THE WORLD TRADE CENTER TOWERS COLLAPSE AS
AN ENORMOUS INSURANCE SCAM.
Insurers Debate: One Accident or Two?
NEW YORK - Larry Silverstein, who acquired the lease to operate
the World Trade Center in July, is seeking $7.2 billion from insurers
for the destruction of the center - twice the amount insurers say he
The two hijacked airliners that struck the 110-story twin
towers Sept. 11 were separate "occurrences" for insurance purposes,
entitling him to collect twice on $3.6 billion of policies, a spokesman
for Mr. Silverstein said.
Companies that insured the building, including Chubb Corp.,
Swiss Reinsurance Co., Allianz AG, Ace Ltd. and XL Capital Ltd., said
that because the attack was coordinated it counts as only a single
"This is something that's going to be debated for a very long
time," said Julie Rochman of the American Insurance Association, a
trade group representing Chubb and the other insurers.
Mr. Silverstein, who has vowed to rebuild the complex, is
liable for more than $100 million a year in lease payments to the Port
Authority of New York and New Jersey, which owns the 16-acre
(6.5-hectare) site, the spokesman for the property company said.
About 13.4 million squre feet (1.2 million square meters) of
office space was destroyed in the attacks and an additional 15 million
square feet in nearby buildings was damaged, according to Insignia/ESG,
the largest New York real-estate brokerage firm. The collapse of the
towers caused the destruction of buildings 4, 5, 6 and 7 at the World
Trade Center. The office complex was the largest in the United States.
As an industry, insurers have decided to treat the attacks as
a single occurrence, said Keith Buckley of ratings group Fitch Inc., an
organization that grades the financial health of insurers.
Nicholas Jones, a spokesman for Willis Group Holdings, which
brokered the insurance on the trade center, said, "We are of course
aware of Silverstein Properties' position in this matter, and we are
working with Silverstein and the insurers and underwriters to bring
this matter to an amicable solution as quickly as possible."
Executives of the insurance market Lloyd's of London, Swiss
Re and other insurers of the buildings either declined to comment or
were not available. "We don't talk about individual situations," said
Glenn Montgomery, a spokesman for Chubb, based in Warren, New Jersey.
This article appeared in the International Herald Tribune, 2001-10-10, page 16.
Twin Tower Insurers Win Discovery Fight Mark Hamblett New York Law Journal 06-20-2002
The attorney-client privilege does not shield conversations
between the insurance broker for World Trade Center leaseholder Larry
Silverstein and Silverstein's lawyers, a federal judge in the Southern
District of New York has ruled.
In a victory for insurance companies in their
multibillion-dollar fight against Silverstein's claim that the Sept. 11
attacks amounted to two occurrences for insurance purposes, U.S.
District Judge John S. Martin ordered brokers from Willis of New York
Inc. to answer questions in a deposition about their understanding of
the scope of coverage following the terrorist assault.
The conversations were between the brokers and Silverstein
attorneys Wachtell, Lipton, Rosen & Katz. Insurance company
attorneys claim the conversations will include evidence that Willis
employees considered the destruction of the twin towers a single event.
Silverstein has argued from the outset that the attacks were two
occurrences, a claim that, if successful, would double the amount of
insurance payments he receives, to $7.1 billion.
The ruling in SR International Business Insurance Co. Ltd. v. World Trade Center Properties and World Trade Center Properties v. Allianze Insurance Co.,
01 Civ. 929, also marks the second setback to the Silverstein team this
month. On June 3, Martin refused to grant Silverstein summary judgment
on whether the attacks amounted to two occurrences, ruling that
extrinsic evidence must be considered before deciding how much
Silverstein should be compensated for the destruction.
The motion to compel discovery of the conversations between
Willis and Wachtell Lipton lawyers was sought by Travelers Insurance
Co., one of several defendant counterclaimant's in the Allianze case.
Travelers' assertion that it is obligated to pay Silverstein only $210
million, instead of double that amount, has been used as the test case
for pretrial motions and discovery in more than 20 suits concerning
World Trade Center insurance coverage.
Herbert M. Wachtell's grounds for resisting the motion were
that Willis was acting as an agent for the Silverstein parties and was
therefore protected by the privilege, that Willis and the Silverstein
parties shared a "common interest privilege," and that the
conversations were protected by the attorney work product privilege.
Harvey Kurzweil and Saul Morgenstern of New York's Dewey
Ballantine, who represent Travelers, are the lawyers seeking to
question the Willis employees. Kurzweil and Morgenstern go into
depositions armed with already-discovered documents: notes taken by a
Willis employee in London during a conversation with another Willis
employee who was stranded in Nashville, Tenn., following Sept. 11. The
employee in Nashville allegedly implied that the understanding of the
parties to the still-unsigned insurance agreement was that the attacks
were one occurrence.
As to agency, Judge Martin said: "a limited number of cases
have held that the corporate attorney-client privilege can extend to
communications between the corporation's attorney and outside agents or
consultants to the corporation whose role is the functional equivalent
to that of a corporate employee."
But Martin said the facts in this case are substantially
different because the conversations were "between Willis, a
multi-national corporation with its own retained counsel, and the
lawyers for one of its many clients."
While competent lawyers need to be fully informed of all the
facts of a case for a client, Martin said, "that interest does not
extend the attorney-client privilege to all those who may have relevant
information. The privilege is much more limited."
