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The question the U.S. public faces is whether the courts are the most efficient way to resolve the compensation claims of workers aiding in the World Trade Center disaster, or whether the legal dispute should be settled outside the court system, according to Christine LaSala, CEO of the World Trade Center Captive Insurance Co.

If the courts are given the responsibility to settle claims, they could drag on for years. Furthermore, if juries find in favor of plaintiffs and award multimillion-dollar verdicts, contractors and emergency responders will think twice before responding to the next emergency. "Fear of not being protected will have an effect on the businesses and the people who might respond in the future," said LaSala.

She also said the delays and the legal wrangling surrounding the payment of claims for the cleanup of the World Trade Center debris had exposed the shortcomings of mass tort exposures in the United States.

In the weeks following Sept. 11, 2001, thousands of workers from dozens of federal, state and private organizations went to the asbestos-contaminated site to help with the cleanup of a "potentially toxic soup" of chemicals, cancer-linked construction material and kerosene-fed fires.

Those organizations included the Federal Emergency Management Agency, the New York Congressional delegation, the New York State Insurance Department, the N.Y. State Emergency Management Organization, the New York City Police Department, the New York City Fire Department, private contractors and consultants, along with the securities and insurance industries.

Many of the rescuers went to the site to help with the cleanup without a contract, and without any insurance policy. Time was of the essence as the site still contained the bodies of thousands of victims.

"Less than four hours after the attack, contractors were responding to the requests by the city to help," said LaSala. During removal nearly 140 private companies helped haul away debris. The work went on day and night. The hazards were unique: 200 million tons of debris, the possible failure of slurry walls, fires burning for weeks from thousands of gallons of jet fuel, risk of exposure to the release of cancer-causing Freon and asbestos, and from live ammunition in guns carried by police and National Guard units.

Some of the ground zero rescuers have developed respiratory illnesses, and blame the grueling hours at the site for becoming ill. Critics of the WTC debris-removal operation have also berated public officials for ordering too quick a cleanup, without conducting environmental studies to assess the risk to workers.

While in hindsight it may be easy to criticize the swift response on the part of public officials to clean up ground zero, LaSala also noted that it was important to consider the context in which insurance property/casualty decisions were being made by public officials nearly five years ago.

In September 2001, the market for property coverage was already beginning to harden. The scale of the disaster and the estimated more than $20 billion in insured property damage hardened prices even further.

Insurance coverage to insure the removal of ground zero debris in the fall of 2001 was now a lot more difficult to find. Partly as a result of the contraction, the response in the commercial insurance market was limited and inadequate. Efforts to place insurance persisted until early 2002, said LaSala.

There was no consideration given to contractors about liability claims, nor was there time for contractors to study the potential liability of the cleanup, as federal and state governments, along with the public, demanded an immediate response. At the same time, federal lawmakers were acting quickly to create the Compensation Fund and, in anticipation of lawsuits against the airlines, set limits on the industry's liability through the Air Transportation Safety and System Stabilization Act. In March 2002, the Bush administration agreed to commit $1 billion to provide an insurance mechanism to cover debris-removal claims against the city and contractors, in excess of the $20 billion already authorized for disaster recovery.

Against the backdrop of a tightening market and insufficient commercial insurance at reasonable rates, state and local authorities were unable to pass laws to indemnify the city and contractors, and could not protect the city and contractors from the tort actions that might arise from the cleanup, said LaSala.

Lawmakers and the insurance industry turned to a captive after efforts seeking indemnification from FEMA were denied when the cleanup was found to be outside FEMA's authority, and after efforts seeking indemnification from Congress were ultimately derailed. The captive ultimately took the following form: It had to be a nonprofit, tax-exempt organization domiciled in New York City, despite initial discussions to have the captive domiciled in Vermont.

WTC Captive Insurance Co. had to cover third-party liability, marine, environmental liability and professional liability claims against the city and contractors arising from their activities during the debris removal. The captive would provide a $1 billion premium limit funded by FEMA, coverage for claims against the city by uniformed city workers, excess coverage for project-specific general liability coverage and marine coverage, and a single insurance policy for more than 140 insured entities, with a duration of up to 25 years, said LaSala.

The WTC Captive's duties now are to review claims tendered by insureds, to determine coverage and assign defense counsel, to manage and control the defense of more than 70 insureds in mass tort litigation involving more than 8,500 individual plaintiffs, and to manage the $1 billion premium from FEMA for preservation of capital and growth.

Plaintiffs have alleged that New York contractors and defendants with property interests at the site failed to provide a safe workplace, warn workers and provide adequate protection from the hazardous materials. Nearly 90 percent of complaints include allegation of respiratory impairment.

The operating structure of the captive company is a not-for-profit insurance company licensed by the state of New York, and is run by a board of directors appointed by the mayor. The WTC Captive is regulated by the New York State Insurance Department, and is overseen by FEMA and the New York State Emergency Management Office. A small professional staff run the day-to-day operations of the captive, with the help of advisors.

Once the fund is depleted, it will not be replenished and the company will be shut down. "In many ways we are like a company in runoff," said LaSala. At of the end of 2006, the fund had a little more than $1 billion to pay claims. LaSala said the fund was unique to the Sept. 11, 2001, events affecting the World Trade Center. No such fund has been set up to cover the debris removal from the attack on the Pentagon, or the remains of United Airlines Flight 93, which crashed in Pennsylvania.

So far the WTC Captive has paid just one claim. "It was a claim that the circumstances of which were fully known," said LaSala. "It was a nonrespiratory claim. It was a broken finger claim, to be exact, paid in the fall of 2004."

LaSala, a former broker who came out of retirement to help manage the company, said that one of the lessons of the WTC Captive is that it raises questions about whether the courts are the most efficient way to resolve debris removal claims or whether the nation is better off settling claims outside the court system.

Their issue, she said, is important because it has a bearing on whether the private sector will be as eager and willing to respond to a similar calamity in the future.

Asked if there was any cap in terms of the payout should the payouts exceed the amount available to pay claims, LaSala said the captive's resources were "only for the amount in its experience account balance."

Once the fund is exhausted, that's it. "It has obligations only for the amount in its experience account balance," she said. "It has no obligations beyond that."

April 15, 2007

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