Barry Ostrager, the Simpson Thacher & Bartlett litigation
chief, is a big admirer of Herbert Wachtell. Really, he is. Big, big
fan.
Never mind the adjectives he uses to describe the co-founder
of Wachtell, Lipton, Rosen & Katz -- "obstreperous, obstructive and
unreasonable." Forget the nasty accusations of witness manipulation
that Ostrager has tossed at Wachtell Lipton partners in the World Trade
Center insurance coverage litigation. Disregard Ostrager's amusement at
what he calls the "feigned indignation" with which Wachtell has greeted
the Simpson Thacher lawyer's tactics.
Put all that aside, Ostrager says. Focus instead on his great
compliment to Herb Wachtell and his partners: But for Wachtell's
ingenuity and persuasiveness, Ostrager says, there would be no World
Trade Center insurance litigation. There would be no $3.55 billion
dispute over the money owed to Wachtell's client, New York real estate
developer Larry Silverstein, who signed a 99-year lease on the World
Trade Center just two months before the attack on the towers. As
Ostrager tells it, only a mind as brilliant as Wachtell's could have
crafted a plausible argument that Silverstein is owed $7.1 billion,
twice his ostensible policy limit, because the World Trade Center
catastrophe constituted two discrete, insurable events, not one.
Of course, Ostrager's salute to Wachtell is just a tiny bit
mitigated by his own role in the litigation. He is counsel to the Swiss
Reinsurance Co., the carrier that underwrote about 22 percent -- $780
million -- of the Trade Center's insurance coverage. Swiss Re, like the
rest of the 21 insurance companies battling Silverstein, is determined
to prove that the Trade Center collapse constituted one occurrence
under Silverstein's insurance coverage, not the two Silverstein claims.
The story of the Silverstein insurance program, assembled in
the summer of 2001, is so far-fetched that any law professor who
dreamed it up as a hypothetical would be laughed out of the classroom.
Silverstein hired a well-known broker, Willis Group Holdings Ltd., to
find enough coverage to satisfy his lenders. Willis scrambled mightily
to place $3.55 billion in insurance, ultimately dealing pieces to 25
carriers. Negotiations were frenetic -- so frenetic that when
Silverstein took over the lease of the Trade Center on July 24, 2001,
he had in hand only temporary contracts from his insurers. Most of
those had been executed on the basis of a sample form that Willis had
circulated, a form that included a broad definition of what constituted
an occurrence for insurance purposes. (The encompassing definition was
designed by Willis to favor policyholders; the more damage that could
be lumped into one occurrence, the fewer deductibles policyholders
would have to pay.)
One key carrier, however, had refused to base negotiations on
the Willis form. Travelers Indemnity Co. insisted on using its own
form, which did not specifically define "occurrence," as the foundation
of discussions about a final policy. Willis needed Travelers to stay in
the deal, so Willis brokers spent August 2001 deep in negotiations with
Travelers underwriters about changes proposed to the Travelers form.
(These negotiations, interestingly, did not include discussion of the
definition of "occurrence.") As of Sept. 11, Willis had not circulated
final policies to any of the 25 carriers. Silverstein and Willis now
say that all of the insurance companies should be held to the terms of
the Travelers policy, which, in their lawyers' interpretation of New
York state insurance law, leads to the conclusion that the Trade Center
collapse constituted two occurrences. The insurers -- no surprise here
-- say that the Willis form prevails.
What's more, asserts Ostrager, the Willis brokers who now
support the Travelers scenario didn't always. Only after Wachtell
Lipton lawyers got involved, Ostrager has said repeatedly in this
litigation, did Willis witnesses convert to the story that favors
Silverstein. Silverstein himself said as much, Ostrager argues, in a
speech he delivered in December 2001 to the "CEO Summit" on Rebuilding
Confidence in the U.S. Economy. "I had to find myself the best minds
that I could find," Silverstein said, "to get me two events, to provide
$7 billion." Those minds, in Ostrager's telling, belong to the Wachtell
Lipton lawyers.
