Opinion
No. 01 Civ. 9291 (JSM)
February 25, 2003
AMENDED OPINION ORDER
Allianz Insurance Company ("Allianz") moves for partial summary judgment declaring that its obligation to the Silverstein Parties is governed by the terms of the policies it issued on August 10, 2001. In a separate motion, it argues that it is entitled to summary judgment that under the "occurrence" definition in its policy, the September 11, 2001 terrorist attack on the World Trade Center ("WTC") was one occurrence. The Silverstein Parties oppose both motions contending that the policies were issued by mistake and were not in conformity with the terms on which the coverage was bound and, even if the policy definition of "occurrence" applies, there were two occurrences.
This litigation has already given rise to several opinions of the Court. Familiarity with those opinions and the background of this litigation is assumed.
FACTS
DIRECT COVERAGE
On July 12, 2001, Tony Steffa, an Allianz underwriter, sent a quotation for the WTC properties to Tom Cesare, a broker at Stewart Smith, who was acting for the Silverstein Parties. Sometime on or before July 18, 2001, Cesare telephoned Tom Mauro, an Allianz underwriter filling in for Steffa, seeking to bind approximately $78 million per occurrence coverage from Allianz in the third and sixth layers. During this conversation, Cesare told Mauro that the Allianz coverage would "follow the form" of Travelers Insurance. Cesare then sent Mauro an email to confirm that Allianz would bind coverage for $78 million per occurrence. The email stated that the coverage would be "Follow form primary." Mauro replied by emailing the policy number CLP 3001091.
On returning from his vacation on August 1, Steffa spoke with Cesare who, he concedes, "informed me that the Travelers form was going to be used." On a paper printout of Mauro's July 18 emails with Cesare, Steffa wrote "Travelers — Form," next to the words "Follow form primary."
On August 6, 2001 Steffa prepared "Policy Preparation Sheets" for the Allianz direct and fronting coverage. Steffa checked the "EPIF" box on both forms and wrote the words "Following Form" in parentheses next to this entry. Steffa also wrote "Issue Policy" — "Following Form" — and "Request Copy of Primary Policy" in the "Special Instructions" section of its direct coverage Policy Preparation Sheets.
On August 10, Allianz issued direct coverage Policy No. CLP 3001091, using the EPIF form, and delivered it to Stewart Smith. The policy had a rubber-stamp of Steffa's name in lieu of his signature.
On August 20, Allianz sent Stewart Smith and WTC Properties a "notice of cancellation" stating that Policy No. CLP 3001091 would be cancelled effective September 5, 2001, if its premiums remained unpaid by that date. The premium was paid on August 23 and the notice of cancellation was thereafter rescinded.
According to the Silverstein parties, all of the relevant terms of the Travelers primary form had been agreed to by September 10, 2001.
FRONTING COVERAGE
In early July, 2001, French insurer, SCOR, agreed to provide coverage for 10 percent of each layer of the insurance program for the WTC properties, amounting to approximately $355 million per occurrence. On July 16, Allianz underwriter Tom Mauro and Stewart Smith broker Tom Cesare agreed by email that Allianz would front SCOR's coverage of the WTC properties.
On July 20, 2001, Paul Blackmore, a Willis London broker, informed SCOR underwriter Helen Stack-Petit that its coverage of the WTC properties would be governed by the Travelers form and not by the "DRAFT" WilProp form that had been attached in an email to SCOR in June. At this time, Blackmore also informed Stack-Petit that Allianz would serve as the passive front for the 10-percent quota share.
Stack-Petit's handwritten notes of this conversation state "policy form (amended) Travelers. . . ." Stack-Petit emailed SCOR underwriter Claude Stanisier that the "Policy form will be Travelers and we will soon have a copy." On July 23, 2001, Willis broker Luci Winters sent Stack-Petit an email attaching the Travelers form and a revised slip. Stack-Petit signed the revised slip and faxed it to Willis on July 26, 2001.
