Sunday, Dec 12, 2004, 5:11 AM EST
NEW YORK NOW:
Judge John S. Martin Jr.'s Latest Opinion in Swiss Re v. WTC.
September 25, 2002
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
SR INTERNATIONAL BUSINESS INSURANCE CO. LTD., Plaintiff-Counterclaim
Defendant, -v.- WORLD TRADE CENTER PROPERTIES LLC, et al.
01 Civ. 9291 (JSM)
OPINION & ORDER
WORLD TRADE CENTER PROPERTIES LLC, et al., Counterclaimants, -v.-
ALLIANZ INSURANCE COMPANY, et al. Additional Counterclaim Defendants.
JOHN S. MARTIN, Jr., District Judge:
This litigation has already given rise to several opinions of the
Court. Familiarity with those opinions and the background of this
litigation is assumed.
At the time of the terrorist attack on the World Trade Center on
September 11, 2001, over twenty individual insurance companies had
signed binders which obligated them to provide property damage
insurance, but, with minor exceptions, they had not issued formal
Presently before the Court are motions for partial summary judgment by
Hartford Fire Insurance Company, Royal Indemnity Company and St. Paul
Fire and Marine Insurance Company. In each of these motions, the
insurer argues that at the time it issued its binder it agreed to be
bound on the basis of a specific form of insurance provided by Willis
of New York, Inc. ("Willis"), the broker for the Silverstein Parties,
and that this form - the WilProp form - contained a definition of
"occurrence" under which the terrorist attack on the World Trade Center
is unambiguously a single occurrence. Accordingly, each of the insurers
seeks to limit its liability to the Silverstein Parties to one single
payment in the face amount of the policy.
While conceding that the insurers' reading of the WilProp occurrence
definition is the most reasonable one, the Silverstein Parties argue
that it is not the only reasonable reading, and that therefore the
question of the number of occurrences under the WilProp form must be
decided by a jury. More significantly, however, the Silverstein Parties
do not concede that the WilProp definition of occurrence is
incorporated into the binders. They assert that at the time these
insurers signed the binders they were well aware that they were
committing themselves to participate in a process in which they would
ultimately agree to be bound to the contract terms negotiated by the
insureds and the lead underwriter, which in this case became The
Travelers Insurance Company. Thus, the Silverstein Parties argue that
as of September 11th, each of these insurers was bound to the terms to
which Travelers and the insureds had agreed as of that date.
I. THE TERMS OF THE BINDERS
In large measure, the position of the Silverstein Parties rests on the
argument that the binders at issue here were what Judge Leval has
characterized as a "binding preliminary commitment." As he explained in
Teachers Insurance & Annuity Association v. Tribune Co., 670 F.
Supp. 491, 498 (S.D.N.Y. 1987):
Preliminary contracts with binding force can be of at least two
distinct types. One occurs when the parties have reached complete
agreement (including the agreement to be bound) on all the issues
perceived to require negotiation. Such an agreement is preliminary only
in form--only in the sense that the parties desire a more elaborate
formalization of the agreement. The second stage is not necessary; it
is merely considered desirable.
* * * * *
The second and different sort of preliminary binding agreement is
one that expresses mutual commitment to a contract on agreed major
terms, while recognizing the existence of open terms that remain to be
negotiated. Although the existence of open terms generally suggests
that binding agreement has not been reached, that is not necessarily
so. For the parties can bind themselves to a concededly incomplete
agreement in the sense that they accept a mutual commitment to
negotiate together in good faith in an effort to reach final agreement
within the scope that has been settled in the preliminary agreement.
* * * * *
This obligation does not guarantee that the final contract will be
concluded if both parties comport with their obligation, as good faith
differences in the negotiation of the open issues may prevent a
reaching of final contract.
See also Adjustrite Systems, Inc. v. GAB Business Services, Inc., 145
F.3d 543, 548 (2d Cir. 1998); Shann v. Dunk, 84 F.3d 73, 77-78 (2d Cir.
1996); Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 71-72
(2d Cir. 1989).
However, insurance binders are not either one of the types of
preliminary contracts referred to by Judge Leval. An insurance binder
is a unique type of contract. While not all of the terms of the
insurance contract are set forth in the binder, "[a] binder' is a
present contract of insurance..." Ell Dee Clothing Co. v. Marsh, 247
N.Y. 392, 396 (1928). A binder is "a short method of issuing a
temporary policy for the convenience of all parties, to continue until
the execution of the formal one." Lipman v. Niagara Fire Ins. Co., 121
N.Y. 454, 458 (1890).