Addressing the common interest privilege, Martin said it is a
"limited exception to the general rule that the attorney-client
privilege is waived when a protected communication is disclosed to a
third party." He said the 2nd U.S. Circuit Court of Appeals has warned
that courts should be cautious about extending the attorney-client
privilege through the exception.
But Martin said further that "Sharing a desire to succeed in an action does not create a 'common interest.'"
"There has been no showing that Willis and the Silverstein
Parties have an identical legal interest, as required by the cases," he
said. "Willis is not a party to this litigation, and its legal position
will be unaffected by the outcome of this case."
Finally, Martin found that the conversations were not protected by the attorney work-product privilege.
"It must be remembered that, at least as codified in the
Federal Rules of Civil Procedure, the work product doctrine applies
only to tangible things -- not testimony," he said. "Clearly, much more
can be learned about a lawyer's strategy and tactics from documents
that the lawyer prepares than can be gained from general questioning
concerning a witness's recollection of conversations with an attorney
concerning the events about which the witness is expected to testify."
The judge said that the work product privilege would apply
only to the extent that questions are "specifically designed" to
discover Wachtell Lipton's work product.
So the judge allowed insurance company attorneys to question
Willis witnesses about conversations that occurred before the sessions
at which the witnesses were being prepared for depositions, and during
the preparation sessions.
Stuart Green of Epstein, Becker & Green in New York represented Willis.
World Trade Center's Mortgage Holder Loses Discovery Fight Tom Perrott a New York Law Journal 07-08-2002
Insurance companies Wednesday won another battle in a
multibillion-dollar dispute over the World Trade Center, as a federal
judge in the Southern District of New York said he would compel the
building's mortgage holder to testify and disclose an array of
U.S. District Judge John S. Martin ruled that employees of
GMAC Commercial Mortgage Corp., which holds the mortgage on the World
Trade Center, and its insurance advisors, Harbor Group Ltd., could not
use the attorney-client privilege to shield communications made after
the Sept. 11 attacks.
SR International Business Insurance Co. Ltd. (Swiss Re) is
seeking the communications and testimony from agents in an attempt to
bolster their claim that the destruction of the World Trade Center was
the result of one terrorist attack rather than two.
Larry Silverstein, the leaseholder of the towers, has argued
that the attacks were two separate events, meaning insurance companies
would have to reimburse him a total of $7.1 billion rather than half of
But the insurance companies have said that conversations
between Silverstein's lawyers and insurance brokers would reveal that
initially there was an understanding that the attacks constituted one
event, not two.
The ruling from Martin comes a few weeks after he came to a
similar conclusion on a motion brought by Travelers Insurance Co., one
of the defendant counterclaimants in SR International Business Insurance Co. Ltd. v. World Trade Center Properties and World Trade Center Properties v. Allianz Insurance Company, 01 Civ. 9291.
In that ruling, the judge said conversations between
Silverstein's attorneys at Wachtell, Lipton, Rosen & Katz and
insurance brokers at Willis of New York Inc. were not subject to the
On Wednesday, the judge applied similar reasoning to a
request by Swiss Re to examine documents drafted by employees at GMAC
and Harbor Group after Sept. 11 as they attempted to address investor
Martin ruled that the actions of the employees, supervised by
GMAC's in-house counsel, constituted information gathering in the
normal course of business, not in anticipation of litigation.
"No privilege attaches to an attorney's communications when
the attorney is hired to give business or personal advice, or to do the
work of a nonlawyer," Martin wrote.
GMAC had argued that all post Sept. 11 communications were
protected by the attorney-client or the work product privilege because
of the in-house counsel's supervision.
Martin did say, however, that any communications involving
the in-house counsel that contained or sought legal advice would be
The judge said that the parties could submit documents to the
court for in camera inspection to determine whether they were
Barry R. Ostrager of Simpson Thacher & Bartlett, who
represented Swiss Re, said an important aspect of the ruling involves a
Sept. 14 meeting at Silverstein's office between Silverstein, his
lawyers, Willis of New York, GMAC, Harbor and other investors.
Martin ruled that documents related to the meeting were not
privileged and said employees of GMAC and Harbor can be questioned
about what was said.
He also said Swiss Re could review notes taken by Beth Ann
Herrmann, a vice president at GMAC, and Peter Lefkowitz, of Harbor, at
the meeting. The two had taken notes at the request of GMAC's in-house
counsel, but Martin ruled the notes were not privileged because they
"merely set forth the facts that were reported to the attorney."
Ostrager said the deadline for discovery in the case is Sept. 30.
John C. Ulin of Heller Ehrman White & McAuliffe in Los Angeles, who represented GMAC, was not available for comment.
Marc Wolinsky of Wachtell Lipton who was not involved with this motion, said the ruling was "of no real consequence."
Chet A. Kronenberg of Simpson Thacher's Los Angeles office also represented Swiss Re.
WTC Insurer Has Right to Appraisal, Federal Judge Rules Mark Hamblett New York Law Journal 08-21-2002
One of many insurance companies locked in a dispute with World
Trade Center leaseholder Larry Silverstein has the right to an
independent appraisal of the loss incurred in the Sept. 11 attacks,
Southern District of New York Judge John S. Martin has ruled.