On August 1, 2001, Cesare sent Allianz underwriter Tony Steffa an email attaching SCOR's signed reinsurance agreement and requested confirmation that Allianz would front for SCOR for $326 million per occurrence in coverage. Steffa printed the email, wrote "fronting policy" on it and affixed to it a post-it note that read "Travelers form primary."
On August 3, 2001, Steffa sent Cesare a binder for the fronting coverage which listed the policy forms that would govern the coverage offered. On August 6, 2001, Steffa prepared "Policy Preparation Sheets" for the Allianz direct and fronting coverage. Steffa checked the "EPIF" box on both forms and wrote the words "Following Form" in parentheses next to this entry.
On August 13, 2001 Stanisiere returned from vacation and read Stack-Petit's July 20 email. The next day, he signed an endorsement revising the July 26 slip increasing the per occurrence coverage limit to $355 million.
Allianz issued fronting coverage Policy No. CLP 3001140 on August 17, 2001 and delivered it to Stewart Smith. EPIF was amongst the forms sent out. It had a rubber-stamp of Steffa's name in lieu of his signature.
On August 21, 2001, Allianz sent Stewart Smith and WTC Properties a "notice of cancellation" stating that Policy No. CLP 3001140 would be cancelled effective September 6, 2001, if its premiums remain unpaid by that date. The premium on the policy was paid and the notice of cancellation was thereafter rescinded.
As noted above, according to the Silverstein parties, all of the relevant terms of the Travelers primary form had been agreed to by September 10, 2001.
DISCUSSION
For the purpose of this motion, Allianz does not dispute that it was aware, prior to binding the insurance, that it would be following form to Travelers. It contends that the form it used is not inconsistent with following form to Travelers and, in any event, the policy it issued was delivered to and accepted by the Silverstein Parties prior to September 11, 2001 and, therefore, the binder ceased to have any effect and the policy controls.
The Silverstein Parties contend that there is ample evidence from which a jury could find that the policy form issued by Allianz was at variance with the intent of both the Allianz officials who negotiated the binders and the brokers representing the Silverstein Parties. First, they point to testimony of the Allianz officials who confirmed that they knew they were binding to follow Travelers' form. In addition, although the original Allianz quote specifically listed certain of its policy forms that would be part of its binder, the quotation's list of policy forms did not include the "Excess Policy Insurance Form" ("EPIF"). They also point to evidence that, in the three weeks prior to August 6, the Allianz officials involved here had used a different Allianz form "XSFF," when following form on an underlying insurer. The Allianz XSFF policy form defines "occurrence" as follows:
The term "occurrence" shall be defined in the policy(ies) issued by the Primary Insurer(s) except as hereinafter stated. . . .
If no policy had been issued and Allianz was claiming that the EPIF form was the one it always used when following form and, therefore, its terms should be deemed incorporated into the binders, the Silverstein Parties would clearly have a triable case as to whether the EPIF or XSFF form was the appropriate form to be used when following form. However, a policy using the EPIF form was issued and reviewed by the broker for the Silverstein Parties and Allianz was never informed that the policy did not conform to the parties' agreement. Moreover, a substantial time after the policies were issued, Allianz was asked to increase its participation without ever being advised that there was any problem with the policy it issued.
Under New York law, "once an insurance policy is received the owner is generally bound by the terms of the policy expressed in the actual policy. Said policy replaces any previous binder or oral representations made in negotiating the policy." Sterner v. Balcom, 531 N.Y.S.2d 211, 212 (1988). See also Simon v. Colonial States Brokerage Corp., 128 A.D.2d 603, 513 N.Y.S.2d 17, 18 (2nd Dep't 1987) ("The terms of the written policy of insurance embody the entire agreement between the parties and the insured is bound by those terms.").
As the New York Court of Appeals noted in Metzger v. Aetna Ins. Co., 227 N.Y. 411, 415-416 (1920):
To hold that a contracting party, who, through no deceit or overbearing inducement of the other party, fails to read the contract, may establish and enforce the contract supposed by him, would introduce into the law a dangerous doctrine. . . . Ignorance through negligence or inexcusable trustfulness will not relieve a party from his contract obligations. He who signs or accepts a written contract, in the absence of fraud or other wrongful act on the part of another contracting party, is conclusively presumed to know its contents and to assent to them and there can be no evidence for the jury as to his understanding of its terms.