The terms of a binder are not left to future negotiation. Rather, as
the New York Court of Appeals explained in Employers Commercial Union
Ins. Co. v. Firemen's Fund Ins. Co., 45 N.Y.2d 608, 612-13 (1978):
It is a common and necessary practice in the world of insurance, where
speed often is of the essence, for the agent to use this quick and
informal device to record the giving of protection pending the
execution and delivery of a more conventionally detailed policy of
insurance. Courts, recognizing that the cryptic nature of binders is
born of necessity and that many policy clauses are either stereotypes
or mandated by public regulation, are not loath to infer that
conditions and limitations usual to the contemplated coverage were
intended to be part of the parties' contract during the binder period.
(Matter of Seiderman v. Herman Perla, Inc., 268 N.Y. 188; Ell Dee
Clothing Co. v. Marsh, 247 N.Y. 392).
The law of New York with respect to binders does not look to the
negotiations of the parties to see what terms might ultimately have
been incorporated into a formal policy. Nor does it suggest that the
parties will not be bound if they fail to agree on important terms
after negotiating in good faith. To the contrary, the New York Court of
Appeals has made clear that when a binder is signed, "the contract of
insurance [is] closed and the binder [becomes] in effect the same as a
regular insurance policy . . . ." Seiderman v. Herman Perla, Inc., 268
N.Y. 188, 190 (1935). To consider a binder merely a preliminary
agreement could deprive the insured of "protection pending the
execution and delivery of a more conventionally detailed policy of
insurance." Employers Commercial Union, 45 N.Y.2d at 612-13.1
While there is evidence indicating that, had the terrorist attack of
September 11, 2001, not occurred, the insurers would all have
ultimately agreed to policies that did not define the term
"occurrence", that possibility is irrelevant. Under New York law, the
question to be determined here is not, "What were the terms to which
the parties might ultimately have agreed to become bound?" but rather,
"What were the terms to which they were bound?"
Where, as here, there is no completed written contract setting
forth the entire agreement between the parties, the court must look to
extrinsic evidence of the circumstances surrounding the negotiation and
drafting of the agreement as well as correspondence between the parties
in order to ascertain the terms of the parties' complete agreement.
U.S. West Fin. Servs., Inc. v. Tollman, 786 F. Supp. 333, 342 (S.D.N.Y.
1992); Joseph Victori Wines, Inc. v. Vina Santa Carolina S.A., 933 F.
Supp. 347 (S.D.N.Y. 1996). In making this inquiry, the reasoning in
Martin Delicatessen v. Schumacher, 52 N.Y.2d 105, 109, 436 N.Y.S.2d
247, 249 (1981), applies. In that case, Judge Fuchsberg stated:
[B]efore the power of law can be invoked to enforce a promise, it must
be sufficiently certain and specific so that what was promised can be
ascertained. Otherwise, a court, in intervening, would be imposing its
own conception of what the parties should or might have undertaken,
rather than confining itself to the implementation of a bargain to
which they have mutually committed themselves. Thus, definiteness as to
material matters is of the very essence in contract law. Impenetrable
vagueness and uncertainty will not do (1 Corbin, Contracts, s 95, p.
394; 6 Encyclopedia of New York Law, Contracts, s 301; Restatement,
Contracts 2d, s 32, Comment a).
52 N.Y.2d at 109, 436 N.Y.S.2d at 249.
Thus, this Court does not have a roving commission to impose its
conception of what is fair upon the parties before it. Nor may the
Court consider the public interest in the rebuilding of the World Trade
Center in deciding the question of whether the binders issued by these
insurers entitle the Silverstein Parties to recover twice the face
amount of the insurance they purchased.
What the Court must do is examine the facts with respect to the
negotiations between the brokers for the Silverstein Parties and each
of these insurers to determine what the terms of their binders were on
September 11, 2001.
1. Hartford Fire Insurance Co.
On June 7, 2001, Willis broker Timothy Boyd sent a property
underwriting submission, including a copy of the WilProp form, to
Hartford underwriter John Gemma. On June 28th, Gemma issued a quote to
Boyd authorizing limits of $50 million excess of $75 million. After the
heading, "FORM", the quote stated, "Manuscript Forms Submitted With
Attached Amendments." Gemma attached specific pages of the WilProp
form, which he had amended, in addition to two pre-printed policy
clauses excluding coverage of certain pollution and electronic data
recognition problems. Next to the heading, "SUBJECT TO," Gemma typed
the following: "Policy Forms Must Be Received Within 60 Days of
Inception Otherwise HSC Forms Will Be Used."
