Insurers are threatening not to pay out on claims created by the devastation of the World Trade Centre after it emerged that crucial details of the $3.4bn (£2.3bn) cover had not been determined when the terrorist attacks took place on 11 September.
An argument is likely to erupt over the claims between insurers in the UK and abroad and Willis, the broker that placed the insurance, over the interpretation of whether the flying of the hijacked planes into the World Trade Centre constituted one or multiple events.
The definition is key to the final bill the insurers of the towers will have to pay. The cost will be less if the attack is deemed to be one event, because insurance policies contain maximum levels of payouts that cannot be exceeded even if the cost of the damage is much greater.
But, due to ambiguities surrounding the exact nature of the insurance on the World Trade Centre, the devastation could be defined as up to four events, which would in effect quadruple the cost for the many insurers and reinsurers that underwrote the liability. These ambiguities exist because Willis agreed the legally-binding basics of the cover in July, when the towers were leased from the Port Authority of New York and New Jersey by Silverstein Properties of the US. But Willis had not written the detailed wording of the policies when the devastation took place.
Determining policy details after a liability is placed in the market is common practice in the industry because it allows companies to receive cover as soon as they need it, rather than waiting for usually technical details to be worked out often with more than one insurer.
Yet the lack of detail in the case of the World Trade Centre could turn out to be critical to the final payouts. It could also be financially damaging for Silverstein, which fully insured the towers but has financial obligations to the various banks and bond holders that financed the lease. Silverstein may choose to try to pass the onus for any unpaid claims on to Willis.
One insurer with exposure to the towers said: "It comes down to questions of whether the policy refers to an 'event' or an 'occurrence', an 'accident' or a 'loss'. This was not determined but it will be a combination of these key words which will define the legal positions of the insurers."
Willis, the third largest insurance broker in the world, has not yet issued a formal bill for claims to insurers. A spokesman for the company confirmed that detailed policy language had not been written by 11 September, but said there was no indication there would be a dispute over the wording.
A Willis spokesman said: "The coverage was fully bound and enforceable. We have had considerable experience of disasters, from Titanic to Piper Alpha. We always work with our clients."
It is likely that the insurers will pay out on the World Trade Centre losses. But they will try to use the difficulties of definition in the policies to drive a hard bargain over exactly what they are liable for. Those with a substantial exposure include Lloyd's, ACE of Bermuda and Swiss Re.Reuse content