Where there is clear evidence that the written contract is "at variance with the intent of both parties," the Court may have the power to reform the contract. Westchester Resco Co., L.P. v. New England Reins. Corp., 648 F. Supp. 842, 847 (S.D.N.Y. 1986). However, as the Second Circuit recently held:
Because the remedy of reformation presents the danger "that a party, having agreed to a written contract that turns out to be disadvantageous, will falsely claim the existence of a different, oral contract," Chimart, 66 N.Y.2d at 573, 498 N.Y.S.2d 344, 489 N.E.2d 231, the New York courts have sharply limited the remedy of reformation both procedurally and substantively. Id. at 574, 498 N.Y.S.2d 344, 489 N.E.2d 231. "The proponent of reformation must 'show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.'" Id. (quoting George Backer Mgmt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 219, 413 N.Y.S.2d 135, 385 N.E.2d 1062 (1978)); see also Healy v. Rich Prods. Corp., 981 F.2d 68, 73 (2d Cir. 1992) ("To reform a contract, mutual mistake must be established by clear and convincing evidence. Unilateral mistake alone will not justify reformation of an instrument." (applying New York law)) (citations omitted).Collins v. Harrison-Bode, 303 F.3rd 429, 435 (2d Cir. 2002).
Here, however, there is no clear and convincing evidence that the policies at issue were at variance with the intent of Allianz and only scant evidence that it was not in conformity with the intent of the brokers for the Silverstein Parties. Mr. Steffa, of Allianz, who specifically designated the EPIF form as the one to be used on the Policy Preparation Sheet, has never indicated that he intended to use any other form. Mr. Tucker of Stewart Smith testified that it was Stewart Smith's custom and practice to have the broker check the policy before sending it on to the producer. Thus, there is reason to believe that at least one of the brokers at Stewart Smith who negotiated this placement was aware that the Allianz policy contained a definition of occurrence.
Nor is there any reason to believe that, had the Silverstein brokers been aware that the Allianz policy contained a specific definition of occurrence, they would have had any objection. It has been conceded by all sides in this litigation that a broad definition of "occurrence" such as that in the Allianz policy favors the insured since it serves to limit the number of deductibles the insured may be required to pay. While the events of September 11, 2001, made a narrower definition of "occurrence" more desirable for the Silverstein Parties, at the time the Stewart Smith brokers reviewed the Allianz policy, they would have had no reason to object to its definition of "occurrence." There is, therefore, no reason to accept the hypothesis of the Silverstein Parties that it was only because its broker did not carefully review the Allianz policy that they did not immediately object to its alleged failure to follow form.
Nor is there any reason to believe that the fact that Allianz had an XSFF form demonstrates that the EPIF form was used in error. While the XSFF form has the heading "Excess Property Coverage Following Form," its first paragraph states: "This coverage amends the terms and conditions of any `printed policy forms' attached to this `policy.'" Since the Travelers Policy was not in existence at the time Allianz issue its policy, there was no underlying policy to attach and, therefore, no reason to use this form. Indeed, the fact that the Travelers form was being negotiated at the time Allianz issued its policy suggests that the Stewart Smith underwriters who reviewed the Allianz policy were aware that it could not fully adopt the Travelers form.
For the foregoing reasons, Allianz's motion for summary judgment declaring the Allianz policies as the applicable contracts of insurance is granted.
B. The Meaning of the Policy Language
The Allianz policy defined "occurrence" as follows:
[A]ny one loss, disaster or casualty, or series of losses, disasters or casualties arising out of one event. When the word applies to loss or losses from the perils of. . . . vandalism and malicious mischief one event shall be construed to be all losses arising during a continuous period of seventy-two (72) hours.
Allianz argues that under the plain meaning of this language, the terrorist attack on the World Trade Center was one event. The Silverstein Parties contend that this provision is ambiguous and that the determination of its meaning must be resolved by a jury.
