State Supporters of Terrorism Must Pay Insurers - Judgment for Insurers Against Syrian Government

   By Barry Zalma, Attorney and Consultant

Several insurers who paid for an airliner after a 1985 hijacking sued state sponsors of terrorism to recover, in subrogation, what they had to pay the owners of the airliner destroyed by terrorists. In Certain Underwriters at Lloyd's, London, et al. v. Great Socialist People's Libyan Arab Jamahiriya, et al., Civil Action No. 06-cv-731 (JMF) (D.D.C. 2011), Certain Underwriters At Lloyd's v. Socialist People's Libyan Arab Jamahiriya, et al, No. 06-cv-731 (JMF), 08-cv-504, 2011 U.S. Dist. LEXIS 98913, (D.D.C. 09/02/2011), the United States District Court for the District of Columbia held that the insurers were entitled to recover, plus interest, what they paid.

INTRODUCTION

The named Libyan defendants were dismissed from the actions pursuant to the enactment of the Libya Claims Resolution Act, Pub. L. No. 110-301, 122 Stat. 2999 (2008), but the plaintiffs' claims remained pending against the following defendants: the Syrian Arab Republic; the Syrian Air Force Intelligence Agency (Idarat al-Mukhabarat al- Jawiyya); and Syria's Director of Military Intelligence (General Muhammad al-Khuli) (hereinafter collectively the "Syrian defendants" or "Syria").

SUMMARY OF FINDINGS

The actions sought judgment and an award of damages for acts of state-sponsored terrorism that resulted in the hijacking of EgyptAir Flight 648 on November 23, 1985, while the aircraft was bound for Cairo, Egypt from Athens, Greece, and the complete destruction of the EgyptAir Flight 648 aircraft, insured by the Certain Underwriters plaintiffs, that resulted from that hijacking.

The court determined (i) that the hijacking of EgyptAir Flight 648 on November 23, 1985 (the "EgyptAir hijacking") was an act of international terrorism; (ii) that the terrorist shootings of the American victims of the EgyptAir hijacking-Patrick Baker, Jackie Pflug, and Scarlett Rogenkamp-were acts of international terrorism that occurred during and as a result of the November 23, 1985 terrorist hijacking; (iii) the hijacking resulted in the reasonably foreseeable complete destruction of the aircraft owned by EgyptAir and insured by plaintiffs; (iv) that said hijacking was committed by terrorist operatives of the Abu Nidal Organization ("ANO"), which has been designated by the U.S. Department of State as a Foreign Terrorist Organization; (v) that the ANO, at the time of and prior to the EgyptAir hijacking, was sponsored and supported by Syria, which has been designated by the U.S. Department of State as a State Sponsor of Terrorism; and (vi) that the Syrian Arab Republic, the Syrian Air Force Intelligence Agency, Idarat al-Mukhabarat al-Jawiyya, and Syria's Director of Military Intelligence, General Muhammad al-Khuli, conspired with and provided substantial and material support to the ANO terrorist organization, and that the Syrian defendants caused and were liable for the acts of international terrorism against the plaintiffs and the resultant damages, for which the Court awarded damages.

The court further found that the Syrian defendants provided material support and resources and conspired with the ANO in the planning, training, support for, and commission of the EgyptAir hijacking, and that the lead ANO terrorist operative, Omar Ali Rezaq, was trained and supported by the Syrian defendants. The Court found that the Syrian defendants intended that their support of the ANO would promote and cause extra-judicial killings of American citizens, as well as necessarily result in the property destruction of the EgyptAir airplane incidental to the goals and objectives of the Syrian defendants and the ANO terrorists. The Court found that Syria's actions could not have occurred without the explicit authorization by then-Syrian President Hafiz al-Asad.

FINDINGS OF FACTS

Plaintiffs brought their action pursuant to the provisions of the Foreign Sovereign Immunities Act ("FSIA"), codified at 28 U.S.C. § 1602, et seq. The Syrian defendants were served with process on June 28, 2003. The Syrian defendants neither answered nor appeared. A five-day hearing on liability and damages was held, commencing on May 3, 2010.

During the hearing, the court accepted evidence in the form of, inter alia, live testimony, live video-link testimony, affidavit, de bene esse deposition, and original documentary evidence. The court also accepted credible expert testimony from eight well-qualified experts on various subjects related to the issues pending before the Court in this matter. The court then made the following findings of facts:

•   The Abu Nidal Organization Perpetrated the EgyptAir Flight 648 Hijacking.

•   Syria Sponsored and Supported the Abu Nidal Organization.

•   Syria was a State Sponsor of Terrorism.

•   The Total Destruction of the EgyptAir Aircraft was Reasonably Foreseeable Losses Sustained by Certain Underwriters, et al.

CONCLUSIONS OF LAW

In 2008, the National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, § 1083, 122 Stat. 3, 338-344 (2008) (hereinafter "2008 NDAA") revised the FSIA framework under which state-sponsored terrorism cases could be brought by substituting 28 U.S.C § 1605A in place of 28 U.S.C. § 1605(a)(7). Perhaps most important, it furnished a cause of action against state sponsors of terrorism, while the earlier law, § 1605(a)(7), could only be used as a "pass-through" for plaintiffs seeking to bring suit in federal court against foreign sovereigns for terrorism-related claims; the claims themselves had to be based in state law. Murphy v. Islamic Republic of Iran, 740 F. Supp. 2d 51, 56 (D.D.C. 2010).

