On the 23rd July, 2001, just seven weeks previous to the World Trade
Center demolitions, the Port Authority of New York and New Jersey signed a deal with a consortium (Larry Silverstein, Westfield
America Inc and Lloyd Goldman) led by Larry Silverstein for a 99 year lease of the World Trade Center complex. The leased
buildings included WTCs One, Two, Four, Five and 400,000 square feet of retail space. The Marriott Hotel (WTC 3), U.S. Customs
building (WTC 6) and Silverstein's own 47-story office building (WTC 7) were already under lease. Silverstein is seeking $7.2
billion from insurers for the destruction of the center. Here are few articles concerning the World Trade Center deal and
consequent legal wrangle.
Insurers Debate: One Accident or Two?
NEW YORK - Larry Silverstein, who acquired the lease to operate the World Trade Center in July, is seeking
$7.2 billion from insurers for the destruction of the center - twice the amount insurers say he can claim.
hijacked airliners that struck the 110-story twin towers Sept. 11 were separate "occurrences" for insurance purposes, entitling
him to collect twice on $3.6 billion of policies, a spokesman for Mr. Silverstein said.
Companies that insured the
building, including Chubb Corp., Swiss Reinsurance Co., Allianz AG, Ace Ltd. and XL Capital Ltd., said that because the attack
was coordinated it counts as only a single occurrence.
"This is something that's going to be debated for a very long
time," said Julie Rochman of the American Insurance Association, a trade group representing Chubb and the other insurers.
Silverstein, who has vowed to rebuild the complex, is liable for more than $100 million a year in lease payments to the Port
Authority of New York and New Jersey, which owns the 16-acre (6.5-hectare) site, the spokesman for the property company said.
13.4 million squre feet (1.2 million square meters) of office space was destroyed in the attacks and an additional 15 million
square feet in nearby buildings was damaged, according to Insignia/ESG, the largest New York real-estate brokerage firm. The
collapse of the towers caused the destruction of buildings 4, 5, 6 and 7 at the World Trade Center. The office complex was
the largest in the United States.
As an industry, insurers have decided to treat the attacks as a single occurrence,
said Keith Buckley of ratings group Fitch Inc., an organization that grades the financial health of insurers.
Jones, a spokesman for Willis Group Holdings, which brokered the insurance on the trade center, said, "We are of course aware
of Silverstein Properties' position in this matter, and we are working with Silverstein and the insurers and underwriters
to bring this matter to an amicable solution as quickly as possible."
Executives of the insurance market Lloyd's of
London, Swiss Re and other insurers of the buildings either declined to comment or were not available. "We don't talk about
individual situations," said Glenn Montgomery, a spokesman for Chubb, based in Warren, New Jersey.
appeared in the International Herald Tribune, 2001-10-10, page 16.
Twin Tower Insurers Win Discovery Fight
New York Law Journal 06-20-2002
The attorney-client privilege
does not shield conversations between the insurance broker for World Trade Center leaseholder Larry Silverstein and Silverstein's
lawyers, a federal judge in the Southern District of New York has ruled.
In a victory for insurance companies in their
multibillion-dollar fight against Silverstein's claim that the Sept. 11 attacks amounted to two occurrences for insurance
purposes, U.S. District Judge John S. Martin ordered brokers from Willis of New York Inc. to answer questions in a deposition
about their understanding of the scope of coverage following the terrorist assault.
The conversations were between
the brokers and Silverstein attorneys Wachtell, Lipton, Rosen & Katz. Insurance company attorneys claim the conversations
will include evidence that Willis employees considered the destruction of the twin towers a single event. Silverstein has
argued from the outset that the attacks were two occurrences, a claim that, if successful, would double the amount of insurance
payments he receives, to $7.1 billion.
The ruling in SR International Business Insurance Co. Ltd. v. World Trade
Center Properties and World Trade Center Properties v. Allianze Insurance Co., 01 Civ. 929, also marks the second
setback to the Silverstein team this month. On June 3, Martin refused to grant Silverstein summary judgment on whether the
attacks amounted to two occurrences, ruling that extrinsic evidence must be considered before deciding how much Silverstein
should be compensated for the destruction.
The motion to compel discovery of the conversations between Willis and Wachtell
Lipton lawyers was sought by Travelers Insurance Co., one of several defendant counterclaimant's in the Allianze case. Travelers'
assertion that it is obligated to pay Silverstein only $210 million, instead of double that amount, has been used as the test
case for pretrial motions and discovery in more than 20 suits concerning World Trade Center insurance coverage.
M. Wachtell's grounds for resisting the motion were that Willis was acting as an agent for the Silverstein parties and was
therefore protected by the privilege, that Willis and the Silverstein parties shared a "common interest privilege," and that
the conversations were protected by the attorney work product privilege.
Harvey Kurzweil and Saul Morgenstern of New
York's Dewey Ballantine, who represent Travelers, are the lawyers seeking to question the Willis employees. Kurzweil and Morgenstern
go into depositions armed with already-discovered documents: notes taken by a Willis employee in London during a conversation
with another Willis employee who was stranded in Nashville, Tenn., following Sept. 11. The employee in Nashville allegedly
implied that the understanding of the parties to the still-unsigned insurance agreement was that the attacks were one occurrence.
