Judge Denies Double Recovery on WTC Losses

     MANHATTAN (CN) – The leaseholder of the World Trade Center complex destroyed in the Sept. 11, 2001, terrorist attacks can’t cash in twice on his losses, a federal judge ruled.
     U.S. Judge Alvin Hellerstein found that Larry Silverstein, owner of World Trade Center Properties, cannot recover billions from the two airlines whose planes were used in the attacks because he already achieved substantial recovery from insurers.
     Hellerstein handed down his written decision Thursday, some weeks after concluding a trial by delivering his findings of facts.
     Larry Silverstein won a 99-year lease from the Port Authority of New York and New Jersey on the World Trade Center complex just six weeks before the attacks.
     On July 16, 2001, Silverstein’s affiliates – World Trade Center Properties and Westfield America – executed four 99-year leases for World Trade Center 1, 2, 4 and 5 for $3.2 billion in cash and continuing payments.
     At the time of the attacks, WTCP was still negotiating with 24 different insurers for coverage of the main site. With one exception, none had issued a final policy as of the time of the buildings’ collapse. They did, however, issue temporary binders or slips, which provided interim coverage.
     The WTC site was insured in layers of coverage for business interruption and replacement costs of the buildings if damaged or destroyed, up to $3.5 billion per occurrence, “without distinction between the two categories of coverage,” the judge wrote.
     After the attacks, Silverstein submitted proof of loss for the main site of $8.531 billion in two categories: $7.1 billion – or 84.2 percent – for the cost of replacing four buildings, and $1.3 billion – 15.8 percent – for business interruption.
     7 World Trade Co. submitted proofs of loss to Tower 7 at about $1.4 billion. It sued Industrial Risk Insurers (IRI) in June 2003, claiming that the insurance company had not sufficiently compensated it for its losses.
     The parties settled in January 2005, and IRI ultimately paid $831 million.
     7 World Trade Co. had also insured two Frank Stella paintings lost in the attacks with AXA Nordstern Art Insurance under a fine arts insurance policy.
     AXA paid $700,000 for the loss of the destroyed paintings, although 7 World Trade Co. claimed the paintings were valued at $1 million.
     All insurers had settled by July 2007, paying $4.6 billion in total.
     This negates any obligation American Airlines and United Airlines have to Silverstein’s ensuing claim for more than $3.5 billion, Hellerstein wrote Thursday.
     “I hold that plaintiff’s blanket coverage, insuring replacement costs and business interruption, corresponds completely to plaintiffs’ potential tort recoveries related to the lost value of their leaseholds, and that the insurance recoveries should be set off against such potential tort recoveries, reducing them to zero,” Hellerstein wrote.
     “As ‘two sides of the same coin,’ the two categories of insurance recompensed the same loss,” Hellerstein added.
     “The business interruption and replacement cost insurance recoveries for the main site of the World Trade Center, which comprised all, or nearly all, of the $4.044 billion in total insurance recoveries, correspond to plaintiffs’ potential tort recovery and constitute a total offset to plaintiff’s maximum potential tort recovery of $2.805 billion,” the decision also states.
     As for Tower 7, which was destroyed by a fire caused by failing debris after Towers 1 and 2 were hit by the airplanes, Hellerstein said the interruption and replacement costs totaled nearly $829 million, which correspond to plaintiff’s possible recovery and “thus completely offset plaintiffs’ maximum tort recovery of $737 million for the loss of the Tower 7 lease.”
     Insurance proceeds for Tower 7, however, have not been “fully compensated” for the loss, according to the ruling. Those losses, which included the destruction of Frank Stella paintings and other personal property, may net between $300,000 and $823,921 for Silverstein.
     Hellerstein set a conference for Aug. 26 to discuss “how these claims can be speedily resolved.”
     Silverstein has pledged to appeal. He won the leases to the WTC buildings when Vornado Realty Trust, the highest bidder, was not able to complete negotiations with the Port Authority, which sought to privatize the site in 1998.

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