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United States District Court, Southern District of New York

March 24, 2003


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

In an opinion dated August 19, 2002, 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.


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 Silverstein Parties. Therefore, the insurers who bound to the Travelers or IRI forms did not waive their appraisal rights.

B. The WilProp Form

Royal, Federal and the London Insurers contend that they bound coverage on the basis of the WilProp form*fn4 which does contain a specific requirement that a demand for an appraisal be made within 60 days of receipt of a "proof of loss."

It should be noted that, in the broader context of this litigation, the Silverstein Parties argue that all of these insurers bound themselves to the Travelers form. Thus, the Silverstein Parties argument that these insurers were required by the terms of the WilProp form to demand an appraisal within sixty days of the service of a proof of loss may be premature. Moreover, since the Court has already ruled that under the WilProp form the attack on the World Trade Center constituted a single occurrence, and it appears that on a single occurrence basis the loss will exceed the limits of these policies, there may, at the end of the day, be no need for either an appraisal proceeding or a jury trial on the damage issue with respect to insurers who bound to the WilProp form. However, since the appraisal process must begin before those issues are finally resolved, it is appropriate for the Court to decide the issue, at least preliminarily.*fn5

Since the Silverstein Parties never served any of the insurers with a document entitled "Proof of Loss," the issue here is whether the document entitled "First Supplement to Preliminary Proof of Partial Losses No. 2," was a "proof of loss" as that term was used in the WilProp form to trigger the obligation to demand an appraisal.

The Silverstein Parties argue that the title of the January 18th document is not significant because under New York law there in no proscribed form for a proof of loss. See Yaccarino v. St. Paul Fire & Marine Ins. Co., 150 A.D.2d 771, 542 N.Y.S.2d 660 (2d Dep't. 1989). While this may be true, it does not mean that a document which on its face purports to be a "Preliminary Proof of Loss" should have been understood by the insurers as being the proof of loss that would trigger the obligation to decide whether they should exercise their appraisal rights.

In this regard, it is important to recognize that the determination of what constitutes a "proof of loss" should not necessarily be the same in all circumstances. For example, the issue in Yaccarino was whether a sworn statement from the insured was sufficient to satisfy the contractual obligation of the insured to provide the insurer with a proof of loss within 60 days of a request from the insurer. In that context, it was appropriate for the court to hold that "substantial rather than strict compliance with the provision for proof of loss statements is all that is required." 542 N.Y.S.2d at 661.

However, under New York law, waiver of the right to an appraisal is not lightly inferred. See Stony Brook Marine Transp. Corp. v. Wilton, No. 94 Civ. 5880, 1997 WL 538913, *7 (E.D.N.Y. April 21, 1997); S&E Motor Hire Corp. v. New York Indem. Co., 255 N.Y. 69, 72 (1930). Thus, in the context of a contractual time limit for the assertion of a right to an appraisal, it is more appropriate to require strict compliance with the requirement of a proof of loss statement rather than the substantial compliance found adequate in Yaccarino. As noted above with respect to the Travelers and IRI demands for appraisal, the January 18th document was on its face not a final proof of loss since it was "Subject to Revision" and listed many items as "T.B.D." Common sense compels the conclusion that the parties should not be required to make a decision whether to proceed with an appraisal until the total amount of the loss that is being asserted is known.

The Silverstein Parties argue that the fact that the insurers entered into a tolling agreement with them after receipt of the Preliminary Proof of Loss No. 2 in November 2001, demonstrates that the insurers understood that what they were receiving was a fully operative proof of loss. However, even a preliminary proof of loss confers obligations on an insurer under New York insurance regulations. For example, an insurer is required to respond within 15 days to a properly executed proof of loss and to pay portions of a claim as to which there is no dispute. 11 N.Y.C.C.R. § 216.1. Thus, the fact that the insurers desired to toll their regulatory obligations is no evidence that they understood a document entitled "Preliminary Proof of Loss" to be the proof of loss which would trigger their obligation to demand an appraisal.

Indeed, the fact that the Silverstein Parties choose to denominate their document as a "preliminary proof of loss" indicates that they did not wish to trigger the commencement of any time limits under their insurance contracts. If the Silverstein Parties desired to trigger the period for the appointment of an appraiser, there was nothing to prevent them from labeling the document as "Proof of Loss No. 3" and inserting a statement that, since the full amount of all losses had not been determined, additional proofs would be submitted in the future. The fact that as late as June 2002, the Silverstein Parties were telling the Court that it was premature for Allianz to demand an appraisal suggests that the denomination of their proof of loss as "preliminary" was purposeful and that they had no intention of commencing the period in which the parties had to consider the appraisal issue.

The conduct of the parties after the January document was sent does not suggest that they believed that they were under a time limit to demand an appraisal. After Allianz served its demand for appraisal, there were discussions with the Silverstein Parties indicating that many of the insurers were willing to consider an appraisal proceeding if an appropriate protocol could be developed. These discussions extended well beyond the end of March when the Silverstein Parties now claim the insurers' right to an appraisal terminated. However, the Silverstein Parties never suggested that the insurers had waived their right to an appraisal. Rather, as noted above, the Silverstein Parties told the Court in June 2002 that it was premature to demand an appraisal.

The New York policy favoring appraisal proceedings suggest that a party seeking to initiate the time limit for seeking an appraisal should be required to give sufficiently clear notice that the document it is delivering to the insurer is the Proof of Loss that triggers the time limit for asserting appraisal rights. A document entitled "First Supplement to Preliminary Proof of Partial Losses No. 2" did not give the insurers adequate notice that their time to demand an appraisal was now running.

For the foregoing reasons, the insurers' motions to compel an appraisal are granted.


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