As to agency, Judge Martin said: "a limited number of cases have held that the corporate attorney-client
privilege can extend to communications between the corporation's attorney and outside agents or consultants to the corporation
whose role is the functional equivalent to that of a corporate employee."
But Martin said the facts in this case are
substantially different because the conversations were "between Willis, a multi-national corporation with its own retained
counsel, and the lawyers for one of its many clients."
While competent lawyers need to be fully informed of all the
facts of a case for a client, Martin said, "that interest does not extend the attorney-client privilege to all those who may
have relevant information. The privilege is much more limited."
Addressing the common interest privilege, Martin said
it is a "limited exception to the general rule that the attorney-client privilege is waived when a protected communication
is disclosed to a third party." He said the 2nd U.S. Circuit Court of Appeals has warned that courts should be cautious about
extending the attorney-client privilege through the exception.
But Martin said further that "Sharing a desire to succeed
in an action does not create a 'common interest.'"
"There has been no showing that Willis and the Silverstein Parties
have an identical legal interest, as required by the cases," he said. "Willis is not a party to this litigation, and its legal
position will be unaffected by the outcome of this case."
Finally, Martin found that the conversations were not protected
by the attorney work-product privilege.
"It must be remembered that, at least as codified in the Federal Rules of Civil
Procedure, the work product doctrine applies only to tangible things -- not testimony," he said. "Clearly, much more can be
learned about a lawyer's strategy and tactics from documents that the lawyer prepares than can be gained from general questioning
concerning a witness's recollection of conversations with an attorney concerning the events about which the witness is expected
The judge said that the work product privilege would apply only to the extent that questions are "specifically
designed" to discover Wachtell Lipton's work product.
So the judge allowed insurance company attorneys to question
Willis witnesses about conversations that occurred before the sessions at which the witnesses were being prepared for depositions,
and during the preparation sessions.
Stuart Green of Epstein, Becker & Green in New York represented Willis.
World Trade Center's Mortgage Holder Loses Discovery
New York Law Journal 07-08-2002
Insurance companies Wednesday
won another battle in a multibillion-dollar dispute over the World Trade Center, as a federal judge in the Southern District
of New York said he would compel the building's mortgage holder to testify and disclose an array of documents.
District Judge John S. Martin ruled that employees of GMAC Commercial Mortgage Corp., which holds the mortgage on the World
Trade Center, and its insurance advisors, Harbor Group Ltd., could not use the attorney-client privilege to shield communications
made after the Sept. 11 attacks.
SR International Business Insurance Co. Ltd. (Swiss Re) is seeking the communications
and testimony from agents in an attempt to bolster their claim that the destruction of the World Trade Center was the result
of one terrorist attack rather than two.
Larry Silverstein, the leaseholder of the towers, has argued that the attacks
were two separate events, meaning insurance companies would have to reimburse him a total of $7.1 billion rather than half
of that amount.
But the insurance companies have said that conversations between Silverstein's lawyers and insurance
brokers would reveal that initially there was an understanding that the attacks constituted one event, not two.
ruling from Martin comes a few weeks after he came to a similar conclusion on a motion brought by Travelers Insurance Co.,
one of the defendant counterclaimants in SR International Business Insurance Co. Ltd. v. World Trade Center Properties
and World Trade Center Properties v. Allianz Insurance Company, 01 Civ. 9291.
In that ruling, the judge said
conversations between Silverstein's attorneys at Wachtell, Lipton, Rosen & Katz and insurance brokers at Willis of New
York Inc. were not subject to the attorney-client privilege.
On Wednesday, the judge applied similar reasoning to a
request by Swiss Re to examine documents drafted by employees at GMAC and Harbor Group after Sept. 11 as they attempted to
address investor concerns.
Martin ruled that the actions of the employees, supervised by GMAC's in-house counsel, constituted
information gathering in the normal course of business, not in anticipation of litigation.
"No privilege attaches to
an attorney's communications when the attorney is hired to give business or personal advice, or to do the work of a nonlawyer,"
GMAC had argued that all post Sept. 11 communications were protected by the attorney-client or the work
product privilege because of the in-house counsel's supervision.
Martin did say, however, that any communications involving
the in-house counsel that contained or sought legal advice would be privileged.
The judge said that the parties could
submit documents to the court for in camera inspection to determine whether they were privileged.
Barry R. Ostrager
of Simpson Thacher & Bartlett, who represented Swiss Re, said an important aspect of the ruling involves a Sept. 14 meeting
at Silverstein's office between Silverstein, his lawyers, Willis of New York, GMAC, Harbor and other investors.
ruled that documents related to the meeting were not privileged and said employees of GMAC and Harbor can be questioned about
what was said.
He also said Swiss Re could review notes taken by Beth Ann Herrmann, a vice president at GMAC, and Peter
Lefkowitz, of Harbor, at the meeting. The two had taken notes at the request of GMAC's in-house counsel, but Martin ruled
the notes were not privileged because they "merely set forth the facts that were reported to the attorney."
said the deadline for discovery in the case is Sept. 30.
John C. Ulin of Heller Ehrman White & McAuliffe in Los
Angeles, who represented GMAC, was not available for comment.
Marc Wolinsky of Wachtell Lipton who was not involved
with this motion, said the ruling was "of no real consequence."