Pursuant to its contract with Silverstein, Allianz Insurance
Co. had sought to have disinterested appraisers selected by both sides,
with any discrepancy to be resolved by an umpire.
Silverstein has opposed the motion, arguing that the
appraisal mechanism in the insurance agreements was pre-empted by the
Air Transportation and System Stabilization Act, which granted
exclusive jurisdiction to the Southern District of New York for claims
flowing from the Sept. 11 jet crashes.
But Judge Martin agreed with Allianz, saying that "at the
outset it should be noted that to construe the grant of jurisdiction to
deny Allianz a contractual right that it has under New York law would
raise serious constitutional issues.
"But even if there were no constitutional issue presented,
there is no basis for finding that when Congress conferred jurisdiction
on this Court for all actions relating to the events of Sept. 11, it
meant to deprive parties of their contractual right to appraisal or
arbitration," he said. "Indeed, there is a serious question whether the
grant of jurisdiction in the Act applies to this case."
Meanwhile, at a court hearing Tuesday, Martin expressed
skepticism about keeping an upcoming Nov. 4 trial date in the case,
because discovery is far from complete. (No decision was made on
whether to push back the trial date, but another hearing will be held
In his ruling on the appraisal, Martin said the original
purpose of the Air Transportation and System Stabilization Act, passed
in the wake of the tragedy last September, was to "limit the liability
of the airlines ... and to provide an alternative method of
compensating the victims of the attacks."
But there is nothing in the legislative history of the act,
nor in the provision vesting exclusive jurisdiction in the Southern
District, he said, that indicates Congress intended to affect parties
with a property interest in the World Trade Center and their insurance
The decision in Allianz Insurance Co. v. World Trade Center Properties,
02 Civ. 0017, was the latest in a series of rulings in the
multibillion-dollar fight over insurance payments for the World Trade
Travelers Indemnity Co. and a host of other insurers contend
that New York law requires the two terror attacks on the World Trade
Center be considered a single occurrence for insurance purposes.
Silverstein argues the attacks were two occurrences, and he is entitled
to double the insurance proceeds: roughly $7.1 billion for
reconstruction and lost revenues.
Last month, Martin urged the parties to consider settling the
case, and asked fellow Southern District Judge Lewis A. Kaplan to
oversee settlement talks.
JURY PREFERRED BY SOME
In his opinion on the Allianz motion, Martin noted that some
other insurers have indicated they might seek an appraisal, but others
have told the court they preferred to have a jury decide the issue.
Silverstein had argued that Allianz was both too late in
asserting its appraisal rights, because it had already engaged in
litigation, and too early, because both parties are required to first
hire experts and evaluate the loss and then engage in good-faith
negotiations before invoking the appraisal process.
On the claim that Allianz was too late, Judge Martin said
Allianz specifically "reserved its right to demand appraisal in its
reply to the Silverstein Parties' counterclaim" and spent a lot of time
trying to negotiate an agreement on the appraisal process before it
filed the motion.
On Silverstein's claim that Allianz sought appraisal too
early, Martin said, "It makes no sense to suggest that the parties must
bear the expense of hiring experts to evaluate a loss before they
retain the services of an 'impartial appraiser.'"
The judge did express one concern he said "might militate
against the full enforcement of the appraisal provision." With only
some insurers seeking appraisal, he said, enforcement of those rights
"may unfairly multiply the proceedings in which the Silverstein Parties
are forced to litigate the valuation issue."
One remedy, he said, might be to substitute himself for the
neutral umpire if the appraisers cannot agree. But for the time being,
the judge said he was reserving decision on whether the parties would
choose the umpire.
Silverstein was represented by Herbert M. Wachtell of New
York-based Wachtell, Lipton, Rosen & Katz. Allianz was represented
by John B. Massopust of Zelle, Hofmann, Voelbel, Mason & Gette.
Trial Date Set for WTC Insurance IssueMark Hamblett New York Law Journal 08-23-2002
Jury selection in the trial to decide the multibillion-dollar
question of whether the attacks on the World Trade Center were one or
two occurrences for insurance purposes will begin on Nov. 4.
Southern District of New York Judge John S. Martin late
Thursday rebuffed an attempt by insurance companies that claimed
massive amounts of pretrial discovery and trial preparation made it
impossible to conduct the trial efficiently.
But Martin also said the trial would be split into two
phases, with the first dealing with issues of contract formation -- the
parties had only signed insurance binders and not final agreements in
the weeks leading up to Sept. 11 -- and the occurrence question.
The second phase will concern the amount of damages.
Although most of the 22 insurance companies or syndicates had
asked for trial to begin next year (three companies were willing to go
to trial sooner if their cases were severed from rest), World Trade
Center leaseholder Larry Silverstein, the Port Authority, and the Lower
Manhattan Development Corp. had all pressed for an earlier date,
arguing that the future of the Trade Center depended on a quick
resolution of the insurance conflict.
Silverstein claims that the separate crashing of two planes
into the North and South towers on Sept. 11 amounted to two
occurrences, and that he is entitled to more than $7 billion in
insurance proceeds. Should a jury disagree, the insurance companies
would be obligated to pay only half that amount.
