In re September 11 Litigation, 21 MC 101 (AKH).

• Citation: 649 F.Supp.2d 171
• Decision Date: 13 August 2009
• Docket Number: No. 21 MC 101 (AKH).,No. 04 Civ. 7272 (AKH).,21 MC 101 (AKH).,04 Civ. 7272 (AKH).
• Parties: In re SEPTEMBER 11 LITIGATION.
• Court: U.S. District Court — Southern District of New York

Page 171

649 F.Supp.2d 171

In re SEPTEMBER 11 LITIGATION.

No. 21 MC 101 (AKH).

No. 04 Civ. 7272 (AKH).

United States District Court, S.D. New York.

August 13, 2009.

Franklin Michael Sachs, Greenbaum, Rowe, Smith & Davis LLP, Woodbridge, NJ, Mark Leigh Antin, Stanley Walter Kallmann, Gennet, Kallmann, Antin & Robinson, P.C., Parsippany, NJ, for Plaintiffs.

Jeffrey Ross Wang, Kent Kari Anker, Robert Scott Loigman, Eric Jonathan Seiler, Heather Jo Windt, Katherine Lindsay Pringle, Friedman Kaplan Seiler & Adelman LLP, Thomas J. Moloney, Cleary Gottlieb Steen & Hamilton, LLP, Michael Thomas Rogers, Vashali Maria Aggarwal, Wasserman Grubin & Rogers LLP, Chad Everette Sjoquist, Zetlin & De Chiara, LLP, Thomas V. Giordano, Zeynel Karcioglu, Esq., Desmond Thomas Barry, Jr., Condon and Forsyth LLP, Jeffrey J. Ellis, Timothy Joseph Keane, Quirk and Bankalor, P.C., Jon Paul Robbins, McLaughlin and Stern, LLP, James Patrick Connors, Jones Hirsch Connors and Bull, P.C., Stephen Paul Schreckinger, Gogick, Byrne & O'Neil, LLP, Mark Joseph Weber, Mound Cotton Wollan & Greengrass, Beth D. Jacob, Donald Allen Klein, Schiff Hardin LLP, New York, NY, Stuart D. Schwartz, Gottlieb Siegel & Schwartz, LLP, Bronx, NY, Christopher Kendric, Ahmuty, Demers & McManus, Albertson, NY, Brian S. Fraser, Richards Kibbe & Orbe, LLP, Washington, DC, Anita B. Weinstein, Cozen O'Connor, Philadelphia, PA, Dennis M. O'Hara, Jason A. Glusman, Robert C. Bauroth, Wicker, Smith, O'Hara, McCoy, Graham & Ford, P.A., Ft. Lauderdale, FL, Jeffrey W. Moryan, Jonathan P. McHenry, Connell Foley LLP, Roseland, NJ, for Defendants.

OPINION AND ORDER DENYING MOTIONS TO DISMISS ALL CLAIMS OF SUBROGATED INSURERS

ALVIN K. HELLERSTEIN, District Judge:

New York State law reduces the recovery of a tort claimant by the amount of collateral source payments that he has received. For example, if a tort claimant was insured for the risk upon which he sues, his insurance recovery is deducted from any judgment that he recovers from the tortfeasor. See N.Y. C.P.L.R. § 4545. I am now asked to decide whether, once an insurer has paid its insured party for a loss, § 4545 deprives that insurer of its subrogation right to proceed directly against the tortfeasor to recoup the amount of that payment. For the reasons discussed in this opinion and in the recent decision of the New York Court of Appeals in Fasso v. Doerr, 12 N.Y.3d 80, 875 N.Y.S.2d 846, 903 N.E.2d 1167 (2009), I hold that plaintiffs' insurers retain subrogation rights despite § 4545, and may advance these rights against the alleged tortfeasors in this litigation.

There are three motions before me, each seeking summary judgment dismissing subrogation claims of insurers of property destroyed by the terrorist-related aircraft crashes into Towers One and Two of the World Trade Center on September 11, 2001. Plaintiffs affiliated with the developer Larry Silverstein, long-term lessee of the World Trade Center (hereafter, "WTCP Plaintiffs"), move to bar the claims of the insurers that indemnified and paid their losses. The Aviation Defendants— airlines, airport security companies, and other such defendants¹ sued by both the WTCP Plaintiffs and their insurers—move for the same relief, seeking to reduce the number of claims against them and avoid duplicate recoveries for similar losses.² The third motion relates to Tower Seven and the claims of the Consolidated Edison Company of New York, Inc. ("Con Edison"), the lessee of the power substation beneath and around Tower Seven that was destroyed on the day of the attacks. Certain defendants in the Tower Seven action— including the Silverstein companies that had leased the office tower and some of its tenants—move to bar the claims of the insurers that indemnified and paid Con Edison's loss, also seeking to reduce the number of claims against them and avoid duplicate recoveries. All of these property damage cases have been collected for coordinated pre-trial proceedings in 21 MC 101, including the Tower Seven action, 04 Civ. 7272.³

An important motivation for the WTCP Plaintiffs' motion arises from a limitation of liability imposed by the governing law, the Air Transportation Safety and System Stabilization Act of 2001 ("ATSSSA"), Pub.L. No. 107-42, 115 Stat. 230 (2001), at 49 U.S.C. § 40101. That statute provides that the liability of the Aviation Defendants for all claims arising from the attacks of September 11, 2001 may not exceed the liability insurance coverage of those defendants. ATSSSA § 408(a)(1). The prospect of an incomplete recovery led the WTCP Plaintiffs to file this motion on February 12, 2009. The Aviation Defendants filed their motion for the same relief on March 13, 2009. Some defendants in the Tower Seven litigation (hereafter, "7WTC Defendants") filed their motion on March 30, 2009.

