World Trade Ctr. Props. LLC v. United Airlines, Inc. (In re September 11 Litig.)
| Decision Date | 01 August 2013 |
| Docket Number | 08 Civ. 3722.,Nos. 21 MC 101(AKH), 08 Civ. 3719,s. 21 MC 101(AKH), 08 Civ. 3719 |
| Citation | 957 F.Supp.2d 501 |
| Parties | In re SEPTEMBER 11 LITIGATION. World Trade Center Properties LLC, et al., Plaintiffs, v. United Airlines, Inc., et al., Defendants. World Trade Center Properties LLC, et al., Plaintiffs, v. American Airlines, Inc., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Derek Todd Smith, Akin & Smith, LLC, Dale Christian Christensen, Jr., Seward & Kissel LLP, Douglas J. Pepe, Gregory P. Joseph Law Offices LLC, Zafer Adem Akin, Akin & Smith, LLC, New York, NY, Jemi Goulian Lucey, Greenbaum, Rowe, Smith & Davis LLP, Iselin, NJ, for Plaintiffs.
Desmond Thomas Barry, Jr., Condon and Forsyth LLP, New York, NY, for Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW SUPPORTING JUDGMENT FOR DEFENDANTS
On July 15–19, 2013, the parties appeared before me for a bench trial on the issue of whether there was correspondence between the World Trade Center developer's insurance recoveries and the tort damages that might be awarded if the case proceeded to a liability trial. I listened to the testimony, carefully considered the evidence, and delivered my findings of fact and conclusions of law at the end of trial. These written findings and conclusions restate and expand on my decision.
1. In the early 1960s, the Port of New York was suffering economically, and the states of New York and New Jersey sought to revitalize the area. The two states directed that the World Trade Center be built in lower Manhattan with the goal of making the area a center for international trade and finance. See N.Y. Unconsol. Law § 6601 (); N.J. Stat. Ann. § 32:1–35.50.
2. The Port Authority of New York and New Jersey was granted authority over the site. Construction began in 1965. The Twin Towers opened to the public and its tenants in 1973.
3. On December 31, 1980, the Port Authority entered into a ground lease with 7 World Trade Company, L.P. (“7WTCo.”), a company associated with the developer Silverstein Properties, Inc. (“Silverstein”) and one of the plaintiffs in this action, for the development and construction of 7 World Trade Center (“Tower 7”). Upon its completion in 1987, the Port Authority leased Tower 7 to 7WTCo., and Tower 7 opened to the public and its tenants, Tower 7 was located north of the main site of the World Trade Center, across Vesey Street. See In re September 11 Litig., 908 F.Supp.2d 442, 444 (S.D.N.Y.2012).
4. In 1998, the Port Authority decided to privatize the World Trade Center. It conducted a worldwide competitive bidding process to sell 99–year leases of the buildings on the main site of the World Trade Center; the commercial stores in the concourse of the buildings were included in the properties. When Vornado Realty Trust, the high bidder, was not able to complete its negotiations with the Port Authority, the Port Authority accepted the second-place bid from Silverstein and Westfield America, Inc. (“Westfield”) in April 2001. On July 16, 2001, the Silverstein affiliates—World Trade Center Properties, LLC (“WTCP”) and related companies—executed four 99–year leases for the four buildings on the main site, World Trade Center One, Two, Four and Five. WTCP and Westfield paid to the Port Authority the equivalent of $3.211 billion—partly in cash, partly in the form of continuing payments. WTCP paid $2,805 billion of that amount to lease the office buildings. Westfield paid the balance to lease the mall in the concourse. See Joint Stipulation at ¶ 1; In re September 11th Litig., 590 F.Supp.2d 535, 536–37 (S.D.N.Y.2008).
5. The leases to both the main site and Tower 7 required the lessee to rebuild if the buildings were destroyed. The main site lease provides:
If the Premises ... or any structures, improvements, fixtures and equipment, furnishings and physical property located thereon, or any part thereof, shall be damaged or destroyed ... the Lessee, at its sole cost and expense, and whether or not such damage or destruction is covered by insurance proceeds sufficient for the purpose, shall remove all debris resulting from such damage or destruction, and shall rebuild, restore, repair and replace the Premises ... and any structures, improvements, fixtures and equipment, furnishings and physical property located thereon substantially in accordance, to the extent feasible, prudent and commercially reasonable, with the plans and specifications for the same as they existed prior to such damage or destruction or with the consent in writing of the Port Authority, which consent shall not be unreasonably withheld, conditioned, or delayed, make such other repairs, replacements, changes or alterations as is mutually agreed to by the Port Authority and the Lessee,
Net Leases § 15.1; Joint Stipulation at ¶ 2. A similar provision applied to Tower 7.
