In the often-bizarre calculus of insurance coverage and payments, there is an enormous level of inputs to determine what a claimant should be paid. To the layman the question ought to be simple: "Well, how much did they lose?"
In insurance, however, that's not the essence of the question. If an insurer offered coverage that provided for X payment per Y event, then the payoff of two events, even minutes apart from each other, would be double. If you consider that insurance companies often wrangle over a few hundred dollars in auto accidents or medical coverage, imagine the amount of scrutiny they give a payout when the difference between one scenario and another runs into the billions of dollars.
Complicating matters severely is the fact that Larry Silverstein's company leased the World Trade Center less than two months before it was destroyed. The finer points of his insurance policy had yet to be completed. Essentially, there are going to be several trials, one of which will have to determine what a Travelers (NYSE:TAP.A) policy covering the towers means by the word "occurrence." At odds is whether the multitude of companies insuring the WTC will have to pay $3.5 billion or double that -- the $7 billion that Silverstein claims his firm is owed.
None of the insurance companies disputes that they will have to pay something as a result of coverage they provided on the WTC. Disposition will determine how much money will be available for redevelopment of the site where the towers once stood. Companies that have claims to be paid on the attack include Chubb (NYSE:CB), XL Capital (NYSE:XL), ACE (NYSE:ACE), Swiss Re, Lloyd's, and Allianz (NYSE:AZ). The wrangling has gone on since shortly after the Sept. 11 terrorist attacks.
As Silverstein's group was preparing to close on the WTC's 99-year lease, his lenders demanded that the amount of insurance be increased dramatically from the $1.5 billion per occurrence in coverage for all buildings, finally settling on $3.55 billion shortly before the deal closed. Willis Group Holdings (NYSE:WSH), one of the largest insurance brokers in America, was in the process of negotiating the terms. The language that the Willis Group sample policy had regarding coverage is this: "all losses or damage that are attributable directly or indirectly to one cause or to one series of similar causes."
In such situations of multiple insurers, the goal of a group like Willis is to ensure that all of the carriers agree to the same final policy, to ensure that there aren't any gaps in coverage. In this case, those final terms had yet to be determined when the towers were destroyed.
So, one event or two? Willis Group's prime representatives seem to believe that it was a single event, or one of a series. The first step will be to determine which policy and what language is in effect. Then there will likely be a second trial to mull the meaning of the Travelers language, and then a third trial to determine damages.
Bill Mann owns none of the companies mentioned in this story.