From the outset of the case, Silverstein's lawyer Herbert
Wachtell of Wachtell, Lipton, Rosen & Katz, has insisted that time
is of the essence, and the future of downtown Manhattan and the
economic health of the city require an immediate answer to this
"We definitely need to know how much money is going to be
needed for rebuilding at the very earliest time," Wachtell told Judge
Martin at a hearing Tuesday. "This is not some phantom, this is the
harsh reality of getting New York City rebuilt."
But Harvey Kurzweil of Dewey Ballantine, the attorney for
Travelers Indemnity Co., said Tuesday there was no need to "hustle" to
trial in the belief that "more money for Mr. Silverstein means more
money for New York.
"The only result to be determined by this trial is who pays," he said, and he reiterated that argument Thursday to no avail.
Judge Martin, who has been hashing out discovery disputes with
the lawyers, has become increasingly skeptical of the need to rush
forward and try the case, largely because the planning and design
process for the site is proceeding slower than expected.
At this point, submissions for a design competition for a
memorial at the site are not due until June 2003. And the first wave of
submissions for an overall rebuilding plan that would include a
memorial and millions of square feet of retail and commercial space
have been criticized by officials and the public as inadequate and
But in the end, Martin set aside his concerns over the
uncertainty of the plans for the site and focused on what he said was
"one of Parkinson's Laws -- that the work will expand to the time
The Port Authority, which gave a 99-year lease to Silverstein
last year -- so close to the attacks that some contract issues were
still being negotiated when the planes hit the buildings -- also wants
a quick answer from the court.
"You can't plan a building without knowing how much money you
have to build in the first place," Port Authority lawyer Timothy
Reynolds of Skadden, Arps, Slate, Meagher & Flom said Tuesday.
Thursday, Reynolds said the Port Authority and Silverstein
"are facing a hole in the ground and the insurance companies are
sitting on that money earning interest."
At a minimum, Reynolds argued, Silverstein should receive, as
quickly as the amount can be determined, the actual cash value of
property, even before the occurrence issue and the replacement cost of
the property can be determined.
"That money is clearly due to us now," he said.
During brief arguments Thursday, Wachtell said the insurance
companies "had their tongues hanging out" for a bifurcated trial
"because they were better off tactically not having a single jury
deciding contract issues and valuation."
As the parties are now faced with racing to complete more
than 130 depositions in advance of trial, Martin is scheduled to hear
summary judgment motions, and also arguments on whether the binders
signed by the parties constituted, in essence, a final agreement, or
whether there were critical issues remaining to be negotiated when the
Double Indemnity Alison Frankel The American Lawyer 09-03-2002
Barry Ostrager, the Simpson Thacher & Bartlett litigation
chief, is a big admirer of Herbert Wachtell. Really, he is. Big, big
Never mind the adjectives he uses to describe the co-founder
of Wachtell, Lipton, Rosen & Katz -- "obstreperous, obstructive and
unreasonable." Forget the nasty accusations of witness manipulation
that Ostrager has tossed at Wachtell Lipton partners in the World Trade
Center insurance coverage litigation. Disregard Ostrager's amusement at
what he calls the "feigned indignation" with which Wachtell has greeted
the Simpson Thacher lawyer's tactics.
Put all that aside, Ostrager says. Focus instead on his great
compliment to Herb Wachtell and his partners: But for Wachtell's
ingenuity and persuasiveness, Ostrager says, there would be no World
Trade Center insurance litigation. There would be no $3.55 billion
dispute over the money owed to Wachtell's client, New York real estate
developer Larry Silverstein, who signed a 99-year lease on the World
Trade Center just two months before the attack on the towers. As
Ostrager tells it, only a mind as brilliant as Wachtell's could have
crafted a plausible argument that Silverstein is owed $7.1 billion,
twice his ostensible policy limit, because the World Trade Center
catastrophe constituted two discrete, insurable events, not one.
Of course, Ostrager's salute to Wachtell is just a tiny bit
mitigated by his own role in the litigation. He is counsel to the Swiss
Reinsurance Co., the carrier that underwrote about 22 percent -- $780
million -- of the Trade Center's insurance coverage. Swiss Re, like the
rest of the 21 insurance companies battling Silverstein, is determined
to prove that the Trade Center collapse constituted one occurrence
under Silverstein's insurance coverage, not the two Silverstein claims.
The story of the Silverstein insurance program, assembled in
the summer of 2001, is so far-fetched that any law professor who
dreamed it up as a hypothetical would be laughed out of the classroom.
Silverstein hired a well-known broker, Willis Group Holdings Ltd., to
find enough coverage to satisfy his lenders. Willis scrambled mightily
to place $3.55 billion in insurance, ultimately dealing pieces to 25
carriers. Negotiations were frenetic -- so frenetic that when
Silverstein took over the lease of the Trade Center on July 24, 2001,
he had in hand only temporary contracts from his insurers. Most of
those had been executed on the basis of a sample form that Willis had
circulated, a form that included a broad definition of what constituted
an occurrence for insurance purposes. (The encompassing definition was
designed by Willis to favor policyholders; the more damage that could
be lumped into one occurrence, the fewer deductibles policyholders
would have to pay.)
One key carrier, however, had refused to base negotiations on
the Willis form. Travelers Indemnity Co. insisted on using its own
form, which did not specifically define "occurrence," as the foundation
of discussions about a final policy. Willis needed Travelers to stay in
the deal, so Willis brokers spent August 2001 deep in negotiations with
Travelers underwriters about changes proposed to the Travelers form.
