The opinion of the court was delivered by: Martin, 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 insurance policies.
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.
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
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, 160 N.E. 651 (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, 24 N.E. 699 (1890).
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,
197 N.E. 190; Ell Dee Clothing Co. v. Marsh, 247 N.Y. 392,
160 N.E. 651).
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, 197 N.E. 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, 412 N.Y.S.2d 121, 384 N.E.2d 668.*fn1
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
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 v. Schumacher, 52 N.Y.2d 105, 109,
436 N.Y.S.2d 247, 249, 417 N.E.2d 541 (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, 417 N.E.2d 541.
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
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 Attached Amendments."
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."