows that premium increases for accounts across the country rose by 20 percent in 2002, about half of which was related to the terrorist attack. Hence, premium increases in New York City significantly outpaced those in the rest of the nation.

The City Comptroller’s survey also found a decline in insurance availability. Survey respondents were asked to rate insurance availability. According to the survey, for companies paying more than $1 million in premiums in New York City, access to ‘readily available’ and ‘somewhat available’ insurance fell from 84.1 percent to 20.2 percent.

Nearly Half Of Large And Mid-Sized U.S. Businesses Purchased Terrorism Insurance In 2004

March, 2007: Terrorism Insurance Hearing in NYC
[Excerpt] After the 9/11 attacks, many insurance companies excluded terrorism insurance from their policies. As a result, Congress passed TRIA [Terrorism Risk Insurance Act] which created an insurance backstop from the federal government to protect against terrorism related loses. The measure was extended for two years in 2005 and expires at the end of 2007.

...New York City is the ideal setting for our hearing. In addition to the enormous loss of human life on 9/11—the value of which cannot be measured—the terrorist attacks on that infamous day caused catastrophic economic losses to this city and to our nation as a whole. The attacks of 9/11 resulted in $30 billion of insured losses—the largest catastrophic insurance loss in the history of the United States—larger than any blizzard, tornado, or hurricane. As a result, insurers and reinsurers began to worry about the likelihood—and the cost—of a future terrorist attack. Worrying about risk and then monetizing that risk is the key to the insurance industry, which is itself an essential element in a modern dynamic economy. As businesses with legitimate concerns about their solvency, insurance and reinsurance firms withdrew from the New York City market. As the supply of terrorism insurance rapidly decreased, New York City developers, who were required to be insured against terrorism, were put in a precarious position; they needed terrorism insurance to avoid defaulting on their loans, but the market for insurance quite simply didn’t have enough supply to meet their demand. Similar shortages began occurring throughout the country. In simple terms, there was a market failure.

Schumer, Bloomberg Say Terror Insurance Key to Growth
[Excerpt]Builders and insurers say the legislation, which would reduce insurance companies' liability for catastrophic losses from terrorism, is needed because the risk and potential cost of an attack is too big to be borne by the private market. A chemical, biological or nuclear attack in lower Manhattan could cost as much as $778 billion, the American Academy of Actuaries estimated in 2006.

...Under the current program, the government would act as a reinsurer, covering 90 percent of losses once insurers pay deductibles estimated at $35 billion to $40 billion industrywide. In 2005, under the original program, federal funds would have kicked in after a deductible estimated at $30 billion. The 2001 attacks have cost an estimated $35.6 billion so far, according to the Insurance Information Institute.

RAND report: Should the Terrorism Risk Insurance Act of 2002 Be Extended?
— Jun. 5, 2007 (see "free downloadable pdf")