In re September 11 Litigation,
World Trade Center Properties LLC et al. v. Certain Underwriters at Lloyd’s, London et al. (S.D.N.Y., August 2, 2018)
Judge Alvin K. Hellerstein of the Federal District Court in the Southern District of New York has, for years since the September 11th attacks, been assigned the countless actions dealing with the massive property damage resulting from the tragedy. This is the last such case, which involves insureds making a claim against their insurer’s recovery from a subrogation settlement.
The insureds owned the long-term leases of the World Trade Center Properties, which they purchased months before the 9/11 attacks for $2.805 billion. The insureds also sued following the litigation on whether the two plane crashes at the World Trade Center constituted one or two occurrences, the insureds settled their claims against their insurers for approximately $4.1 billion.
By way of subrogation, the insurer filed tort claims against the aviation entities involved to recover the amount of their insurance payments to the insureds. The subrogation litigation was settled for $1.2 billion. Believing that their insurance settlement did not fully compensate for their losses, the insureds also filed tort claims against the aviation entities, and ultimately settled those claims.
The insureds also commenced the instant declaratory judgment action to obtain a portion of the insurers’ subrogation settlement with the aviation entities. The court observed that, under New York law, the equitable subrogation doctrine is limited by the “made whole” rule, under which an insurer may subrogate against only those funds and assets that remain after the insured is compensated. Referencing the highest state court of New York, the court also observed that the designation of priority interests assures that the insured party’s claim against a tortfeasor takes precedence over an insurer’s subrogation rights. In other words, when the insured and its insurer are competing for compensation from the tortfeasor, but the tortfeasor cannot fully compensate both, the rule gives the insured priority for the limited compensation from the tortfeasor.
Ultimately, the made whole rule was held not to apply. Although the insureds sued their insurers to obtain part of the insurers’ subrogation settlement with the aviation defendants, the insureds already settled their tort claims against the aviation entities. Thus, the insureds were not competing with the insurer for limited sources of funds to obtain a recovery from the aviation entities.