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SR Int'l Bus. Ins. Co. v. World Trade Ctr. Props., LLC - 467 F.3d 107 (2d Cir. 2006)


The cardinal principle for the construction and interpretation of insurance contracts - as with all contracts - is that the intentions of the parties should control. Under New York law, this is accomplished by looking to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds. The parties' communicated expressions are interpreted objectively to give effect to the reasonable expectations of the parties, not necessarily their actual expectations. Thus, it has been said that the existence of a binding contract is not dependent on the subjective intent of either party.


On September 11, 2001, two jetliners separately crashed into the twin towers of the World Trade Center (WTC), destroying both buildings. Both buildings and the varying property interests in the WTC were covered by insurance companies to provide approximately $3.5 billion in multi-layered insurance on a "per occurrence" basis. At the time of the attacks, one insurer had issued a final policy and the other insurers had issued binders, which did not define "occurrence." During the first phase of trial, the jury determined that insurance companies bound to a policy form that was prepared by the insureds' insurance broker. Under that form's definition of occurrence, the terrorist attacks constituted one occurrence. At the second phase of trial, the jury determined that the insurers, which did not bind to the insureds' broker's form, bound coverage to contracts that contemplated a two-occurrence treatment of the terrorist attacks. Both insurers and insured appealed.


Was the district court's rulings in either of the phases of the trial in error?




The court affirmed the district court's judgments. With respect to the insureds' appeal from the phase-one judgment, the court held that any error in excluding custom and usage evidence was harmless, and that the insurers' witnesses were properly permitted to testify as to which form they thought they had bound. With respect to the insurers' appeal from the phase-two judgment, the court held that the insureds' expert witness on property insurance was qualified based on experience and that the expert's testimony was sufficient to establish an industry custom of defining occurrence in terms of a physical cause of loss.


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