Wednesday, December 22, 2004

Settlement in Twin Towers insurance case, and perspective

Wampum: Not Worth It To Lie To You
$4.6 billion to $7 billion settlement: not one company is adversely affected. Everyone's end-of-year balances are in nice black ink.
$4.2 billion in annual malpractice costs: screaming end of the world.


Blogger Management said...

Not Worth It To Lie To You

By Dwight Meredith

Julia calls my attention to the verdict in the World Trade Center insurance case.

Larry Silverstein acquired the the lease to the World Trade center buildings about six weeks before September 11, 2001. He sought property and casualty insurance through a group of two dozen insurance companies. The policies called for a total of $3.5 billion in coverage.

After the terrorist attacks leveled the towers, Silverstein put in his claim for property damage. He did not limit his claim to $3.5 billion. Instead, he asked for $7 billion. Silverstein's theory was that that he had suffered losses in two separate incidents and, therefore, the insurance companies had to pay the full policy limits twice.

Understandably, the insurance companies thought that Al Qaeda flying planes into the towers represented one "occurrence" and that their liability was limited to stated coverage limit of $3.5 billion. Complicating matters was the fact that Siverstein and the insurance companies had not yet completed negotiations on detailed language of the insurance policies. He was covered under "binders" until such negotiations were complete. In addition, some of the binders included a definition of "occurrence" while others did not.

When the parties could not agree on a settlement, Silverstein filed two separate suits to force the insurance companies to pony up the full seven billion.

The first case involved insurers with about $2.4 billion in coverage. If that jury found that the terrorist attacks constituted one event under the binder language, then the range of Silverstein's ultimate recovery (depending on the later litigation) would be either $3.5 billion or $4.6 billion. If the jury found two occurrences, then (assuming Silverstein could prove his damages for each occurrence in a later proceeding) Silverstein's recovery could still reach $7 billion.

The jury in the first case decided that the attacks constituted one occurrence. There would be no $7 billion recovery for Mr. Silverstein. Silverstein then changed lead counsel (but not his law firm) for the second trial. Bernie Nussbaum (former White House Counsel to Bill Clinton) tried thre case for Silverstein. That trial would determine if Silverstein would recover $3.5 billion or up to $4.6 billion. Nussbaum succeeded in convincing the jury to permit a double recovery against some insurers with about $1.1 billion of coverage.

As it now stands, some of the insurers will have to pay the stated limits of their coverage. Other insufrers will have to pay double those limits. Unless something changes, Silverstein will collect a total of about $4.6 billion from the insurance companies.

For the purposes of comparison, the total amounts paid out in judgments and settlements in all doctor malpractice cases for the year 2002 (the last year for which I have figures) was about $4.2 billion.

As Julia points out, the insurers were quick to note that a payout of $4.6 billion would not materially effect their financial performance. Travelers, on the hook for more than $400 million, said that its liability would be "will be immaterial to the company." The verdict increased Allianz's exposure by $80 million. That payment "would have no material impact on the insurer's 2004 profit."

Munich Re now has potential exposure for in the range of $2.6 billion. What effect will that have? Not much, apparently:

The verdict won't affect our 2004 earnings, nor our reserves for the Sept. 11 attacks," Munich Re spokeswoman Anke Rosumek, said. Ms. Romumek also said Munich Re had previously estimated Munich Re's overall burden for WTC attacks at $2.6 billion, and even after this decision, "the burden is still within our reserves, so we don't have to boost them."

It seems interesting that the insurance industry can pay out $4.6 billion to Larry Silverstein and not a single company seems to be adversely effected, but paying $4.2 billion for a year's med mal cases is the end of the world. The market for property and casualty insurance is a heck of lot bigger than for professional negligence but still.

I was struck by the media coverage of the verdict. See here, here, here, here, and here for instance. The coverage was quite different, and much better, than is typical of media reports of tort cases.

No one suggested that the fact that one jury found one occurrence while a second jury found two occurrences meant that juries are unable to make rational decisions. No one suggested that a verdict imposing an additional billion dollars of liability would prevent other buildings from being insured. No one suggested that that Larry Silverstein should not be made whole if that is what the contract called for. Mort Zuckerman did not make up a bunch of crazy stories about how property owners tried to game the system and stupid jurors went along. Newsweek did not run a cover story in which Stuart Taylor and Evan Thomas just flat lied about the size of the verdict.

Why does the media treat verdicts in contract cases so differently than verdicts in tort cases?

Teresa at Making Light knows the answer to that one:

[T]he agenda being pursued can be loosely grouped under tort reform, which isn’t a reform movement at all. It’s a massive lobbying and PR campaign surreptitiously financed by business interests. It works to (1.) bring the law into disrepute; (2.) turn public opinion against small plaintiffs by portraying them as greedheads who file groundless or frivolous lawsuits; (3.) spread the idea that American firms are being driven out of business by runaway jury verdicts (which they aren’t)(and by the way, juries tend to make smaller awards than judges do); (4.) likewise spread the idea that American doctors are being ruined by skyrocketing malpractice premiums caused by an epidemic of outlandish malpractice awards (premiums are up, but malpractice awards aren’t, and the greedheads in this instance are actually the insurance companies); and (5.) create a climate of public opinion that will enable them to get laws and regulations permanently changed in their favor.

If you aren’t already familiar with this issue, probably your best single-stop website is Consider linking to it. As the site sums things up,

Tort reform isn’t about fixing a “broken” justice system; it’s about protecting the public image and bottom lines of the biggest and most powerful companies in the world. Tort reform isn’t about protecting doctors from high insurance rates; it’s about protecting their insurers from having to pay large judgments. Tort reform isn’t about keeping “greedy lawyers” from filing frivolous lawsuits; it’s about keeping those who are severely injured out of the court system and away from the public eye.

All true, I’m afraid. This has been going on for a while...

You know all those stories you’ve read about ridiculous court cases where greedy plaintiffs and their greedy lawyers collect huge settlements for minor injuries that were their own fault in the first place? The McDonald’s coffee case is the most famous. I’m sorry to say that those stories are fabrications, part of the PR campaign. Some of them are pure fiction. Others have been cooked up by grossly misrepresenting real court cases. Netizens have spread them far and wide...

Common Good, the site I was looking at when I started this post, is part of the effort to bring the law into disrepute. That ought to offend you. The law belongs to you, and it’s there to protect you. It’s not always perfect; neither are the courts. But it’s there for you. These campaigns to belittle the law are being paid for by people who are manifestly not on your side.

These are corporations which stand to have to pay out large sums to satisfy legitimate individual claims. Note that: legitimate claims, as in “the corporation knew their product was lethally dangerous under circumstances that were bound to occur sooner or later, and consciously decided not to do anything about it.” They put millions of dollars into spreading the idea that juries commonly award ridiculous damages in trivial lawsuits, and that we’ve somehow become a lawsuit-happy society. They’re lying...

Never doubt that it’s worth their while to lie to you. When you’re talking about really big corporations and really big money, it’s worth their while to lie to you very, very elaborately.

Thank you Teresa. I wish I had written that.

The media aids and abets the effort to lie to you and to degrade the legal system. The reason that contract cases are reported so differently is that in such cases, one big, rich entity either has to pay a lot of money to another big, rich entity or it does not. Either way, the total amount of money held by rich entities remains the same. In that situation it is just not worth it to lie to you. In tort cases, it is.

9:26 PM  

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