6. The leases also required the lessee to insure the buildings against loss from fire and other causes for the lesser of $1.5 billion or “actual replacement cost.” In re September 11th Litig., 590 F.Supp.2d 535, 538 (S.D.N.Y.2008).
7. The main site of the World Trade Center was insured in layers of coverage for business interruption (lost rentals) and the replacement costs of the buildings if damaged or destroyed, up to $3.5468 billion per occurrence, without distinction between the two categories of coverage (i.e., blanket coverage). Twenty-four different insurers, plus a number of Lloyd's of London syndicates, participated in the insurance program. Def. Ex. B4; Joint Stipulation at ¶ 3,
8. At the time of the September 11 attacks, WTCP was still negotiating with its insurers for coverage for the main site. With one exception, none of the insurers had issued a final insurance policy to WTCP as of the time of the buildings' destruction. The insurers had instead issued temporary binders or slips, which provided interim coverage, SR Int'l Bus. Ins. Co., Ltd. v. World Trade Ctr. Properties, LLC, 467 F.3d 107, 113 (2d Cir.2006).
9. Industrial Risk Insurers (“IRI”) insured Tower 7, providing coverage for business interruption (called time element), replacement costs and extra expense, up to $860 million per occurrence, without distinction as to categories of coverage, but subject to a sub-limit of $1,000,000 per occurrence for extra expense. Joint Stipulation at ¶ 29.
10. The insurance coverage for both the main site and Tower 7 was independentof Plaintiffs' lease obligation to repair or replace the leased premises if damaged or destroyed. The insurance agreements made no reference to these obligations. Tr. 239:6–11.
11. On the morning of September 11, 2001, Mohamed Atta and Abdul Aziz al Omari cleared security at Portland International Airport in Maine and caught an early morning flight to Boston's Logan Airport. At Logan, they rendezvoused with three others, and together the five boarded American Airlines Flight 11, en route to Los Angeles. Five other Al–Qaeda associates cleared security at Logan and boarded United Airlines Flight 175, also headed for Los Angeles. See The 9/11 Commission Report, Final Report of the National Commission on Terrorist Attacks upon the United States, at 1–2 (2004) (“9/11 Report”),
12. Flight 11 and Flight 175 took off from Logan at 7:59 a.m. and 8:14 a.m., respectively. Shortly afterwards, the terrorists aboard took control of the two planes and turned them towards New York City. Flight 11 crashed into Tower 1 of the World Trade Center (the North Tower) at 8:46 a.m. Flight 175 crashed into Tower 2 (the South Tower) at 9:03 a.m. Both World Trade Center towers became infernos and collapsed: Tower 2 at 9:59 a.m. and Tower 1 at 10:28 a.m. 9/11 Report at 4, 7, 285.
13. The falling debris from the Twin Towers caused fires to erupt in the neighboring World Trade Center buildings. Towers 4 and 5 were damaged beyond repair. Tower 7, across Vesey Street to the north, burned for several hours and collapsed at 5:20 p.m. See Aegis Ins. Servs., Inc. v. 7 World Trade Co., 865 F.Supp.2d 370, 378 (S.D.N.Y.2011); Federal Emergency Management Agency, World Trade Center Building Performance Study, at 5–1 (2002).1
14. WTCP submitted claims to its insurers to recover the damages it and Westfield suffered from the September 11 attacks and, following the insurers' refusal to pay the full amount of the claims, filed suit against them. WTCP alleged that the insurers had acted in bad faith, and thus sought to recover more than the policy limits.
15. WTCP and the insurers litigated the issue of whether the September 11 attacks constituted one occurrence or two occurrences under the terms of Plaintiffs' insurance coverages. As judicially determined, the outcome varied with the terms extended by each insurer: under some coverages, the attacks were considered a single occurrence; under others, two occurrences. See SR Int'l Bus. Ins. Co., Ltd. v. World Trade Ctr. Properties, LLC, 467 F.3d 107, 138 (2d Cir.2006). The sum of Plaintiffs' blanket insurance coverage, instead of being $3.5468 billion for a single occurrence, became $4,678,906,257. Def. Ex. B4.
16. WTCP submitted proofs of loss for the main site of approximately $8.531 billion in two categories: $7,183,441,908 (84.2%) for the cost of replacing the four buildings, and $1,347,805,679 (15.8%) for business interruption, i.e., the cost of rental payments that sublessees of the main site failed to pay WTCP as a result of the buildings' destruction. Joint Stipulation at ¶ 21; Def. Ex. C4.
17. The insurers objected to WTCP's damage estimates, considering them inflated.An appraisal panel was appointed, consisting of one member chosen by each side and a neutral umpire chosen by the two appointed...
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