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In re September 11 Litigation

United States District Court, S.D. New York

August 2, 2018

IN RE SEPTEMBER 11 LITIGATION
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON SYNIDICATES NUMBERED 1212, 79, 2791, QBE INSURANCE EUROPE LTD. f/k/a QBE INTERNATIONAL INSURANCE LTD., Defendants. WORLD TRADE CENTER PROPS. LLC, 1 WORLD TRADE CENTER LLC, 2 WORLD TRADE CENTER LLC, 3 WORLD TRADE CENTER LLC, and 4 WORLD TRADE CENTER LLC, Plaintiffs,

          OPINION AND ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

          ALVIN K. HELLERSTETN, UNITED STATES DISTRICT JUDGE

         This is a contest between insurers and insureds for a portion of a settlement ending subrogation litigation. It is the last case before me dealing with the massive property losses caused by the terrorist attacks of September 11, 2001. Plaintiffs, the insureds, are owners of the long-term leases of the World Trade Center Properties.[1] Plaintiffs settled with their insurers[2] for their loss, and also made a settlement with the tortfeasors (the "Aviation Defendants"). The insurers, exercising their subrogation rights, also settled with the tortfeasors. Plaintiffs now want a portion of QBE's settlement with the tortfeasors, citing a provision of the insurance contract which they argue grants them that right.[3] QBE now moves for summary judgment dismissing the complaint in this case. For the reasons that follow, the motion is granted.[4]

         Background

         The Court assumes the parties' familiarity with the facts and procedural history of these cases, which are set forth in In re Sept. 11 Litig., 906 F.Supp.2d 295, 299 (S.D.N.Y. 2012), In re Sept. 11 Litig., No. 10 CIV. 1642, 2013 WL 5979670, at *2 (S.D.N.Y. Sept. 18, 2013), and World Trade Or. Props. LLC v. QBE Int'l Ins. Ltd., 627 Fed.Appx. 10, 13 (2d Cir. 2015). What follows is an abbreviated summary.

         "On July 16, 2001, less than two months before September 11, Plaintiffs paid $2, 805 billion to the Port Authority of New York and New Jersey for 99-year net leases to World Trade Center Towers One, Two, Four and Five." In re Sept. 11 Litig., 906 F.Supp.2d at 299. Through a series of contractual provisions that insured against the actual replacement cost of the Towers as well as lost revenue caused by business interruptions, Plaintiffs obtained insurance coverage from QBE and other insurers totaling $3, 546, 800, 000 "per occurrence." See, e.g., Agreement of Lease: One World Trade Center, § 14.1.1-.2. "After the Towers were destroyed, and following extensive litigation focused on whether the September 11 terrorist-related crashes of American Airlines Flight 11 and United Airlines Flight 175 constituted one or two occurrences, Plaintiffs settled their claims against their insurers, including Defendants, for approximately $4.1 billion." In re Sept. 11 Litig., 906 F.Supp.2d at 299; see also In re Sept. 11 Litig., 590 F.Supp.2d 535, 539 (S.D.N.Y. 2008).

         Having become subrogated to Plaintiffs' claims as a result of the settlement, the insurers, including QBE, filed tort claims against the Aviation Defendants to recover the amount of their insurance payments to Plaintiffs. In February 2010, the insurers entered into a settlement with the Aviation Defendants, resolving their aggregate claims for $1.2 billion. In re Sept. 11 Litig, 906 F.Supp.2d at 299 (S.D.N.Y. 2012). Over Plaintiffs' objection, I approved the settlement "as the 'fair and reasonable' result of 'hard-fought, arms-length, and good faith negotiations.'" Id. (quoting In re Sept. 11 Litig, 723 F.Supp.2d 534, 543 (S.D.N.Y. 2010)). The Second Circuit affirmed on April 8, 2011. In re Sept. 11 Prop. Damage Litig, 650 F.3d 145 (2d Cir. 2011). However, believing that the insurance settlement did not fully compensate their losses, Plaintiffs also filed tort claims against the Aviation Defendants (the "Tort Action") and this declaratory judgment action against its insurers, claiming priority over the insurers' subrogation settlement with the Aviation Defendants (the "Subrogation Action").

