Port Authority and Developer Sue Ground Zero Insurers

New York Times
Published June 27, 2006

The Port Authority and the developer Larry A. Silverstein asked a New York court yesterday to bar seven insurers at ground zero from using the new rebuilding plan as an excuse to withhold more than $1.5 billion in payouts needed to rebuild office towers on the site.

The lawsuit, filed yesterday in State Supreme Court in Manhattan, said seven of the two dozen insurers at the World Trade Center, including Allianz, Royal Indemnity and Travelers, "have persistently sought to shirk their contractual obligations to pay insurance coverage."

Over the past two months, the suit said, the seven insurers also refused to provide assurances that their obligations to pay were unaffected by an April agreement in which Mr. Silverstein surrendered control of the Freedom Tower and one other development site to the Port Authority of New York and New Jersey, which owns the site. Mr. Silverstein, who leased the trade center six weeks before it was destroyed, would still build three other towers on the east side of the property.

Some insurers, including Swiss Re, the largest single insurer, have told Mr. Silverstein and the Port Authority that the new arrangement would not affect payouts. But Allianz and others have not.

Mr. Silverstein, in a statement released yesterday, said that New York, New Jersey and the Port Authority "have made it clear that they will not allow foot-dragging insurance companies to impede the ongoing revitalization of downtown Manhattan. We expect a quick resolution that will force these insurers to finally pay what they owe."

But a lawyer for Allianz, which owes a maximum of $552.5 million at ground zero, said yesterday that the lawsuit was unnecessary, because a legal proceeding was begun nearly five years ago to determine exactly how much money is owed at ground zero under the terms of the insurance policy. He said that Mr. Silverstein was merely seeking a different venue for one of many issues now being debated in federal court.

"Allianz is eager for a judicial resolution of this matter in the proper forum," said the lawyer, John B. Massopust of Minneapolis.

But Mr. Silverstein and the Port Authority contend they were both insured at the trade center and want the court to declare that the insurer's obligations remain the same no matter which one of them builds the Freedom Tower.

At the end of two lengthy and costly trials in 2004, a federal court found that the insurers owed a maximum of $4.6 billion, less than the $7 billion that Mr. Silverstein had originally claimed, but more than the $3.5 billion term of the insurance policy. The two sides have been locked in a grueling appraisal process to determine exactly how much of the $4.6 billion must be paid out.

State and city officials, as well as real estate executives, contend that the cost of rebuilding the five towers will easily exceed $7 billion.

So far, the insurers have provided $2.2 billion. But about $1.6 billion has already been spent on annual rent at the trade center site, architectural and engineering fees, and more than $100 million in legal expenses. Mr. Silverstein and state, city and Port Authority executives want to resolve the matter quickly because the new alignment at the trade center is supposed to receive final approval in September. At the same time, work is beginning on the $2 billion Freedom Tower, the tallest of the five skyscrapers at ground zero.

Yesterday was a rare instance in which many of Mr. Silverstein's critics, like Mayor Michael R. Bloomberg, joined backers, like Assembly Speaker Sheldon Silver and Senator Charles Schumer, to offer him their support.

Mayor Bloomberg told reporters yesterday that the insurers were "sadly mistaken" if they think that they're going to walk away from paying $4.6 billion. "These insurance companies may be forced to by court order, but they'll pay up one way or another, whether they do it because it's right, or they do it because they have to," he said.

The rebuilding effort downtown has been plagued by political squabbling, long delays, criticism from victims' families and even newly discovered bone fragments of people who died. After resolving crises earlier this year over the role of Mr. Silverstein and the exorbitant cost of the memorial, Gov. George E. Pataki and Mr. Bloomberg have been eager to portray ground zero as a done deal, with construction workers suddenly flooding across the site.

But each week seems to bring a new problem. Anthony R. Coscia, the chairman of the Port Authority, warned recently that the fate of the Freedom Tower was in doubt unless a solid financial plan was in place by September and state officials obtained leases for 1 million square feet of space from federal agencies.

Copyright © 2006 by The New York Times Company

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