Chet A. Kronenberg of Simpson Thacher's Los Angeles
office also represented Swiss Re.
WTC Insurer Has Right to Appraisal, Federal Judge Rules
New York Law Journal 08-21-2002
One of many insurance
companies locked in a dispute with World Trade Center leaseholder Larry Silverstein has the right to an independent appraisal
of the loss incurred in the Sept. 11 attacks, Southern District of New York Judge John S. Martin has ruled.
to its contract with Silverstein, Allianz Insurance Co. had sought to have disinterested appraisers selected by both sides,
with any discrepancy to be resolved by an umpire.
Silverstein has opposed the motion, arguing that the appraisal mechanism
in the insurance agreements was pre-empted by the Air Transportation and System Stabilization Act, which granted exclusive
jurisdiction to the Southern District of New York for claims flowing from the Sept. 11 jet crashes.
But Judge Martin
agreed with Allianz, saying that "at the outset it should be noted that to construe the grant of jurisdiction to deny Allianz
a contractual right that it has under New York law would raise serious constitutional issues.
"But even if there were
no constitutional issue presented, there is no basis for finding that when Congress conferred jurisdiction on this Court for
all actions relating to the events of Sept. 11, it meant to deprive parties of their contractual right to appraisal or arbitration,"
he said. "Indeed, there is a serious question whether the grant of jurisdiction in the Act applies to this case."
at a court hearing Tuesday, Martin expressed skepticism about keeping an upcoming Nov. 4 trial date in the case, because discovery
is far from complete. (No decision was made on whether to push back the trial date, but another hearing will be held today.)
his ruling on the appraisal, Martin said the original purpose of the Air Transportation and System Stabilization Act, passed
in the wake of the tragedy last September, was to "limit the liability of the airlines ... and to provide an alternative method
of compensating the victims of the attacks."
But there is nothing in the legislative history of the act, nor in the
provision vesting exclusive jurisdiction in the Southern District, he said, that indicates Congress intended to affect parties
with a property interest in the World Trade Center and their insurance companies.
The decision in Allianz Insurance
Co. v. World Trade Center Properties, 02 Civ. 0017, was the latest in a series of rulings in the multibillion-dollar fight
over insurance payments for the World Trade Center attacks.
Travelers Indemnity Co. and a host of other insurers contend
that New York law requires the two terror attacks on the World Trade Center be considered a single occurrence for insurance
purposes. Silverstein argues the attacks were two occurrences, and he is entitled to double the insurance proceeds: roughly
$7.1 billion for reconstruction and lost revenues.
Last month, Martin urged the parties to consider settling the case,
and asked fellow Southern District Judge Lewis A. Kaplan to oversee settlement talks.
JURY PREFERRED BY SOME
his opinion on the Allianz motion, Martin noted that some other insurers have indicated they might seek an appraisal, but
others have told the court they preferred to have a jury decide the issue.
Silverstein had argued that Allianz was
both too late in asserting its appraisal rights, because it had already engaged in litigation, and too early, because both
parties are required to first hire experts and evaluate the loss and then engage in good-faith negotiations before invoking
the appraisal process.
On the claim that Allianz was too late, Judge Martin said Allianz specifically "reserved its
right to demand appraisal in its reply to the Silverstein Parties' counterclaim" and spent a lot of time trying to negotiate
an agreement on the appraisal process before it filed the motion.
On Silverstein's claim that Allianz sought appraisal
too early, Martin said, "It makes no sense to suggest that the parties must bear the expense of hiring experts to evaluate
a loss before they retain the services of an 'impartial appraiser.'"
The judge did express one concern he said "might
militate against the full enforcement of the appraisal provision." With only some insurers seeking appraisal, he said, enforcement
of those rights "may unfairly multiply the proceedings in which the Silverstein Parties are forced to litigate the valuation
One remedy, he said, might be to substitute himself for the neutral umpire if the appraisers cannot agree.
But for the time being, the judge said he was reserving decision on whether the parties would choose the umpire.
was represented by Herbert M. Wachtell of New York-based Wachtell, Lipton, Rosen & Katz. Allianz was represented by John
B. Massopust of Zelle, Hofmann, Voelbel, Mason & Gette.
Trial Date Set for WTC Insurance Issue
New York Law Journal 08-23-2002
Jury selection in the
trial to decide the multibillion-dollar question of whether the attacks on the World Trade Center were one or two occurrences
for insurance purposes will begin on Nov. 4.
Southern District of New York Judge John S. Martin late Thursday rebuffed
an attempt by insurance companies that claimed massive amounts of pretrial discovery and trial preparation made it impossible
to conduct the trial efficiently.
But Martin also said the trial would be split into two phases, with the first dealing
with issues of contract formation -- the parties had only signed insurance binders and not final agreements in the weeks leading
up to Sept. 11 -- and the occurrence question.
The second phase will concern the amount of damages.
most of the 22 insurance companies or syndicates had asked for trial to begin next year (three companies were willing to go
to trial sooner if their cases were severed from rest), World Trade Center leaseholder Larry Silverstein, the Port Authority,
and the Lower Manhattan Development Corp. had all pressed for an earlier date, arguing that the future of the Trade Center
depended on a quick resolution of the insurance conflict.