Ostrager is a slight 55-year-old with wavy, reddish hair and
an insatiable appetite for competition; in his scant spare time he
breeds racehorses. He graduated from New York University Law School 18
years after Herb Wachtell, and seems to be fairly frothing for
confrontation with him. Ostrager has gone so far as to fling such
phrases as "corruption of the discovery process" and "unconscionable
interference by Wachtell" into a brief that accuses Wachtell Lipton
lawyers of "exerting fantastic pressure" on Willis witnesses and
"manipulating" their testimony.
Wachtell, who says that the evidence disproves the very thesis
of Ostrager's accusations, responds to the Simpson Thacher lawyer with
characteristic irascibility. When his partner Meyer Koplow calls
Ostrager's attack "laughable," Wachtell cuts in. "It's not laughable,"
he says.
Wachtell, 70, is not a physically intimidating man. He has
long, slicked-back gray hair, a thin, red face and piercing eyes. He
wears half-frame glasses low on his nose. Yet somehow he is fearsome.
"I don't like to see my partners accused of suborning perjury," he
fumes. Ostrager, he says, is litigating this case with reckless
aggressiveness. "He likes to distort facts," says Wachtell. "I am
mightily pissed."
So far Ostrager is winning. The insurers have beaten
Silverstein on almost every significant pretrial motion in the case,
including a summary judgment motion by Wachtell that was denied. That's
all just prelude, however. The judge in the case, John Martin Jr. of
Manhattan federal district court, has appointed another federal judge,
Lewis Kaplan, to oversee settlement talks this fall. If they fail,
Ostrager and Wachtell will meet in court in November to try this case.
Barry Ostrager will be looking to topple Wachtell. Herb Wachtell will
be trying to put the Simpson Thacher lawyer in his place. And one of
their clients will walk away hundreds of millions of dollars richer.
Larry Silverstein is Herb Wachtell's oldest friend. They met
as teen-agers, at New York City's High School of Music & Art, where
they both played piano. At New York University, both played in the
band, Silverstein on drums and Wachtell on clarinet. They stayed close
enough over the years that Silverstein had dinner at Wachtell's house
the Friday before Sept. 11. Silverstein didn't use Wachtell Lipton as
his regular lawyers -- Skadden, Arps, Slate, Meagher & Flom and
Stroock & Stroock & Lavan routinely represented him -- but when
he split from his business partner (and brother-in-law), Wachtell and
his partners negotiated the breakup.
On Sept. 13, two days after the towers fell, Silverstein
called Martin Lipton, also a close friend and a fellow NYU trustee, to
ask if Lipton thought he'd need legal advice. "Marty said, 'And how,'"
says Wachtell. "[Silverstein] hadn't thought through the scope of all
the legal problems he could be facing. They'd lost four people from a
small office. They were all traumatized." Silverstein arranged to come
to Wachtell Lipton's offices later that afternoon.
Before he arrived, though, Wachtell had to figure out whether
the firm could represent Silverstein beyond this emergency counseling
session. "This would be a mammoth drain on firm resources," says
Wachtell, who heads a litigation department of 53 lawyers, almost half
of whom have become involved in the World Trade Center litigation. "It
was a firm issue -- could we afford to take this on?" Wachtell Lipton's
midtown Manhattan offices were in turmoil on Sept. 13. Some investment
bankers from Keefe, Bruyette & Woods Inc., which had its offices in
the World Trade Center, had been at a meeting at Wachtell Lipton when
the planes hit the towers; the law firm volunteered to provide the
Keefe Bruyette survivors (as well as some other lower Manhattan
refugees) with a temporary headquarters. People were walking around
carrying computers and phones for the guests. Wachtell Lipton lawyers
were still in shock; collectively, they knew dozens of Trade Center
victims. Many lawyers weren't even in the office. Herb Wachtell rounded
up all of the partners who were around for an impromptu firm meeting.
"We decided to do it for two reasons," he says. "Larry is my closest
and oldest friend. And this was a civic thing -- we felt an obligation
to be involved in the rebuilding of the city."