(These negotiations, interestingly, did not include discussion of the
definition of "occurrence.") As of Sept. 11, Willis had not circulated
final policies to any of the 25 carriers. Silverstein and Willis now
say that all of the insurance companies should be held to the terms of
the Travelers policy, which, in their lawyers' interpretation of New
York state insurance law, leads to the conclusion that the Trade Center
collapse constituted two occurrences. The insurers -- no surprise here
-- say that the Willis form prevails.
What's more, asserts Ostrager, the Willis brokers who now
support the Travelers scenario didn't always. Only after Wachtell
Lipton lawyers got involved, Ostrager has said repeatedly in this
litigation, did Willis witnesses convert to the story that favors
Silverstein. Silverstein himself said as much, Ostrager argues, in a
speech he delivered in December 2001 to the "CEO Summit" on Rebuilding
Confidence in the U.S. Economy. "I had to find myself the best minds
that I could find," Silverstein said, "to get me two events, to provide
$7 billion." Those minds, in Ostrager's telling, belong to the Wachtell
Ostrager is a slight 55-year-old with wavy, reddish hair and
an insatiable appetite for competition; in his scant spare time he
breeds racehorses. He graduated from New York University Law School 18
years after Herb Wachtell, and seems to be fairly frothing for
confrontation with him. Ostrager has gone so far as to fling such
phrases as "corruption of the discovery process" and "unconscionable
interference by Wachtell" into a brief that accuses Wachtell Lipton
lawyers of "exerting fantastic pressure" on Willis witnesses and
"manipulating" their testimony.
Wachtell, who says that the evidence disproves the very
thesis of Ostrager's accusations, responds to the Simpson Thacher
lawyer with characteristic irascibility. When his partner Meyer Koplow
calls Ostrager's attack "laughable," Wachtell cuts in. "It's not
laughable," he says.
Wachtell, 70, is not a physically intimidating man. He has
long, slicked-back gray hair, a thin, red face and piercing eyes. He
wears half-frame glasses low on his nose. Yet somehow he is fearsome.
"I don't like to see my partners accused of suborning perjury," he
fumes. Ostrager, he says, is litigating this case with reckless
aggressiveness. "He likes to distort facts," says Wachtell. "I am
So far Ostrager is winning. The insurers have beaten
Silverstein on almost every significant pretrial motion in the case,
including a summary judgment motion by Wachtell that was denied. That's
all just prelude, however. The judge in the case, John Martin Jr. of
Manhattan federal district court, has appointed another federal judge,
Lewis Kaplan, to oversee settlement talks this fall. If they fail,
Ostrager and Wachtell will meet in court in November to try this case.
Barry Ostrager will be looking to topple Wachtell. Herb Wachtell will
be trying to put the Simpson Thacher lawyer in his place. And one of
their clients will walk away hundreds of millions of dollars richer.
Larry Silverstein is Herb Wachtell's oldest friend. They met
as teen-agers, at New York City's High School of Music & Art, where
they both played piano. At New York University, both played in the
band, Silverstein on drums and Wachtell on clarinet. They stayed close
enough over the years that Silverstein had dinner at Wachtell's house
the Friday before Sept. 11. Silverstein didn't use Wachtell Lipton as
his regular lawyers -- Skadden, Arps, Slate, Meagher & Flom and
Stroock & Stroock & Lavan routinely represented him -- but when
he split from his business partner (and brother-in-law), Wachtell and
his partners negotiated the breakup.
On Sept. 13, two days after the towers fell, Silverstein
called Martin Lipton, also a close friend and a fellow NYU trustee, to
ask if Lipton thought he'd need legal advice. "Marty said, 'And how,'"
says Wachtell. "
hadn't thought through the scope of all the legal problems he could be
facing. They'd lost four people from a small office. They were all
traumatized." Silverstein arranged to come to Wachtell Lipton's offices
later that afternoon.
Before he arrived, though, Wachtell had to figure out whether
the firm could represent Silverstein beyond this emergency counseling
session. "This would be a mammoth drain on firm resources," says
Wachtell, who heads a litigation department of 53 lawyers, almost half
of whom have become involved in the World Trade Center litigation. "It
was a firm issue -- could we afford to take this on?" Wachtell Lipton's
midtown Manhattan offices were in turmoil on Sept. 13. Some investment
bankers from Keefe, Bruyette & Woods Inc., which had its offices in
the World Trade Center, had been at a meeting at Wachtell Lipton when
the planes hit the towers; the law firm volunteered to provide the
Keefe Bruyette survivors (as well as some other lower Manhattan
refugees) with a temporary headquarters. People were walking around
carrying computers and phones for the guests. Wachtell Lipton lawyers
were still in shock; collectively, they knew dozens of Trade Center
victims. Many lawyers weren't even in the office. Herb Wachtell rounded
up all of the partners who were around for an impromptu firm meeting.
"We decided to do it for two reasons," he says. "Larry is my closest
and oldest friend. And this was a civic thing -- we felt an obligation
to be involved in the rebuilding of the city."
