Thursday, May 24, 2007

Insurance claim on World Trade Center, New York

The World Trade Center was destroyed by terrorists on September 11, 2001. There was a dispute between the owners and the insurers on the amount of the claim.

Under the insurance contract, there was a limit of USD 1 billion in claim arising from one event. The two buildings were destroyed by two aircrafts which into them a few minutes apart. The total loss was more than the limit of USD 1 billion.

The insurers argued that these two losses were part of 1 event, and is subject to the limit of USD 1 billion. As the insurer was protected by reinsurance, the decision was taken by the insurer and the lead reinsurers collectively.

I read recently that the claim was settled out of court for USD 2 billion. This means that the insurers (and reinsurers) have agreed to recognise them as two separate events. This is good news for the owners. However, the decision was delayed by more 6 years.

Lesson: As this is a very large claim, there is need to spend time to sort out the legal issues. In normal cases, where the claim is of modest amount, the issues could be settled more quickly.

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