Silverstein, according to Wachtell Lipton partner Eric Roth,
didn't stay long at Wachtell Lipton's offices on Sept. 13. Wachtell
recalls talking briefly with Silverstein about several potential
issues, including insurance. As it happened, Wachtell Lipton had argued
an insurance coverage case in the New York Court of Appeals a week
earlier (Simpson Thacher partner Mary Kay Vyskocil argued against him;
Wachtell Lipton eventually won). He told Silverstein that, in his
opinion, unless the insurance policy clearly stated otherwise, New
York's laws would define the terrorist attacks as two occurrences, two
insurable events.
But at that point, Silverstein's lawyers didn't know what the
insurance policy said. Silverstein had already been in touch with John
Gross, a partner at Proskauer Rose who specializes in insurance
coverage. On Saturday the 15th, Gross and the Wachtell Lipton lawyers
talked for the first time. "We had no idea what had happened," says
Gross. "We were new counsel, we had not participated in the placement.
I suggested we go meet with the Willis people [who had brokered
Silverstein's insurance] and find out what was going on." Roth agreed:
"We had to go meet with Willis."
Willis Group Holdings Limited is a giant insurance broker,
specializing in coverage for big commercial properties. Even by Willis
standards, though, the World Trade Center insurance program was huge.
The Port Authority of New York and New Jersey, which finished building
the complex in 1972, carried only $1.5 billion (per occurrence) in
coverage on all of its buildings, which, in addition to the Trade
Center, included the three New York City area airports. Silverstein's
lenders insisted on more coverage, first demanding $2.3 billion, then
$3.2 billion, and then, right before the lease deal closed, $3.55
billion. The lead Willis broker on the insurance placement, Timothy
Boyd, and his team hustled in June and July to satisfy the lenders,
contacting carriers in the United States, Europe and Bermuda to place
coverage. Willis distributed to many, but not all, of the carriers
underwriting packets that featured not only the risk analysis
documentation on the World Trade Center, but also a 37-page sample
property insurance policy that Willis had developed, a form called the
WilProp 2000. The WilProp form included a specific definition of
occurrence, one designed to minimize deductibles for policyholders:
"all losses or damage that are attributable directly or indirectly to
one cause or to one series of similar causes."
The goal in multicarrier property insurance deals is to get
all of the insurers to agree to issue the same final policy, so that
there are no gaps in coverage. Carriers with smaller shares of the
coverage frequently defer to the policy demands of bigger insurers,
however, so brokers don't expect to negotiate final policy language
with all (or even most) carriers. In the World Trade Center program,
for instance, no negotiations took place with the London insurance
syndicates, which actually, at the time they agreed to provide
coverage, waived the right to sign off on final policy wording.
Moreover, insurers typically issue temporary contracts binding them to
provide coverage before they finish negotiating final policy language.
Usually there's plenty of time to reconcile policies after the binders
come in.
Distilling facts from the frenzied discussions that took place
between Willis brokers and insurance company underwriters in July 2001
is no easy task, especially now. Willis broker Boyd testified that he
didn't expect carriers simply to accept the WilProp sample form, but
considered it a starting point for negotiations. Swiss Re seems to have
regarded it the same way. Underwriter Daniel Bollier agreed on July 9
to carry about 22 percent of all layers of coverage beyond the first
$10 million, but he told Willis broker Paul Blackmore that he wanted
changes in the sublimit language in the WilProp form. (Bollier was
satisfied with the WilProp occurrence definition and did not attempt to
negotiate changes to it.) Other carriers also seemed to expect
negotiations of final policy language; only two Bermudan insurers, ACE
Ltd. and XL Capital Ltd., specifically referred to the WilProp form in
their binders.
Before the lease deal closing, Willis issued certificates of
insurance to Silverstein, confirming to his lenders and to The Port
Authority that he had sufficient coverage. His 99-year lease, for which
Silverstein put up only $14 million of his own money, closed on July
24. Willis broker Boyd, however, still had work to do. One carrier,
Travelers, had informed Boyd that if Travelers was to participate in
the primary layer of coverage, it would have to be on the basis of its
form, not the WilProp form. Boyd had tried to find a substitute carrier
with as high a rating as Travelers, but the market for World Trade
Center insurance was saturated.
