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Mancini’s Musings #6: The Story of the World Trade Center Captive

Summarizing a CICA Conference Session, March 13, 2007, entitled The Story of the World Trade Center Captive
Speaker: Christine LaSala, President and CEO of the World Trade Center Captive
with editorial opinions added. By Chris Mancini, CEO, Captive.com, LLC

Setting the stage

In light of the March 21, 2007 Senate Hearings on illnesses related to September 11th responders that we shared with our readers in a recent edition of Captive Daily Wire™, it seemed prudent to share my notes on the CICA session entitled The Story of the World Trade Center Captive with captive.com visitors. Many of you will be disappointed that this article is not laced with my typical light-hearted wit, but this is indeed a serious topic, and it will be treated as such.

Dennis Harwick opened the session with an impressive introduction of Christine LaSala. After sharing her remarkable resume, Dennis reminded us that WTC Captive Insurance Company, Inc. is engaged in active litigation, and that Ms. LaSala’s comments throughout the presentation were limited to topics appropriate under the circumstances. He also reminded us that questions from the audience likewise needed to be sensitive to the ongoing litigation. Being Dennis, he cautioned the large audience that Tom Jones, outside corporate counsel to WTC Captive, was indeed present to compile information on any individuals asking inappropriate questions. At that point, Dennis departed the stage to have his tongue surgically extricated from his cheek. For myself, I can only hope that this article does justice to Ms. LaSala’s presentation, and reflects her comments accurately. Please remember that I am by no means a professional reporter – just a garden variety computer geek. I will do my best.

Ms. LaSala took the microphone, and began by giving credit to numerous government agencies for laying the groundwork needed to get the WTC Captive underway.

Taking us back to 9/11

While everybody in the room, and indeed everyone reading this article, remembers precisely where they were and what they were doing when the news of the September 11th attacks broke, Ms. LaSala took us back to that day -- this time from the perspective of the first responders. Despite the chaos brought on by an unprecedented event, incredibly contractors were already arriving at Ground Zero by 1:00 in the afternoon on 9/11 to undertake immediate rescue efforts. This process continued for 265 continuous days, 24/7. Two million tons of debris that stood eight to ten stories high needed to be removed. Fires burned for over 3 months. The slurry wall that held back the Hudson River was in jeopardy, and it was learned that live ammunition was stored at the WTC site. All in all, the events unfolding at Ground Zero were nothing for which anybody could have been prepared. Best practices and procedures to deal with a disaster of this magnitude simply didn’t exist.

Help Unfolds

Because of President Bush’s declaration of the area as a federal disaster area, FEMA and other federal agencies quickly became involved. There was no time to assess the dangers of the rescue and recovery work prior to starting it; immediate response was required, and did indeed take place.

It should be noted that, early on, Liberty Mutual, Lloyds, and other London markets quickly wrote a limited but inadequate commercial market response. Efforts to place insurance persisted until early 2002.

The attack spurred decisive and significant actions by Congress. Already, litigation was anticipated. The Air Transportation Safety and System Stabilization Act set limits on the airline industry’s liability. It also created the no-fault Victim’s Compensation Fund which supplied funds to individuals injured or beneficiaries of those killed in the attacks, provided they relinquished their right to sue.

Still, the insurance in place to respond to the certain lawsuits was inadequate. No legislation had passed indemnifying the City and the contractors who came to Ground Zero; consequently there was virtually no protection for the City or for private contractors for the tort actions that could, and almost surely would, arise.

On March 2, 2002, President Bush agreed to commit $1 Billion to provide an insurance mechanism to cover debris removal claims against the City and its contractors – the World Trade Center Captive Insurance Company. While this was strong and decisive action on the Administration’s part, this protection failed to address the complete problem.

Ms. LaSala noted several shortcomings of using the captive insurance company format specified in the enabling legislation. The solution devised was designed to bring the structure within FEMA’s authority, which it did indeed do. Unfortunately, both the problem and the remedy were simultaneously placed squarely within the tort system. The captive solution did not address the potential shortcomings of a tort remedy. Additionally, it did not solve the problem of the long term exposure to future claims against private contractors. Finally, it did not anticipate the perceived inequity of remedies for those who died or were injured in the immediate aftermath, as contrasted with those who may suffer injury later.

Typically our legal system places responsibility on the perpetrator of a crime to pay victims. In this case, nothing would be forthcoming from the terrorists. For a person who experiences injuries or illnesses later, such a claimant would need to prove that these injuries or illnesses were indeed caused by the negligence of the defendants in order to get help in the form of insurance proceeds. Not quick, not efficient.

LaSala reminded us that if the collapse of the building did cause health problems, those issues needed to be dealt with by the medical community, not the tort system. Many individuals who were not injured during the initial rescue and recovery process, but who are becoming sick today, are just plain angry. Why? They believe it’s simply not fair that those who were injured immediately were compensated under the Victims Compensation Fund, while those who are getting sick now are experiencing difficulty in receiving compensation for doing their duty to their country during that same recovery and debris removal process.

