Tuesday, December 07, 2004

Silverstein to get double $$ (but no office demand; Dwntwn 15.9% vacant

Subject: Silverstein to get double $$ (but no office demand; Dwntwn 15.9% vacant)
Date: 12/7/2004 8:26:35 A.M. Eastern Standard Time
From: kitchen@hellskitchen.net
Sent from the Internet (Details)

The New York Times
December 7, 2004

Towers' Insurers Must Pay Double

A federal jury said yesterday that the destruction of the World Trade
Center constituted two separate attacks, entitling the developer Larry A.
Silverstein to collect up to $2.2 billion, or double the insurance coverage
provided by nine insurers at the complex.

The jury's decision, which came at the end of 11 days of deliberation and
represented a major development in the rebuilding effort, almost certainly
ensures that the proposed $1.5 billion, 1,776-foot Freedom Tower will be
constructed at the trade center site, although appeals are likely and it
may be some time before all the insurance money is paid out. It also
ensures that Mr. Silverstein, who leased the trade center only six weeks
before it was destroyed, will remain in control of the rebuilding effort
for some time.

Insurance experts predicted yesterday that the verdict would send ripples
through the insurance industry, with premiums for property coverage almost
guaranteed to rise substantially.

Mr. Silverstein, who plans to use the money to rebuild the trade center,
issued a statement yesterday saying he was thrilled with the verdict. It
will "ensure a timely and complete rebuild of the World Trade Center," he
said, adding that the insurers "had an obligation to pay their fair share
to help make Lower Manhattan whole again."

Mr. Silverstein has argued that because two jets slammed into two towers at
the trade center on Sept. 11, he was entitled to a double payment of the
$3.55 billion policy, or $7 billion. The jury's decision yesterday related
to nine insurance companies, which provided $1.1 billion of the $3.55
billion worth of coverage. If the verdict stands, the nine companies will
have to pay $2.2 billion.

It was Mr. Silverstein's first legal victory during the 38-month legal
battle he has waged against two dozen insurers at the trade center. Last
spring, a jury decided that Swiss Re and eight other insurers had provided
coverage based on a policy devised by Mr. Silverstein's brokers. The court
had already ruled that that policy entitled Mr. Silverstein to only a
single payment. The developer also settled with five other insurers. That
cut Mr. Silverstein's quest for $7 billion to a maximum of $4.65 billion,
if he won the second trial.

The extra $1.1 billion is needed downtown, where officials estimate that it
will cost more than $9 billion to rebuild the trade center, a complex that
is owned by the Port Authority of New York and New Jersey and once included
10 million square feet of office space for investment banks and insurance
companies, a retail mall, a hotel and a major rail station.

"It's a tremendous victory for Larry and for everyone else who has an
interest in Lower Manhattan," said Kevin M. Rampe, president of the Lower
Manhattan Development Corporation. "The funds are going to ensure that
Lower Manhattan recovers in the amount of time we've laid out."

But just as Mr. Silverstein is appealing the verdict in the first trial,
the nine insurance companies are expected to appeal the decision.

John Novaria, a spokesman for Industrial Risk Insurers, one of the nine
companies involved in the verdict, said his company still believed that the
attack on the trade center was "one occurrence." Asked whether Industrial
Risk would file an appeal, he said the company was "examining its options."

In a separate element of the dispute, the final amount of insurance money
is under review by a court-approved panel of three appraisers, who will
determine the extent of the damages at the trade center and how much each
company must pay.

Nevertheless, Robert D. Yaro, president of the Regional Plan Association, a
private planning group, said that yesterday's decision ensures that the
Freedom Tower, the first of four or five office towers planned for the
site, will be built. But, Mr. Yaro said, the time has come for a public

"There needs to be a sorting out between Larry and the Port Authority about
what needs to be built and who's going to pay for it," Mr. Yaro said.

Gov. George E. Pataki has promoted the Freedom Tower as a symbol of
downtown rejuvenation. But some critics have questioned the wisdom of
building a huge and costly skyscraper when there are no potential tenants
in sight and the vacancy rate in Lower Manhattan is high. Some executives
at the Port Authority say privately that the money would be better spent on
an estimated $1.5 billion to bring the site up to grade as it is rebuilt to
ground level, so that it is ready when the real estate market improves.

According to Newmark & Company Real Estate, the vacancy rate downtown
climbed to 15.9 percent in November, and could hit a nine-year high this
month with the introduction of 7 World Trade Center, an office tower Mr.
Silverstein is building nearby.

So far, the insurance companies paid out $2.03 billion, and $1.55 billion
has been spent. If yesterday's verdict survives the appeal process, that
would leave about $4 billion for a reconstruction effort that might cost $9
billion. Mr. Silverstein's legal battles have cost an estimated $125
million, according to Port Authority commissioners.

Experts were already debating the effect of the verdict on the insurance
industry. Robert P. Hartwig, chief economist for the Insurance Information
Institute, a trade group, said he doubted there would be a larger precedent
growing out of the case.

For example, the four recent hurricanes in Florida were treated by insurers
as four occurrences because each was separated by a standard interval
exceeding 72 hours, he said. If they had all struck within 72 hours, they
would likely have been treated as one occurrence, he said.

Mr. Silverstein's lawyers succeeded in persuading jurors that there was
some doubt about the definition of occurrence, Mr. Hartwig said, because
all of the policies had not been fully negotiated.

Andy Barile, an insurance executive and litigation consultant based in
Rancho Santa Fe, Calif., said the decision would "dramatically change the

Agents, reinsurers and consumers will have to scrutinize their policies and
some property owners may face premium increases when they renew their
policies in January, he said, adding, "With companies being forced to pay
out twice their policy limits, it's going to have a dramatic effect on
increasing premiums."

David W. Dunlap and Anthony Ramirez contributed reporting for this article.

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