Silverstein claims that the separate crashing of two planes
into the North and South towers on Sept. 11 amounted to two occurrences, and that he is entitled to more than $7 billion in
insurance proceeds. Should a jury disagree, the insurance companies would be obligated to pay only half that amount.
the outset of the case, Silverstein's lawyer Herbert Wachtell of Wachtell, Lipton, Rosen & Katz, has insisted that time
is of the essence, and the future of downtown Manhattan and the economic health of the city require an immediate answer to
"We definitely need to know how much money is going to be needed for rebuilding at the very earliest
time," Wachtell told Judge Martin at a hearing Tuesday. "This is not some phantom, this is the harsh reality of getting New
York City rebuilt."
But Harvey Kurzweil of Dewey Ballantine, the attorney for Travelers Indemnity Co., said Tuesday
there was no need to "hustle" to trial in the belief that "more money for Mr. Silverstein means more money for New York.
only result to be determined by this trial is who pays," he said, and he reiterated that argument Thursday to no avail.
Martin, who has been hashing out discovery disputes with the lawyers, has become increasingly skeptical of the need to rush
forward and try the case, largely because the planning and design process for the site is proceeding slower than expected.
this point, submissions for a design competition for a memorial at the site are not due until June 2003. And the first wave
of submissions for an overall rebuilding plan that would include a memorial and millions of square feet of retail and commercial
space have been criticized by officials and the public as inadequate and uninspiring.
But in the end, Martin set aside
his concerns over the uncertainty of the plans for the site and focused on what he said was "one of Parkinson's Laws -- that
the work will expand to the time allotted it."
The Port Authority, which gave a 99-year lease to Silverstein last year
-- so close to the attacks that some contract issues were still being negotiated when the planes hit the buildings -- also
wants a quick answer from the court.
"You can't plan a building without knowing how much money you have to build in
the first place," Port Authority lawyer Timothy Reynolds of Skadden, Arps, Slate, Meagher & Flom said Tuesday.
Reynolds said the Port Authority and Silverstein "are facing a hole in the ground and the insurance companies are sitting
on that money earning interest."
At a minimum, Reynolds argued, Silverstein should receive, as quickly as the amount
can be determined, the actual cash value of property, even before the occurrence issue and the replacement cost of the property
can be determined.
"That money is clearly due to us now," he said.
arguments Thursday, Wachtell said the insurance companies "had their tongues hanging out" for a bifurcated trial "because
they were better off tactically not having a single jury deciding contract issues and valuation."
As the parties are
now faced with racing to complete more than 130 depositions in advance of trial, Martin is scheduled to hear summary judgment
motions, and also arguments on whether the binders signed by the parties constituted, in essence, a final agreement, or whether
there were critical issues remaining to be negotiated when the attacks occurred.
The American Lawyer 09-03-2002
the Simpson Thacher & Bartlett litigation chief, is a big admirer of Herbert Wachtell. Really, he is. Big, big fan.
mind the adjectives he uses to describe the co-founder of Wachtell, Lipton, Rosen & Katz -- "obstreperous, obstructive
and unreasonable." Forget the nasty accusations of witness manipulation that Ostrager has tossed at Wachtell Lipton partners
in the World Trade Center insurance coverage litigation. Disregard Ostrager's amusement at what he calls the "feigned indignation"
with which Wachtell has greeted the Simpson Thacher lawyer's tactics.
Put all that aside, Ostrager says. Focus instead
on his great compliment to Herb Wachtell and his partners: But for Wachtell's ingenuity and persuasiveness, Ostrager says,
there would be no World Trade Center insurance litigation. There would be no $3.55 billion dispute over the money owed to
Wachtell's client, New York real estate developer Larry Silverstein, who signed a 99-year lease on the World Trade Center
just two months before the attack on the towers. As Ostrager tells it, only a mind as brilliant as Wachtell's could have crafted
a plausible argument that Silverstein is owed $7.1 billion, twice his ostensible policy limit, because the World Trade Center
catastrophe constituted two discrete, insurable events, not one.
Of course, Ostrager's salute to Wachtell is just a
tiny bit mitigated by his own role in the litigation. He is counsel to the Swiss Reinsurance Co., the carrier that underwrote
about 22 percent -- $780 million -- of the Trade Center's insurance coverage. Swiss Re, like the rest of the 21 insurance
companies battling Silverstein, is determined to prove that the Trade Center collapse constituted one occurrence under Silverstein's
insurance coverage, not the two Silverstein claims.
The story of the Silverstein insurance program, assembled in the
summer of 2001, is so far-fetched that any law professor who dreamed it up as a hypothetical would be laughed out of the classroom.
Silverstein hired a well-known broker, Willis Group Holdings Ltd., to find enough coverage to satisfy his lenders. Willis
scrambled mightily to place $3.55 billion in insurance, ultimately dealing pieces to 25 carriers. Negotiations were frenetic
-- so frenetic that when Silverstein took over the lease of the Trade Center on July 24, 2001, he had in hand only temporary
contracts from his insurers. Most of those had been executed on the basis of a sample form that Willis had circulated, a form
that included a broad definition of what constituted an occurrence for insurance purposes. (The encompassing definition was
designed by Willis to favor policyholders; the more damage that could be lumped into one occurrence, the fewer deductibles
policyholders would have to pay.)
