Bloomberg News

World Trade Center Damages Ruling Nears in Silverstein Case (1)

July 18, 2013

Larry Silverstein’s World Trade Center Properties LLC is set to find out today if it’s entitled to seek $3.5 billion from airlines whose jets were seized by terrorists and flown into the twin towers on Sept. 11, 2001.

WTC Properties argued at a trial this week in Manhattan that the company’s $4.1 billion insurance payout over the attack doesn’t bar it from seeking damages from United Continental Holdings Inc. (UAL:US), American Airlines and its parent AMR Corp. (AAMRQ:US)

Silverstein sued the carriers in 2008, claiming their negligence allowed the hijackings to occur. The airlines argue that the developer’s losses have already been covered and he can’t collect twice. U.S. District Judge Alvin K. Hellerstein, who will issue a ruling today, said Silverstein had performed a service by starting rebuilding on the site so quickly.

“The absence of the twin towers was like missing front teeth,” Hellerstein said at the end of closing arguments today in a courtroom less than a mile and a half from the World Trade Center site. The redevelopment is an example of Silverstein “having faith in the economy of Manhattan and New York.”

If WTC Properties wins, another trial will be scheduled to determine what, if anything, the airlines must pay. The developer said it will use proceeds from the case to build Norman Foster’s 2 World Trade Center adjacent to the centerpiece 1 World Trade Center -- now the tallest building in North America -- and continue revitalizing the area 12 years after the attack.

Hijackers’ Targets

Islamic extremists flew an American Airlines jet into one of the twin towers and a United Airlines jet into the other, causing both to collapse. Two other planes were hijacked, one that hit the Pentagon near Washington and another that crashed in a field in Pennsylvania after passengers fought the terrorists. About 3,000 people died.

Silverstein’s lawyer, Richard Williamson, said the airlines “dramatically understate” the developer’s actual economic losses from the attack, including by using an arbitrary 2007 cutoff date for calculating lost rents.

“The plaintiffs will not end up with a windfall” if Silverstein wins the case, Williamson said, rejecting a claim made by the airlines.

“In my opinion, no one is enjoying a windfall -- everyone is suffering from 9/11,” Hellerstein said. Talking about a windfall “is obnoxious in this case,” he said.

About two months before the attacks, Silverstein’s Silverstein Properties signed four 99-year leases on the towers and two smaller buildings in the complex.

Down Payment

He also made a $491 million initial payment as part of the Port Authority of New York and New Jersey’s privatization the World Trade Center site.

Bud Perrone, a spokesman for Silverstein Properties, which owns World Trade Center Properties, declined to comment on the dispute before a ruling.

The 2001 lease required Silverstein to insure the buildings and rebuild if the site was destroyed. He insured them for $3.5 billion “per occurrence,” more than required, court papers show.

Silverstein in 2007 reached the $4.1 billion settlement with insurers after suing to collect more than $7 billion -- twice the value of the policy.

The companies reached the accord after a jury accepted Silverstein’s claim that each tower’s destruction was a separate attack under some policies, while a jury in another case found some insurers were bound by a policy that defined that attack as a single event.

Port Authority

Out of that settlement, about $2.5 billion was paid to the Port Authority under a 2006 redevelopment agreement calling for the agency, rather than Silverstein, to rebuild 1 World Trade Center.

The payment also covered rent on the property, which Silverstein was required to continue paying to the Port Authority after the site was destroyed.

At the heart of this week’s trial is a dispute over whether the insurance settlement indicated the $4.1 billion payment was for a specific type of loss, such as the value of the towers or the lost rental income.

Silverstein argues the airlines would need to demonstrate such a link to prove the damages sought from the carriers overlap losses covered by insurance.

He argued that the language in the insurance accord is so broad that the airlines can’t tie it to a specific loss. The airlines argued that the developer sought the broad language to hinder their case.

Recovery Limit

In a 2008 ruling in favor of the airlines, Hellerstein lowered the limit of possible recovery in the case to the $2.8 billion market value of the leases and not the much higher cost of rebuilding.

The amount of potential damages was later increased to about $3.5 billion when the judge said the value of 7 World Trade Center, which was also destroyed and has been rebuilt, could be added to the claim.

The leaseholder for the destroyed buildings in May lost its bid to prevent AMR from raising “act of war” as a defense to its alleged negligence in the terrorist attacks. The airlines promised Congress and the U.S. public they wouldn’t raise such a defense to avoid paying claims, lawyers for the leaseholder argued in a February court filing.

The Silverstein organization accused American of breaking promises to not use the defense. The guarantee coincided with a bailout of the aviation industry, the leaseholder argued.

The case is In Re September 11 Litigation, 21-MC-101, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net.

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net.


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