UNITEDSTATESDISTRICTCOURT

SOUTHERNDISTRICTOFNEWYORK
-----------------------------------------_._--_._-----._..._-._-_.-.- )(
IN RESEPTEMBERIILITIGATION
-----_......_._-_.-......__....._._-----_._--_..._.._.-----_.----_._-. )(
WORLDTRADECENTERPROPERTIESLLCetaI.,
Plaintiffs,
-against-
UNITEDAIRLINES,INC.etaI.,
Defendants.
--.._-_......_..._._._-_._-_......_.-._.._-_.--_.._._--_..._-._------ )(
WORLDTRADECENTERPROPERTIESLLCctaI.,
Plaintiffs,
-against
AMERICANAIRLINES,INC.,etaI.,
Defendants.
---_._--_.__.._.._......_.._.._........._._......._....._..._-----...- )(
ALVINK. HELLERSTEIN,U.S.DJ.:
,ic!.\. u., FILED
vue#:
DATEF='l=--E-n-:
21 MC 101 (AKH)
OPINIONANDORDER
DENYINGMOTIONTO
CREDITINSURANCE
RECOVERIESAGAINST
POTENTIALTORT
RECOVERIES
08Civ. 3719(AKH)
08 Civ.3722(AKH)
OnJuly16,2001,plaintiffsWorldTradeCenterProperties,LLC andaffiliated
companies(collectively"WTCP")purchased99-yearleasestofourWorldTradeCenter
buildings,TowersOne,Two,Four,andFive,fromthePortAuthorityofNewYorkandNew
Jersey,Inc.,theowneroftheproperties. Plaintiffspaid$2.805billion. Twomonthslater,the
terroristaircrashesof September11 causedtheTwinTowers(TowersOneandTwo)tobec{)me
raginginfernosandcollapse. AndtheircollapsecausedTowersFourandFive(andTower
Seven) to collapse. WTCP sued United Airlines, American Airlines, and others (collectively, the
"Aviation Defendants" or "Defendants"), alleging that but for the Aviation Defendants'
negligence, the terrorists could not have boarded and hijacked the aircraft and flown them into
the Twin Towers.
WTCP also recovered $4.091 billion from insurance.
l
The Defendants now move
for "collateral setoff," alleging that insurance recoveries more than compensated WTCP for
potential tort recovery. See N. Y. C.P.L.R. 4545.
Defendants' motion is denied. The overlap between WTCP's insurance recovery
and its potential tort recovery presents issues of fact requiring trial.
I. Factual and Procedural Background
The issue presented by this motion follows from my earlier opinions in this
matter. In December 2008 I limited WTCP's recovery to the lesser oHair market value or
replacement cost. In re September 11th Litig., 590 F. Supp. 2d 535 (S.D.N.Y. 2008). In a
follow-up order, after separate briefing and argument, I fixed the limit oftort recovery at $2.805
billion. The price paid for the leases, I found, was equivalent to their fair market value on
September 11,2001. In re September 11th Litig., 2009 WL 118105721 MC 101 (April 30,
2009, S.D.N.Y.). The Aviation Defendants then moved for collateral setoff, and I denied the
motion as premature. In re September 11th Litig., 21 MC 101, Doc. No. 945 (Sep. 30, 2009,
S.D.N.Y.). I assume familiarity with this background.
A. WTCP's Insurance Coverage
By the terms of its leases, WTep covenanted, in the event of damage or
destruction to the leasehold, to "rebuild, restore, repair and replace" the premises to the extent
I The exact amount of recovery was $4,091,364,034, inclusive ofa payment of$563 million to GMAC, one of
WTCP's creditors. See In re September 11th Litig., 21 MC 101, Doc. No. 945 (Sep. 30, 2009, S.D.N.Y.).
2
"feasible,prudentandcommerciallyreasonable." See,e.g.,AgreementofLease: OneWorld
TradeCenter,15.1,2 WTCPagreedalsotoinsurethebuildingsagainstpropertydamagefor
thelesserof"actualreplacementcost"or$1.5 billion"peroccurrence." rd. 14.1.1. Theleases
providedthattherewastobe noexclusionfor"terroristacts,"solongassuchapolicytermwas
available"atcommerciallyreasonablerates." Id.
Additionally,toensurethatWTCPwouldbe abletocontinuetomakeitslease
paymentstothePortAuthorityintheeventthatabuildingwas"outof operation,"WTCPagreed
alsotoinsureagainst"LossofRevenuelBusinessInterruption"insuchamountsas"reasonably
requiredbythePortAuthority,"tocoverathree-yearperiodofno buildingoperation. rd.