On July 7th, Boyd e-mailed Gemma to see if Hartford would agree to
"drop down" from its quoted $75 million attachment point to $50
million, and thereby participate with Travelers in the proposed layer
of $400 to $450 million excess of $50 million. Boyd also forwarded an
e-mail to Gemma that he had sent to Travelers the previous day, which
noted the need to "sort our non-concurrent terms and conditions" as
commitments are made. In response to Boyd's request for a modification
of Hartford's participation, Gemma issued a new quote calling for $50
million as part of a $450 million layer excess of $50 million. After
the heading, "FORM," the quote stated, "Manuscript Forms Submitted With
On July 12th, as a result of objections from his superiors to the
extent of the participation, Gemma sent Boyd an e-mail retracting
Hartford's modified quotation and seeking to limit Hartford's
participation to $25 million. In response, Boyd called Gemma and said
that it was too late to limit Hartford's participation. According to
Boyd, he informed Gemma at this time that the Travelers form would be
used and Gemma requested a copy of the Travelers form once it was
finalized. After speaking with Boyd, Gemma sought authorization from
his supervisors to increase Hartford's participation from $25 million.
Hartford's Boston office authorized Gemma to quote $32 million of a $50
million layer excess of $75 million. Gemma advised Boyd of this revised
quotation by phone and e-mail.
On July 17th, Boyd sent an e-mail to Gemma binding Hartford's $32
million in coverage. Boyd's e-mail stated: "We [Willis] will issue
formal documentation soonest."
On July 18th, Boyd e-mailed Gemma and Gemma's assistant, urgently
requesting Hartford's policy number for the Silverstein program. The
following day, Gemma sent a one-page document entitled "outline of our
property BINDER." This document was prepared on the same form as
Hartford's June 28, 2001 and July 9, 2001 quotations. Like those prior
quotations, in its "FORM" section it stated, "Manuscript Form Submitted
With Attached Amendments."
On July 20, 2001, Boyd e-mailed Gemma to advise him that Willis was
"working diligently with primary carriers to refine policy form" and
attached a "Binder of Insurance." Under the heading "Property and Time
Element Covered," the following language was included in the binder:
"And as incorporated into the manuscript form, in conjunction with the
contract between the Port Authority of New York and New Jersey as
ultimately agreed." According to Boyd, this section conveyed that
coverage terms would be "as ultimately agreed" in the "program policy
form," meaning the Travelers form. Gemma made some changes to this
document, which reflected the proposed amendments that had been
attached to Hartford's June 28, 2001 quotation. Gemma also changed a
section of the binder which read, "Exclusions:--Per Policy Form as to
be advised" to read "Exclusions: --Per Policy Form as quoted." Gemma
then initialed and signed each page of the binder and returned it to
Boyd. This binder did not include the phrase, "Manuscript Forms
Submitted With Attached Amendments."
On July 24, 2001, the Silverstein Parties and Westfield closed on their
leases with the Port Authority, after receiving binders and slips of
coverage totaling $3.26 billion.
There apparently were no communications of substance between the
parties between the date of the closing and the terrorist attack on
The undisputed facts are that at the time Hartford bound itself to
insure the World Trade Center complex, the only policy form that had
been submitted to it was the WilProp form. In its original commitment
and twice thereafter, Hartford's binders expressly indicated that it
was binding in conformity with the "Manuscript Forms Submitted With
Despite these repeated manifestations of Hartford's intent to bind
itself only to the terms of the manuscript form that had been submitted
to it, i.e., the WilProp form, the Silverstein Parties contend that
Hartford should be bound to a Travelers form which Hartford did not see
before September 11th. To support this claim, they rely on the
affidavit of an alleged expert in the custom and practices of the
insurance industry who notes that it is customary in large placements
like the World Trade Center, for one carrier to serve as the lead
underwriter and for the other carriers to agree to follow the form
agreed to by that carrier and the insured.
Whether or not this is the practice in the industry is not relevant to
the question before the Court. As noted earlier, the issue is not what
contract Hartford might ultimately have agreed to when all negotiations
were concluded. The issue here is what was the contract to which
Hartford was bound on September 11th. To accept the testimony of an
expert as to his opinion concerning the terms the parties would have
agreed to "would be imposing [his]...conception of what the parties
should or might have undertaken, rather than confining [the inquiry]...
to the implementation of a bargain to which [the insurer and the
insured]... mutually committed themselves." Martin Delicatessen v.