Silverstein, according to Wachtell Lipton partner Eric Roth,
didn't stay long at Wachtell Lipton's offices on Sept. 13. Wachtell
recalls talking briefly with Silverstein about several potential
issues, including insurance. As it happened, Wachtell Lipton had argued
an insurance coverage case in the New York Court of Appeals a week
earlier (Simpson Thacher partner Mary Kay Vyskocil argued against him;
Wachtell Lipton eventually won). He told Silverstein that, in his
opinion, unless the insurance policy clearly stated otherwise, New
York's laws would define the terrorist attacks as two occurrences, two
But at that point, Silverstein's lawyers didn't know what the
insurance policy said. Silverstein had already been in touch with John
Gross, a partner at Proskauer Rose who specializes in insurance
coverage. On Saturday the 15th, Gross and the Wachtell Lipton lawyers
talked for the first time. "We had no idea what had happened," says
Gross. "We were new counsel, we had not participated in the placement.
I suggested we go meet with the Willis people and find out what was going on." Roth agreed: "We had to go meet with Willis."
Willis Group Holdings Limited is a giant insurance broker,
specializing in coverage for big commercial properties. Even by Willis
standards, though, the World Trade Center insurance program was huge.
The Port Authority of New York and New Jersey, which finished building
the complex in 1972, carried only $1.5 billion (per occurrence) in
coverage on all of its buildings, which, in addition to the Trade
Center, included the three New York City area airports. Silverstein's
lenders insisted on more coverage, first demanding $2.3 billion, then
$3.2 billion, and then, right before the lease deal closed, $3.55
billion. The lead Willis broker on the insurance placement, Timothy
Boyd, and his team hustled in June and July to satisfy the lenders,
contacting carriers in the United States, Europe and Bermuda to place
coverage. Willis distributed to many, but not all, of the carriers
underwriting packets that featured not only the risk analysis
documentation on the World Trade Center, but also a 37-page sample
property insurance policy that Willis had developed, a form called the
WilProp 2000. The WilProp form included a specific definition of
occurrence, one designed to minimize deductibles for policyholders:
"all losses or damage that are attributable directly or indirectly to
one cause or to one series of similar causes."
The goal in multicarrier property insurance deals is to get
all of the insurers to agree to issue the same final policy, so that
there are no gaps in coverage. Carriers with smaller shares of the
coverage frequently defer to the policy demands of bigger insurers,
however, so brokers don't expect to negotiate final policy language
with all (or even most) carriers. In the World Trade Center program,
for instance, no negotiations took place with the London insurance
syndicates, which actually, at the time they agreed to provide
coverage, waived the right to sign off on final policy wording.
Moreover, insurers typically issue temporary contracts binding them to
provide coverage before they finish negotiating final policy language.
Usually there's plenty of time to reconcile policies after the binders
Distilling facts from the frenzied discussions that took
place between Willis brokers and insurance company underwriters in July
2001 is no easy task, especially now. Willis broker Boyd testified that
he didn't expect carriers simply to accept the WilProp sample form, but
considered it a starting point for negotiations. Swiss Re seems to have
regarded it the same way. Underwriter Daniel Bollier agreed on July 9
to carry about 22 percent of all layers of coverage beyond the first
$10 million, but he told Willis broker Paul Blackmore that he wanted
changes in the sublimit language in the WilProp form. (Bollier was
satisfied with the WilProp occurrence definition and did not attempt to
negotiate changes to it.) Other carriers also seemed to expect
negotiations of final policy language; only two Bermudan insurers, ACE
Ltd. and XL Capital Ltd., specifically referred to the WilProp form in
Before the lease deal closing, Willis issued certificates of
insurance to Silverstein, confirming to his lenders and to The Port
Authority that he had sufficient coverage. His 99-year lease, for which
Silverstein put up only $14 million of his own money, closed on July
24. Willis broker Boyd, however, still had work to do. One carrier,
Travelers, had informed Boyd that if Travelers was to participate in
the primary layer of coverage, it would have to be on the basis of its
form, not the WilProp form. Boyd had tried to find a substitute carrier
with as high a rating as Travelers, but the market for World Trade
Center insurance was saturated.
So in late July, Boyd began serious discussions with
Travelers underwriter James Coyle III about what the final Travelers
policy would say.
There is no dispute that Coyle first sent Boyd the Travelers
sample policy on July 11. But what did Boyd and the rest of the Willis
brokers tell the other carriers about the Travelers form? On this
critical question, the accounts of the Willis brokers and insurance
company underwriters diverge drastically.
If the case ever goes to trial, one of the key issues will be
the exchanges between London broker Blackmore and Swiss Re underwriter
Daniel Bollier. Blackmore testified that sometime between July 17 and
23, he told Swiss Re underwriter Bollier that WilProp had been replaced
by Travelers; on July 23 his assistant e-mailed the Travelers form to
Swiss Re. But Bollier swore he remembered no conversation with
Blackmore about the Travelers form. He said he paid little attention to
the e-mail attachment, which arrived without a note advising that
Travelers was replacing WilProp. Timothy Boyd of Willis testified that
he specifically informed underwriters at eight other insurance
companies that Travelers would be the primary form; notes in the files
of at least three carriers indicate that their underwriters had been
told. But most of the carriers deny that anyone from Willis ever told
them Travelers was replacing WilProp.
At the end of August, Coyle of Travelers sent Willis' Boyd a
draft policy that included the changes they'd discussed. The Travelers
policy did not define occurrence, leaving the interpretation to state
law. Boyd, who did negotiate the wording of Travelers' deductibles
clause, never attempted to add Willis' occurrence definition to the
Travelers form. On that point, he deferred to Travelers. Boyd looked
over what Coyle had sent him at the end of August, but didn't respond.