The WTC Captive Insurance Solution

The key features of the WTC Captive Insurance Solution are:

• Captive vs. other mechanisms: a not for profit corporation, tax exempt, domiciled in NY.
• Broad third party liability coverage including general, marine, environmental, professional for claims (other than workers comp and disability claims) against the City and the contractors arising from their activities during the WTC debris removal project.
• $1B premium / limit – funded by FEMA.
• Coverage also for claims against the City by uniformed City workers
• Excess of project specific general liability coverage and marine liability coverage – underlying to any other insurance
• Single insurance policy for 140+ insureds
• Duration – up to 25 years.
• Responsive to the needs of the WTC Captive’s insureds.

The WTC Captive is a not-for-profit captive insurance company licensed by the State of New York. Its Board of Directors is appointed by the Mayor of New York City. The Captive complies with all regulatory requirements specified by the New York State Insurance Department, and is overseen by FEMA and SEMO, the New York State Emergency Management Office. The captive maintains a small professional staff and utilizes outside professional advisors as needed. Finally the WTC Captive is, by statute, independent.

The World Trade Center Captive has a small cadre of service providers selected after a thorough RFP process, and approved by the Board: The Auditor is Johnson Lambert; Milliman handles the actuarial work; McDermott Will & Emery serves as corporate and coverage counsel, handling governance and other legal issues for the captive; Blackrock Financial Management fills the investment manager’s role; The Bank of New York is the banking and custodial service provider; and GAB Robbins fills the TPA role with respect to claims.

The litigation

As expected, lawsuits continue to mount. All litigation has been consolidated before Federal Judge Hellerstein in the Southern District of New York. A summary of some of the key aspects of the cases are:

• Plaintiffs allegations are broad and vague. Among other things, they have alleged that the City, its contractors, and other defendants with property interests at the WTC site were negligent in that they failed to provide a safe workplace, failed to warn workers at the site and more.
• Many of the complaints involve respiratory claims.
• Immunity issues which are a matter of fundamental pubic policy also enter the litigation picture. The resolution of these issues affects the ability of our government and the willingness of private sector companies to respond to a future civil defense calamity.
• Judge Hellerstein’s rulings found that immunity laws may apply but did not set any parameters as to how. His rulings are currently on appeal to the 2nd Circuit.
• As litigation advances, there is a need to develop the factual and scientific record to identify legitimate claims. Which claims truly deserve compensation?

Media attention to the health of site workers has been sustained and relentless. The media routinely assume a link between illnesses and the debris removal work done, at a variety of levels, but are nebulous as to negligence and causality. The captive, on the other hand, has not sought to use media coverage as a means of addressing the underlying societal issues.

Mayor Bloomberg’s report on the health impact of 9/11 was recently released. Its purpose was to place recommendations on the table that would close the gaps that are still looming around the issue of adequate compensation for victims, both immediate and down the road. One of the recommendations in that report goes a long way toward achieving that end; namely, to re-open the Victim’s Compensation Fund for the current claimants, and liquidate the captive, freeing up the billion dollars of FEMA money to pay for the illnesses of the actual victims. The WTC Captive’s board has gone on record supporting this recommendation.

Subsequent proceedings:

On March 21, 2007, Mayor Bloomberg reiterated his endorsement of reopening the Victim's Compensation Fund in his testimony before a US Senate committee. Follow this link to read Mayor Bloomberg’s full testimony, along with that of all speakers invited to testify. From this page, you can access a RealPlayer video of the entire hearing, or select individual pdf files for each speaker. A new browser window will open for your convenience.

Next, on March 22, The James Zadroga 9/11 Health and Compensation Act (HR. 1638) was introduced in the US House of Representatives by Rep. Carolyn Maloney (D-NY), Rep. Vito Fossella (R-NY). HR 1638, if passed, would extend long-term medical monitoring to everyone exposed to Ground Zero toxins, and federally-funded health care to anyone who is sickened as a result. Additionally, the bill would reopen the federal Victim's Compensation Fund (VCF) for sick and injured 9/11 responders and lower Manhattan residents, workers and schoolchildren.

The Zadroga Act is named after the late James Zadroga, a New York City Homicide Detective and 9/11 responder who was among the first to have his death attributed to toxic exposures at Ground Zero. Follow this link to download the full text of HR 1638, and to view the current status of the bill. Once again, a new browser window will open.

Looking ahead

The number of claimants continues to grow, along with the challenges brought about by the passage of time between the onset of symptoms and the event which is alleged to have caused them. The precedent for governmental involvement in future catastrophic events will be set in motion by both legislation and the ongoing litigation in the coming months.

The immediate response to the attacks on 9/11 was heroic on multiple levels, from the commitment of resources at all levels of government, to private industry, to the actual individuals committed to the job. What is going on now as litigation on a massive scale unfolds is complex enough to elicit many more cynical responses. If you think the nation has become too litigious, the thousands of cases against the City and contractors who rushed to the site are evidence of plaintiffs’ lawyers run amok. If you think the federal government is ineffectual, the failure to complete the framework for a just and efficient resolution is evidence of lack of leadership. If you think the courts are too slow to protect individuals, the slow pace of the litigation is evidence of social injustice. What is clear is that the job of the WTC Captive is to provide insurance coverage to its insureds, a difficult job that it is doing well.