Schumacher, 52 N.Y.2d 105, 109, 436 N.Y.S.2d 247 (1981).
Even in the absence of evidence to the contrary, it would be difficult
to believe that Hartford would have bound itself, even temporarily, to
provide millions of dollars of insurance coverage to the Silverstein
Parties without a firm understanding of the essential terms of their
agreement and would leave those terms to the discretion of some other
Here, however, the evidence is all to the contrary. Hartford repeatedly
indicated that it was binding itself to the terms of the "Manuscript
Form Submitted." It never expressed a willingness to be bound to a
"Manuscript Form To Be Submitted." The Silverstein Parties argue that
the legend, "Manuscript Form Submitted" was not added to either of two
Willis forms of Binder of Insurance which Boyd sent to Gemma, and which
he either signed or modified on July 20th. However, Gemma did change
wording in the July 20th binders that referred to a "Policy Form to be
advised" to "Policy Form as quoted." This clearly indicates that
Hartford was not willing to be bound to some as yet undefined policy
form but rather limited its commitment to the only policy form that had
been submitted to it.
In any event, while the parties dispute which of the documents
exchanged on or about July 20th was "the binder," none of the binders
here was a fully integrated contract. Thus, it is appropriate to look
to the terms of the signed documents, as well as other communications
that preceded the issuance of the binder to ascertain the complete
terms of their agreement. Joseph Victori Wines, Inc. v. Vina Santa
Carolina S.A., 933 F.Supp. 347 (S.D.N.Y. 1996)("If the writing is not
integrated, of course, parol evidence of additional contract terms may
be admitted to complete the agreement, so long as the additional terms
do not contradict the written terms.")
With the exception of the language, "Policy Form to be advised,"
which Gemma revised, there was nothing in the Willis binders of July
20th that was in any manner inconsistent with Hartford's repeatedly
expressed intention to be bound only on the "Policy Form Submitted."
There is no merit to the Silverstein Parties' argument that a contrary
intent can be found because those binders contained the words "And as
incorporated into the manuscript form, in conjunction with the contract
between the Port Authority of New York and New Jersey as ultimately
agreed." This language appears under the heading "Property and time
Element Covered." Since Willis' original submission to Hartford
referenced the "Contract Between Silverstein and the Port Authority,"
this statement in the July 20th binder indicates only that the parties
were agreeing that the property to be insured would include all the
property covered in the Silverstein Parties' contract with the Port
Authority as that contract might be amended in their negotiations.
Indeed, in communicating with Royal Indemnity, Boyd attached the
WilProp policy form to an e-mail and wrote, "We have included WilProp
for Real Estate as a guideline form, although ultimate form must meet
property definitions as contained in the contract with PA and
Thus, even if the provision, "And as incorporated into the
manuscript form, in conjunction with the contract between the Port
Authority of New York and New Jersey as ultimately agreed" is read to
refer to the WilProp manuscript form, this provision indicates no more
than that the property definitions in that form will be amended to
reflect the property boundaries as ultimately agreed in the Silverstein
Parties' contract with the Port Authority. It can not reasonably be
read as an agreement that all of the terms of the WilProp form have
been abandoned and the parties' obligations will be fixed solely by
some future agreement.2
No reasonable fact finder could conclude that either Willis or Hartford
believed that by signing the Willis binder Hartford was abandoning its
insistence that it was binding itself only in conformity with the
"Manuscript Form Submitted". Because that "Manuscript Form" was the
WilProp form, Hartford's binder incorporated the WilProp definition of
2. Royal Indemnity Company
A. The Facts
Royal Indemnity Company ("Royal") participated in the World Trade
Center insurance placement through two distinct entities, Royal &
Sun Alliance Risk Management and Global Division ("RMG") in New York,
and Royal Specialty Underwriting, Inc. ("RSI") in Atlanta. While the
Silverstein Parties would like to lump these two entities together, it
is clear that the negotiations with each were completely separate, and
that, prior to September 11th, there was no coordination of the two
insurance placements by either the insureds or the insurers. Moreover,
at this time, Royal is seeking summary judgment only as to RMG's
On June 14, 2001, Willis broker Timothy Boyd e-mailed RMG underwriter
Michael Koenig, seeking his participation in the WTC properties
insurance program. Boyd attached the WilProp policy form to this e-mail
and wrote, "We have included WilProp for Real Estate as a guideline
form, although ultimate form must meet property definitions as
contained in the contract with PA and Silverstein."