Labor Day weekend arrived, and there didn't seem to be any rush.
Sept. 11 found most of the brokers on the Willis World Trade
Center team in Nashville, at a previously scheduled meeting of Willis'
property insurance group. Like the rest of the country, they watched
the television in horror. With planes grounded, the brokers were
marooned in Nashville, without their paperwork. Inevitably, they began
the debate: Was the attack one occurrence or two?
Willis' counsel, Stuart Gerson of New York's Epstein Becker
& Green, insists that these conversations were informal and purely
hypothetical. Nevertheless, when Timothy Boyd, the lead broker on the
World Trade Center program, called Willis' London office as he tried to
reassemble the Silverstein documents, he told London staffers,
according to the notes of one, "In their opinion this is one
occurrence." (Both Boyd and the London staffer testified that they did
not recall the conversation.) Another broker said something similar to
Swiss Re's Daniel Bollier, according to Bollier's testimony.
Silverstein's own risk manager hurriedly faxed a copy of portions of
the WilProp form to a lawyer for The Port Authority with a cover note:
"FYI the 'occurrence' definition and the insuring agreement and the
exclusions in the Willis policy that we are working with." Several
hours later he sent the same materials to one of Silverstein's lenders.
At the same time, however, Boyd was working with Jim Coyle of
Travelers to get a final policy issued. Coyle agreed to send Boyd a
policy that reflected the state of their negotiations as of Sept. 10.
On Friday, Sept. 14, Travelers faxed a final policy -- which included
no definition of "occurrence" -- to Willis' temporary headquarters in
New Jersey. From there, Willis faxed it to Wachtell's offices.
"We were told two things," says Wachtell, "that the Travelers
form was the governing form; and that they wanted to disseminate the
policy to the marketplace. We said, 'No! You may not send it out until
we can confirm the facts.'" Silverstein's lawyers pressed the Willis
team for interviews with the brokers. Willis senior executives agreed
that John Gross of Proskauer and Eric Roth and Marc Wolinsky of
Wachtell Lipton could come to New Jersey on Monday, Sept. 17, to talk
to the brokers.
Over the weekend, Gross and the Wachtell Lipton lawyers
studied the documents Willis had sent them. Gross is as emphatic as
Wachtell about the implications of the Travelers policy. Since it
didn't specifically define "occurrence," the definition was left to
state law. And under New York state law, Gross asserts, the attack on
the twin towers constituted two occurrences. "I knew it without even
going to the books," he says. But did the Travelers policy govern the
World Trade Center insurance coverage? Gross and the Wachtell Lipton
lawyers say that they got their answer in their interview with the
Willis broker Timothy Boyd on Monday, Sept. 17.
If Barry Ostrager's theory -- that Wachtell concocted the
Travelers policy scenario -- was correct, the "fantastic pressure" that
Wachtell supposedly exerted on the Willis witnesses would have had to
have begun during those Sept. 17 meetings, as the lawyers and brokers
figured out what to tell the insurance market about the governing
policy. Willis is a sophisticated company, so, naturally, its brokers
were represented by their own lawyer at these initial interviews with
Silverstein's counsel. Sitting at the head of the table as Roth, Gross
and Wolinsky questioned Willis witnesses was a lawyer named Andrew
Amer, from the firm that is Willis' longtime outside counsel: Simpson
Thacher. Amer is a partner in the department headed by Barry Ostrager.
Amer, who declined to comment, presumably heard the Willis
witnesses tell Silverstein's lawyers that the Travelers policy governed
the World Trade Center coverage. He said as much in a Sept. 20 e-mail
to Eric Roth, confirming that Willis believed that coverage was based
on the Travelers form. "We await your approval to distribute the policy
to the market," Amer wrote.
So how could Ostrager later assert that Wachtell was pushing
to get the Travelers policy out, that Wachtell Lipton lawyers were
manipulating Willis witnesses to tell a story that favored Silverstein?
Ostrager says he never talked to Amer about those meetings. To protect
Willis' attorney-client privilege, he says, Simpson Thacher -- which
had informed Willis from the start that it would be representing a
carrier in the litigation -- erected a wall between Amer and the
lawyers representing Swiss Re. When Ostrager wrote the brief accusing
Wachtell of "unconscionable interference" and "corruption of the
discovery process," he based his accusation on notes Travelers
underwriter Coyle took during a post-Sept. 11 conversation with Willis
broker Boyd in which Boyd complained about feeling so much pressure
from the lawyers that he was thinking of quitting. The comment later
turned out, however, to have been a reference to Willis in-house
lawyers, pressing Boyd to produce documents.
Epstein Becker's Gerson, the lawyer who replaced Amer soon
after those initial meetings, also rejects any suggestion that Willis
witnesses were coerced, in the Sept. 17 meeting with Wachtell Lipton
lawyers or in any meeting after that. "I have been at every single
prep session," Gerson says. "There has been no pressure of any kind put
on any Willis witness by anyone at Wachtell. I wouldn't let that
happen. I am not a potted plant."