One key carrier, however, had refused to base negotiations on the Willis form. Travelers
Indemnity Co. insisted on using its own form, which did not specifically define "occurrence," as the foundation of discussions
about a final policy. Willis needed Travelers to stay in the deal, so Willis brokers spent August 2001 deep in negotiations
with Travelers underwriters about changes proposed to the Travelers form. (These negotiations, interestingly, did not include
discussion of the definition of "occurrence.") As of Sept. 11, Willis had not circulated final policies to any of the 25 carriers.
Silverstein and Willis now say that all of the insurance companies should be held to the terms of the Travelers policy, which,
in their lawyers' interpretation of New York state insurance law, leads to the conclusion that the Trade Center collapse constituted
two occurrences. The insurers -- no surprise here -- say that the Willis form prevails.
What's more, asserts Ostrager,
the Willis brokers who now support the Travelers scenario didn't always. Only after Wachtell Lipton lawyers got involved,
Ostrager has said repeatedly in this litigation, did Willis witnesses convert to the story that favors Silverstein. Silverstein
himself said as much, Ostrager argues, in a speech he delivered in December 2001 to the "CEO Summit" on Rebuilding Confidence
in the U.S. Economy. "I had to find myself the best minds that I could find," Silverstein said, "to get me two events, to
provide $7 billion." Those minds, in Ostrager's telling, belong to the Wachtell Lipton lawyers.
Ostrager is a slight
55-year-old with wavy, reddish hair and an insatiable appetite for competition; in his scant spare time he breeds racehorses.
He graduated from New York University Law School 18 years after Herb Wachtell, and seems to be fairly frothing for confrontation
with him. Ostrager has gone so far as to fling such phrases as "corruption of the discovery process" and "unconscionable interference
by Wachtell" into a brief that accuses Wachtell Lipton lawyers of "exerting fantastic pressure" on Willis witnesses and "manipulating"
Wachtell, who says that the evidence disproves the very thesis of Ostrager's accusations, responds
to the Simpson Thacher lawyer with characteristic irascibility. When his partner Meyer Koplow calls Ostrager's attack "laughable,"
Wachtell cuts in. "It's not laughable," he says.
Wachtell, 70, is not a physically intimidating man. He has long, slicked-back
gray hair, a thin, red face and piercing eyes. He wears half-frame glasses low on his nose. Yet somehow he is fearsome. "I
don't like to see my partners accused of suborning perjury," he fumes. Ostrager, he says, is litigating this case with reckless
aggressiveness. "He likes to distort facts," says Wachtell. "I am mightily pissed."
So far Ostrager is winning. The
insurers have beaten Silverstein on almost every significant pretrial motion in the case, including a summary judgment motion
by Wachtell that was denied. That's all just prelude, however. The judge in the case, John Martin Jr. of Manhattan federal
district court, has appointed another federal judge, Lewis Kaplan, to oversee settlement talks this fall. If they fail, Ostrager
and Wachtell will meet in court in November to try this case. Barry Ostrager will be looking to topple Wachtell. Herb Wachtell
will be trying to put the Simpson Thacher lawyer in his place. And one of their clients will walk away hundreds of millions
of dollars richer.
Larry Silverstein is Herb Wachtell's oldest friend. They met as teen-agers, at New York City's High
School of Music & Art, where they both played piano. At New York University, both played in the band, Silverstein on drums
and Wachtell on clarinet. They stayed close enough over the years that Silverstein had dinner at Wachtell's house the Friday
before Sept. 11. Silverstein didn't use Wachtell Lipton as his regular lawyers -- Skadden, Arps, Slate, Meagher & Flom
and Stroock & Stroock & Lavan routinely represented him -- but when he split from his business partner (and brother-in-law),
Wachtell and his partners negotiated the breakup.
On Sept. 13, two days after the towers fell, Silverstein called Martin
Lipton, also a close friend and a fellow NYU trustee, to ask if Lipton thought he'd need legal advice. "Marty said, 'And how,'"
says Wachtell. " hadn't thought through the scope of all the legal problems he could be facing. They'd lost four
people from a small office. They were all traumatized." Silverstein arranged to come to Wachtell Lipton's offices later that
Before he arrived, though, Wachtell had to figure out whether the firm could represent Silverstein beyond
this emergency counseling session. "This would be a mammoth drain on firm resources," says Wachtell, who heads a litigation
department of 53 lawyers, almost half of whom have become involved in the World Trade Center litigation. "It was a firm issue
-- could we afford to take this on?" Wachtell Lipton's midtown Manhattan offices were in turmoil on Sept. 13. Some investment
bankers from Keefe, Bruyette & Woods Inc., which had its offices in the World Trade Center, had been at a meeting at Wachtell
Lipton when the planes hit the towers; the law firm volunteered to provide the Keefe Bruyette survivors (as well as some other
lower Manhattan refugees) with a temporary headquarters. People were walking around carrying computers and phones for the
guests. Wachtell Lipton lawyers were still in shock; collectively, they knew dozens of Trade Center victims. Many lawyers
weren't even in the office. Herb Wachtell rounded up all of the partners who were around for an impromptu firm meeting. "We
decided to do it for two reasons," he says. "Larry is my closest and oldest friend. And this was a civic thing -- we felt
an obligation to be involved in the rebuilding of the city."
