Filed Under:Agent Broker, E&S/Specialty Business

9/11 insurers move closer to $221.5 million award against Iran

FILE- In this September 11, 2001 file photo, smoke pours off World Trade Center Tower 1 as flames explode from Tower 2 as it is struck by American Airlines Flight 175, after terrorists crashed hijacked airliners into the buildings. (AP Photo/Chao Soi Cheong)
FILE- In this September 11, 2001 file photo, smoke pours off World Trade Center Tower 1 as flames explode from Tower 2 as it is struck by American Airlines Flight 175, after terrorists crashed hijacked airliners into the buildings. (AP Photo/Chao Soi Cheong)

This story is reprinted with permission from FC&&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

A U.S. Magistrate Judge in New York has recommended that the Islamic Republic of Iran pay $221,505,968.40, in addition to prejudgment interest, to insurers that made payments to their insureds for property damage, business interruption, and other claims arising from the 9/11 terrorist attacks.

Background


On January 6, 2017, U.S. District Judge George B. Daniels of the Southern District of New York entered a default on behalf of Continental Casualty Company, Transcontinental Insurance Company, Transportation Insurance Company, Valley Forge Insurance Company, National Fire Insurance Company of Hartford and American Casualty Company of Reading, Pennsylvania (collectively, the Insurers) against the Islamic Republic of Iran (Iran) on claims arising under 28 U.S.C. § 1605A, and referred the calculation of damages to Magistrate Judge Sarah Netburn.

The Insurers had made payments to their insureds for property damage, business interruption, and other claims arising from the terrorist attacks on September 11, 2001. The state sponsor of terrorism exception of the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1605A(d), authorizes “actions [to] be brought for reasonably foreseeable property loss, whether insured or uninsured, third party liability, and loss claims under life and property insurance policies” caused by acts of terror.

The Insurers sought to recover several categories of damages against Iran.

Damages sought


The damages sought by the Insurers included $221,861,243.69 in claims paid out pursuant to insurance policies, $305,737,641 in claims paid out pursuant to reinsurance policies, $3,186,499.40 in claims paid to airline clients through the Associated Aviation Underwriters (AAU) insurance program, $8,572,527.43 in adjustment costs and expenses incurred in connection with each covered claim under their insurance policies, $226,638 in attorneys’ fees, and prejudgment interest from September 11, 2001 to the date of entry of judgment.

In support of their claims, the Insurers submitted an affidavit by Lawrence Boysen, senior vice president and corporate controller of Continental Casualty Company. Mr. Boysen’s affidavit reflected that he had personal knowledge of the Insurers’ day-to-day operations and described the standards and procedures that an insured must follow throughout the adjustment process to receive compensation for a claim.

Mr. Boysen stated that he had personally reviewed the Insurers’ records to ensure that the payments reflected therein had been properly made for losses suffered by their policyholders, insured and reinsured, for claims arising from the 9/11 attacks.

Mr. Boysen’s affidavit was accompanied by four exhibits with schedules providing the payments made on the Insurers’ (a) insurance policies; (b) reinsurance policies; (c) participation in the AAU insurance program; and (d) attorneys’ fees.

The magistrate judge’s decision


Magistrate Judge Netburn recommended that the district court grant in part and deny in part the Insurers’ application and that a default judgment be entered in favor of the Insurers in the sum of $221,505,968.40, in addition to prejudgment interest.

In her decision, Magistrate Judge Netburn pointed out that the Insurers generally contended that they were entitled to “the amounts they were compelled to expend under applicable policies of insurance and reinsurance as the result of the September 11th Attacks.” The magistrate judge stated, however, that the Insurers were “not entitled to compensatory damages, however, simply because they expended money as a result of the terrorist attacks.” Rather, the magistrate judge declared, the Insurers only could recover for the losses they expended “under the doctrine of subrogation.”

Rubble after 9/11 terrorist attack in NYC

Magistrate Judge Netburn recommend granting the Insurers’ motion to assess damages against Iran in the sum of $221,505,968.40, as well as prejudgment interest from the dates of payment to the date of judgment. (AP Photo/Wally Santana)

The magistrate judge then found that, to the extent that the Insurers sought to recover amounts paid to their insureds pursuant to their insurance policies, they were “indeed subrogated to their policyholders’ claims for property loss.” The magistrate judge found that the Insurers were subrogated to all but three of the claims of their insureds — whether for property damage or business interruption — found in Exhibit A of Mr. Boysen’s affidavit.

According to the magistrate judge, the Insurers had not demonstated that those claims — “burglary,” with a paid loss net deductible of $305,403.47 (Claim No. RM00625111); “alleged negligence,” with a paid loss net deductible of $13,557.64 (Claim No. IA00114611); and “alleged negligence,” with a paid loss net deductible of $36,314.18 (Claim No. IA00117211) — were sufficiently connected to the terrorist attacks. Accordingly, the magistrate judge recommended deducting these claims from the total and awarding the Insurers damages of $221,505,968.40.

