This story, in slightly different form, originally appeared in the New York Law Journal.

NEW YORK CITY-Developer Larry Silverstein, president and CEO of Silverstein Properties Inc., has lost his attempt to win as much as $3.5 billion from airlines to pay for extra losses he endured as a result of the 9/11 terror attacks on the World Trade Center complex. Judge Alvin Hellerstein of US District Court in Lower Manhattan held on Thursday that Silverstein was fully compensated by his own insurers for the cost of rebuilding and the lost lease income since the buildings were destroyed. He also cannot obtain additional monies because of the alleged negligence of the airlines in allowing hijackers to board their planes, he said.

Hellerstein issued his decision from the bench after a four-day proceeding in In re World Trade Center Disaster Site Litigation. The case will now move to the US Court of Appeals for the Second Circuit.

“We've been waiting for years” to get to the Second Circuit, said Richard Williamson of Fleming Zulack Williamson Zauderer, who represents Silverstein's World Trade Center Properties. Williamson had contended at closing arguments earlier Thursday that the amount paid by the insurers—a net payment of $4.044 billion to Silverstein for 1, 2, 4, and 5 World Trade and the $831 million paid for 7 World Trade—didn't come close to full, fair compensation.

“Actually, when you do the math” and add it all up, “you end up with well over $8 billion,” Williamson told the judge. Williamson said it was up to the airlines, allegedly negligent for letting teams of five hijackers board American Airlines Flight 11 and United Airlines Flight 75 on Sept. 11, 2001, to pay for the excess loss.

Silverstein has said he needs the funds to complete the reconstruction of the World Trade Center. But Williamson was hamstrung by Hellerstein's ruling in 2008 that WTCP could only recover the fair market value of the leasehold Silverstein took just months before the terror attacks and not damages related to his contractual obligations.

In 2009, Hellerstein said that figure was $2.805 billion for all but 7 World Trade. In 2012, the value of 7 World Trade was fixed at $737 million. Those figures set the cap on recovery in the tort action against American and United.

“If this case were to go forward,” the judge said Thursday, WTCP “wouldn't be able to recover anything against the airlines.”

Roger Podesta, a partner at Debevoise & Plimpton, on behalf of the airlines, said in his closing argument that WTCP was trying to seek compensation for the same category of loss for which they have already been paid. “There's no doubt that the fair market value of the leasehold will fully compensate the plaintiffs for their loss,” Podesta said.

Key to Hellerstein's ruling was New York's CPLR §4545, “admissibility on collateral source of payment,” which acts to prevents double recoveries, or, as the New York Court Appeals has called them, “windfalls,” whereby an individual collects from their own insurer and then seeks additional compensation from another. “If the plaintiff is compensated for economic loss by a collateral source, the plaintiff cannot recover that amount again,” Podesta said.

The question for Hellerstein was whether the compensation to Silverstein “corresponded” to the categories of insurance coverage “with reasonable certainty.” The judge said there was indeed “complete correspondence” and Silverstein was entitled to no more than the lesser amount of the replacement costs of the building or the value of the lost lease income during the period of business interruption, which he called “two sides of the same coin.”

Williamson had disagreed with the judge's approach and said in his closing, “You pay different premiums for different kind of coverages” and “Collateral sources are not to be treated as fungible. You don't just move them around.”

Williamson argued that the defendants “wrongly claimed there was only one category of loss” and they “confuse tort defense issues with insurance correspondence issues.” He added, “The defendants want to ignore that plaintiffs bought insurance specifically to protect their contractual obligation to rebuild” and, in fact, their contracts specifically required them to rebuild.

Hellerstein didn't accept that argument, saying an obligation to rebuild makes no difference. The judge said he found the term “windfall” inappropriate and “obnoxious” in the context of 9/11, which “dealt a severe blow” and triggered so much heroism by first responders and construction crews who cleared the site.

He included Silverstein among the heroes, saying the developer and others “worked hard to create beauty out of the ashes of destruction.” Podesta declined comment.

SPI issued a statement Thursday saying it is “deeply disappointed” with the decision. “While we respect Judge Hellerstein, we believe his ruling on this issue, and on prior issues, to be in error and we intend to file an immediate appeal.”

It added, however, that “regardless of the ultimate outcome of the case, we remain 100% committed to realizing a fully and spectacularly rebuilt World Trade Center” which will “serve as an unmistakable symbol of New York's resilience and strength.”

Mark Hamblett can be reached at [email protected].