14.1.2.
Uponsigningthe99-yearleases,WTCPprocuredtwelve-layer,multiple-company
insurancecoverageaggregating$3,546,800,000"peroccurrence." Thecoverage,defined by
differentinsuranceformsandbinders,includedPropertyDamageandBusinessInterruption
coverage,asrequiredbytheleases. ThePropertyDamagecoverageinsuredthe"interestofthe
Insuredinallpropertyof everykindanddescriptionownedorused...." TheBusiness
Interruptioninsurancecoveredlostrevenuesresultingfromthe"necessaryinterruptionor
reductionofbusinessoperations.,.causedbyloss,damage,ordestruction...."
2 The lease provides:"IfthePremises...oranystructures,improvements,fixturesandequipment, furnishingsand
physicalpropertylocatedthereon,oranypartthereof,shall be damagedordestroyedbyfire,theelements,the
publicenemyorothercasualty,orby reasonof anycausewhatsoeverand whetherpartialortotal, the Lessee,atits
solecostandexpense,andwhetherornotsuchdamageordestruction iscoveredbyinsuranceproceedssufficientfor
thepurpose,shallremovealldebrisresultingfromsuchdamageordestruction,andshallrebuild,restore,repairand
replacethePremises...and anystructures,improvements,fixturesand equipment,furnishingsandphysical
propertylocatedthereonsubstantially inaccordance,totheextentfeasible,prudentandcommerciallyreasonable,
with theplansandspecifications, forthesameastheyexistedpriortosuchdamageordestructionorwiththe
consentinwritingof thePortAuthority, which consentshallnotbeunreasonablywithheld,conditioned,ordelayed,
makesuchrepairs,replacements,changesoralterationsasis mutuallyagreedtobythePortAuthorityandthe
Lessee." Agreementof Lease: One WorldTradeCenter, \5.1.
3
AftertheTowerscollapsed,WTCPfiledPreliminaryProofsofPartialLoss
("PPOPL"s),ofapproximately$8billiondollars? WTCPandtheinsurersengagedinlitigation
overwhetherthe9/11 attacksontheTradeTowersconstitutedone"occurrence"ortwo,as
defined bythedefinitionsinthe variousbindersandpolicies. SeeSRInt'IB\ls. Ins. Co.v. World
TradeCtr. Props.,LLC, 467F.3d107(2dCir. 2006. Ultimately,thepartiessettledat$4.091
billion,andtheinsurerspaidthatamounttoWTCP. Thepartiesdidnotallocatethe settlement
betweenPropertyDamageandBusinessInterruption.
B. WTCP'sLawsuit Against the Aviation Defendants
Initslawsuit,WTCPallegedthatit suffereddamagesof$8.4billion,the
estimatedcostofreplacingtheTowers,and soughtrecoveryagainsttheAviationDefendantsfor
theirnegligence. TheAviationDefendantsdeniedthattheywerenegligentanddeniedthatthey
couldbe liablebeyondthefairmarketvalueoftheleasehold. OnDefendants'motionfor
summaryjudgment,Iheldthatatortrecoverywaslimitedtothelesseroffairmarketvalueor
replacementcost,andruledthatthelossinmarketvalueofWTCP's99-yearleasehold,valuedas
ofSeptember11,2001,wasthemostthatit couldrecover. InreSeptember11thLitig.,590F.
Supp.2dat536. IruledthatWTCPcouldnotrecoverintort, in asuitfornegligence,the
damagesflowingfromitscontractualobligationsto"rebuild,restore,repairandreplace"the
TradeCenterbUildings. Iheldthatthe"particularfeaturesofWTCP'scontractscannotbe made
thespecialresponsibilityoftheAviationDefendants...." Id.at544.
Afterfurthersubmissionsbytheparties,IdeterminedthevalueofWTCP's
destroyedleaseholdonSeptember11,200Itobe$2.805billion-thepriceWTCPagreedtopay
thePortAuthorityfortheleaseholdonlyafewmonthsearlier. In Ie September11 Litig.,21 MC
101 (AKH),2009WL 1181057at"4 (S.D.N.Y. Apr.30,2009). IrejectedWTCP'sargument
, Plaintiffs' expertfound theIotal tobeapproximately$7.846billion;Defendants'expertfoundittobe$8.531.
