World Trade Center Decision: ‘Replacement Cost’ Does Not Include Hypothetical Upgrades

On Halloween there was yet another World Trade Center coverage decision which I’ve been trying to find time to write about.  I decided today was it or it’s too stale, especially in light of the fact that I’m not all that enthusiastic about the importance of the case in the first place.  Finally, I figured, what the heck, $1.4 billion was at stake, so I might as well say something. The case is SR International Business Ins. Co. v. World Trade Center Properties LLC, 2006 WL 3073220 (S.D.N.Y. October 31, 2006).

At issue were property insurance policies that had not yet been issued but that bound coverage from  Travelers Indemnity, Allianz, Gulf, Zurich American, Royal Indemnity and Industrial Risk Insurers.  The insured was Silverstein Properties, which had just signed a 99-year lease on the World Trade Center when it was destroyed.   All the policies provided coverage on a "replacement cost" basis.  

The issue was whether replacement cost means the amount it would take to build a World Trade Center identical to the one that was destroyed, or in the words of the court, "the additional expenses that would be required to adapt the structures’ design to the changed legal, physical, and political environment of post-9/11 New York."  The debate over upgrades was hypothetical, of course, because neither the Twin Towers nor anything resembling them will be rebuilt.  The insurers wanted to pay $700 million, Silverstein wanted that plus another $700 million.  Judge Harold Baer Jr. found for that "replacement cost" unambiguously referred to just that, and found for the insurers.

By the way, here is a link to Tom Bower’s latest round-up of New York coverage cases, which includes this case.  Tom writes some pretty good analyses of these cases that make me wish I had more time to spend on the scholarly aspects of coverage.  While I was reading his summaries, I thought back to when I was ready to start this blog last year and a couple (non-coverage) people I know said, "What in the world could you possibly find to write about every day?"  Just look at the list of cases from just one state: almost half of them contain some issue of significance.  Even blogging every day, I’m not even scratching the surface of what there is to talk about.  

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