Silverstein, according to Wachtell Lipton partner Eric
Roth, didn't stay long at Wachtell Lipton's offices on Sept. 13. Wachtell recalls talking briefly with Silverstein about several
potential issues, including insurance. As it happened, Wachtell Lipton had argued an insurance coverage case in the New York
Court of Appeals a week earlier (Simpson Thacher partner Mary Kay Vyskocil argued against him; Wachtell Lipton eventually
won). He told Silverstein that, in his opinion, unless the insurance policy clearly stated otherwise, New York's laws would
define the terrorist attacks as two occurrences, two insurable events.
But at that point, Silverstein's lawyers didn't
know what the insurance policy said. Silverstein had already been in touch with John Gross, a partner at Proskauer Rose who
specializes in insurance coverage. On Saturday the 15th, Gross and the Wachtell Lipton lawyers talked for the first time.
"We had no idea what had happened," says Gross. "We were new counsel, we had not participated in the placement. I suggested
we go meet with the Willis people and find out what was going on." Roth
agreed: "We had to go meet with Willis."
Willis Group Holdings Limited is a giant insurance broker, specializing in
coverage for big commercial properties. Even by Willis standards, though, the World Trade Center insurance program was huge.
The Port Authority of New York and New Jersey, which finished building the complex in 1972, carried only $1.5 billion (per
occurrence) in coverage on all of its buildings, which, in addition to the Trade Center, included the three New York City
area airports. Silverstein's lenders insisted on more coverage, first demanding $2.3 billion, then $3.2 billion, and then,
right before the lease deal closed, $3.55 billion. The lead Willis broker on the insurance placement, Timothy Boyd, and his
team hustled in June and July to satisfy the lenders, contacting carriers in the United States, Europe and Bermuda to place
coverage. Willis distributed to many, but not all, of the carriers underwriting packets that featured not only the risk analysis
documentation on the World Trade Center, but also a 37-page sample property insurance policy that Willis had developed, a
form called the WilProp 2000. The WilProp form included a specific definition of occurrence, one designed to minimize deductibles
for policyholders: "all losses or damage that are attributable directly or indirectly to one cause or to one series of similar
The goal in multicarrier property insurance deals is to get all of the insurers to agree to issue the same
final policy, so that there are no gaps in coverage. Carriers with smaller shares of the coverage frequently defer to the
policy demands of bigger insurers, however, so brokers don't expect to negotiate final policy language with all (or even most)
carriers. In the World Trade Center program, for instance, no negotiations took place with the London insurance syndicates,
which actually, at the time they agreed to provide coverage, waived the right to sign off on final policy wording. Moreover,
insurers typically issue temporary contracts binding them to provide coverage before they finish negotiating final policy
language. Usually there's plenty of time to reconcile policies after the binders come in.
Distilling facts from the
frenzied discussions that took place between Willis brokers and insurance company underwriters in July 2001 is no easy task,
especially now. Willis broker Boyd testified that he didn't expect carriers simply to accept the WilProp sample form, but
considered it a starting point for negotiations. Swiss Re seems to have regarded it the same way. Underwriter Daniel Bollier
agreed on July 9 to carry about 22 percent of all layers of coverage beyond the first $10 million, but he told Willis broker
Paul Blackmore that he wanted changes in the sublimit language in the WilProp form. (Bollier was satisfied with the WilProp
occurrence definition and did not attempt to negotiate changes to it.) Other carriers also seemed to expect negotiations of
final policy language; only two Bermudan insurers, ACE Ltd. and XL Capital Ltd., specifically referred to the WilProp form
in their binders.
Before the lease deal closing, Willis issued certificates of insurance to Silverstein, confirming
to his lenders and to The Port Authority that he had sufficient coverage. His 99-year lease, for which Silverstein put up
only $14 million of his own money, closed on July 24. Willis broker Boyd, however, still had work to do. One carrier, Travelers,
had informed Boyd that if Travelers was to participate in the primary layer of coverage, it would have to be on the basis
of its form, not the WilProp form. Boyd had tried to find a substitute carrier with as high a rating as Travelers, but the
market for World Trade Center insurance was saturated.
So in late July, Boyd began serious discussions with Travelers
underwriter James Coyle III about what the final Travelers policy would say.
There is no dispute that Coyle first sent
Boyd the Travelers sample policy on July 11. But what did Boyd and the rest of the Willis brokers tell the other carriers
about the Travelers form? On this critical question, the accounts of the Willis brokers and insurance company underwriters
If the case ever goes to trial, one of the key issues will be the exchanges between London broker
Blackmore and Swiss Re underwriter Daniel Bollier. Blackmore testified that sometime between July 17 and 23, he told Swiss
Re underwriter Bollier that WilProp had been replaced by Travelers; on July 23 his assistant e-mailed the Travelers form to
Swiss Re. But Bollier swore he remembered no conversation with Blackmore about the Travelers form. He said he paid little
attention to the e-mail attachment, which arrived without a note advising that Travelers was replacing WilProp. Timothy Boyd
of Willis testified that he specifically informed underwriters at eight other insurance companies that Travelers would be
the primary form; notes in the files of at least three carriers indicate that their underwriters had been told. But most of
the carriers deny that anyone from Willis ever told them Travelers was replacing WilProp.