4
thatitsleasehold,measuredbyitsvalueas burdenedby itscovenanttorebuildtheTradeCenter,
hadtakenonanegativevalue. Id. at*3.
DefendantsnowarguethatsinceWTCPrecovered$4.091 billionfrominsurance,
itcannotrecoverthelesseramountof$2.805 billion,thefairmarketvalueofitsdestroyed
leasehold.
4
Inorderto makesuchafinding, Iwouldhavetofind,toa"reasonablecertainty,"
thatthecategoriesofinsurancepaymentsreceivedby WTCP"correspond"tothecategoriesof
potentialdamagesWTCPcouldrecoverinits lawsuitagainsttheAviationDefendants. Onthis
record, beforetrial, Iamnotabletomakesuchfindings.
II. NewYorkC.P.L.R.Section4545andItsJudieialInterpretation
NewYork'sC.P.L.R. Section4545 isknownasa"collateralsourcelaw."
Essentially,itprovidesthatifaplaintiffhasbeencompensatedforeconomiclossby some
"collateralsource,"suchas insurance,theplaintiffcannotrecovercompensationagaininatort
lawsuitagainstadefendant. Thestatuteprovides:
Inanyactionbroughttorecoverdamagesfor personalinjury,injurytopropertyor
wrongfuldeath,wheretheplaintiffseekstorecoverfor ...lossofeamingsor
othereconomic loss, evidenceshallbeadmissibleforconsiderationbythecourt
toestablishthatanysuchpastorfuturecostorexpensewasorwill,with
reasonablecertainty,bereplacedorindemnified,inwholeorin part,from any
collateralsourcesuchasinsurance(exceptforlifeinsurance)....Ifthecourt
findsthatany suchcostorexpensewasorwill,withreasonablecertainty,be
replacedorindemnifiedfromany collateralsource, itshallreducetheamountof
theawardbysuchfinding,minusanamountequaltothepremiumspaidbythe
plaintiffforsuchbenefitsforthetwo-yearperiod immediatelyprecedingthe
accrual ofsuchactionandminusanamountequaltothe projectedfuturecostto
theplaintiffofmaintainingsuchbenefits.
N.Y.C.P.L.R. 4545(c)(2008).5
4 wrcparguesthatthe$2.805 billionrepresentsthe valueofthe leasesto thePortAuthority,notWTCP. wrcP's
value, itargues,shouldbemeasuredbytheprofit(orloss) wrcpwouldexpectfromthelease, Forlitigation
purposes.however,valueis notsubjective,butratherthe"fairmarketvalue,"thevaluethata ready,willing,and
able buyerandsellerwouldagreetoexchangeforthespecificproperty,ontheopenmarketandinanarm'slength
transaction, l!tt Black's,8'"Ed" at 1587, wrcPengagedinjustthattransactiononJuly 16,2001.
'Section4545(c)hassincebeenamended,effectiveNovember12, 2009,andredesignatedSection4545(a),
However,actionsfiledbeforetheeffuctivedatearegovernedbytheearlierlanguage,quotedinthetext.
5
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Importantly,Section4545(c)doesnotprovideforareductionin damages
basedonanyandalloftheplaintiffscollateralrecoveries. Rather,"reductionis
authorizedonlywhenthecollateralsourcepaymentrepresentsreimbursementfora
particularcategoryof lossthatcorresponds toacategoryoflossforwhichdamageswere
awarded." Odenv.ChemungCountyIndus.Dev.Agency,87N.Y.2d81,84(1995)
(emphasisadded). Andcorrespondencemustbeprovenbya"reasonablecertainty."
Turnbullv. USAir,Inc., 133 F3d184, 188(2dCir, 1998). Thepurposeofthelawis"to
eliminatewindfallsanddoublerecoveriesforthesameloss."Fisherv.QualicoContr.
Corp.,98N.Y.2d534,537(2002). Achievingthisgoal"isservedbysubtractingfrom
thetotalawardthosecollateralsourcepaymentsthatduplicateorcorrespondtoa
particularitemofeconomicloss." Oden,87N.Y.2dat88. Butsubtractionof all,even
non-duplicativepayments,would"produceresultsbeyondthosenecessarytoremedythe
[windfallstoplaintiffs]atwhichthe legislationwasaimed"and"wouldconferan
undeservedwindfallontortdefendantsandtheirinsurers...." Id.at88.