On July 9th, RMG e-mailed and faxed an authorization to Boyd for
$100,000,000 of insurance coverage. The fax cover sheet stated: "Tim,
Attached please find our authorization for the above risk...I have
included some form changes that we would be looking for; however, this
authorization would be subject to review and acceptance of the
finalized manuscript form." The authorization
also stated that it was "subject to review and acceptance of the finalized form being used by the primary insurers."
Under the heading "Policy Form," the authorization stated, "Willis
manuscript policy form as submitted except for the changes noted in the
addendum to this quote. Final policy form wording is to be determined
subject to review and acceptance of the final primary policy form
Under the heading, "Covered Perils," Koenig wrote: "as per the Willis
manuscript policy form with the changes described below. Subject to
review and acceptance of the primary manuscript form." Under the
heading "Exclusions," Koenig wrote that coverage was offered "[a]s per
Koenig specifically deleted the second paragraph of WilProp's Clause D,
titled "Participation," which read: "The ___ Insurance Company is the
designated Lead Underwriter and by signature hereto, this Insurer
agrees to abide by and accept decisions of the Lead Underwriter with
respect to underwriting, policy administration, and claims settlement."
Koenig also deleted a clause that indicated that the insurer was the
"author" of the form.
Koenig wrote "subject to review and acceptance of the finalized manuscript form" on each page of the July 9, 2001 Authorization.
Sometime after he received the July 9, 2001 Authorization, Boyd asked
RMG to provide Willis with premium quotes and confirm authorization for
Royal's participation in alternative layers of the WTC insurance
program. In response, Koenig revised his offer, authorizing
participation in two alternative layers. Koenig's revised authorization
stated that "all other terms and conditions would remain as per [RMG's]
On July 17th, Boyd e-mailed Koenig to bind Royal's participation
pursuant to RMG's authorization to provide $50,404,557 of coverage, as
part of the ninth layer of the insurance program ($933 million total,
attaching in the event of a loss exceeding $1.5 billion). On July 19th,
Koenig returned Boyd's e-mail and provided Willis with RMG's policy
number for the coverage.
Around this time, Koenig and Boyd had a telephone conversation.
Koenig's written notes of this telephone conversation stated: "Per
discussion with Tim Boyd of Willis, terms and conditions of policy are
likely to change, becoming more restrictive as form continues to be
negotiated with the primary carriers. End result will most likely be a
modified version of the Travelers Policy form. I told Tim that we would
bind subject to the policy form changes and coverage terms per our
authorization (with the exception of the revised layer). Tim agreed and
told me that this binder was a formality, and it will be revised in our
favor once the primary policy form is finalized." There is a dispute
between the parties as to whether this conversation occurred before or
after Boyd e-mailed the binder to Koenig.
The Willis binder sent by Boyd did not reference either the Travelers
form or the WilProp form. Like the binder sent to Hartford, it
contained the words "And as incorporated into the manuscript form, in
conjunction with the contract between the Port Authority of New York
and New Jersey as ultimately agreed," under the heading "Property and
time Element Covered."
Koenig faxed the signed binder back to Boyd with his handwritten
modifications. Koenig added to the "General Conditions" section of the
binder that Royal's coverage is "subject to form revisions as described
in our authorization." In addition, Koenig added "Bound As Amended and
per our authorization" above his signature on the last page of the July
20, 2001 binder. Finally, the cover note to Koenig's fax stated, "As
discussed, I have made some corrections to the binder in order to make
it in accordance with the terms we authorized."
On August 22, 2001, Willis paid the premium invoice for RMG's coverage.
On August 29th, Boyd informed Koenig that a finalized Travelers form
would be forthcoming. Meanwhile, as Koenig was negotiating with Boyd on
behalf of RMG, another Silverstein broker was separately negotiating
After September 11th, there were discussions at the upper management
level of RMG's parent, regarding the adoption of a consistent position
that would minimize the exposure of the two Royal entities. On October
15, 2001, Boyd e-mailed Koenig a proposed excess-layer insurance policy
form, stating that its final language was being negotiated. Boyd also
attached a copy of the primary Travelers policy to this e-mail, asking
Koenig to see whether RMG would issue the Travelers policy form as its
own policy, as RSI had done. According to Boyd, Koenig responded that
he was prepared to sign and return the form. However, a contemporaneous
e-mail from Koenig to others at Royal indicates that during this
conversation Koenig reminded Boyd that "we quoted and bound coverage on
the Willis form." In any event, after Koenig forwarded the policy on
for review, a senior Royal executive told Koenig to "hold your binder
position" and await "a course of action."