I. Background

The Port Authority is a nonprofit agency created to promote the commercial interests of New York and New Jersey. In the late 1990s, the Port Authority began a process to privatize the buildings of the World Trade Center complex in lower Manhattan, which it had owned since they were built in the late 1960s and early 1970s. On July 16, 2001, it leased four buildings—1, 2, 4, and 5 World Trade Center—for ninety-nine years to companies owned by developer Larry Silverstein. The Silverstein companies, required by the leases to repair or rebuild the premises to the extent "feasible, prudent and commercially reasonable," insured the buildings for $3.5468 billion per occurrence through over twenty property insurers.⁴

In 1968, the Port Authority secured electrical power for the World Trade Center complex by contracting with Con Edison, and building and leasing to Con Edison an electrical power substation just north of the site. Con Edison undertook to operate the substation to supply power to the World Trade Center complex and to neighboring areas of lower Manhattan.

In the 1980s, the Port Authority contracted with companies affiliated with Larry Silverstein to build an office tower, known as 7 World Trade Center ("7WTC"), above the substation. The Port Authority owned the tower and leased it to the Silverstein companies, which in turn leased substantial office space in the tower to Salomon Brothers, the predecessor of Citigroup, Inc. Con Edison continued to operate the substation pursuant to its lease agreement with the Port Authority, provisions of which required Con Edison to repair or rebuild the substation if it were ever damaged or destroyed.⁵

As the workday began on September 11, 2001, terrorists crashed fuel-laden jumbo jets, filled with passengers, into each of the Twin Towers, first into Tower One, and, seventeen minutes later, into Tower Two. The towers became infernos, trapping hundreds within, streaming fire and debris over the entire World Trade Center complex, and enveloping lower Manhattan in smoke and choking fumes. After burning for hours, 7WTC collapsed in the late afternoon, destroying Con Edison's substation beneath it. Other World Trade Center buildings and surrounding buildings were damaged beyond repair, and demolished.

By the ATSSSA, enacted and signed eleven days after the attacks, Congress provided for the litigation that inevitably arose. The statute gave this Court "original and exclusive jurisdiction over all actions brought for any claim (including any claim for loss of property, personal injury, or death) resulting from or relating to the terrorist-related aircraft crashes of September 11, 2001." ATSSSA § 408(b)(3). In addition, it limited the liability of any "air carrier, aircraft manufacturer, airport sponsor, or person with a property interest in the World Trade Center" to the amount of "liability insurance coverage maintained by that air carrier, aircraft manufacturer, airport sponsor, or person." Id. § 408(a)(1). Congress intended this provision "to preserve the United States' aviation industry, to protect the airlines and aircraft manufacturers from the potential of crushing liability, and to ensure that plaintiffs would be able to recover damages without bankrupting the airlines." In re Sept. 11 Litig., 590 F.Supp.2d 535, 545 (S.D.N.Y.2008). The liability insurance coverage of the Aviation Defendants falls well short of the total damages sought by all claims asserted against them. See In re Sept. 11 Litig., 567 F.Supp.2d 611, 613 (S.D.N.Y.2008).

The Silverstein companies (the WTCP Plaintiffs), having leased the World Trade Center buildings only a few months before September 11, 2001, asserted negligence claims of $12.3 billion ($8.4 billion to replace the buildings, and $3.9 billion to replace lost rental income) against the array of Aviation Defendants. The WTCP Plaintiffs received $4.1 billion in insurance proceeds from their property insurers. These insurers, having become subrogated to the claims of their insured parties, then filed their own tort claims against the Aviation Defendants to recover the amount of their insurance payments to the WTCP Plaintiffs.

Con Edison asserted negligence claims against various entities involved in the construction and operation of, and use of space within, 7WTC, as well as against many of the Aviation Defendants. Con Edison received at least $41 million in insurance proceeds from its property insurers. These insurers then joined the action against the 7WTC Defendants to recover the amount that they had paid to Con Edison.⁶

The dual claims of insured and insurers against the same set of defendants gave rise to recent motion practice between the Aviation Defendants and the WTCP Plaintiffs. The Aviation Defendants moved to limit the WTCP Plaintiffs' claims to the fair market value of their leaseholds (as measured by what they paid on April 26, 2001, $2.8 billion), rather than their replacement cost and lost income claims of $12.3 billion, and further moved to eliminate the claims altogether because the WTCP Plaintiffs' insurance recovery of $4.1 million exceeds that fair market...