AAU insurance program claims paid


The magistate judge next considered the Insurers’ claim for $3,186,499.40 for claims paid pursuant to their participation in the AAU insurance program. The magistrate judge said that if the sums paid by the Insurers had been properly documented, they also could subrogate to the claims of their insured aerospace clients. The magistrate judge found, however, that the documentation that the Insurers had provided was “insufficient to support their claims for damages.”

Therefore, Magistrate Judge Netburn recommended that the Insurers’ claim for $3,186,499.40 stemming from their participation in the AAU program “be denied without prejudice to a future, more particularized application adequately substantiating that the claims paid were sufficiently related to the terrorist attacks so as to satisfy generally accepted standards of proximate causation.”

Losses for claims adjustment process


Next, the magistrate judge considered the Insurers’ claim that they had suffered losses in the amount of $8,572,527.43 because they had needed to incur costs in the claims adjustment process. These “direct” costs, the magistrate judge said, could not be recovered by the Insurers because the Insurers’ rights were “limited to those of their subrogors.”

Because the adjustment costs would not be recoupable by the insured policyholders themselves, were they to have made a direct claim against Iran, the Insurers had not demonstrated that they could recover such incidental costs on a subrogation theory, the magistrate judge declared.

Reinsurance contracts


The magistrate judge then examined the Insurers’ claim for compensatory damages for losses they had incurred on account of the reinsurance contracts that they had with insurers that made payments in connection with the September 11 attacks, in the sum of $305,737,641. The magistrate judge declared that, because a reinsurer had no contractual obligation to the insured party who suffered the initial property loss or damage, it had no subrogation rights.

With respect to the Insurers’ reinsurance contracts, the magistrate judge continued, the “reasonably foreseeable property loss” had been sustained not by their reinsured clients — insurance companies holding primary insurance contracts with their policyholders — but by the insured policyholders who had no contractual privity with the Insurers. Therefore, Magistrate Judge Netburn added, the Insurers could not equitably subrogate to and “stand in the shoes” of these policyholders’ claims, and they were “not entitled to the $305,737,641 sought under their reinsurance contracts.”

Attorneys' fees


The magistrate judge recommended that the district court deny the Insurers’ claim for the attorneys’ fees they had incurred from the commencement of their action through February 1, 2017. The magistrate judge reasoned that the Insurers had not set forth “any basis” under 28 U.S.C. § 1605A on which attorneys’ fees were recoverable. In addition, the magistrate judge said, the Insurers had not provided sufficient documentation of the “nature of the work done” to be able to analyze the reasonableness of the hours expended.

Related: 9/11 attacks 15 years later: A look at losses by the numbers

Finally, the magistrate judge recommended that the district court award the Insurers prejudgment interest in the amount they sought: 9% simple interest pursuant to Section 5001 and Section 5004 of the New York Civil Practice Law and Rules (CPLR) to the extent their claims arose out of losses in New York State plus 4.96%, compounded annually, to the extent that their claims arose elsewhere. The magistrate judge concluded that prejudgment interest should be computed from the dates of payment of claims.

In summary, Magistrate Judge Netburn recommend granting the Insurers’ motion to assess damages against Iran in the sum of $221,505,968.40, as well as prejudgment interest from the dates of payment to the date of judgment at the rates of (1) 9% simple interest for all claims arising from losses in New York State; and (2) 4.96% per annum, compounded annually, for all claims arising from losses outside of New York State.

Finally, Magistrate Judge Netburn recommend that the Insurers’ claims stemming from their reinsurance contracts, claims adjustment costs, and attorneys’ fees be denied, and that their claims arising from their participation in the AAU program be denied without prejudice to a further, more particularized application.

The case is Contintental Casualty Co. v. Al Qaeda Islamic Army (In re Terrorist Attacks on September 11, 2001).

Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law.

Related

Dealing with terror

The shape of terrorism is changing and insurers must focus on its new risks.

Featured Video

Most Recent Videos

Video Library ››

Top Story

20 safest airlines to fly with in 2018

To recognize those leading the way, AirlineRatings.com released its annual list of the world's safest airlines. Of the 409 airlines it monitors, 20 stand out as the 'best of the best.'

Top Story

11 ways cars will be smarter in 2018

Connected vehicle technology, better electric batteries, and 'infotainment' systems are just three of the trends for insurers and claims specialists to watch.

More Resources

Comments

eNewsletter Sign Up

Specialty Markets Insight eNewsletter

Receive updates and analyses on hard to place and challenging coverages. Sign Up Now!

Mobile Phone

Advertisement. Closing in 15 seconds.