Last week, Judge Barbara Jones of the United States District Court for the Southern District of New York ruled that a policy exclusion in the Port Authority's Policy effectively barred coverage for damage done to all but one of the buildings at the World Trade Center complex and the PATH train station. Certain Underwriters at Lloyd's, et al. v. Port Authority of New York and New Jersey, No. 05-CV-5239 (S.D.N.Y. Feb. 22, 2008). (Click here for a copy of Judge Jones' decision).

The judge ruled that a policy exclusion for damages that were indemnified by third parties applied to exclude coverage for most of the properties owned by the Port Authority at the World Trade Center. Prior to the attack on September 11, 2001, the Port Authority leased the properties at issue, including the Twin Towers, to real estate developer Larry Silverstein and his co-investors through various entities. Under the terms of that lease, Silverstein and his co-investors had agreed to maintain, repair and rebuild the properties as necessary. They also agreed to indemnify the Port Authority from any expenses related thereto.

After the September 11 attack, the Port Authority notified its carrier that it would seek indemnification for any damages that exceeded the amount of insurance available under Silverstein's own policies. The Port Authority's insurer's, however, filed the instant declaratory judgment action based on the indemnification and the exclusion in the Port Authority's Policy. That exclusion specifically stated that the policy does not cover loss or damage where the Port Authority has been indemnified by a third party against any such loss or damage. The exclusion also stated, however, that where a lease or other written agreement requires a third party to insure any property which would otherwise be covered by the policy, then the Policy will cover that loss or damage to the extent that the property is not fully insured. The Port Authority argued that the second part of the exclusion applied to the extent Silverstein was under-insured. The judge disagreed, ruling that the structure of the language used in the exclusion, including the use of a colon to separate the two concepts described above, precluded the Port Authority's interpretation.

We will continue to monitor WTC-related developments and provide updates at InsureReinsure.com.