WTC: one loss for some, two for others.

While the legal battle for how much insurers must pay to rebuild the World Trade Center rages on, the lawsuits have already affected how the insurance industry does business.

A complicated legal battle between 22 insurers and Larry Silverstein and other World Trade Center leaseholders was sparked over a deceptively simple issue: Should the terrorist attack that destroyed the twin towers on Sept. 11, 2001, count as one insured loss or two?

In two trials held so far in the U.S. District Court for the Southern District of New York, 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.

Insurers have maintained the Sept. 11 terrorist attacks that destroyed the center should be considered a single insured event, for a maximum insured loss of $3.55 billion. Silverstein had argued the event should count as two events, for a possible $7 billion.

The question arises because a formal insurance contract was not in place at the time the World Trade Center was destroyed. Without a contract, insurers, brokers and insureds have to consider the language in the binder forms used. And juries found the insurers didn't all use the same binder form.

One jury in May found that 13 companies, led by Swiss Re, had bound coverage based on the form issued by Willis Group Holdings Inc., known as WilProp 2000. A previous ruling had already found that under the WilProp form, the destruction of the trade center would count as a single insured event.

So under the May "Phase I" ruling, those insurers, including lead writer Swiss Re, are liable to pay for a single occurrence. Those insurers could have to pay up to $877.5 million in claims, rather than $1.76 billion, had the catastrophe been found to have been two insured events.

A jury in "Phase II" of the case, however, found in December that nine other insurers had not bound coverage under the WilProp form and are liable for two insured losses. Those nine companies could be liable for twice the $1.1 billion aggregate insured amount per occurrence.

A third phase of the trial will determine how much each insurer should pay.

Responding to the first decision, Jay Levin, a partner with the law firm Cozen O'Connor, said one ramification of the case is that "it shows juries will listen to the evidence and reach a verdict based on the evidence and law, and not have a knee-jerk reaction to insurance companies."

But as the case continues to wind its way through the court system--both decisions are likely to go to appeal--the insurance industry has already changed how it does business, experts said.

"The whole litigation is a clear indication that insurers, brokers and policyholders need to be more careful documenting what they are doing, especially on larger, more complex transactions," Levin said. "Most of this case could have been avoided. It's a wake-up call to

be more meticulous on how you document negotiations."

Michael A. Hamilton, another partner with Cozen O'Connor, said the case has made both insurers and insurance buyers reflect more on the process: "In the past, some negotiations were done by mere handshakes or telephone calls. The World Trade Center litigation has brought out the need to put pen to paper, and document negotiations so everyone is clear on what has transpired."

Ralph Tortorella III, a partner in the catastrophic injury practice group of Ropers Majeski Kohn & Bentley, said that in addition to placing negotiations in black and white, "if you know you have a complicated transaction, the starting point for the transaction might be much earlier than traditionally done."