18 July 2013, by Erik Larson (bloomberg.com)
Real estate developer Larry Silverstein can’t seek $3.5 billion from airlines whose planes were hijacked by terrorists and flown into the World Trade Center’s twin towers on Sept. 11, 2001, a judge ruled.
Silverstein, who leased the skyscrapers about two months before they were destroyed, already collected $4.1 billion from insurers and can’t collect twice under New York law, U.S. District Judge Alvin K. Hellerstein ruled today in a courtroom less than a mile and a half from the World Trade Center site.
“If this case were to go forward, the WTC companies would not be able to recover anything against the airlines,” said Hellerstein.
The judge rejected any suggestion that Silverstein had sought a windfall, saying he was among the “heroes” who sought to “create beauty out of the destruction.”
Silverstein’s World Trade Center Properties LLC in 2008 sued United Continental Holdings Inc. (UAL), American Airlines and its parent AMR Corp. (AAMRQ), claiming their negligence led to the destruction of the towers.
The company, which rebuilt the destroyed 7 World Trade Center and is rebuilding three other towers on the site, argued that the insurance accord didn’t bar it from seeking additional damages in civil cases because the payout didn’t correspond to specific types of economic losses, such as replacement costs for the buildings or lost rent from tenants. Hellerstein disagreed.
“There’s complete correspondence,” Hellerstein said.
When such a link is made between an insurance payout and a specific type of loss, collecting on that same type of loss is barred under New York law, he said.
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.
“We did not believe that the plaintiff could be permitted any further compensation and we are pleased the judge ruled in our favor,” United spokeswoman Christen David said in an e-mail.
“We are gratified by the judge’s decision,” Mike Trevino, American Airlines spokesman, said in a statement.
Silverstein’s lawyer Richard Williamson had said in closing arguments today that 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 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.
“In my opinion, no one is enjoying a windfall -- everyone is suffering from 9/11,” the judge 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.
He also made a $491 million initial payment as part of the Port Authority of New York and New Jersey’s privatization of the World Trade Center site.
“We are deeply disappointed in today’s decision,” Bud Perrone, a spokesman for Silverstein Properties, said in a statement.
“While we respect Judge Hellerstein, we believe his ruling on this issue, and on prior issues, to be in error and intend to file an immediate appeal.
We will not rest until we have exhausted every option to assure that the aviation industry’s insurers pay their fair share toward the complete rebuilding of the World Trade Center.”
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.
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.
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.
“Regardless of the ultimate outcome of the case, we remain 100% committed to realizing a fully and spectacularly rebuilt World Trade Center,” Silverstein’s Perrone said.
“4 WTC is opening in the fall, and construction on the other buildings has made significant progress.
The new World Trade Center will serve as an unmistakable symbol of New York’s resilience and strength.”