Wall Street Journal Consults Tim Tomasik on 9/11 Litigation

Jul 02, 2012

Coumo Helps Silverstein's 9/11 Lawsuit

By JACOB GERSHMAN And ELIOT BROWN

New York Gov. Andrew Cuomo's administration is leaning on airlines and their insurers to settle a long-running lawsuit over the 9/11 attacks with World Trade Center developer Larry Silverstein, in a bid to help Ground Zero construction.

Mr. Cuomo's top insurance regulator, Benjamin Lawsky, recently warned airline insurers that the absence of a settlement has "undermined public confidence in the insurance industry and slowed redevelopment of the attack site."

Getty Images The Cuomo administration is intervening in a lawsuit filed by World Trade Center developer Larry Silverstein, in an effort to help construction.

People familiar with the case said Mr. Lawsky's intervention came as a surprise to the insurers of American Airlines and United Airlines, which operated the hijacked jets that slammed into the Twin Towers on Sept. 11, 2001. As superintendent of the state Department of Financial Services, Mr. Lawsky has no formal role in the legal dispute, which is essentially a third-party insurance fight knotted with unsettled legal issues.

Mr. Lawsky's message was conveyed in a May 18 letter ordering the insurers to produce confidential information about their reserves and exposure to 9/11-related claims. State attorneys have also directly broached a possible settlement with American and United. Both airlines declined to comment.

"The Department regularly seeks to help resolve insurance disputes and has done so successfully with respect to ground zero under previous administrations," Mr. Lawsky said in a statement. "We look forward to receiving the requested information and, irrespective of the goals of either side, working to see if a settlement is possible that will benefit the people of the state."

The Cuomo administration's intervention marks a turn for Mr. Silverstein's effort to make the aviation industry compensate him for what he said were "reckless" security breaches that allowed Islamic hijackers to board airplanes with weapons and gain access to the cockpits.

Mr. Silverstein sued American and United in 2004, seeking $12.3 billion in damages. But the developer's case has struggled in U.S. District Court.

Judge Alvin K. Hellerstein has already capped potential damages at $2.8 billion and signaled support for the airline's main argument—that any award would be offset by the more than $4 billion Mr. Silverstein recovered from his property insurers in a 2007 settlement.

State officials said they aren't taking sides with Mr. Silverstein but are anxious to help development in a Lower Manhattan neighborhood still caught between rebuilding and recession.

While Mr. Silverstein has the right to build three towers at the World Trade Center site, the 2007 settlement has thus far resulted in only one building, 4 World Trade Center, which was topped out last week.

The lawsuit doesn't affect One World Trade Center, the signature tower under development by the Port Authority of New York and New Jersey. Mr. Silverstein has said the other two planned towers —2 World Trade Center and 3 World Trade Center—aren't feasible without securing large tenants, given a slowly recovering economy and an environment where lenders are hesitant to finance new office towers.

In theory, a large infusion of insurance money could help him to move forward with those buildings, although it would likely take several hundreds of millions of dollars just to start on one of them.

"This problematic and prolonged state of affairs is not in the public interest," Mr. Lawsky, the superintendent of the state Department of Financial Services, wrote in letters addressed to a number of individual insurers and two insurance pools, U.S. Aircraft Insurance Group and Global Aerospace. Both insurance pools declined to comment.

A spokesman for Silverstein Properties said resolving the dispute "would accelerate full completion of the World Trade Center rebuilding, and deliver jobs for thousands of unemployed construction workers."

Mr. Lawsky, one of Mr. Cuomo's closest aides, started taking a closer look at the lawsuit about a year ago after Mr. Silverstein's attorneys filed a complaint with the department about the gridlock in negotiations.

Legal experts said Judge Hellerstein will likely dismiss the suit. Given the more than $4 billion he already won, Mr. Silverstein "has no legally recoverable claim pursuant to New York law," said Timothy Tomasik, a partner at Clifford Law Offices, which was part of a committee representing insurers and property owners in the same lawsuit. Most of the group settled with the airlines in 2010 for $1.2 billion.

Mr. Silverstein would likely turn to the Second U.S. Circuit Court of Appeals if Judge Hellerstein rules against him.

State officials said their efforts to resolve the case are similar to those of former Gov. Eliot Spitzer's in 2007, when the state's insurance czar, Eric Dinallo, pushed property insurers and Mr. Silverstein to the negotiating table and brokered the record-breaking $4 billion settlement.

Mr. Silverstein's lawyers have argued that only a fraction of that settlement—$646 million of lost rental income—should count against any recovery from the airline industry.

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