At the end of August, Coyle
of Travelers sent Willis' Boyd a draft policy that included the changes they'd discussed. The Travelers policy did not define
occurrence, leaving the interpretation to state law. Boyd, who did negotiate the wording of Travelers' deductibles clause,
never attempted to add Willis' occurrence definition to the Travelers form. On that point, he deferred to Travelers. Boyd
looked over what Coyle had sent him at the end of August, but didn't respond. Labor Day weekend arrived, and there didn't
seem to be any rush.
Sept. 11 found most of the brokers on the Willis World Trade Center team in Nashville, at a previously
scheduled meeting of Willis' property insurance group. Like the rest of the country, they watched the television in horror.
With planes grounded, the brokers were marooned in Nashville, without their paperwork. Inevitably, they began the debate:
Was the attack one occurrence or two?
Willis' counsel, Stuart Gerson of New York's Epstein Becker & Green, insists
that these conversations were informal and purely hypothetical. Nevertheless, when Timothy Boyd, the lead broker on the World
Trade Center program, called Willis' London office as he tried to reassemble the Silverstein documents, he told London staffers,
according to the notes of one, "In their opinion this is one occurrence." (Both Boyd and the London staffer testified that
they did not recall the conversation.) Another broker said something similar to Swiss Re's Daniel Bollier, according to Bollier's
testimony. Silverstein's own risk manager hurriedly faxed a copy of portions of the WilProp form to a lawyer for The Port
Authority with a cover note: "FYI the 'occurrence' definition and the insuring agreement and the exclusions in the Willis
policy that we are working with." Several hours later he sent the same materials to one of Silverstein's lenders.
the same time, however, Boyd was working with Jim Coyle of Travelers to get a final policy issued. Coyle agreed to send Boyd
a policy that reflected the state of their negotiations as of Sept. 10. On Friday, Sept. 14, Travelers faxed a final policy
-- which included no definition of "occurrence" -- to Willis' temporary headquarters in New Jersey. From there, Willis faxed
it to Wachtell's offices.
"We were told two things," says Wachtell, "that the Travelers form was the governing form;
and that they wanted to disseminate the policy to the marketplace. We said, 'No! You may not send it out until we can confirm
the facts.'" Silverstein's lawyers pressed the Willis team for interviews with the brokers. Willis senior executives agreed
that John Gross of Proskauer and Eric Roth and Marc Wolinsky of Wachtell Lipton could come to New Jersey on Monday, Sept.
17, to talk to the brokers.
Over the weekend, Gross and the Wachtell Lipton lawyers studied the documents Willis had
sent them. Gross is as emphatic as Wachtell about the implications of the Travelers policy. Since it didn't specifically define
"occurrence," the definition was left to state law. And under New York state law, Gross asserts, the attack on the twin towers
constituted two occurrences. "I knew it without even going to the books," he says. But did the Travelers policy govern the
World Trade Center insurance coverage? Gross and the Wachtell Lipton lawyers say that they got their answer in their interview
with the Willis broker Timothy Boyd on Monday, Sept. 17.
If Barry Ostrager's theory -- that Wachtell concocted the
Travelers policy scenario -- was correct, the "fantastic pressure" that Wachtell supposedly exerted on the Willis witnesses
would have had to have begun during those Sept. 17 meetings, as the lawyers and brokers figured out what to tell the insurance
market about the governing policy. Willis is a sophisticated company, so, naturally, its brokers were represented by their
own lawyer at these initial interviews with Silverstein's counsel. Sitting at the head of the table as Roth, Gross and Wolinsky
questioned Willis witnesses was a lawyer named Andrew Amer, from the firm that is Willis' longtime outside counsel: Simpson
Thacher. Amer is a partner in the department headed by Barry Ostrager.
Amer, who declined to comment, presumably heard
the Willis witnesses tell Silverstein's lawyers that the Travelers policy governed the World Trade Center coverage. He said
as much in a Sept. 20 e-mail to Eric Roth, confirming that Willis believed that coverage was based on the Travelers form.
"We await your approval to distribute the policy to the market," Amer wrote.
So how could Ostrager later assert that
Wachtell was pushing to get the Travelers policy out, that Wachtell Lipton lawyers were manipulating Willis witnesses to tell
a story that favored Silverstein? Ostrager says he never talked to Amer about those meetings. To protect Willis' attorney-client
privilege, he says, Simpson Thacher -- which had informed Willis from the start that it would be representing a carrier in
the litigation -- erected a wall between Amer and the lawyers representing Swiss Re. When Ostrager wrote the brief accusing
Wachtell of "unconscionable interference" and "corruption of the discovery process," he based his accusation on notes Travelers
underwriter Coyle took during a post-Sept. 11 conversation with Willis broker Boyd in which Boyd complained about feeling
so much pressure from the lawyers that he was thinking of quitting. The comment later turned out, however, to have been a
reference to Willis in-house lawyers, pressing Boyd to produce documents.
Epstein Becker's Gerson, the lawyer who replaced
Amer soon after those initial meetings, also rejects any suggestion that Willis witnesses were coerced, in the Sept. 17 meeting
with Wachtell Lipton lawyers or in any meeting after that. "I have been at every single prep session," Gerson
says. "There has been no pressure of any kind put on any Willis witness by anyone at Wachtell. I wouldn't let that happen.
I am not a potted plant."