It is hard to imagine a case in which it could be more certain that an
insurer's binder was based on the WilProp form than that of RMG. The
original July 9th authorization that Koenig sent to Boyd stated under
the heading "Policy Form," "Willis manuscript policy form as submitted
except for the changes noted in the addendum to this quote. Final
policy form wording is to be determined subject to review and
acceptance of the final primary policy form wording." The binder that
Koenig signed and faxed to Boyd on July 20th, stated just above
Koenig's signature, "Bound As Amended and per our authorization."
No amount of expert testimony or post-event testimony of interested
parties can change the clear import of the words Koenig used.3 RMG's
binder specifically incorporated the WilProp form as submitted,
including its definition of the term "occurrence".
While there is ample evidence that RMG did not like all of the
provisions of the WilProp form, and that it was aware that as an excess
carrier it would have little leverage to change the terms ultimately
agreed to by the primary carriers, that is not relevant. As noted
above, a binder is "a short method of issuing a temporary policy for
the convenience of all parties, to continue until the execution of the
formal one." Lipman v. Niagara Fire Ins. Co., 121 N.Y. 454, 458
(1890)(emphasis added). Until a formal policy issued, the terms that
Koening incorporated into the binder controlled. Indeed, that is
exactly what Koenig insisted upon when he stated in his authorization,
"Final policy form wording is to be determined subject to review and
acceptance of the final primary policy form wording." Until that
wording was reviewed and accepted, both Royal and its insured were
required to look to the binder to determine the extent of the insurer's
per "occurrence" liability.
3. St. Paul Fire & Marine Insurance Company
A. The Facts
In early July 2001, Stewart Smith broker Harold Tucker contacted Carol
Springett-King, a St. Paul underwriter, about the possibility of St.
Paul participating in the WTC insurance program. On July 3, 2001,
Tucker e-mailed Springett-King a copy of property insurance
specifications for the Silverstein program, which included a schedule
of values for each of the properties to be insured and a ten year loss
On July 9th, Tucker provided Springett-King with a copy of the WilProp
form marked "DRAFT," as well as a risk assessment report. The form did
not identify a particular company as the lead underwriter in the space
allotted for such identification. Tucker did not identify the lead
underwriter to Springett-King.
On July 11th, Springett-King informed Tucker by phone of St. Paul's
quote for its participation in the WTC program. Tucker's notes of the
discussion read: "St. Paul p/o 250 x 250 @1500/mil $375,000." On July
18th, Tucker sent Springett-King an e-mail stating: "Bind effective
7/19/01 to 7/19/02 $30,000,000 p/o $250,000,000 xs $250,000,000 All
Risk Including Flood and Earthquake @ $425,000 100% or $51,000 for your
12% share. Please confirm coverage bound with an assigned policy number
by return e-mail. We need policy numbers for the closing tomorrow."
Springett-King replied by e-mail, stating: "The policy number is
144SP0922. I will send formal binder shortly." St. Paul never issued a
binder. Springett-King testified, during her deposition, that by
sending the policy number she was "confirming coverage."
On July 23, 2001, Michelle Smith, a Senior Technical Assistant at
Stewart Smith, sent Springett-King a copy of the Confirmation of
Insurance. Smith's letter asked Springett-King to review the
Confirmation and advise it if it did not agree with her records. The
letter also read: "We look forward to receiving the policy [from St.
Paul] in due course."
The Confirmation stated that Stewart Smith had "procured insurance
subject to all terms and conditions herein stated, from the Insurer
listed below." It identified the policy as "Manuscript Form to be
agreed." The Confirmation did not identify any lead underwriter and did
not state that St. Paul would be required to follow the form of another
insurer. Although the Confirmation set forth the terms and conditions
of St. Paul's coverage, it was bereft of key terms, including the fact
that 1 World Trade Center LLC, 2 World Trade Center LLC, 4 World Trade
Center LLC and 5 World Trade Center LLC were among the insureds.
On August 1, 2001, Oscar Aguilar of St. Paul sent Tucker an invoice
which was thereafter paid. An internal St. Paul document shows that as
of this date, St. Paul had written $30 million in coverage on the
Silverstein program. The "Policy Form and Conditions" section of the
internal document was blank.
There is no evidence that St. Paul was informed of Travelers
participation in the World Trade Center insurance program at any time
prior to September 11th.
On September 11, 2001, Springett-King called Kevin Nash, Senior Vice
President of her division, and informed him that St. Paul had
participated in the WTC insurance program. She also told Charles Loud,
the St. Paul claims adjuster on the WTC insurance program, that St.
