Jury Hands Silverstein
A Second Loss

May 4, 2004 -- NEW YORK -- Developer Larry Silverstein lost again in court, delivering a major blow to the rebuilding of the World Trade Center.

A jury in federal court here ruled that Mr. Silverstein, the leaseholder of the destroyed complex, is entitled to an insurance payment that will fall well short of the more than $9 billion needed to rebuild. The ruling puts Mr. Silverstein's role as the site's builder in jeopardy and could slow or derail the development of the proposed office towers.

Officials at the Port Authority of New York and New Jersey, which owns the site, are expected to seek to diminish Mr. Silverstein's role within days, according to people familiar with the situation. In a statement, Port Authority Executive Director Joseph J. Seymour indicated Mr. Silverstein still would have some role to play in the rebuilding. "Silverstein Properties is moving forward with construction of the Freedom Tower," he said, speaking of the first planned building.

One person close to the private developer said Mr. Silverstein intended to rebuild under the plan with conventional financing if need be. "Larry's not going anywhere," the person said. "Larry has an absolute right under his lease to build five office towers on five locations" as envisioned in a plan chosen in international competition last year.

Mr. Silverstein's lawyer, Herbert Wachtell, of Wachtell, Lipton, Rosen & Katz, had contended the insurers committed to an insurance form that could interpret the attacks as two occurrences, and thus be eligible for double payments.

The panel of jurors, all New Yorkers, decided Monday that Swiss Reinsurance Co. -- the insurer with the single largest share of coverage, $878 million -- signed onto a form that strictly defines the attacks as a single occurrence, due a single payout. The jury ruled last week in favor of most of the other insurers in the case.

Mr. Wachtell declined to comment. Barry Ostrager, lead lawyer for Swiss Re, expressed satisfaction with the jury finding.

Jacques DuBois, head of Swiss Re's U.S. unit, said he was "very gratified." He questioned why the Port Authority let Mr. Silverstein spend millions of dollars of insurance proceeds on so-called business interruption expenses, including the trial itself.

Mr. Silverstein, in a statement, said, "A defeat in the courtroom is not a defeat for rebuilding."

The nearly three-month trial produced a partial verdict Thursday that went heavily against Mr. Silverstein. In total, the jury, which deliberated for eight days, found that 12 of the 15 insurers, totaling $1.9 billion in coverage, were bound by an insurance form that interprets the attacks as a single incident, qualifying for a single payment. The remaining three insurers could be forced to pay an amount double their share of the coverage -- $176 million -- the jury found. A separate group of insurers, totaling around $1 billion in coverage, also are in that position but weren't part of this trial.

It isn't guaranteed that even those insurers will have to make a double disbursement. A second trial is expected to begin within weeks to determine if the attacks should be considered two occurrences under insurance law.

Should Mr. Silverstein win the second trial outright, the most he could realize is $4.68 billion. Around $1.3 billion in advance insurance payments already have been spent on lawyers fees, financing buyouts, Mr. Silverstein's fees and the return of his and his partners original investment in the deal.

The Silverstein defeat throws into question the current plan to replace, to the square foot, the vast amount of office space lost when the Twin Towers fell. Alternatives to the office space include residential, hotels, or greater retail than currently planned.

If Mr. Silverstein's role is reduced or ended, several parties have emerged as possible substitute developers, including Brookfield Properties Corp. and closely held Related Cos., both of New York. The U.S. unit of Australia's Westfield Holdings Ltd. holds a right-of-first refusal on retail rights, while Host Marriott Corp., Bethesda, Md., holds similar rights for any hotel lease. Both are former World Trade Center leaseholders. The Port has hired Jones Lang LaSalle, a Chicago real-estate services firm, to guide the process.

Stumping the jury on Swiss Re was a seemingly simple issue: Did the insurer implicitly accept an insurance form favorable to Mr. Silverstein's case simply by receiving it by e-mail, but not responding. The jury sent notes to the judge asking to clarify whether Swiss Re's "silence" implied acceptance. At midafternoon Monday, the judge sent a final clarification.

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