When the Twin Towers shook the ground in Lower Manhattan, no one knew that it would take nearly six years to untangle the financial knot created by the confusion over the sites insurance carriers liabilities for the devastation.

But when the New York State government; the Port Authority of New York and New Jersey; Silverstein Properties, Inc.; and the seven carriers that were still wrangling over the specific amounts they were responsible for with respect to reimbursement finally announced a $2 billion settlement late last month, the insurance industry felt little more than a low-level rumble.

Construction will continue uninterrupted with the industrious clashes and bangs that New Yorkers have waited to hear for five years, but insurers have already absorbed the changes that the September 11 attacks necessitated, making the recent ruling a mild aftershock to an industry that is already well on its way to its own policy reconstruction.

I think the carriers have already started to do the things they were going to do in reaction to 9/11, Eileen Frank, president and CEO of J.P. West, Inc., and a member of the board of the Independent Insurance Agents and Brokers of New York, said. She said that while this most recent ruling is significant for the development of the site, the insurance industry has already implemented changes to the way it writes policies. Therefore, she doesnt expect to see any large-scale shifts as a result of this settlement.

The Settlement

New York State Governor Eliot Spitzer, together with Insurance Department Superintendent Eric R. Dinallo, the developer Larry A. Silverstein, and representatives from the seven carriers " Travelers Companies, Inc.; Zurich American Insurance Company; Swiss Reinsurance Company; Employers Insurance Company of Wausau; Allianz Global Risks US Insurance Company; Industrial Risk Insurers; and Royal Indemnity Company " announced May 23 that they all agreed that the carriers would pay $2 billion of the potential $2.28 billion of outstanding claims, bringing the total amount of insurance claims paid to $4.4 billion. The settlement ends years of tug-o-war and will save all of the parties millions of dollars in legal costs.

The insurance industry and the people of New York State issued a sigh of relief since the contentious World Trade Center claim has been settled, said David Dickson, president of the Professional Insurance Agents of New York State Inc.

The settlement was the last major hurdle to resolving the insurance disputes that began with the debate over whether the attacks constituted one or two occurrences. Ultimately, that question was settled in the courts for each of the carriers, and this most recent settlement determined precisely how much the carriers would pay for the attacks. Details regarding the specific amounts each individual carrier will pay were not made public.

From the standpoint of this particular case, I think its been going on for so long, Id say that at this point many people are probably confused and not sure what it means relative to the things that have happened in the past because it has gone back and forth so many times, Frank said.

And the fact that at least one prominent New York insurance executive was unclear about the facts of the lingering legal disputes indicates that a settlement that represents a bang for developers registered as a whimper for industry members.

Understanding of Policies is Essential

Frank said that the confusion in this case was, in part, rooted in the same place as confusion that mires many other less-prominent property casualty coverage disputes: an insufficient understanding of the details and policy exclusions by brokers of the policies they handle. She said, As an underwriter-turned-broker, I cant tell you how amazing its been to me going to the brokerage side to see how many brokers glide past the terms. Ive heard people say this is a blanket limitwhen there was wording that would say, This policy will pay the lesser of scheduled values. But if you zeroed in on scheduled values, what was supposed to be a blanket policy was really a scheduled policy. Youve got to pay attention to those terms.

Frank also said that another common mistake is that brokers expect that policy exclusions will all be outlined in the exclusions section of the policies. However, she said, many exclusions are established in the definitions sections of policies as well. She said that this misconception contributed to the dispute over whether there were one or two attacks on the World Trade Center on September 11.

My point is that there is so much in the details of those coverages and folks cant afford to take coverage terms and verbiage for granted. Not one iota, she said. It says what it says, and if there is any question in your mind as to what it means, then underwriters and brokers should be having discussions before there is a loss to analyze how does this play out in the real world?

Not fully understanding how a policy will play out in a real-world, worst-case scenario is, in part, what put the insurers in such a financial bind in this case. The policy clauses pertaining to business interruption in particular caused the carriers problems, Frank said. Carriers commonly used to grant insureds coverage for actual sustained loss due to business interruption for an unspecified period of time because most businesses can typically re-establish themselves in new buildings relatively quickly if necessary. But that is not always the case.

Some insureds cannot simply relocate and carry on with business as usual. Frank gave one prominent example of an insured in this situation: Silverstein. As the leaseholder for the World Trade Center site, Silverstein could not continue his business further uptown or in New Jersey. In his case, business interruption has lasted almost six years and counting. As Frank put it, very few businesses would have had to sit out the entire time because that one building was not built, but what if youre Silverstein?

Today, especially in light of similar problems that arose in the wake of hurricanes Katrina and Rita, carriers are limiting the length of the periods they will cover losses due to business interruptions.

But what is important to remember from all of this for insurers is that, although the settlement is the largest such settlement in history, and although it is a prominent milestone in the publics eye, the industry has already implemented many changes based on the difficult lessons learned since 9/11. So now that the new site is finally beginning to roar from the earth, on a foundation built largely on insurance payouts, the industry itself can breathe a collective and quiet sigh of mistakes acknowledged, lessons learned, and devastation left to the annals of history.