Paul had participated in that program. On September 14th, St. Paul
submitted a notice of loss to its reinsurer, stating that it would be
required to pay the entire position of $30 million on the WTC insurance
policy and thus would be entitled to $24 million from the reinsurer.
On September 17th, Tucker sent an e-mail to Springett-King stating that
"the lead as far as the policy form is concerned is Travelers" and that
he "should have the excess form and a copy of the primary for you
shortly." Springett-King forwarded the e-mail to Loud. In an entry for
this date, Loud's computer journal reads: "received E-Mail [from Carol]
and Travelers is the lead and will issue a policy this week from what
she understands." The journal also indicates that Springett-King told
Loud that day that "Travelers is going to issue the policy..."
On September 18th, Loud sent a "Property Large Loss Report" to St.
Paul's home office which read: "Coverage--Forms and Issues: We have yet
to receive a copy of the policy. The form is going to be issued from
Travelers Insurance Company..."
On October 3rd, Springett-King e-mailed Tom Cesare of Stewart Smith,
saying "We do not have a copy of endorsement 1. Please fax a copy.
Thanks." Stewart Smith sent a complete copy of the Travelers policy, to
which a St. Paul employee affixed a note saying "final form 10/4/2001."
To this, Springett-King added, "All Endorsements Included."
If the Court was empowered to impose "its own conception of what the
parties should or might have undertaken, rather than confining itself
to the implementation of a bargain to which they have mutually
committed themselves," Martin Delicatessen v. Schumacher, 52 N.Y.2d at
109, 436 N.Y.S.2d at 249, St. Paul's motion for summary judgment would
be denied.4 Apparently Springett-King did not even review the WilProp
form before issuing St. Paul's binder. However, a party who accepts a
written offer of a contract without reading it can not be heard to
claim that it is not bound by the terms of that offer.
As Judge Carter of this Court observed recently in Hangzhou Silk Import
& Export Corp. v. P.C.B. Intern. Industries, Inc., No. 00 Civ 6344,
2002 WL 2031591, at *6 (S.D.N.Y. Sept. 5, 2002):
[A party to a contract] will not now be heard to attempt to avoid
the contract by claiming ignorance of its provisions. Ignorance of the
terms and conditions of a contract is no defense for a party that has
already executed the contract. "A party who signs a document without
any valid excuse for having failed to read it is 'conclusively bound'
by its terms." Sofio v. Hughes, 556 N.Y.S.2d 717, 718-19 (2nd Dep't
1990) (quoting Gillman v. Chase Manhattan Bank, 537 N.Y.S.2d 787, 792
Here Willis submitted an offer to purchase insurance from St. Paul,
which included a draft of the WilProp form. That offer was accepted
when Springett-King sent Willis the St. Paul policy number confirming
coverage. As of the point at which the binder became final, no form
other than the WilProp form had been before the parties.
There can be no question that, if the Silverstein Parties were
asserting that St. Paul bound itself to the WilProp form, St. Paul
would have no defense. Since "[m]utuality is the essence of a
contract," Hauck Food Products Corp. v. E.A. Stevenson & Co., 203
A.D. 308, 312, 197 N.Y.S. 34, 37 (3rd Dep't 1922)(Hinman, J.,
concurring), both the Silverstein Parties and St. Paul must be bound to
the same terms. "Unless both parties to a contract are bound, so that
either can sue the other for a breach, neither is bound." Oscar
Schlegel Mfg. Co. v. Peter Cooper's Glue Factory, 231 N.Y. 459, 462
(1921); Riccardi v. Silver Linen Supply Co., Inc., 45 A.D.2d 191, 193,
356 N.Y.S.2d 872, 875 (1st Dep't 1974), aff'd 36 N.Y.S.2d 945 (1975);
Supreme Lodge K. P. v. Withers, 177 U.S. 260, 269, 20 S. Ct. 611, 615
(1900)("[I]f the insured is to be now bound as having thus contracted,
there must be mutuality in the contract."). The WilProp form was the
only mutually binding form that was before the parties at the time the
binder became effective.
The Silverstein Parties argue that since the confirmation of binder
sent to St. Paul identified the policy as "Manuscript Form to be
agreed," St. Paul agreed to accept whatever form was ultimately agreed
upon. However, such a reading would have made the binder an
unenforceable agreement to agree. R.G. Group, Inc. v. Horn &
Hardart Co., 751 F.2d 69, 74 (2d Cir. 1984) ("Under New York law, if
parties do not intend to be bound by an agreement until it is in
writing and signed, then there is no contract until that event
As noted above, a binder is not an agreement to agree to terms in the
future. A binder is "a short method of issuing a temporary policy for
the convenience of all parties, to continue until the execution of the
formal one." Lipman v. Niagara Fire Ins. Co., 121 N.Y. 454, 458 (1890).