Ostrager says he never meant to suggest that Wachtell Lipton
lawyers had suborned perjury, merely that in hours of preparing Willis
witnesses for deposition, Wachtell Lipton partners had subtly shaped
their recollections and perspectives. (Willis, insurance lawyers have
noted in court, may be concerned about the possibility of Silverstein
suing the brokerage for malpractice.) Immediately after Boyd's
deposition testimony about pressure from lawyers, Ostrager did notify
Judge Martin that Boyd had been referring to in-house lawyers, not
Wachtell; and he did tell the judge in a letter and in court that he
wasn't accusing Wachtell of impropriety. But he didn't withdraw his
brief. And he doesn't believe that Wachtell is as indignant about his
tactics as Wachtell says he is. In a deposition of Blackmore, Ostrager
told Wachtell that he was going to call the judge if Wachtell didn't
stop interrupting his questions. "If you want to be a litigator,"
Wachtell retorted, "don't be so thin-skinned every time you get an
objection." Says Ostrager: "That applies in spades to him. want to be aggressive, but, like any bully, they don't want to be punched back."
Ostrager came into the World Trade Center insurance case at
around the same time Wachtell did, within two days of the collapse of
the towers. Swiss Re wasn't necessarily expecting litigation, Ostrager
says, but retained him "as a matter of prudence." As Willis circulated
the Sept. 14 Travelers policy to the other insurance companies, Swiss
Re's prudence proved justified. Swiss Re, as well as a host of other
carriers, notified Willis that they'd bound coverage on the basis of
the WilProp form, and had never agreed to substitute the Travelers form
at all. The Travelers policy, they said, wasn't their policy; many said
that the Willis notice was the first they'd heard of it.
For a few weeks, Ostrager and his second-in-command, Mary Kay
Vyskocil, let Silverstein set the course of the case. The real estate
developer badly wanted to begin collecting the business interruption
portion of his insurance, so that he could continue making payments to
his lenders and his landlord, The Port Authority. Wachtell urged a
meeting between Silverstein and the insurers. Willis executives
organized a session on Oct. 2 at Manhattan's Metropolitan Club. "I
thought it would be helpful if Larry could talk to them, let them see
him in the flesh, show them he was not trying to get a windfall,"
Wachtell says. "We told them we understood there was a difference of
opinion on occurrence, but we had to get the business interruption
insurance going. Larry said, 'We ought to be sitting down and talking.'
He was met with dead silence."
Ostrager regarded the meeting as a turning point. "I knew
what was going on in that Oct. 2 meeting," Ostrager says. Silverstein
wanted the business interruption cash, Ostrager says, to fund his
two-occurrence litigation. "It was transparent and self-evident,"
Ostrager says. "I knew to a moral certainty that Silverstein was going
to initiate a declaratory judgment action against the insurers." So
Ostrager and Vyskocil grabbed control of the litigation. On Oct. 22
they filed, on behalf of Swiss Re, a complaint for a declaratory
judgment against Silverstein, asking the court to hold that the Trade
Center disaster was, for insurance purposes, one occurrence. Ostrager
admits that not all of the other insurers were happy about his suit.
"There was a band of reactions ranging from 'We would have wanted to
participate' to 'We would have appreciated it if you had consulted
us,'" he says.
The Silverstein side portrays Ostrager as a litigation
outlaw, infuriating the other insurers with overly aggressive tactics,
starting with that declaratory judgment action. Lawyers for most of the
other major insurers declined to comment publicly but insist privately
that all of the insurers are working together. "There's a high level of
cooperation," says Travelers counsel Harvey Kurzweil of New York's
Dewey Ballantine, who, along with his partner Saul Morgenstern, has
become a spokesman for the other insurers. "We've put on a remarkably
cohesive, coordinated ."
And a successful one, so far. Though Ostrager has sometimes been alone
at the extremes of the case, the insurance lawyers have united on major
motions. As Ostrager had predicted, in January, Silverstein did file
suit against all of the insurers, seeking a summary judgment against
Travelers. Gross and the Wachtell Lipton team asked Judge Martin for a
ruling that, as a matter of law, the World Trade Center disaster
constituted two occurrences under the Travelers policy. Martin denied
Wachtell's summary judgment motion, and, on another heavily litigated
pre-trial issue, granted the insurers' motion to compel testimony from
the Willis witnesses about their meetings with Wachtell.
Judge Martin seems eager for the case to settle, and has
appointed federal Judge Lewis Kaplan to oversee talks, the first since
a few utterly fruitless sessions late last fall. (Silverstein did
settle with the two Bermudan insurance companies that explicitly
mentioned the WilProp form in their binders. Those insurers agreed to
pay, in cash, their policy limits for one occurrence, a total of about
$350 million.) Proskauer's John Gross is still hoping for a deal; after
all, if Silverstein can get anything more than his $3.55 billion
one-occurrence limit, he's won. (Silverstein has stated repeatedly that
he intends to use the insurance money to rebuild lower Manhattan.)
Harvey Kurzweil says that Travelers and the other insurers would
participate in talks; he is one of four insurance lawyers who was
scheduled to meet with Wachtell Lipton partner Meyer Koplow in late
August. Ostrager was also supposed to participate. One senses his heart
wouldn't be in it, though. There's only one place Ostrager wants to be
on Nov. 4: in Judge Martin's courtroom, picking a jury of New Yorkers
whose votes he and Herb Wachtell can fight for.