Insurance Claim Litigation Fails

Mound Cotton, on Behalf of AMEC Construction Management, Inc., Wins Second Dismissal from Seven World Trade Center Building Collapse Litigation

2007-03-30 16:34:01 -
NEW YORK, March 30 /PRNewswire/ -- As reported on the front page of the New York Law Journal on March 21, 2007, Mound Cotton Wollan & Greengrass ("MCWG") obtained the dismissal of AMEC Construction Management, Inc. ("AMEC") from a $400 million dispute involving claims of negligent design and construction in connection with the September 11, 2001 collapse of Seven World Trade Center ("7 WTC"). MCWG's effort was led by partners Mark J. Weber, Douglas K. Eisenstein, and Daniel Markewich.

United States District Judge Alvin K. Hellerstein of the Southern District of New York rejected claims against AMEC and the other contractors, designers and architects that helped build and maintain certain 24-hour emergency operations centers at 7 WTC, which caught fire and was destroyed following the 9/11 terrorist attacks on the adjacent Twin Towers. All of the similarly situated defendants joined in MCWG's lead motion for AMEC.

In the massive litigation that followed the collapse of 7 WTC, plaintiff Consolidated Edison of New York sued the owners, lessees, and tenants of the building, as well as all companies that allegedly were involved in the design or construction of New York City's Office of Emergency Management and the Salomon Brothers (now Citigroup) build-out at 7 WTC, which included the installation of diesel fuel tanks as part of emergency back-up power systems. The plaintiff contends that improper design, construction, and installation -- particularly the existence of large diesel fuel tanks in the building associated with the power systems -- caused the collapse of the building, which in turn destroyed Con Edison's substation. The complaint alleges that the diesel fuel made the fires burn so intensely that the building's structural support was compromised, and it was impossible for firefighters to quell the blaze.

MCWG obtained a previous dismissal of AMEC in January 2006 in the main action, where the court accepted AMEC's argument that it did not owe Con Ed a duty of care because there was no contractual privity nor was there the "functional equivalent of privity" under controlling precedent. Six months after the original dismissal, however, AMEC and the other contractors and design professionals were brought back into the case in the third-party action filed by the 7 WTC landlord, Seven World Trade Company, L.P. and Silverstein Properties, Inc. ("Silverstein"), for contribution and indemnification to the extent that Silverstein was found liable for damages related to the collapse.

In dismissing Silverstein's third-party action, Judge Hellerstein again agreed with AMEC that there was no functional equivalent of privity -- notwithstanding the landlord's direct nexus with 7 WTC as opposed to Con Ed's status as an adjacent neighbor of the building. Quoting from AMEC's reply brief, the judge noted that dismissal was appropriate because AMEC and the other contractors, designers and architects did not have the particular purpose of benefiting Silverstein merely because the system was located in Silverstein's building when the "very end and aim" of the work was to benefit Citigroup, not Silverstein.

In addition, the judge agreed with AMEC that his rationale for holding in Industrial Risk Insurers v. Citigroup and Port Authority of New York and New Jersey, 387 F.Supp.2d 299 (S.D.N.Y. 2005) that Silverstein had expressly assumed the risk of the emergency power system in its lease with Salomon applied in this case as well. Thus, Silverstein was barred from claiming that AMEC owed it a duty of care for the same reasons that Silverstein's insurers had been barred from asserting that Citigroup owed a duty of care in relation to the emergency power system.

Mound Cotton Wollan & Greengrass is an internationally recognized law firm practicing insurance, reinsurance, general commercial litigation, liability defense and business, securities and commodities law. Founded in 1933, Mound Cotton is based in NYC, with additional offices in San Francisco, Newark, and Garden City, New York.