As of September 11, 2001, no formal contract of insurance had been
executed or even completely agreed upon, and St. Paul had not even been
told of Travelers' participation in the World Trade Center insurance
Thus, the terms of the insurance agreement between St. Paul and the
Silverstein Parties on September 11th can only be derived from the form
that was before the parties at the time the binder was issued. This was
the WilProp form. It is of no consequence that this form now favors St.
Paul, which did not read it, over the Silverstein Parties, who proposed
it as a draft. Each of these parties is bound to the definition of
"occurrence" that is set forth therein.
II. THE WILPROP DEFINITION OF "OCCURRENCE"
The WilProp form contained the following definition of the term "occurrence":
"Occurrence" shall mean all losses or damages that are attributable
directly or indirectly to one cause or to one series of similar causes.
All such losses will be added together and the total amount of such
losses will be treated as one occurrence irrespective of the period of
time or area over which such losses occur.
The insurers argue that where one of the Twin Towers was struck by a
hijacked airplane at 8:46 a.m. on September 11th, and 16 minutes later,
the second tower was hit by a second hijacked plane, there can be no
reasonable dispute that the Silverstein Parties' losses were the result
of "one series of similar causes." The Silverstein Parties limit their
response to this argument to a footnote in which they quote a
professor's argument that this language could be construed so that two
planes hitting the two towers in a sixteen minute period would not
constitute one series of similar causes.
This half-hearted attempt to dispute the plain meaning of the WilProp
definition of "occurrence" can not defeat the insurers' right to
summary judgment on this issue. Under New York law, the terms of an
insurance policy are interpreted from the vantage point of the
"average person on the street.'" Nat'l Screen Serv. Corp. v. United
States Fidelity & Guaranty Co., 364 F.2d 275, 278 (2d Cir.), cert.
denied, 385 U.S. 958 (1966). When interpreting a "specialized business
policy," however, "the average person is not the housewife purchasing
flight insurance but the average purchaser of broad business liability
insurance..." Id. "[C]omplex comprehensive general liability policies
issued to large corporate manufacturers . . . should be viewed as if by
a reasonably intelligent business person who is familiar with the
agreement and with the industry in question. Normally the court can put
itself in this position, so that expert evidence need not be
submitted." Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368, 1377-8
(E.D.N.Y. 1988). See also K. Bell & Assocs., Inc. v. Lloyd's
Underwriters, 97 F.3d 632, 639 (2d Cir. 1996)("[U]nder New York law,
the plain meaning of a clause in an insurance contract is determined
according to an objective standard: by looking to the understanding of
someone engaged in the insured's line of business."); Stoney Run Co. v.
Prudential-LMI Commercial Ins. Co., 47 F.3d 34, 37 (2d Cir. 1995)("When
construing an insurance policy, the tests applied are common speech'
and the 'reasonable expectation and purpose of the ordinary
businessman.'"); In re: Liquidation of Midland Ins. Co., 269 A.D.2d 50,
59, 709 N.Y.S.2d 24, 31 (1st Dep't 2000), app. denied, 2000 N.Y. App.
Div. LEXIS 10264 (1st Dep't Sept. 28, 2000).
While an academic may be able to come up with a strained meaning for
the definition of "occurrence" in the WilProp Form, "common speech'
and the reasonable expectation and purpose of the ordinary
businessman'" can not. The ordinary businessman would have no doubt
that when two hijacked planes hit the Twin Towers in a sixteen minute
period, the total destruction of the World Trade Center resulted from
"one series of similar causes."
Indeed, this reasonable reading of the WilProp definition of the term
"occurrence" apparently caused the Silverstein Parties to accept a
payment of one policy limit in full satisfaction of the liability of at
least two insurers who indisputably issued binders on the basis of the
Since the Court has determined that each of the three insurers whose
motions are addressed herein bound themselves on the basis of the
WilProp form, and that the definition of "occurrence" contained in that
form is susceptible of only one
reasonable reading, each of them is entitled to summary judgment that
it is liable to the Silverstein Parties for only one payment in the
face amount of its policy.
Dated: New York, New York
September ___, 2002
JOHN S. MARTIN, JR.
U. S. D. J.
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