Service under the FSIA is governed by 28 U.S.C. § 1608. Subsection (a) governs service upon a foreign state or political subdivision of a foreign state, while subsection (b) provides for service upon an agency or instrumentality of a foreign state. In determining whether a foreign entity is to be treated as the state itself or as an agency or instrumentality, courts employ the "core functions" test as it was set out in Roeder v. Islamic Republic of Iran, 333 F.3d 228 (D.C. Cir. 2003). Id. at 234. The approach is categorical: if the core functions of the entity are governmental, it is considered to be the foreign state itself. Id. If its core functions are commercial, then it is an agency or instrumentality of the foreign state. Id.

The FSIA provides "the sole basis for obtaining jurisdiction over a foreign state" in United States courts. Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989). One of the enumerated exceptions to the FSIA is 28 U.S.C. § 1605A, the state-sponsored terrorism exception to sovereign immunity. Under § 1605A, a foreign state that is or was a state sponsor of terrorism shall be liable to a United States citizen for personal injury or death. 28 U.S.C. § 1605A(c). In such an action, a foreign state is vicariously liable for the acts of its officials. Id. Additional damages, including property damages, are available under § 1605A(d): "After an action has been brought under subsection (c), actions may also be brought for reasonably foreseeable property loss, whether insured or uninsured, third party liability, and loss claims under life and property insurance policies, by reason of the same acts on which the action under subsection (c) is based." 28 U.S.C. § 1605(d). Under the language of the statute, once a party with valid standing has brought an action under § 1605A(c), it is unnecessary for a party filing suit under § 1605A(d) to establish standing separately; standing under § 1605A(d) is derivative of that under § 1605A(c). Furthermore, the legislative history of § 1605A(d) contains a specific reference to the case at hand.

The FSIA established the requirements for proper service upon a foreign state in 28 U.S.C. § 1608; plaintiffs properly served Syria under § 1608(a)(3). Furthermore, because the court had determined that Syria, as a foreign state, was the only defendant against whom an action could properly be maintained, there was no issue of due process under the Fifth Amendment, as "foreign states are not 'persons' protected by the Fifth Amendment." Valore, 700 F. Supp. 2d at 70 (quoting Price v. Socialist People's Libyan Arab Jamahiriya, 294 F.3d 82, 96 (D.C. Cir. 2002)). Finally, "customary international law," which may call for a "minimum-contacts-like test" is inapplicable in these circumstances. Valore v. Islamic Republic of Iran, 700 F. Supp. 2d 52, 72. The Court thus had personal jurisdiction over Syria.

Under the FSIA, a default judgment may only be entered if "the claimant establishes his claim or right to relief by evidence satisfactory to the court." 28 U.S.C. § 1608(e). All uncontroverted evidence is accepted as true. See Campuzano v. Islamic Republic of Iran, 281 F. Supp. 2d 258, 268 (D.D.C. 2003) (the "satisfactory to the court" standard is identical to the standard for entry of default judgments against the United States in Federal Rule of Civil Procedure 55(e)). In light of defendants' failure to object or enter an appearance to contest the matters in the case, the court accepted the uncontested evidence and sworn testimony submitted by plaintiffs as true.

The basis of Syria's liability was its provision of material support and resources to the ANO. The FSIA explicitly provides that "a foreign state shall be vicariously liable for the acts of its officials, employees, or agents." The court found that the total destruction of the aircraft was reasonably foreseeable, given Syria's sponsorship of a notoriously violent terrorist organization to conduct a mid-air hijacking. Syria was liable for the total destruction of the EgyptAir aircraft, along with the associated costs related to the destroyed aircraft, including charges for storage by the government of Malta, solicitors' fees for work performed in relation to the destruction of the aircraft, and costs for the claims survey process under which damage was assessed and payments distributed under the applicable policy.

The evidence established that the aircraft was declared to be a constructive total loss under the applicable policy as a result of the damage sustained during the hijacking. The total recoverable loss was $11,043,660.83. It was within the court's discretion to award the plaintiffs prejudgment interest from the date of the attack on November 23, 1985, until the date of final judgment. Plaintiffs sustained injuries in the form of total destruction of the aircraft, for which they reimbursed EgyptAir. Thus the court awarded the plaintiffs prejudgment interest on their actual property damage, minus salvage recovery, which equaled $10,542,967. Interest was computed at a rate of 7.03% per annum from November 23, 1985.

ZALMA OPINION

I look forward to the insurer's efforts to collect on this judgment which can be enforced upon any assets of the government of Syria that may reside in the United States. I hope this victory against those who would support terrorists will think twice when their money they thought safely placed in U.S. banks disappears into the accounts of the insurers. Further suits against state supporters of terrorism may be take the profit out of terrorism.

Insurers have the assets to fight this type of case and should file as many as the insurers find sufficiently large to justify the litigation. Aircraft, ships, and buildings paid for by insurers should be reimbursed by similar litigation against state supporters of terrorism.

Reprinted with Permission from Zalma on Insurance, (c) 2011, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. 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 senior consultant. He recently published the e-books, "Heads I Win, Tails You Lose - 2011," "Zalma on Rescission in California," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," "Murder and Insurance Fraud Don't Mix" and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma, zalma@zalma.com and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.

Zalma on Insurance is a LexisNexis Insurance Law Community Top Insurance Blogs for 2011 winner.

For more information about LexisNexis products and solutions connect with us through our corporate site.