The issue presented here is similar to that raised by the Silverstein Parties' earlier motion seeking summary judgment against Travelers Insurance Company ("Travelers") on the ground that the undefined term "occurrence" in the Travelers policy could have only one meaning. In denying that motion, the Court noted:
As Judge Jones observed in Hartford Accident Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 171-72, 350 N.Y.S.2d 895, 305 N.E.2d 907 (1973):
The objective in any question of the interpretation of a written contract, of course, is to determine "what is the intention of the parties as derived from the language employed" (4 Williston, Contracts [3d ed.], § 600, p. 280). At the same time the test on a motion for summary judgment is whether there are issues of fact properly to be resolved by a jury (CPLR 3212, subd. [b]). In general the courts have declared on countless occasions that it is the responsibility of the court to interpret written instruments (Williston, op. cit., § 601, p. 303). This is obviously so where there is no ambiguity. (Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 161 N.Y.S.2d 90, 141 N.E.2d 590.) If there is ambiguity in the terminology used, however, and determination of the intent of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence, then such determination is to be made by the jury (Restatement, 2d, Contracts, T.D. No. 5, § 238). (Emphasis added.)SR Int'l Bus. Ins. Co. Ltd. v. World Trade Center Props. LLC, No. 01 CV 9291, 2002 WL 1163577, *4 (S.D.N.Y. June 3, 2002).
Despite Allianz's argument to the contrary, the term "event" in its policies is no less ambiguous than the term "occurrence" in the Travelers policy. While reasonable people might consider the attack on the World Trade Center as a single event, it is no less reasonable to consider the separate highjackings of two aircraft and the ultimate crashing of those aircraft into different buildings at different times as two separate events.
The authorities from Great Britain on which Allianz relies are all distinguishable on their facts. For example, in Kuwait Airlines Corp. v. Kuwait Ins. Co., [1996] 1 Lloyd's Rep. 664, 687 (1995), the issue was when insured aircraft were lost to their owners. The Court found that in its "judgment the aircraft were already lost on Aug. 2, and not merely when flown away. On that day KAC lost possession and control of their aircraft and it was both uncertain and, . . . . unlikely that possession would be recovered within a reasonable time."
Allianz argues that to consider the attack on the World Trade Center as two events, one would have to ignore that part of the definition of "occurrence" that includes a "series of losses. . . . arising out of one event." However, this language is consistent with treating the attack on each building as a single event resulting in a series of losses to the surrounding buildings which were damaged by the collapse of that one tower.
Allianz argues further that the losses resulting from the terrorist attack on the World Trade Center were the result of "vandalism and malicious mischief. . . . arising during a continuous period of seventy-two (72) hours." While it can be argued that the attack on the World Trade Center fits within dictionary definitions of "malicious mischief" and "vandalism," it is doubtful that anyone familiar with the events of that day would describe what occurred as an act of malicious mischief or vandalism.
See WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY (1986) malicious mischief: "willful, wanton, or reckless damage or destruction of another's property"; vandalism: "willful or malicious destruction or defacement of things of beauty or of public or private property."
As was noted in the decision granting summary judgment to some of the defendants in this case:
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).SR Int'l Bus. Ins. Co. Ltd. v. World Trade Center Props. LLC, 222 F. Supp.2d 385, 398 (S.D.N.Y. 2002).
Applying the test of "common speech," it cannot be said that the ordinary businessman would consider an act of wanton terrorism such as the attack on the World Trade Center to be an act of malicious mischief or vandalism. One could argue that the Japanese attack on Pearl Harbor fits within the dictionary definition of "malicious mischief" or "vandalism." But, if one searched all of the contemporaneous or historical accounts of that attack, it is doubtful that even one account would be found which described it as an act of malicious mischief or vandalism. Since the attack on the World Trade Center resulted in an even greater loss of life and property damage than the raid on Pearl Harbor, it is equally inappropriate to describe that attack as an act of malicious mischief or vandalism.
Although the full text of the "occurrence" definition in the Allianz policies supports the argument that the attack on the World Trade Center should be considered one occurrence, that is not the only reasonable construction of the definition. Therefore, the issue must be decided by a jury and the motion for summary judgment is denied.