World Trade Center Recovered Total Loss From the Insurers

Is This the Last Insurance Decision Re September 11, 2001?

The terrorist attack on the World Trade Center on September 11, 2001 gave rise to much litigation concerning insurance and tort damages. The plaintiffs, the holders of the leases of the real property, sought part of the recovery – reached by settlement – from airline defendants who were alleged to be tortfeasors responsible for allowing the terrorists to perform their heinous acts destroying the World Trad Center structures.

In Re September 11 Litigation, 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 v. Certain Underwriters At Lloyd’s, London Syndicates Numbered 1212,79, 2791, QBE Insurance (Europe) Ltd. F/K/A QBE International Insurance Ltd., 21 MC 101 (AKH), 10 Civ. 1642 (AKH), United States District Court Southern District Of New York (August 2, 2018) was a contest between insurers and insureds for a portion of a settlement ending subrogation litigation. It was the last case before the trial judge 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. Plaintiffs settled with their insurers 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. QBE now moves for summary judgment dismissing the complaint in this case.


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.” 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.” 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.

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. Over Plaintiffs’ objection, the trial judge approved the settlement “as the ‘fair and reasonable’ result of ‘hard-fought, arms-length, and good faith negotiations.'” The Second Circuit affirmed. 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”).

Plaintiffs’ insurance coverage was found to “correspond[ed] 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).

As to the Subrogation Action, the Second Circuit affirmed the trial judge’s 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.

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



Subrogation is the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that it may recover from the third party legally responsible for the loss. By allowing the insurer (rather than the insured) to sue the alleged tortfeasor, subrogation forecloses insureds from recovering twice for the same injury while also preventing tortfeasors from escaping liability.

Equitable subrogation is limited by the “made whole” rule, under which the insurer may seek subrogation against only those funds and assets that remain after the insured has been compensated. This designation of priority interests assures that the injured party’s claim against the tortfeasor takes precedence over the subrogation rights of the insurer. The made whole rule complements the doctrine of equitable subrogation by allowing the insurer to step into the shoes of the insured and hold the tortfeasor responsible for the loss, while still ensuring that the actual victim—the insured—is the first to recover in full. Plaintiffs’ claim rests entirely on the application of the made whole rule to this case.

Under New York law the made whole rule is triggered only when the sources of insurance recovery ultimately available are inadequate to fully compensate the insured for its losses. Only when the tortfeasor is judgment proof or lacks available insurance coverage is the insurer—who has been paid by the insured to assume the risk of loss—barred from sharing in the proceeds of the insured’s recovery from the tortfeasor. But the made whole rule does not apply unless, for one reason or another, an insurer is competing with its insured for a limited pool of money available from the tortfeasor. No such inequity is presented in this case.

Plaintiffs elected to settle their claims against the Aviation Defendants without exhausting the sources of recovery available to them and without resolving the underlying issues in the Tort Action. Because the made whole rule does not apply, Plaintiffs cannot claim priority to QBE’s subrogation recovery.

Plaintiffs do not dispute these principles of equitable subrogation. Instead, Plaintiffs argue that the WilProp Form modifies the equitable rule.  Regardless, nothing in the WilProp Form suggests that the parties changed the rule by contract. The WilProp Form’s subrogation provision provides that: “If any amount is recovered as a result of such 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).”

Nowhere in the relevant portion of the WilProp Form can the word “exclusively” be found. And drawing an inference that the contractual subrogation clause diverges from the equitable rule based solely on what is missing from the contract’s terms is inconsistent with the maxim that equitable subrogation principles apply “absent an evident intention to the contrary.” Nothing in the text of the WilProp form suggests that the parties intended to contract around equitable subrogation principles. Under these settled principles of New York law, Plaintiffs’ settlement with the Aviation Defendants bars further recovery here.

Moreover, by settling their claims in the Tort Action, Plaintiffs have forfeited the opportunity to litigate both the liability of the Aviation Defendants and whether Plaintiffs have suffered legally recoverable tort damages, both of which were central to the Tort Action.

Applying the made whole rule after Plaintiffs have settled their claims against the alleged tortfeasors and are not competing with QBE for a limited source of recovery is wholly inconsistent with the goals that underlie subrogation. The motion for summary judgment was granted.


It is time to put to rest the insurance litigation over 9/11. This case clearly allows QBE to keep its subrogation recovery because the plaintiffs have been fully compensated for the loss by insurance and was made whole. There is no reason to take away the contractual right to reduce QBE’s losses by subrogation. Of course, history indicates this decision will be appealed as have all of the others.

© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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