So in late July, Boyd began serious discussions with Travelers
underwriter James Coyle III about what the final Travelers policy would
say.
There is no dispute that Coyle first sent Boyd the Travelers
sample policy on July 11. But what did Boyd and the rest of the Willis
brokers tell the other carriers about the Travelers form? On this
critical question, the accounts of the Willis brokers and insurance
company underwriters diverge drastically.
If the case ever goes to trial, one of the key issues will be
the exchanges between London broker Blackmore and Swiss Re underwriter
Daniel Bollier. Blackmore testified that sometime between July 17 and
23, he told Swiss Re underwriter Bollier that WilProp had been replaced
by Travelers; on July 23 his assistant e-mailed the Travelers form to
Swiss Re. But Bollier swore he remembered no conversation with
Blackmore about the Travelers form. He said he paid little attention to
the e-mail attachment, which arrived without a note advising that
Travelers was replacing WilProp. Timothy Boyd of Willis testified that
he specifically informed underwriters at eight other insurance
companies that Travelers would be the primary form; notes in the files
of at least three carriers indicate that their underwriters had been
told. But most of the carriers deny that anyone from Willis ever told
them Travelers was replacing WilProp.
At the end of August, Coyle of Travelers sent Willis' Boyd a
draft policy that included the changes they'd discussed. The Travelers
policy did not define occurrence, leaving the interpretation to state
law. Boyd, who did negotiate the wording of Travelers' deductibles
clause, never attempted to add Willis' occurrence definition to the
Travelers form. On that point, he deferred to Travelers. Boyd looked
over what Coyle had sent him at the end of August, but didn't respond.
Labor Day weekend arrived, and there didn't seem to be any rush.
Sept. 11 found most of the brokers on the Willis World Trade
Center team in Nashville, at a previously scheduled meeting of Willis'
property insurance group. Like the rest of the country, they watched
the television in horror. With planes grounded, the brokers were
marooned in Nashville, without their paperwork. Inevitably, they began
the debate: Was the attack one occurrence or two?
Willis' counsel, Stuart Gerson of New York's Epstein Becker
& Green, insists that these conversations were informal and purely
hypothetical. Nevertheless, when Timothy Boyd, the lead broker on the
World Trade Center program, called Willis' London office as he tried to
reassemble the Silverstein documents, he told London staffers,
according to the notes of one, "In their opinion this is one
occurrence." (Both Boyd and the London staffer testified that they did
not recall the conversation.) Another broker said something similar to
Swiss Re's Daniel Bollier, according to Bollier's testimony.
Silverstein's own risk manager hurriedly faxed a copy of portions of
the WilProp form to a lawyer for The Port Authority with a cover note:
"FYI the 'occurrence' definition and the insuring agreement and the
exclusions in the Willis policy that we are working with." Several
hours later he sent the same materials to one of Silverstein's lenders.
At the same time, however, Boyd was working with Jim Coyle of
Travelers to get a final policy issued. Coyle agreed to send Boyd a
policy that reflected the state of their negotiations as of Sept. 10.
On Friday, Sept. 14, Travelers faxed a final policy -- which included
no definition of "occurrence" -- to Willis' temporary headquarters in
New Jersey. From there, Willis faxed it to Wachtell's offices.
"We were told two things," says Wachtell, "that the Travelers
form was the governing form; and that they wanted to disseminate the
policy to the marketplace. We said, 'No! You may not send it out until
we can confirm the facts.'" Silverstein's lawyers pressed the Willis
team for interviews with the brokers. Willis senior executives agreed
that John Gross of Proskauer and Eric Roth and Marc Wolinsky of
Wachtell Lipton could come to New Jersey on Monday, Sept. 17, to talk
to the brokers.
Over the weekend, Gross and the Wachtell Lipton lawyers
studied the documents Willis had sent them. Gross is as emphatic as
Wachtell about the implications of the Travelers policy. Since it
didn't specifically define "occurrence," the definition was left to
state law. And under New York state law, Gross asserts, the attack on
the twin towers constituted two occurrences. "I knew it without even
going to the books," he says. But did the Travelers policy govern the
World Trade Center insurance coverage? Gross and the Wachtell Lipton
lawyers say that they got their answer in their interview with the
Willis broker Timothy Boyd on Monday, Sept. 17.
