In or out of court, it will take years to sort out the complex morass of liability issues. David Schiff, editor of trade newsletter Schiff’s Insurance Observer, rattled off a partial list of questions the industry is grappling with: “A plane crashes into the World Trade Center. Is United Airlines responsible? When the World Trade Center collapses and other buildings blocks away are damaged, can you sue the World Trade Center? What about the Brooks Brothers store two blocks away? Do they have contingent business insurance? The airlines are losing a fortune by having their other planes grounded. Is that covered? What about World Trade Center tenants who had favorable 10-year leases? Is that covered? All of lower Manhattan is shut down with soot and dust. Who can you collect from for the loss of business?”
Insurers have been quick to say the industry can withstand the claims. But the dollars involved will likely cause premiums to rise and some insurers may stop writing terrorism policies altogether. “It may result in a failure or two, but not a rash of failures,” said David Lackey, president of Weiss Ratings, an independent insurance-ratings firm. When Hurricane Andrew caused a record $15.5 billion in claims, the storm drove nearly a dozen small companies out of business, but Andrew’s liabilities were concentrated in a few hands. The World Trade Center was covered by a web of hundreds of insurers, many who paid giant reinsurers to take over some of the risk.
Initially, it looked as though the $25 billion question was “Are we at war?” Virtually all the policies covering the WTC carry exclusions that relieve the insurance companies of liability for claims arising from acts of war. When President George W. Bush used those words last Wednesday, insurers quietly researched whether this exclusion would apply. They quickly dropped the notion. “We decided we were not going to consider invoking the war-acts exclusion,” said a Chubb spokesman. By the end of the week , Chubb and other insurers had already begun writing checks, an act that’s not likely to stop for some time.
