7 insurers settle WTC case for $2b.

Following the attacks on the World Trade Center, a complicated legal battle ensued over the question of insurers' liability that played out in the courts in May, when New York Gov. Eliot Spitzer and Insurance Superintendent Eric Dinallo announced a settlement.

A $2 billion agreement by seven insurers--Travelers Indemnity Co.; Zurich American Insurance Co.; Swiss Reinsurance Co.; Employers Insurance Co. of Wausau; Allianz Global Risks U.S. Insurance Co.; Industrial Risk Insurers (now owned by Swiss Re), and Royal Indemnity Co.--was said by Spitzer to be the largest regulatory settlement of all time.

On the day of the attacks, the insurance policies of the property--leased by Silverstein Properties from the Port Authority of New York & New Jersey--were still pending finalization.

In the past five years, a complicated legal battle among a number of insurers, developer Larry Silverstein and other World Trade Center leaseholders has resulted in several trials; one jury found the event to be a single loss for one group of insurers, while another jury found it should be considered two occurrences for another set of insurers.

A favorable verdict for Swiss Re came in May 2004, when a jury found that 13 companies, led by Swiss Re, had bound coverage based on a form issued by Willis Group Holdings Inc., known as WilProp 2000, that defined what happened at the World Trade Center as a single occurrence.

According to Spitzer's office, the lack of contract certainty--defined as the complete and final agreement of all terms between insurers and clients before the agreement takes effect--in the World Trade Center case wound up costing insurers and Silverstein Properties hundreds of millions of dollars.

Michael Liebowitz, president of the Risk and Insurance Management Society, said though the challenge of contract certainty "exists in today's environment, there hasn't been an urgency (for change) in a very long time."

RIMS has developed an electronic transfer system that would speed the multiple application process familiar in manuscripted property policies--such as the bulk of those involved in the World Trade Center litigation. It's also developing an insurance renewal time line that ensures a policy effective date of no more than 30 days.

The United States lags behind the United Kingdom in this area. Early this year, the U.K. Financial Services Authority announced that after a two-year push by the regulator, the British insurance industry had achieved the goal of contract certainty with 90% of contracts in the subscription market and 88% of agreements in the nonsubscription market.

Yet, in the United States, contract certainty waits, though the intent seems to be there.

Tom Coughlin, chief executive officer of Willis Risk Solutions, likened contract certainty to a "tale of two countries"

"In London, we've seen incredible improvements in terms of contract certainly and in the U.S., we've seen ... improvement," he said. "If we look at the big picture in the U.S., we have seen much more interest from the carriers to get this right. And it 'feels' like things are getting better."

One thing that may be holding up the works is the fact that the United States, unlike the United Kingdom, has no central authority to issue such edicts as the FSA did more than two years ago. And while some of the requirements under the Sarbanes-Oxley Act of 2002 could promote contract certainty, the law is looked upon more from an auditing perspective, Coughlin said.

The answer may lie in the creation of a single regulatory authority under the federal government, such as that which would be available under the optional federal charter in the proposed National Insurance Act, which Coughlin said Willis endorses.

Loss Estimate From
Sept. 11 Terror Attacks

Adjusted to 2006 dollar
figures, total insured loss
sums to $37 billion.
($ Billions)

Business Interruption   $12.6
Other Property           $6.9
Property WTC             $4.1
Life                     $1.1
Other Liability          $4.6
Aviation Liability       $4.0
Event Cancellation       $1.1
Aviation Hull            $0.6
Workers' Comp            $2.1

Source: Insurance Information Institute

Note: Table made from pie chart.