If Barry Ostrager's theory -- that Wachtell concocted the
Travelers policy scenario -- was correct, the "fantastic pressure" that
Wachtell supposedly exerted on the Willis witnesses would have had to
have begun during those Sept. 17 meetings, as the lawyers and brokers
figured out what to tell the insurance market about the governing
policy. Willis is a sophisticated company, so, naturally, its brokers
were represented by their own lawyer at these initial interviews with
Silverstein's counsel. Sitting at the head of the table as Roth, Gross
and Wolinsky questioned Willis witnesses was a lawyer named Andrew
Amer, from the firm that is Willis' longtime outside counsel: Simpson
Thacher. Amer is a partner in the department headed by Barry Ostrager.
Amer, who declined to comment, presumably heard the Willis
witnesses tell Silverstein's lawyers that the Travelers policy governed
the World Trade Center coverage. He said as much in a Sept. 20 e-mail
to Eric Roth, confirming that Willis believed that coverage was based
on the Travelers form. "We await your approval to distribute the policy
to the market," Amer wrote.
So how could Ostrager later assert that Wachtell was pushing
to get the Travelers policy out, that Wachtell Lipton lawyers were
manipulating Willis witnesses to tell a story that favored Silverstein?
Ostrager says he never talked to Amer about those meetings. To protect
Willis' attorney-client privilege, he says, Simpson Thacher -- which
had informed Willis from the start that it would be representing a
carrier in the litigation -- erected a wall between Amer and the
lawyers representing Swiss Re. When Ostrager wrote the brief accusing
Wachtell of "unconscionable interference" and "corruption of the
discovery process," he based his accusation on notes Travelers
underwriter Coyle took during a post-Sept. 11 conversation with Willis
broker Boyd in which Boyd complained about feeling so much pressure
from the lawyers that he was thinking of quitting. The comment later
turned out, however, to have been a reference to Willis in-house
lawyers, pressing Boyd to produce documents.
Epstein Becker's Gerson, the lawyer who replaced Amer soon
after those initial meetings, also rejects any suggestion that Willis
witnesses were coerced, in the Sept. 17 meeting with Wachtell Lipton
lawyers or in any meeting after that. "I have been at every single
[deposition] prep session," Gerson says. "There has been no pressure of
any kind put on any Willis witness by anyone at Wachtell. I wouldn't
let that happen. I am not a potted plant."
Ostrager says he never meant to suggest that Wachtell Lipton
lawyers had suborned perjury, merely that in hours of preparing Willis
witnesses for deposition, Wachtell Lipton partners had subtly shaped
their recollections and perspectives. (Willis, insurance lawyers have
noted in court, may be concerned about the possibility of Silverstein
suing the brokerage for malpractice.) Immediately after Boyd's
deposition testimony about pressure from lawyers, Ostrager did notify
Judge Martin that Boyd had been referring to in-house lawyers, not
Wachtell; and he did tell the judge in a letter and in court that he
wasn't accusing Wachtell of impropriety. But he didn't withdraw his
brief. And he doesn't believe that Wachtell is as indignant about his
tactics as Wachtell says he is. In a deposition of Blackmore, Ostrager
told Wachtell that he was going to call the judge if Wachtell didn't
stop interrupting his questions. "If you want to be a litigator,"
Wachtell retorted, "don't be so thin-skinned every time you get an
objection." Says Ostrager: "That applies in spades to him. [Wachtell
and his partners] want to be aggressive, but, like any bully, they
don't want to be punched back."
Ostrager came into the World Trade Center insurance case at
around the same time Wachtell did, within two days of the collapse of
the towers. Swiss Re wasn't necessarily expecting litigation, Ostrager
says, but retained him "as a matter of prudence." As Willis circulated
the Sept. 14 Travelers policy to the other insurance companies, Swiss
Re's prudence proved justified. Swiss Re, as well as a host of other
carriers, notified Willis that they'd bound coverage on the basis of
the WilProp form, and had never agreed to substitute the Travelers form
at all. The Travelers policy, they said, wasn't their policy; many said
that the Willis notice was the first they'd heard of it.
