WTC: Silverstein case tested under examination
WTC leaseholder Silverstein Properties and reinsurer Swiss Re finally made it to court last month to decide whether the 9/11 attacks amounted to one event or two.
The trial, which began on 9 February, hinges on the form of contract wordings the two parties used. The majority of insurers argue they were bound on the so-called "WilProp" forms, which the court has already found defines the attack as one insurable event. Silverstein, however, argues that the insurers are bounid under wordings produced by Travelers, which does not define the word "occurrence" and so implies the attacks should be viewed as separate insurable events.
If Silverstein wins his case he stands to collect two payments of $3.55bn for two insurable losses. If the insurers win he will be entitled to only one payment.
Week one: 11-13 Feb
On the Wednesday of the first week of the trial (11 February, 2004) Silverstein's risk manager Robert Strachan took to the stand to explain why on the day following the attack he had written the words "underinsured WTC" on a notepad during a train journey. The same note made reference to the word "occurrence", and asked: "Did we bite off more than we could chew?" Jurors were shown a further, hastily scribbled line that appeared to say "Budget v. End of the World".
Strachan told the court that although he had written the words "occurrence" and "underinsured", the question of whether the attacks constituted one event or two was not at the forefront of his mind.
Strachan was also questioned about whether the Willis WilProp form or the Travelers form governed the insurance policy. He said insurers received the WilProp form when brokers Willis first went to the market, but restated his belief that the Travelers form had been in effect from mid-July 2001. This despite his admission that neither Westfield America Inc - Silverstein's partner in acquiring the WTC lease - nor Silverstein's lender, GMAC, had been told of the decision to change to Travelers wording.
In later testimony Westfield's risk manager Nancy Townsend, told the court she had never been notified of a change from the WilProp form, and on 17 July, 2001 had sent the WilProp form to Westfield's insurance consultant, Marsh, for review.
Week Two: 16-20 Feb
On 18 March Timothy Boyd, the Willis broker responsible for getting insurance coverage for the World Trade Center, took the stand for the first time.
He told the court that the WilProp form was originally sent out in July when his firm was seeking insurance coverage for the WTC. But he said he believed it was replaced in mid-July by the Travelers wording and that this form controlled the insurance policy when Silverstein formally closed the acquisition of the 99-year lease on 24 July. The WilProp form, he said, was only a "draft" or a "starting point".
Under cross-examination, however, Boyd admitted that his colleagues at Willis had described the Travelers form as "a pain in the neck" and "not client friendly" and had urged him not to use the form.
E-mails were then submitted to the court that appeared to contradict Boyd's version of events. One email in particular, sent by Boyd to a prospective WTC insurer on 16 and 20 July, showed he had attached the WilProp form. When asked why he had done this if, as he said, he believed the Travelers form was in effect, Boyd said he wanted to be consistent in sending out the same material to all insurers.
In a second email, this time on 25 July, Boyd told another Willis broker that "up until the last minute of binding, we were trying to weed out Travelers from the placement". Boyd said this statement "wasn't entirely accurate" as he only "hoped" to replace the Travelers wording but was not confident it would happen.
Later in the same week jurers were shown an email dated 19 September, 2001 that suggested Willis was refusing to answer questions about WTC insurance cover in the days after the attacks.
The e-mail was from the chief executive of Willis to a syndicate of London insurers. It stated that Willis was "reviewing documentation" and "considering various options". As a consequence, the broker was "unable to disclose policy" or "terms and amount of coverage" or "the actual content and language" of the policy.
The email appeared to support insurers' allegations that following 9/11, Silverstein was attempting to re-write or re-examine the terms of the insurance cover. But when Boyd was shown the e-mail in court he said he had never seen it before.
Week Three: 23-27 Feb
In the third week of the trial the court heard that the preliminary agreement, or slip, signed by Swiss Re was based on the WilProp wordings.
The evidence came on 24 February when Willis broker Paul Blackmore took the stand. He told jurers that Swiss Re had been shown nothing but the WilProp form prior to their signing of the binder agreement on 9 July, 2001.