Ostrager says he never meant to suggest that Wachtell Lipton lawyers had suborned perjury,
merely that in hours of preparing Willis witnesses for deposition, Wachtell Lipton partners had subtly shaped their recollections
and perspectives. (Willis, insurance lawyers have noted in court, may be concerned about the possibility of Silverstein suing
the brokerage for malpractice.) Immediately after Boyd's deposition testimony about pressure from lawyers, Ostrager did notify
Judge Martin that Boyd had been referring to in-house lawyers, not Wachtell; and he did tell the judge in a letter and in
court that he wasn't accusing Wachtell of impropriety. But he didn't withdraw his brief. And he doesn't believe that Wachtell
is as indignant about his tactics as Wachtell says he is. In a deposition of Blackmore, Ostrager told Wachtell that he was
going to call the judge if Wachtell didn't stop interrupting his questions. "If you want to be a litigator," Wachtell retorted,
"don't be so thin-skinned every time you get an objection." Says Ostrager: "That applies in spades to him. want to be aggressive, but, like any bully, they don't want to be punched back."
Ostrager came into
the World Trade Center insurance case at around the same time Wachtell did, within two days of the collapse of the towers.
Swiss Re wasn't necessarily expecting litigation, Ostrager says, but retained him "as a matter of prudence." As Willis circulated
the Sept. 14 Travelers policy to the other insurance companies, Swiss Re's prudence proved justified. Swiss Re, as well as
a host of other carriers, notified Willis that they'd bound coverage on the basis of the WilProp form, and had never agreed
to substitute the Travelers form at all. The Travelers policy, they said, wasn't their policy; many said that the Willis notice
was the first they'd heard of it.
For a few weeks, Ostrager and his second-in-command, Mary Kay Vyskocil, let Silverstein
set the course of the case. The real estate developer badly wanted to begin collecting the business interruption portion of
his insurance, so that he could continue making payments to his lenders and his landlord, The Port Authority. Wachtell urged
a meeting between Silverstein and the insurers. Willis executives organized a session on Oct. 2 at Manhattan's Metropolitan
Club. "I thought it would be helpful if Larry could talk to them, let them see him in the flesh, show them he was not trying
to get a windfall," Wachtell says. "We told them we understood there was a difference of opinion on occurrence, but we had
to get the business interruption insurance going. Larry said, 'We ought to be sitting down and talking.' He was met with dead
Ostrager regarded the meeting as a turning point. "I knew what was going on in that Oct. 2 meeting," Ostrager
says. Silverstein wanted the business interruption cash, Ostrager says, to fund his two-occurrence litigation. "It was transparent
and self-evident," Ostrager says. "I knew to a moral certainty that Silverstein was going to initiate a declaratory judgment action against the insurers." So Ostrager and Vyskocil grabbed control of the
litigation. On Oct. 22 they filed, on behalf of Swiss Re, a complaint for a declaratory judgment against Silverstein, asking
the court to hold that the Trade Center disaster was, for insurance purposes, one occurrence. Ostrager admits that not all
of the other insurers were happy about his suit. "There was a band of reactions ranging from 'We would have wanted to participate'
to 'We would have appreciated it if you had consulted us,'" he says.
The Silverstein side portrays Ostrager as a litigation
outlaw, infuriating the other insurers with overly aggressive tactics, starting with that declaratory judgment action. Lawyers
for most of the other major insurers declined to comment publicly but insist privately that all of the insurers are working
together. "There's a high level of cooperation," says Travelers counsel Harvey Kurzweil of New York's Dewey Ballantine, who,
along with his partner Saul Morgenstern, has become a spokesman for the other insurers. "We've put on a remarkably cohesive,
coordinated ." And a successful one, so far. Though Ostrager has sometimes been alone at the extremes of the case, the
insurance lawyers have united on major motions. As Ostrager had predicted, in January, Silverstein did file suit against all
of the insurers, seeking a summary judgment against Travelers. Gross and the Wachtell Lipton team asked Judge Martin for a
ruling that, as a matter of law, the World Trade Center disaster constituted two occurrences under the Travelers policy. Martin
denied Wachtell's summary judgment motion, and, on another heavily litigated pre-trial issue, granted the insurers' motion
to compel testimony from the Willis witnesses about their meetings with Wachtell.
Judge Martin seems eager for the
case to settle, and has appointed federal Judge Lewis Kaplan to oversee talks, the first since a few utterly fruitless sessions
late last fall. (Silverstein did settle with the two Bermudan insurance companies that explicitly mentioned the WilProp form
in their binders. Those insurers agreed to pay, in cash, their policy limits for one occurrence, a total of about $350 million.)
Proskauer's John Gross is still hoping for a deal; after all, if Silverstein can get anything more than his $3.55 billion
one-occurrence limit, he's won. (Silverstein has stated repeatedly that he intends to use the insurance money to rebuild lower
Manhattan.) Harvey Kurzweil says that Travelers and the other insurers would participate in talks; he is one of four insurance
lawyers who was scheduled to meet with Wachtell Lipton partner Meyer Koplow in late August. Ostrager was also supposed to
participate. One senses his heart wouldn't be in it, though. There's only one place Ostrager wants to be on Nov. 4: in Judge
Martin's courtroom, picking a jury of New Yorkers whose votes he and Herb Wachtell can fight for.
By Michel Chossudovsky