Appraising the 9/11 Damages to the World Trade Center

By Wulff, Randall W. | Dispute Resolution Journal, August-October 2007 | Go to article overview

Appraising the 9/11 Damages to the World Trade Center


Wulff, Randall W., Dispute Resolution Journal


One of the most important provisions found in many property insurance policies is the appraisal clause. Although not as often in the public eye as other ADR processes (like arbitration and mediation), appraisal is commonly used to provide an informal, less expensive and faster way to quantify the property damages owed by insurers. It is particularly well suited to deal with catastrophic losses, and its usefulness was confirmed in the aftermath of the tragedy of 9/11 and the destruction of the World Trade Center

When we recall what occurred at the World Trade Center (WTC) on September 11, 2001, obviously, we think first about the tragic loss of life, the countless injuries and the devastation to so many families. This is how it should be.

Less publicized is the legal aftermath, which pitted the owner and lessees of a significant amount of New York office and retail space against their insurers.

The Port Authority of New York & New Jersey acquired the space and constructed the multi-building complex in the late 1960s and early 1970s. Weeks before September 11, however, it had consummated 99-year net leases for the two Twin Towers (WTC One and Two), two of the lower rise office buildings (WTC Four and Five) and the underground spaces, including the Mall at the WTC. Entities associated with real estate developer Larry Silverstein leased the more than 10 million square feet of office space. To put this in perspective, this is roughly five times the total office space in the Empire State Building. An affiliate of Westfield Properties leased the retail space, which included the most successful shopping mall in Manhattan.

The new lessees purchased a complex, layered insurance program with some of the world's largest insurers. Unfortunately, the tragedy of 9/11 occurred very shortly thereafter, before the insurance policy language had been finalized. This led to two separate jury trials involving different carriers in the U.S. District Court for the Southern District of New York.

Like many other lawyers, I watched these lawsuits unfold from a distance. The legal questions were fascinating-two separate planes striking two different buildings roughly 30 minutes apart, but arguably part of a single plan or scheme. If adjudicated to be two "occurrences" (a term of art in insurance contracts) rather than one, the amount of potentially available insurance from the insurers would effectively double, with billions of dollars at stake.

The Appraisal Process

Against this backdrop, another legal challenge began to unfold. As is common, each of the potentially applicable insurance policies contained language providing for an "appraisal" of the losses that the insurers would be obligated to pay. Appraisal is a private, more informal alternative to a court proceeding, allowing for a determination of the value of the loss and damages under the policies in a more efficient way. In some respects, it is akin to arbitration. Each side selects an "appraiser" to serve on the panel and they, in turn, try to agree on a neutral person who will serve as the "umpire." The decisions of the panel, which are binding on the parties, require that the umpire gain the concurrence of at least one of the appraisers.

I was selected as the umpire after a lengthy process. First, the parties had to select their appraisers. The Silverstein parties tapped William O'Connell, the national leader of Deloitte & Touche's Forensic and Dispute Services group, who also had substantial experience and reputation as an appraiser. The insurers countered with a pre-eminent appraiser, frequently representing insurers in the United States, Jonathon Held, whose Long Island-based company, J.S Held, Inc., has provided loss consulting and dispute resolution services to the insurance industry worldwide for over 30 years.

Held and O'Connell then conducted interviews around the country with candidates for the umpire position. …

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