Lawyers learn drafting lessons from previous cases involving disputes over the meaning of language. The result is often contracts with denser detail, attempting greater specificity to delineate intention using language. Yet words can be unruly and open to interpretation—well illustrated by a series of contemporary examples that also happened to involve numbers:
- were the 9/11 attacks on the World Trade Center one occurrence or two for purposes of applicable insurance contracts?
- was the blockbuster film trilogy The Hobbit three separate films or merely one film in three installments?
- when Sirius radio acquired another satellite radio service, was it obliged to pay Howard Stern $300 million because by doubling its subscriber base or not?
Each story has inherent interest, a bit of drama, and useful lessons for contract drafting. These three stories will be in the upcoming second edition of my book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter. As we lead up to the anniversary of 9/11 Friday, today’s post will lead off with it, followed by the others tomorrow and that day.
WTC and 9/11: One Occurrence or Two?
On September 11, 2001, terrorists hijacked commercial aircraft and flew two of them into the World Trade Center in New York—another hit the Pentagon in Washington and a fourth was overtaken by passengers, forcing it to nosedive into a Pennsylvania field. Beyond the loss of 3,000 lives and many personal injuries, the assaults in New York destroyed or damaged twenty buildings, including the total collapse of five of the buildings that comprised the World Trade Center (WTC).
The insurance industry incurred an unprecedented $40 billion in claims, all pursuant to thousands of contracts, including aviation, life insurance, workers’ compensation, and liability policies. While many claims were filed and paid without incident, some generated significant litigation. One issue was particularly vexing: how many occurrences were there on 9/11 at the WTC: one, encompassing the destruction of the entire unitary complex, or two, given that two planes struck separate towers?
Commercial property insurance policies typically address claims on a per occurrence basis, including in terms of overall policy limits (the maximum payable) and the applicable deductible (in effect, the minimum loss before any coverage applies). When losses are within limits, the question of occurrences relates only to the deductibles and insurers tend to classify events into multiple occurrences to generate multiple deductibles; but when losses exceed policy limits, the number of occurrences defines that cap and insurers generally prefer to classify events as involving a single occurrence to cap liability. In the case of the destruction of the WTC on 9/11, losses vastly exceeded policy limits, turning what may seem like a semantic question into a $3.5 billion disagreement.
The WTC was owned by the Port Authority of New York and New Jersey, which had recently leased it to Silverstein Properties, Inc. The lease agreement required Silverstein to insure the WTC, and on September 11 it was in the process of putting insurance in place. Given the WTC’s size and scope, the insurance was large and complex, involving more than thirty insurers, each offering varying layers of coverage that aggregated $3.5 billion—“per occurrence.” Silverstein claimed there had been two occurrences, meaning $7 billion in total coverage; the insurers said there had been but one occurrence, meaning $3.5 billion in total coverage.
Despite posing the same question—what is an occurrence?—the answer differed for different insurers because the insurers were bound by different contract policies using different contract language. One group had bound itself to a policy (called the Willis form) which defined “occurrence” to mean “all losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes.” Other policies either did not define the term occurrence or defined it differently. Court proceedings followed accordingly.
Interpreting policies using the Willis form’s definition of occurrence was relatively easy for the judges, with both the trial and appellate courts finding that the 9/11 attacks amounted to one occurrence. The reasoning was closely tied to the specific definition: “no finder of fact could reasonably fail to find that the intentional crashes into the WTC of two hijacked airplanes sixteen minutes apart as a result of a single, coordinated plan of attack, was, at the least, a ‘series of similar causes.’” The liability of such insurers was therefore limited to the respective policy cap. The conclusion was reached on summary judgment—meaning as a matter of law without need for any trial.
Such an easy interpretation was impossible under the other policies, however. For those that lacked a definition of occurrence, both courts concluded that the concept is sufficiently ambiguous to require considering extrinsic evidence to determine contractual intention. This requires studying context: meaning is to be interpreted given the specific policy and facts of the case, not broad generalities or legal principles. The issue was therefore a matter for a jury. After listening to competing evidence and views, the jury decided that the 9/11 assault on the WTC amounted to two occurrences for purposes of coverage under the policies.
The jury was apparently persuaded by evidence offered at trial by Silverstein’s expert witness on the insurance business. Concerning policies that did not define occurrence, he explained that insurers generally take occurrence to have a narrow meaning—giving rise to multiple occurrences from given scenarios—principally because that increases the number of deductibles that apply. Insurers only prefer a broad conception of occurrence—one-occurrence interpretations—in total loss situations such as this, which are rarer. For policies that defined occurrence differently than in the Willis form—such as any loss or series of losses arising out of one “event”—the expert explained that the word event should likewise be construed narrowly.
The policy language is the starting point for making a deal and interpreting it. Want a specific definition, then supply it, and courts will enforce it accordingly; absent a specific definition, courts must dig into context, get all the facts, and let the fact finder decide. The latter setting obviously entails greater uncertainty, subjectivity, and contingency. Indeed, while some courts urge juries to contemplate the dictionary definition of occurrence, others adopt a logical perspective, which can vary according to emphasizing the causes of a loss (where all damage from a single, proximate cause is a single occurrence) or the effects (each separate incident of loss is a separate occurrence).
Lawrence Cunningham is a professor at George Washington University whose forthcoming books include the second edition of Contracts in the Real World: Stories of Popular Contracts and Why They Matter, which includes this story and fifty more.
Sources: Scott G. Johnson, Ten Years After 9/11, 46 Tort Trial & Insurance Practice Law Journal 685 (Spring-Summer 2011); World Trade Center Properties, L.L.C. v. Hartford Fire Insurance Co., 345 F.3d 154, 180 (2d Cir. 2003).
