Silverstein Jury's Decision
Favors the Insurers
April 29, 2004 -- NEW YORK -- It's time for Plan B at Ground Zero.
Larry Silverstein, the real-estate developer who holds the lease on the World Trade Center, lost a major chunk of his legal bid to double the $3.55 billion face value of the insurance coverage for the twin towers. That has thrown the rebuilding process into confusion and signals the possible end of Mr. Silverstein's role as lead developer of the highly symbolic site.
In U.S. District Court in Manhattan yesterday, the jury delivered an incomplete and split decision, but one that heavily favored the insurers. The panel found that eight of the 12 insurance companies -- constituting more than $1 billion of coverage -- were governed by an insurance form that defines the attacks on the World Trade Center as a single event, or "occurrence." And that means a single payout.
Mr. Silverstein had argued that all the insurers committed to forms under which the attacks of Sept. 11, 2001, would be regarded as two occurrences that entitled him to a double payment. But the jury decided in Mr. Silverstein's favor for just three of the insurers, representing only a sliver of the total policy amount, about $176 million.
The 11-member panel was unable to reach a verdict on the status of the single largest insurer, Swiss Reinsurance Co., and will continue to deliberate on that portion of the case Monday. In a note to the judge yesterday, the jury wrote, "We have focused our efforts on this one insurer for the majority of the last five days with great diligence, and in spite of our best efforts have not been able to reach a unanimous decision." Swiss Re's share of the policy is $877.5 million.
Judge Michael B. Mukasey said he would accept a partial verdict and sent the panel back to deliberate on Swiss Re. Juror No. 12, Tonya Powers, 32 years old, was dismissed from the trial following yesterday's partial decision. She requested to leave for personal reasons, and both sides agreed to the dismissal.
Whatever the final outcome of the case, yesterday's verdict leaves the 72-year-old Mr. Silverstein far short of the more than $9 billion he would need to rebuild the World Trade Center complex based on a plan chosen in a high-profile international competition. Separate from this case, Mr. Silverstein still could achieve a double payment from a group of insurers representing close to $1 billion in coverage. That will be determined in a subsequent trial.
Despite the unresolved nature of yesterday's decision, officials at the Port Authority of New York and New Jersey, which owns the 16-acre site, have already decided to try to remove Mr. Silverstein from his position of primacy as the Trade Center's developer, according to people familiar with the situation.
The Port Authority, which retained broad centers under the 99-year office leases sold to Mr. Silverstein and his investor group in July 2001, is considering allowing him to keep, at most, his spot as developer of the iconic Freedom Tower, a 1,776-foot tower scheduled to start construction later this summer, the people said.
Mr. Silverstein could even be forced to share his role -- and his potential profits -- in the Freedom Tower. The Port Authority plans to initiate discussions with Mr. Silverstein about his status within days of the final verdict, these people said.
Jacques DuBois, head of Swiss Re's U.S. unit, declined to comment. Lawyers for the victorious insurers said they were pleased. "We are obviously gratified," said Ken Erickson, a lawyer for a group of London insurers that represented $680 million of the coverage.
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"From a financial perspective, I don't think we're looking at a major impact on the U.S. insurance industry," said Robert Hartwig, chief economist for the Insurance Information Institute, an industry trade group. "We'll have to see how the Swiss Re part plays out."
Howard Rubenstein, a spokesman for Mr. Silverstein, said: "This is a partial verdict. We are awaiting the decision with respect to Swiss Re, the largest insurer in the World Trade Center coverage. We will have no further comment while the jury continues to deliberate."
A spokesman for the Port Authority declined to comment, citing the incomplete nature of the decision.
Thus far, Ground Zero planning has been driven by Mr. Silverstein's lease with the Port Authority, which requires him to "restore" 10 million square feet of office space and make lease payments of $120 million a year. The office space was to come in the form of five skyscrapers that Mr. Silverstein promised to complete for the site by 2013. The buildings, plus related infrastructure are estimated to cost more than $9 billion. Of the total potential insurance payout, $1.3 billion has already been spent on lawyers fees, financing buyouts, and Mr. Silverstein's fees and the return of his equity.
The partial verdict leaves enough at least to build the 2.2-million-square-foot Freedom Tower. One scenario would have the Port Authority renegotiate its lease with Mr. Silverstein to allow him to retain control of the Freedom Tower and take back the centers to the rest of the site. Designed to help fill the gap in New York's skyline created when the twin towers fell, the tower has a projected cost of $1.5 billion.
But with Mr. Silverstein now almost certainly unable to fulfill the terms of his lease, the requirement for so much office space disappears. The Port Authority, which has already bought back the retail and hotel centers to the site, will now consider taking back office centers, as well, people familiar with the situation said. Undecided so far is whether to hire a single master developer or separate companies to develop individual sites.
What is clear is that the Port Authority has been quietly planning for a post-Silverstein Ground Zero for months and will now consider a mix of uses for the site, potentially making way for apartments, hotels and more retail outlets. So the jury's finding in part moves those plans along, with profound implications for Lower Manhattan, driving the area's transformation away from its storied past as a major financial center.
The Port Authority has already begun making plans for replacing the income stream, say people familiar with the situation. A less-dense, mixed-use project could be built within the site plan chosen last year of Studio Daniel Libeskind and without tampering with the memorial designed by Michael Arad and Peter Walker, the people said.
With Mr. Silverstein's position at Ground Zero weakened, the spotlight also shifts to the Port Authority's political patrons, New York's Gov. George E. Pataki and New Jersey's Gov. James E. McGreevey, who jointly control the agency's board.
Gov. Pataki, in particular, has tethered his political reputation to progress at Ground Zero, repeatedly promising that construction on the Freedom Tower would be under way by late this summer, around the time of the Republican National Convention in New York in September.
--Staff reporters Ryan Chittum and Theodore J. Francis and Janet Morrissey of Dow Jones Newswires contributed to this article.
Trade Center Journey
Major events surrounding the New York complex
![[wtc]](/images/regionalnews/P1-AB463_WTC04292004205604.jpg)
1972–1973: Twin Towers completed.
2000: Port Authority solicits bids to rent WTC for 99 years.
July 24, 2001: Dark-horse entry Larry Silverstein signs $3.2 billion, 99-year lease for WTC after outbidding large public real-estate companies.
Sept. 11: WTC is destroyed.
Sept. 12: Silverstein insurance executive Robert Strachan sends single-occurrence insurance form to a Silverstein lender and the Port Authority.
October: Silverstein and insurers sue each other over Silverstein's two-occurrence claim demanding double the payout.
![[wtc2]](/images/regionalnews/P1-AB463_WTC204292004205834.jpg)
July 16, 2002: Initial rebuilding plans are unveiled, but are later scrapped after public criticism.
Feb. 27, 2003: Studio Daniel Libeskind plan, including 1,776-foot signature tower, wins new design competition as site master plan.
July 16: Silverstein's architect David Childs takes lead role from Libeskind in design of the iconic tower.
Jan. 14, 2004: Michael Arad's winning memorial is unveiled.
Jan. 23: Santiago Calatrava-designed $2 billion commuter-rail station unveiled.
Feb. 9: WTC insurance trial opens in New York federal court.
April 29: Silverstein loses a partial verdict against insurers in his bid to seek double the insurance payment on the complex.
Late summer 2004: Cornerstone laying of Freedom Tower scheduled to coincide with Republican National Convention in New York.
Source: WSJ research
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