NEW YORK CITY- The legal woes associated with the rebuilding of Ground Zero continue. Silverstein Properties Inc. filed suit Tuesday against Industrial Risk Insurers, the Connecticut-based insurance unit of General Electric, to compel IRI to fully satisfy its obligation to pay for the reconstruction of 7 World Trade Center, which was destroyed on September 11.

IRI has already paid Silverstein approximately $440 million to fund the construction of the new building and compensate Silverstein for business interruption losses and the suit relates to funding issues likely to arise at the end of 2004. The suit was filed as a claim in a suit that is already pending in the United States District Court for the Southern District of New York brought by a former tenant of 7 World Trade Center against IRI.

IRI was the sole insurer of 7 World Trade Center, which was covered by an $860 million insurance policy. IRI maintains that the policy covers five buildings, not just 7 WTC. Representatives claim Silverstein supplied them with that figure as the cost of replacing all of the buildings including the rental stream.

The $440 million already paid by IRI will enable the construction to go forward through the end of 2004, however completion of the building is scheduled for the beginning of 2006. “The foundations are almost complete and portions of the building already stand three-stories above grade, says Larry Silverstein, president and CEO of Silverstein Properties. “We have bought all of the concrete and structural steel necessary to finish the building and we expect to execute a guaranteed maximum price construction contract with our general contractor, Tishman Construction, shortly. It is critical for the recovery of lower Manhattan that 7 World Trade Center be rebuilt, and I am committed to making sure the building is completed on time.”

“We want to rebuild lower Manhattan,” Dean Davison, public relations and communications leader for IRI, says, “We will pay our claim under the terms or our policy and under the terms of the law. We have taken no final position on the claim and have cooperated with Silverstein’s efforts to rebuild the property and are working with representatives to resolve the matter.”

The principal issue in the litigation, according to Silverstein, involves the replacement cost endorsement in the insurance policy covering the old 7 World Trade Center. Silvestein maintains IRI has claimed that under certain language in this provision, it is only obligated to pay for construction completed by the second anniversary of the September 11 attacks. IRI says that Silverstein would not be penalized if the construction is not completed in two years, but that there are incentives in place to complete the work.

The suit also seeks a declaration clarifying a number of issues that have been raised in connection with an appraisal proceeding that Silverstein has initiated against IRI to determine the total amounts that IRI must pay Silverstein under particular provisions of the policy. One provision requires IRI to pay the “actual cash value” of the building, regardless of the cost to construct a replacement building. A second provision, the replacement cost endorsement to the policy, requires IRI to pay the difference between that actual cash value of the old 7 World Trade Center and the cost to construct the new 7 World Trade Center, subject to certain limits.

Howard J. Rubenstein, a spokesman for Silverstein adds, “IRI and Silverstein have been engaged in settlement negotiations and have agreed that those negotiations should proceed not-withstanding the filing of this suit. Silverstein is hopeful that those negotiations will be successful.”

The United States Court of Appeals for the Second Circuit has set July 22 as the date for oral argument on Silverstein Properties appeal from Judge John S. Martin Jr.’s ruling that a jury would have to decide whether the deliberate crashes of two planes into the Twin Towers constitute one or two “occurrences” for purposes of the $3.55 billion “per occurrence” insurance program on portions of the complex.

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