But just as in Boyd's earlier testimony, Blackmore said he viewed the WilProp wording as nothing more than a "starting point" for further negotiations. The slip, which was presented to the court, showed Swiss Re accepted 22 percent of the line after the first $10mn in losses. It had a number of handwritten changes on it that the (re)insurer had requested before the policy could be finalised.
In other testimony Blackmore told the court that on 12 July he had received an email from Boyd informing him that the Travelers wordings would be used instead of WilProp's. He admitted, however, that he had failed to pass on this information to the London and European insurers of the cover between his receipt of the memo on 12 July and the time at which cover was bound on 18 July. He also said the slip signed by Swiss Re was not necessarily relevant since it contained so many handwritten requests for amendments - and this in effect made it invalid. The court was shown a note in which he had written "many changes needed".
The insurers' lawyers pointed out that despite Blackmore's careful documentation of Swiss Re's agreed or requested changes to the terms of the cover there was not a single record that the form of wording would change from WilProp to that of Travelers.
On the second day of his evidence Blackmore told the court that Swiss Re had received portions of the Travelers wording on 25 July. But this was questioned by the insurers' lawyers who contended that the only reason for this was that Swiss Re had requested additional cover for computer viruses - and the Travelers form had a clause that could be adapted to the insurers' needs.
Earlier in the day, Silverstein lawyer Marc Wolinsky told the court that he had spoken to Silverstein's risk manager Robert Strachan (see Week One) - this in spite of Strachan's evidence to the court that he had not spoken to Wolinsky.
In an extraordinary exchange, the presiding judge, Judge Mukasey, asked whether this meant Strachan had perjured himself. Wolinsky replied that Strachan had been confused. "Sounds like he had a guilty conscience," said the judge. "It's getting curiouser and curiouser."
It is the second time the judge has raised questions about coaching of witnesses. In the second week of the trial, Judge Mukasey asked whether Beth Ann Herrmann - a witness for GMAC - had received coaching from Silverstein 's lawyers after Herrmann told the court she could not remember any details of any conversations or meetings she attended immediately following 9/11, even though her movements with regard to other areas of her testimony were meticulously documented.
Week four: 1-5 March
On 1 March Willis underwriter Paul Blackmore continued his testimony, telling the jury that in a meeting one month after the 9/11 attacks, Swiss Re's underwriter, Daniel Bollier had asked him to reinsert a clause into the insurance form that would view the terrorist attacks as a single event.
He said he met Bollier in a Zurich bar on 3 October, 2001 and had been asked if he could reinsert the WilProp wordings - defining the 9/11 attacks as a single event - into the Travelers form. This, he said, suggested that Swiss Re was aware of the change of form from WilProp to Travelers. He said he told Bollier that he would see if "anything could be done", but "didn't commit to anything".
On 2 March the court was shown emails casting doubt on Blackmore's earlier assertion that Swiss Re was bound to the cover under the terms of the Travelers wording. In an email to other Willis executives, policy wording specialist Edmund Harvey attached a policy based on the WilProp form, and wrote that although the Travelers form was "primary form", it would offer more "limited coverage" than that agreed by London insurers on 18 July.
In his final day of testimony Blackmore said he had barely read the Travelers form other than a brief scan in the months preceding 9/11.
Swiss Re underwriter Paul Bollier is next to take the stand. Barring early settlements the hearing is set to last through much of March.
S&P: WTC outcome will not affect ratings
WTC insurers received a crumb of comfort from Standard & Poor's (S&P) last week (18 February 2004) when the ratings agency said the outcome of the hearing would not affect ratings, even in the event of a Silverstein victory.
In a statement, S&P's Steven Dreyer said: "Silverstein's insurance programme consisted of a primary and 11 excess layers in which more than 20 insurers and Lloyd's syndicates participated. The largest participant was Swiss Re, with a share of about 25 percent. Therefore, a verdict against the insurers is not, in itself, a trigger for further downgrades."
In other news it emerged last month that Deutsche Bank had reached agreement with insurers to demolish its 40-story skyscraper that was badly damaged in 9/11. Under the agreement, Allianz and AXA, will pay Deutsche Bank $140mn.