III. ApplicationofCorrespondencebetweenWTCP'sLossesandInsuranceRecoveries
A. WTCP'sPotentialRecoveryofDamages
Byreasonoftheeventsof9/11, WTCPlostitsrevenue stream,untiltheleasehold
propertycouldberestored. However,pursuantto itslease,itwasobligatedtocontinuetopay
rentstothePortAuthority, TheleaserequiredWTCPtoprocurePropertyDamageinsuranceto
facilitatetherebuildingof thetowersshouldtheybedamagedordestroyed,andBusiness
InterruptioninsurancetofacilitateWTCP'sabilitytocontinuetopayrentshoulditsanticipated
revenuesbedisrupted. AgreementofLease:OneWorldTradeCenter,14.1.1, 14.1.2. The
anticipatedexpensesof procuringsuchinsurancearesubsumedinareal estatedeveloper's
6
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calculationofaleasehold'santicipatednetincomeand,hence,thepriceit iswillingtopayfor
theproperty. Thus,thefairmarketvalueoftheWTCPleasehold,asofSeptember11,2001,
reflectedalltheserevenueandexpenseingredients. Thesefactors mayenterintothecalculation
offairmarketvaluethatready,willing,andablebuyersandsellersarewillingtopayandto
receive. IwouldassumethatthepricepaidbyWTCP,andacceptedbythePortAuthority-
$2.805billion-andthecompetitivebidsthatprecededtheagreement,reflectedallthe
ingredientsof anticipatedrevenueandexpense.
B. WTCP'sInsuranceRecoveries
WICPsettleditslitigationagainstitsinsurersfor$4.091 billion,alittlemorethan
half itsPPOPLtotalof approximately$8 billion. WICP'sclaimmainlyfellintotwocategories:
PropertyDamageinsurancetodefraythecostofrebuildingtheleasedproperties,andBusiness
InterruptioninsurancetocompensateforWICP'slostrevenuestreamandtodefraytheburden
ofWICP'scontinuingobligationtopayrenttothePortAuthority. Iheproportionsof each
categorytothe wholewere84.2to 15.8,respectively." If thoseproportionsweretobeappliedto
theinsurancerecovery(andtherelevanceof takingsuchproportionsisfar fromclear),
$3,444,622,000wouldbeallocableto propertydamage,and$646,378,000tobusiness
interruption. ThelegalquestioniswhetherornotthereiscorrespondencebetweenWICP's
insurancerecovery,oranypartofit,andWICP'spotentialdamagerecoveryinthislawsuit.
Oden,87N.Y.2dat84.
6 ThisproportionwascalculatedbyexaminingWTCP'sPPOPLs. However,asthesePPOPLsneverturnedinto
claimsevaluatedintheadjustmentprocess,Ihisproportionmaybearbitrary,and thus unsatisfactory.
7
C. Correspondence Between Insurance and Tort Recoveries Has Not Been Shown
to a Reasonable Certainty
AsstatedbytheNewYorkCourtofAppealsin Oden,"reduction[of damages]is
authorizedonlywhenthecollateralsourcepaymentrepresentsreimbursementforaparticular
categoryoflossthatcorrespondstoacategoryoflossforwhichdamageswereawarded." 87
N.Y.2dat84. Andcorrespondencemustbeprovedtoa"reasonablecertainty." Turnbull, 133
F.3dat188. TheAviationDefendantsarguethatbothaspectsofWTCP' sinsurancerecovery-
PropertyDamageandBusinessInterruption-shouldcorrespondto WTCP'stortlossofthe
valueofitsleasehold,therebysubsumingallofWTCP'stortclaims. Butthatis notclear. The
proof of theexperts,seekingtorelate,ornottorelate,a grossinsurancerecoverytovarious
amountsof damage,raisesmanyquestionsof correspondence. WTCPsuffereddifferent
categoriesoflossonthemorningofSeptemberII, andtheissueofcorrespondencebetween
themandWTCP'sinsurancerecoveriespresentsissuesofcomplexityandnuancethatwill
requireatrialtoclarify.
IV. Conclusion
Defendants' motiontocreditinsurancerecoveriesagainstpotentialtortrecoveries
isdenied. Theissueisnotsuitableforsummarydispositionontherecordpresented. Theclerk
shallterrninatethemotions(08Civ.3719,Doc.No. 153;08Civ. 3722,Doc.No. 169).
SOORDERED.
Dated: 2012
New York
UnitedStatesDistrictJudge
8