For a few weeks, Ostrager and his second-in-command, Mary Kay
Vyskocil, let Silverstein set the course of the case. The real estate
developer badly wanted to begin collecting the business interruption
portion of his insurance, so that he could continue making payments to
his lenders and his landlord, The Port Authority. Wachtell urged a
meeting between Silverstein and the insurers. Willis executives
organized a session on Oct. 2 at Manhattan's Metropolitan Club. "I
thought it would be helpful if Larry could talk to them, let them see
him in the flesh, show them he was not trying to get a windfall,"
Wachtell says. "We told them we understood there was a difference of
opinion on occurrence, but we had to get the business interruption
insurance going. Larry said, 'We ought to be sitting down and talking.'
He was met with dead silence."
Ostrager regarded the meeting as a turning point. "I knew what
was going on in that Oct. 2 meeting," Ostrager says. Silverstein wanted
the business interruption cash, Ostrager says, to fund his
two-occurrence litigation. "It was transparent and self-evident,"
Ostrager says. "I knew to a moral certainty that Silverstein was going
[to use the business interruption money] to initiate a declaratory
judgment action against the insurers." So Ostrager and Vyskocil grabbed
control of the litigation. On Oct. 22 they filed, on behalf of Swiss
Re, a complaint for a declaratory judgment against Silverstein, asking
the court to hold that the Trade Center disaster was, for insurance
purposes, one occurrence. Ostrager admits that not all of the other
insurers were happy about his suit. "There was a band of reactions
ranging from 'We would have wanted to participate' to 'We would have
appreciated it if you had consulted us,'" he says.
The Silverstein side portrays Ostrager as a litigation outlaw,
infuriating the other insurers with overly aggressive tactics, starting
with that declaratory judgment action. Lawyers for most of the other
major insurers declined to comment publicly but insist privately that
all of the insurers are working together. "There's a high level of
cooperation," says Travelers counsel Harvey Kurzweil of New York's
Dewey Ballantine, who, along with his partner Saul Morgenstern, has
become a spokesman for the other insurers. "We've put on a remarkably
cohesive, coordinated [case]." And a successful one, so far. Though
Ostrager has sometimes been alone at the extremes of the case, the
insurance lawyers have united on major motions. As Ostrager had
predicted, in January, Silverstein did file suit against all of the
insurers, seeking a summary judgment against Travelers. Gross and the
Wachtell Lipton team asked Judge Martin for a ruling that, as a matter
of law, the World Trade Center disaster constituted two occurrences
under the Travelers policy. Martin denied Wachtell's summary judgment
motion, and, on another heavily litigated pre-trial issue, granted the
insurers' motion to compel testimony from the Willis witnesses about
their meetings with Wachtell.
Judge Martin seems eager for the case to settle, and has
appointed federal Judge Lewis Kaplan to oversee talks, the first since
a few utterly fruitless sessions late last fall. (Silverstein did
settle with the two Bermudan insurance companies that explicitly
mentioned the WilProp form in their binders. Those insurers agreed to
pay, in cash, their policy limits for one occurrence, a total of about
$350 million.) Proskauer's John Gross is still hoping for a deal; after
all, if Silverstein can get anything more than his $3.55 billion
one-occurrence limit, he's won. (Silverstein has stated repeatedly that
he intends to use the insurance money to rebuild lower Manhattan.)
Harvey Kurzweil says that Travelers and the other insurers would
participate in talks; he is one of four insurance lawyers who was
scheduled to meet with Wachtell Lipton partner Meyer Koplow in late
August. Ostrager was also supposed to participate. One senses his heart
wouldn't be in it, though. There's only one place Ostrager wants to be
on Nov. 4: in Judge Martin's courtroom, picking a jury of New Yorkers
whose votes he and Herb Wachtell can fight for.
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