         Several of my prior rulings in these cases are relevant to resolving the instant motion. Beginning first with the Tort Action, I held that under CPLR § 4545, Plaintiffs' tort recovery would be offset by the approximately $4.1 billion insurance recoveries and that "any tort recovery . . . would be limited to the lesser of the loss in the fair market value of the leaseholds (from their value immediately prior to the Towers' destruction) or the leaseholds' replacement costs, and that the loss in fair market value was the lesser of these amounts." In re Sept. 11 Litig., 906 F.Supp.2d at 300. After holding a bench trial to determine "whether the $4, 091 billion in insurance recoveries that Plaintiffs received for the main site of the World Trade Center (comprising almost entirely of payments for loss rental income and replacements costs for rebuilding the site) compensated Plaintiffs for the same categories of losses that Plaintiffs might have recovered from the Aviation Defendants," In re Sept. 11 Litig., 2013 WL 5979670, at *2, 1 held that Plaintiffs' insurance coverage "corresponded] completely to Plaintiffs' potential tort recoveries related to the lost value of their leaseholds, and that the insurance recoveries should be set off against such potential tort recoveries, reducing them to zero." In re Sept. 11 Litig., 957 F.Supp.2d 501, 507 (S.D.N.Y. 2013).

         Meanwhile, Plaintiffs and the insurers continued to litigate the Subrogation Action. QBE insured Plaintiffs under a WilProp 2000 policy form (the "WilProp Form"), which provided in relevant part that "[i]f any amount is recovered as a result of [subrogation] proceedings, the net amount recovered after deducting the costs of recovery shall be distributed first to the insured in reimbursement for the deductible amount retained and for any uninsured loss or damage resulting from the exhaustion of limits under this policy or primary or excess policy(ies)." In an Opinion and Order dated November 27, 2012, 1 held that the term "uninsured loss or damage" unambiguously referred to "legally recoverable tort damages" and that, as such, "Plaintiffs gain priority with respect to WilProp Defendants' Settlement Proceeds (after deducting the costs of recovery and aside from the deductible amount retained) only z/Plaintiffs have legally recoverable tort damages exceeding Plaintiffs' insurance recovery." In re Sept. 11 Litig., 906 F.Supp.2d at 304 (emphasis added). This holding, affirmed by the Court of Appeals, intertwined the Subrogation Action with the Tort Action, in which Plaintiffs were litigating that same issue.[5] After resolving the question against Plaintiffs in the Tort Action following a bench trial, I applied that ruling to the Subrogation Action and held that Plaintiffs had "no right to the Defendants' settlement proceeds" under the priority provision of the WilProp Form. In re Sept. 11 Litig., 2013 WL 5979670, at *2. On the basis of these decisions, both the Tort and Subrogation Action were dismissed.

         Plaintiffs appealed both of these rulings. With respect to the Tort Action, the Second Circuit agreed that "Plaintiffs' compensable damages [were] limited to the diminution in the market value of their leasehold interests," but vacated portions of my prior decisions concerning how to calculate the value of the lease. See In re Sept. 11 Litig., 802 F.3d 314, 334-38 (2d Cir. 2015). As to the Subrogation Action, the Second Circuit affirmed my interpretation of the WilProp form-that is, that Plaintiffs were entitled to priority to the insurers' subrogation settlement with the Aviation Defendants only if Plaintiffs suffered legally recoverable tort damages exceeding their insurance recovery. World Trade Ctr. Props., 627 Fed.Appx. at 13. But because the Tort Action was remanded, and it was therefore "conceivable" that Plaintiffs had suffered "legally recoverable tort damages in excess of [their] insurance settlement," the Subrogation Action was also remanded for further proceedings pending resolution of the Tort Action. Id. at 12.

         On remand, the Subrogation Action sat dormant pending resolution of the Tort Action, which proceeded into discovery. In November 2017, the Tort Action was settled by the Aviation Defendants paying Plaintiffs approximately $95 million. I approved the settlement as fair and reasonable on December 21, 2017. See In re Sept. 11 Litig, 21-MC-101 (S.D.N.Y. Dec. 21, 2017), dkt. 1953.

         The litigation between Plaintiffs and the Aviation Defendants having been resolved, QBE now moves for summary judgment in this case.

         Discussion

         A. Legal Standards

         Under the well-established summary judgment standard, a "court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., Ml U.S. 242, 248 (1986). In ruling on a motion for summary judgment, I must "view the evidence in the light most favorable to the party opposing summary judgment, . . . draw all reasonable ...


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