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FIN401 Insurance & Risk Management: September 11

#Unit 7 DB: Protecting the Business

On the morning of September 11, 2001, two airplanes, American Airlines Flight 11 and United Airlines Flight 175, collided in the north and south towers (the main “Twin Towers”) of the World Trade Center complex in New York City. Shortly thereafter, as a result of fires caused by burning jet fuel and falling debris, the Twin Towers collapsed (south tower – 9:59 am; north tower – 10:28 am), resulting in significant damage to the remaining five other towers that made up the complex and the buildings in the vicinity. The collisions were the result of acts of terrorism perpetrated by a foreign terrorist group.

Larry Silverstein, the leaseholder of the WTC Properties, entered a 99-year lease of the complex just a few months prior to the attacks. To protect his lease, Mr. Silverstein had multiple layers of insurance placed on the complex through various insurance companies. After the attacks, Mr. Silverstein sought to collect on the various insurance policies, arguing that the attacks were two separate instances of an “occurrence” under the respective policies and as such, the policies should cover the resulting damage separately. The insurers challenged Mr. Silverstein’s position (some of the insurers argued that the attack constituted one continuous attack, although multiple planes were involved). Litigation ensued.

Additional information regarding the WTC litigation:

  • The litigation with the insurers took over 6 years to finalize through settlement.
  • There were over seven different insurers involved. The insurers included primary coverage insurers (they provided the initial layer of coverage on the property) and excess insurers (these insurers covered the property above the primary insurer(s), and other excess insurers, but only up to their additional limit of coverage).
  • Mr. Silverstein originally argued that the attacks were two separate occurrences under the respective insurance policies, valued at $3.5 billion each. Thus, he argued that the insurers were collectively responsible, under their respective policies and up to their respective limits of liability, for $7 billion in insurance coverage.
  • After a series of court hearings, the court determined that the maximum that could be recovered from the insurers was $4.68 billion.
  • Through a series of settlement negotiations with the insurers, Mr. Silverstein was able to recover $4.55 billion (about 97% of the maximum recovery).
  • If the matter did not settle, it was estimated that it would take another 2-3 years minimum of litigation, including appeals, to fully resolve the case.

#Discuss whether Mr. Silverstein had a valid claim and the impact of coverage on commercial insurance coverage. Your response should include what you have learned about commercial property insurance in the Unit and the applicable insurance provisions that may have resulted in coverage for the structures.

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