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SR INTERNATIONAL BUSINESS v. WORLD TRADE CENTER PROP.

March 21, 2003

SR INTERNATIONAL BUSINESS INSURANCE CO. LTD., PLAINTIFF-COUNTERCLAIM DEFENDANT,
v.
WORLD TRADE CENTER PROPERTIES LLC, ET AL. DEFENDANTS-COUNTERCLAIMANTS.



The opinion of the court was delivered by: John S. Martin, Jr., United States District Judge

AMENDED OPINION & ORDER

In an opinion dated August 19, 2003, the Court granted the application of Allianz Insurance Company ("Allianz") to compel the Silverstein Parties to submit their dispute concerning the amount of the loss resulting from the destruction of the World Trade Center to an appraisal process. Subsequently, the Travelers Indemnity Company ("Travelers"), Industrial Risk Insurers ("IRI"), Gulf Insurance Company ("Gulf"), Federal Insurance Company ("Federal"), Royal Indemnity Company ("Royal") and the London Insurers*fn1 have moved to compel an appraisal.

Although the Silverstein Parties had opposed Allianz's motion to compel an appraisal on the ground that it was premature, they argue that these insurers waived their right to an appraisal by failing to make a timely demand.

While in most instances, the insurers had not issued policies at the time of the attack on the World Trade Center, there is no dispute that all of the policy forms under discussion contained an appraisal provision. Travelers and IRI both had written appraisal provisions which were similar in that they did not contain a specific time limit for the selection of an appraiser. The WilProp form that had been circulated to the insurers by the broker for the Silverstein Parties contained an appraisal provision which stated:

If the Insured and the Insurer fail to agree on the amount of loss, each, upon the written demand of the other made within 60 days after receipt of proof of loss by the Insurer, shall select a competent and disinterested appraiser.
It is the position of the Silverstein Parties that under the Travelers form, the insurers were required to demand an appraisal within 30 days of January 18, 2002, when they received a proof of loss from the Silverstein Parties and that IRI and those insurers claiming coverage under the WilProp form were required to make a demand for an appraisal within sixty days of that date.

DISCUSSION

A. The Travelers and IRI Forms

Although the Travelers and IRI forms did not contain an explicit time limit on the right to demand an appraisal, the Silverstein Parties argue that in each of these cases the demand for an appraisal must be made within the time limit contained in the provision regarding payment, which in Travelers' case*fn2 provides:

The Company will pay for covered loss or damage within 30 days after the Company receives the sworn proof of loss it requires, if:
a. the Insured has complied with all the terms of this policy; and b. The Company has reached agreement with the insured on the amount of loss or an appraisal award has been made.
The argument of the Silverstein Parties is similar to that rejected by the Court in Terra Indus., Inc. v. Commonwealth Ins. Co., 981 F. Supp. 581 (N.D.Iowa 1997), which involved a similar provision of an IRI policy. The Court will not reiterate the thoughtful analysis of Judge Bennett in Terra. It is sufficient to note that as in Terra, the obligation of the insurers to pay the loss arises only if "[t]he Company has reached an agreement with the insured on the amount of the loss or an appraisal award has been made." There is no logical basis to conclude that the time limit for the payment obligation, which arises after the appraisal process is completed, has any bearing on the time within which the parties must demand appraisal. To the extent that the Silverstein Parties have cited cases from other jurisdictions reaching a contrary result, the Court rejects those authorities for the reasons set forth in Terra. See 981 F. Supp. at 597-98 & n. 11.*fn3

Since the IRI and Travelers forms do not set a specific time limit for making a demand for appraisal, the question that remains is whether the demand for an appraisal was made within a reasonable time. See Peck v. Planet Ins. Co., No. 93 Civ. 4961, 1994 WL 381544, *3 (S.D.N.Y. July 21, 1994) and cases cited therein; Richardson v. Merrimack Mut. Fire Ins. Co., No. 98 Civ. 5967, 2000 WL 297171, *4 (S.D.N.Y. Mar. 21, 2000).

In the circumstances of this case, it was reasonable for the insurers to delay demanding an appraisal until after receipt from the Silverstein Parties of the final expert report on the amount of the loss. The document sent to the insurers on January 18, 2002 was entitled "First Supplement to Preliminary Proof of Partial Losses No. 2." Although this document contained an amount claimed for the Actual Cash Value of the various buildings constituting the World Trade Center, it included a summary of the claim that specifically noted that it was "Subject to Revision" and listed thirteen categories of damages that were "T.B.D." ("To Be Determined"). The document also contained the statement: "The Silverstein/Westfield Insureds will supplement their claim for business income and other losses from time to time." In addition, in this document, the Insureds warranted the values given for most of the components of the World Trade Center but did not "express any opinion as to the Actual Cash Value of the Mall at World Trade Center." The final paragraph of this document stated: "Nothing contained in this First Supplement shall vary any of the rights or obligation of any of the Insureds, Mortgagees or Insurers under the policies."

Upon the receipt of this document, the insurers expressed the view that more information was needed before they could come to a final determination of the insureds' loss and counsel for the Silverstein Parties urged the insurers to obtain this information through the discovery process in this litigation.

Since the January 18th "First Supplement to Preliminary Proof of Partial Losses No. 2" indicated on its face that it was preliminary and incomplete and the insurers needed additional information before they could finally determine the reasonableness of the insureds' claim, it was not unreasonable for the insurers to wait to demand appraisal until the agreed upon discovery had been completed and they had received the final expert report from the ...


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