Despite losing a lawsuit related to the World Trade Center collapse, officials at property/casualty companies say that other corporate customers will not be affected by their financial loss.
Earlier this week, a jury decided that, for insurance purposes, the terrorist attacks on the World Trade Center were two separate occurrences. That verdict was a win for Larry Silverstein, the World Trade Center’s leaseholder, who has been wrapped up in insurance lawsuits for three years. Silverstein lost the first phase of the WTC insurance case earlier this year.
In the second phase of the trial addressing the 2001 terrorist attacks that toppled the famed twin towers, the jury ruled that the two planes that rammed into the two buildings less than 20 minutes apart constituted two occurrences for all nine insurers named in the suit.
As a result, Silverstein, who bought the World Trade Center lease just six weeks before the attacks, will receive two payments under his insurance policies. That means he could recover up to $1.1 billion more than the original $3.55 billion policy payout, reports the Wall Street Journal.
Further, the claims payout probably will assure that Silverstein has enough funds to become the lead developer on a five-tower office complex that will be build around the Ground Zero site.
The insurers in this phase of the trial included St. Paul Travelers Cos.; Allianz AG Holding; Gulf Insurance Co.; TIG Insurance Co.; Industrial Risk Insurers, a unit of General Electric Co.; Tokio Marine and Fire Insurance Co., a unit of Millea Holdings Inc.; Zurich American Insurance Co., a unit of Zurich Financial Services AG; Royal Indemnity Co., a unit of Royal and Sun Insurance Group PLC; and Twin City Fire Insurance Co., a subsidiary of Hartford Financial Services Group, according to the paper.
Executives at Allianz AG said they were “disappointed” and pledged that they would appeal the verdict if necessary, said a Reuters report.
In their first reactions to the decision, however, officials from several of the insurers concluded that the jury’s decision would not significantly affect their businesses. For example, in a statement, Hartford said “the verdict will not have a material impact” on the company.
Further, a spokeswoman for Munich Re, presumably a reinsurer on the risk, told the Associated Press, “The verdict doesn’t affect our earnings. We won’t have to boost the reserves we made for the event and expected damage claims.”
In general, the fiscal fortitude of the insurers is good news for other customers, who probably won’t be asked to pay part of the award in the form of rate hikes.
“The second phase of the trial is going to be appealed throughout the entire appellate process,” Michael Paisan, insurance analyst at Legg Mason Wood Walker, told the paper. “It’s going to be a while before the final resolution is reached and it’s unclear what that final verdict will be,” given the divergent rulings in the two trial phases.
In the first-phase trial, held in March, Silverstein lost $2.4 billion worth of coverage when a jury ruled in favor of 13 insurers that the attacks were one event. That verdict was largely based on an insurance application form that specifically defined the word “occurrence,” said the Journal.
Even if the insurers lose their second-phase appeal, Paisan only expects the companies to increase their reserves, not the premiums they charge customers.
In fact, Donald Light, senior analyst at Celent Communications, an independent research and consulting firm, downplayed the verdict in light of this season’s four major hurricanes and New York Attorney General Eliot Spitzer’s probe of the insurance industry.
“There has already been a lot of psychological damage to the industry,” he told the paper. “This verdict is probably a one- or two-aspirin, rather than a four-Tylenol, type of headache.”