The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge
Familiarity with prior opinions and the facts of this litigation is presumed.
On February 15, 2005, Chief Judge Michael Mukasey ruled that the Appraisal Panel, when it determined the rental losses for the World Trade Center ("WTC") complex following 9/11, would determine them based on a theoretical, not actual, "period of restoration" -- i.e. the theoretical time needed to "repair, rebuild, or replace the WTC complex." SR Int'l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 2005 WL 827074, at *3 (S.D.N.Y. 2005).
On October 31, 2006, I ruled that the Silverstein Parties' replacement cost coverage was limited to replacement of the WTC "as was" -- i.e. "as it stood early on the morning of September 11, 2001." SR Int'l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 2006 WL 3073220, at *6, *13 (S.D.N.Y. 2006). I noted in my ruling that the "length of time necessary to complete rebuilding a hypothetical WTC affects the amount of rental losses the Insureds seek to recover." Id. at *5 n.23.
Neither Judge Mukasey, nor I, however, determined the length of that period of time. That issue, as well as all other factual disputes relating to the valuation of the Insureds' loss, will be determined by the Appraisal Panel. See SR Int'l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 2002 WL 1905968 (S.D.N.Y. 2002) (Martin, J.). Indeed, Judge Mukasey reiterated two years ago in his February 15, 2005 opinion that the Appraisal Panel would determine the "period of restoration" as it related to the Silverstein Parties' rental value claim. SR Int'l, 2005 WL 827074, at *1 n.2. Judge Mukasey further noted that the "specific factors to be considered in calculating the restoration period. are to be decided by the Appraisal Panel. Id. at *1 n.1. Among those factors, Judge Mukasey noted, are "real-world circumstances." Id.
Thus, Judge Mukasey held that in the context of "rental value" coverage, the "period of restoration" to replace the WTC referred to a theoretical replacement. I held, in the context of "replacement cost" coverage, that such theoretical replacement was of an "as was" WTC, as of the morning of 9/11. The Insurers now accordingly contend that the Silverstein Parties should be precluded from introducing evidence of "real-world circumstances" -- specifically, it appears, circumstances that mandate the rebuilding of a different WTC from the one that we saw early on the morning of 9/11 -- to the Appraisal Panel in the context of their "rental value" claim.*fn1
It is true, as the Silverstein Parties note, that the two coverages at issue here are different. Replacement cost coverage provides the insured with the cost of replacing the lost or damaged building; "rental value" coverage provides the insured with his lost rental income during the period of the rebuilding of the new complex.*fn2
Regarding the structural nature of the WTC complex to be replaced, however, the issue is the same. For the purposes of both policies, the hypothetical "rebuild" is of the WTC as it stood on the early morning of the 9/11 attacks. Both opinions are consistent in this respect.*fn3
That said, although the building to be hypothetically replaced is the WTC as it stood on 9/11, the valuation of rental income during that period of replacement after 9/11 necessarily requires the Appraisal Panel to consider events after 9/11. The Appraisal Panel indisputably may consider "real-world circumstances" such as rental market rates or vacancy statistics for the relevant time periods after 9/11 in arriving at its valuation. Such data will undoubtedly reflect a changed, post-9/11 commercial real estate market in New York. The Appraisal Panel is entitled to give that evidence whatever weight it feels it deserves. "[Although] [t]he restoration period remains theoretical. it is not computed in a vacuum." SR Int'l, 2005 WL 827074, at *6.
Thus, to the extent that Judge Mukasey's and this Court's opinions require clarification, I hereby clarify our opinions as such:
The Appraisal Panel, in hearing evidence regarding Silverstein's "rental value" coverage, may hear evidence that relates to the hypothetical rebuilding of the WTC as it stood on the morning of 9/11. The Appraisal Panel may also hear evidence that relates to Silverstein's hypothetical lost rental value, including evidence of post-9/11 ...