Judge Rules for Insurer Allianz in WTC Subrogation Dispute

June 12, 2008

A U.S. judge has ruled in favor of insurer Allianz in a dispute with World Trade Center developer Larry Silverstein about recovering money from third parties if they are found to be at fault in the September 11, 2001 attacks.

The list of third parties could include, for example, the airlines whose planes were flown into the twin towers.

“I find that the insurance contract does provide for contractual subrogation and gives priority of recovery to Allianz,” Judge Harold Baer, for the Southern District of New York, said in a decision issued on Tuesday.

The judge, in his opinion, defined subrogation, as “the right of an insurer, having paid losses of its insured, to be placed in the shoes of its insured so that it may recover from a third party legally responsible for the loss.” The purpose of subrogation is to prevent whoever buys insurance from “recovering twice for one harm,” Baer wrote.

A spokesman for Silverstein, Bud Perrone, said: “We don’t think that Judge Baer’s decision has any effect on other insurers, that is, insurers other than Allianz. Also, we disagree with the decision and will appeal it.”

The court decision means that Allianz could collect on any sums paid by the third parties before Silverstein. Most other insurers have waived this right.

The developer leased the World Trade Center complex just a couple of months before it was destroyed. Silverstein previously has said that the individuals who sued third parties because members of their families were among the nearly 3,000 who perished should be paid before him.

Allianz differs from the 10 other so-called “excess” insurers because it is the only one that had issued a final policy by the attacks, the judge noted.

Though World Trade Center Properties argued it had a right to be made whole before the insurance company could recover from third parties, the judge rejected that argument.

“As I have been charged with interpretation of the insurance contracts in the Insurance Contract Litigation, I agreed to try my hand at a resolution of this classic question of contract law,” Baer wrote.

The World Trade Center lawsuits have a lengthy history, a point the judge underscored, saying: “Make no mistake – this is not the first dispute where the parties have come to seek declaratory relief.”

Baer also spurned the World Trade Center Properties’ claims that Congress gave priority to property owners when it enacted the Air Transportation Safety and System Stabilization Act (ATSSSA). The Sept. 22, 2001 law aimed to safeguard the airlines and it created a compensation fund for victims.

The list of third parties includes: American Airlines, United Airlines, US Airways and Colgan Air, which ran a US Airways flight. Security companies including Globe Aviation, the Massachusetts Port Authority, which runs Boston’s airports, Boeing Co., non-carrier airlines, Continental Airlines and Delta, which shared responsibility for some security checkpoints in Portland, Maine.

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