Battle over losses at Trade Center step up. (Up Front).

The first significant moves in the complicated dance over insurance claims resulting from the Sept. 11 terrorist attacks will be made in the next few weeks as depositions are taken in Westfield Corp.'s suit against World Trade Center insurers.

Westfield, the L.A.-based shopping center owner and operator, signed a 99-year master lease for the 427,000-square-foot mall below the Trade Center towers last July and is now wrangling with insurers over the amount of the payout due.

The company is joined in the process by Silverstein Properties, which signed a 99-year lease with the Port Authority of New York and New Jersey, the Trade Center developer, for the 10 million square feet of office space at the center. The two are seeking as much as $7 billion from insurers as a result of the attacks, the largest of the suits arising from the destruction of the World Trade Center.

Westfield, Silverstein and a consortium of insurers, led by Swiss Re, are in agreement that the cost to rebuild the twin towers is more than the $3.5 billion for which they were insured.

The argument centers on the language of the insurance policies, which had not been finalized at the time of the attacks. Silverstein and Westfield, covered for up to $3.5 billion for each occurrence of loss, claim that since two airliners crashed into the World Trade Center towers they should be covered for two occurrences, or twice the $3.5 billion. The insurers say that the attacks should be taken as a single event and, therefore, the maximum payout should be for a single occurrence.

Silverstein settled on Feb. 14 with two of the 22 insurers, ACE Bermuda Insurance td. And XL Insurance Ltd., both based in Bermuda. As part of the settlement, ACE Bermuda Insurance within 30 days will pay $298 million and XL Insurance will pay $67 million. In the settlement, both parties concluded that the two insurers' separate policies considered the World Trade Center attacks to be one occurrence. Westfield was not a part of that settlement.

Peter Rosen, a partner at the L.A. office of Mayer Brown Rowe & Maw, which represents Westfield, declined to discuss the litigation, referring calls to Westfield. Westfield spokeswoman Katy Dickey declined comment.

Preemptive strike 

Westfield operates 40 shopping centers called Westfield Shoppingtowns. The Westfield Shoppingtown World Trade Center had 75 stores, restaurants and other retailers with sales of more than $900 per square foot, according to the company. The mall had 75 specialty stores, restaurants and service retailers.

The litigation began last October when Swiss Re filed a declaratory relief suit against Silverstein and Westfield, in which it asked the court to resolve the looming dispute, according to David Steuber, chairman of the insurance recovery group at Howrey Simon Arnold & White, who is following the case.

"There hasn't been a breach yet, and nobody has done anything wrong, Like violated the contract." he said. "What it is, in a loose sense, is going to the court to say, 'There is a dispute under the contract of insurance, give us guidance as to which of us is right, and we'll dictate our actions accordingly.'"

Insurance companies often file the declaratory relief as a pre-emptive strike in order to gain plaintiff status and subsequent entitlements like framing the issues in their own words and choosing the venue where the case would be heard.

Westfield filed its response and its own claims against Swiss Re on Nov. 13, and has since filed counterclaims against the other insurers, which also had sought declaratory relief.

In a Jan. 24 hearing, U.S. District Court Judge John Martin, in the Southern District of New York, set the case's first trial date of Sept. 3, and gave both parties four months to conduct depositions.

Setting a date is good news for the parties, since often times large-scale cases can take months or even years to receive a trial date, Steuber said.

As the case moves into discovery, both parties will request documents from one another and conduct depositions of parties and witnesses. Depositions will be taken from executives at the insurance companies, the brokers, the policyholders, as well as experts and witnesses, such as those who were at certain meetings or received letters regarding the insurance policy coverage.

Establishing guidelines

The judge must resolve two issues. The first is whether the insurance coverage policy reads for one occurrence of damage or two. The other is which of two insurance documents defines the terms of coverage.

Among the policies on the World Trade Center, one issued by Travelers Insurance Co. is the one Westfield and Silverstein are advocating. The Travelers policy does not define an occurrence, leaving the question for the courts to decide.

Swiss Re believes that a "binder" policy issued by the insurrance broker, which does contain a definition of "occurrence" that leans toward defining the damage as the result of a single act, is the governing document. The binder policy was written up as a preliminary guide to the main policy.

The issue of the governing paperwork is often a problem in insurance coverage involving multiple carriers with multiple policies, Steuber said. Typically, the differences among the policies are negligible or do not have a "material effect" on the coverage, he said.

What portion of the insured amount Westfield seeks is unclear from court documents. The company paid $110 million in up-front rent to the Port Authority, according to its counterclaim filed on Nov. 13. The company also continues to pay what could amount to "hundreds of millions of dollars" in rent payments on its 99-year contract.

The company financed its lease with a $100 million loan from UBS Warburg Real Estate Investments Inc. and continues to have to make payments on that loan despite the lack of income from the Trade Center mall.

Swiss Re has agreed to pay part of a $75 million advance to the policyholders, though it is not clear if that offer has been accepted.