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Subrogation is an important tool available to insurers who pay for destruction of property caused by a tortfeasor. By suing the responsible parties the insurer reduces the loss paid and aids insurers in making profit. The terrorist attack of September 11, 2001 not only killed thousands and destroyed billions in property, gave birth to multiple lawsuits that flowed from the debris into the courthouses of New York.
Aegis Insurance Services, Inc., Liberty Insurance Underwriters, Inc., National Union Insurance Company of Pittsburgh, Nuclear Electric Insurance Limited, and Certain Underwriters at Lloyds (Syndicates 1225 and 1511) attempted to recover what they spent to indemnity their insured as a result of the collapse of the 7 World Trade Center Building (“7WTC”) that stood on the northern edge of the World Trade Center site. As the North Tower collapsed on September 11, 2001, it sent flaming debris spewing into the area around 7WTC. The fiery debris crashed into 7WTC, gouging chunks out of the building. Fires burned on multiple floors. Confident that the people inside had evacuated, grappling with the death of hundreds of firefighters and a non-existent supply of water, the New York City Fire Department made the decision to establish a collapse zone and walk away, rather than fight the fire. After burning for seven hours, 7WTC collapsed, destroying the electrical substation owned by Consolidated Edison Co. of New York, Inc. (“Con Ed”) directly underneath the building.
Con Ed, along with its insurers, sued the defendants, who designed, built, operated and maintained 7 WTC, alleging in relevant part that the defendants’ negligence caused the building to collapse. The trial court granted summary judgment in favor of the defendants. In Aegis Insurance Services, Inc. v. 7 World Trade Company, L.P., 11-4403-cv (2d Cir. 12/04/2013) [enhanced version available to lexis.com subscribers], the Second Circuit Court of Appeal was asked to reverse the trial court and find the developers and owners of 7WTC responsible for the destruction of the electrical substation.
The Con Ed substation in question was built in 1970 to provide electric power to the World Trade Center site, built on land owned by the Port Authority of New York and New Jersey. The agreement between the Port Authority and Con Ed allowed the Port Authority to build above the substation. In 1980, the Port Authority exercised that right by entering into an agreement with 7 World Trade Company, L.P. (“7 World Trade”) to build 7WTC.
The horrific events of September 11, 2001 are well known and need not be repeated. When firefighters arrived to assess 7WTC, they found a building ravaged by the debris that careened through the air when the North Tower collapsed, with multiple active fires throughout the structure. One observer testified that he saw 10 to 15 floors where “the corner I-beam was missing. First Deputy Fire Commissioner Frank P. Cruthers testified the exterior of 7WTC “looked like it had been bombarded with large, heavy objects.” Others reported structural damage to a section of the building where there were “steel columns, just hanging from its attachment to the upper floors, and there was no walls, no outside walls to that particular side of the building.” The collapse of the Twin Towers destroyed the water main responsible for bringing water to 7WTC, resulting in “significant damage done to the water supply in the area.” Firefighters resorted to stretching lines “from the fire boats onto land to provide water supply to fight fires.” With no water, and no civilian lives at risk, and with their comrades buried in the Towers’ debris, the fire department decided to create a collapse zone around 7WTC and allow the fire to burn, unchecked. The building collapsed roughly seven hours after the fire department decided to walk away, crushing the Con Ed substation.
Con Ed argued that a well-designed building should have sufficient structural integrity to withstand a local failure such as the loss of a single girder with only local consequences. However, as a result of deficiencies in both its overall design and its details, the WTC7 structure lacked redundancy and robustness and therefore did not have sufficient resistance to disproportionate collapse. Its design lacked a fundamental consideration for structural integrity and load path redundancy.
The district court granted the defendants summary judgment. The district court found that while 7WTC may have owed Con Ed a general duty to protect the substation from risk of harm, that duty did not “encompass the long chain of events on September 11, 2001, that eventuated in the destruction of the Con Edison substation.”
For the purposes of this appeal, the Second Circuit found it did not need to delve into the mechanics behind the building’s failure. Finding that the district court erred in concluding that the events of September 11 were not foreseeable, and thus defendants did not owe Con Ed a duty to protect against them. Under New York law a plaintiff must establish three elements to prevail on a negligence claim: (1) the existence of a duty on defendant’s part as to plaintiff; (2) a breach of this duty; and (3) injury to the plaintiff as a result thereof.
The Second Circuit disagreed and found that 7WTCo. owed Con Ed a duty. Finding a duty, however, did not settle the matter of liability. Once a duty is established, to prevail Con Ed must prove a breach of that duty, and that the breach was the cause of Con Ed’s injuries. Even assuming negligence on the part of the defendants, the Second Circuit concluded that any such negligence was not the cause-in-fact of the collapse of 7WTC.
The general rule that in common-law negligence actions, a plaintiff must prove that the defendant’s conduct was a cause-in-fact of the injury. The concept of proximate cause, or more appropriately legal cause, has proven to be an elusive one, incapable of being precisely defined to cover all situations. This is, in part, because the concept stems from policy considerations that serve to place manageable limits upon the liability that flows from negligent conduct. When faced with the unique constellation of events that comprised September 11, 2001, the Second Circuit returned to a bedrock principle of tort law: for there to be a recovery for an injury, it must be established that defendant’s act was a cause-in-fact of an injury.
This principle requires a plaintiff to establish, beyond the point of speculation and conjecture, a factual, causal connection between its losses and a defendant’s actions. Con Ed failed to present evidence sufficient to raise a genuine issue of fact as to whether defendants’ negligence was the cause-in-fact of Con Ed’s injury. Con Ed’s primary argument is an unfought fire would not have caused 7WTC to collapse had the building been property designed and constructed.
Con Ed’s focus on the fires that engulfed 7WTC carves what occurred at 7WTC out of the series of events that occurred on September 11. This failure to relate the constellation of events surrounding the collapse of 7WTC or to link the unprecedented nature of those events with the negligence at issue is fatal to Con Ed’s claims. While the concepts underlying tort law must, by their nature, be fluid, at the end of the day they must engage with reality.
The confluence of the events demonstrates that 7WTC would have collapsed regardless of any negligence ascribed by plaintiffs’ experts to the design and construction of 7WTC more than a decade earlier. It is simply incompatible with common sense and experience to hold that defendants were required to design and construct a building that would survive the events of September 11, 2001.
Subrogation is an important tool available to insurers when they find property damage caused by a tortfeasor. However, by bringing this lawsuit claiming that the destruction of ConEd’s property was caused by poor design rather than the terrorists – although imaginative and creative and supported by well-qualified experts – adds to the destruction caused by the terrorists.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or email@example.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
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