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Special Issue: The Legal Aftermath of 9/11

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In the aftermath of the terrorist

attacks of last September 11,

this nation’s legal profession

confronted some of the most

complex legal questions it has

ever faced. The Los Angeles

Lawyer Editorial Board has

set aside this special edition,

addressing some of these

issues, as a fitting way of

commemorating those tragic

events.

c o v e r

ContentsLos Angeles Lawyer

The Magazine of the

Los Angeles County

Bar Association

September 2002

Vol. 25, No. 6

32 The Long Arm of the LawCapturing fugitive terrorists abroad may create troublesomediplomatic issues, but U.S. courts have given law enforcementwide latitude to carry out its mission

By George B. Newhouse Jr.

39 No AssurancesThe insurance litigation arising out of the events of September11 raises two critical questions: whether there was oneoccurrence or more at the World Trade Center and how remotefrom ground zero insured damages arose

By Jean M. Lawler and Kenneth E. Goates

Plus: Earn MCLE credit. MCLE Test No. 108,

sponsored by West, begins on page 42.

48 Trying CircumstancesThe authority of military commissions to try enemycombatants has been repeatedly used and upheld throughout U.S. history

By Robert C. O’Brien

page 32

d e p a r t m e n t s

13 Practice TipsThe choice between the VictimCompensation Fund and litigationBy Noah H. Kushlefsky

18 Practice TipsInsuring the risks of terrorBy Gregg J. Loubier and Jason B. Aro

23 Practice TipsThe immigration landscape in theaftermath of September 11By Howard Hom

27 Practice TipsCorrespondent banking afterSeptember 11By Fernando L. Aenlle-Rocha

c o l u m n s

11 Barristers TipsThe Barristers Section continues its workBy Elizabeth Calciano

60 Closing ArgumentA lesson in the three RsBy Miriam Krinsky

57 Classifieds

58 Index to Advertisers

59 CLE Preview

f e a t u r e s

page 48

ONE YEAR LATER

LosAngelesLawyerVISIT US ON THE INTERNET AT www.lacba.org/lalawyerE-MAIL CAN BE SENT TO [email protected]

EDITORIAL BOARD

ChairABILIO TAVARES JR. (In Memoriam)

Chair Pro TemSTEVEN HECHT

Articles CoordinatorJERROLD ABELES

DANIEL L. ALEXANDERHONEY KESSLER AMADOLINDA A. BURROWSROBERT J. COMERCHAD C. COOMBSKEITH E. COOPERANGELA J. DAVISHEATHER DAVISKERRY A. DOLANGORDON ENGJENNIFER E. FISHERJOSEPH S. FOGELMICHAEL E. FOXSTUART R. FRAENKELJOHN M. GALLAGHERJ. SUSAN GRAHAMDEAN HANSELLKATHERINE M. HIKIDAMAURICE SYLVAN KANE JR.JEFFREY ERIC LANGANJOHN P. LECRONEHYACINTH E. LEUSPAUL MARKSPHILIP S. MILLERELIZABETH MUNISOGLURICHARD H. NAKAMURA JR.KAREN NOBUMOTODENNIS PEREZGERALD F. PHILLIPSEDWARD POLLGARY RASKINJACQUELINE M. REAL-SALASSUE CAROL ROKAWKURT L. SCHMALZJACOB STEINR. BRUCE TEPPER JR.PATRIC VERRONEMARIA D. VILLAJOEL B. WEINBERG

STAFFPublisher and EditorSAMUEL LIPSMANSenior EditorLAUREN MILICOV JOMIEAssociate EditorERIC HOWARDArt DirectorLES SECHLERDirector of Design and ProductionPATRICE HUGHESAdvertising DirectorLINDA LONEROAccount ExecutiveMARK NOCKELSAdvertising CoordinatorWILMA TRACY NADEAUAdministrative CoordinatorMATTY JALLOW

LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, except fora combined issue in July/August, by the Los Angeles County BarAssociation, 261 S. Figueroa St., Suite 300, Los Angeles, CA 90012, (213)896-6503. Periodicals postage paid at Los Angeles, CA and additionalmailing offices. Annual subscription price of $14 included in theAssociation membership dues. Nonmember subscriptions: $28 annually;single copy price: $3 plus handling. Address changes must be submitted sixweeks in advance of next issue date. POSTMASTER: ADDRESS SERVICEREQUESTED. Send address changes to Los Angeles Lawyer, P.O. Box55020, Los Angeles CA 90055.

Copyright ©2002 by the Los Angeles County Bar Association. All rightsreserved. Reproduction in whole or in part without permission isprohibited. Printed by Banta Publications Group, Liberty, MO. MemberBusiness Publications Audit of Circulation (BPA).

The opinions and positions stated in signed material are those of theauthors and not by the fact of publication necessarily those of theAssociation or its members. All manuscripts are carefully considered by theEditorial Board. Letters to the editor are subject to editing.

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��

Los Angeles Lawyer deeply mourns the loss of its Editorial Board Chair, Abilio Tavares Jr.,who passed away suddenly on July 15. Bil joined the Editorial Board in July 1996 and, alongwith his other contributions to the magazine, served as a coordinating editor of the magazine’sEntertainment Law Issue from 1997 through 2002. During 2001-02 he served as the EditorialBoard’s Articles Coordinator, and on July 1, 2002, assumed the title of Editorial Board Chair.

Bil was a gifted editor who was responsible for many of the best and most valued articlesthat have appeared in these pages over the past six years. His wisdom, patience, and generositywill be missed by the magazine’s readers, contributors, Editorial Board, and staff. During thisyear, we dedicate the magazine to his memory and will retain his name where it so richlydeserves to be—atop the magazine’s masthead as its Editorial Board Chair.

—The Los Angeles Lawyer Editorial Board and staff

– IN MEMORIAM –

ABILIO “BIL” TAVARES JR.1956-2002


LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATION OF THE LOS ANGELES COUNTY BAR ASSOCIATION 261 South Figueroa Street, Los Angeles, CA 90012-2503 Telephone 213/627-2727 Visit us on the Internet at www.lacba.org

ASSOCIATION OFFICERS:

PresidentMIRIAM ARONI KRINSKY President-ElectROBIN MEADOW Senior Vice President JOHN J. COLLINS Vice President EDITH R. MATTHAI Assistant Vice President BERNARD E. LESAGE Assistant Vice President DANETTE E. MEYERS Treasurer CHARLES E. MICHAELS Executive Director RICHARD WALCH

BOARD OF TRUSTEES

STEPHEN P. AJALATDAVID B. BABBEBARBARA J. BACONLINDA D. BARKERELIZABETH M. CALCIANOSCOTT W. CARLSONFRANK W. CHENRICHARD E. DROOYANMICHAEL S. FIELDSERNESTINE FORRESTCRISTINA E. PEREZ GONZALEZLYLE F. GREENBERGDANIEL GRUNFELDRITA GUNASEKARANBRIAN S. KABATECKJEFFREY G. KICHAVENDENA A. KLEEMANJOEL W.H. KLEINBERGPHILIP H. LAMLAWRENCE E. LEONEJAMES C. MARTINGRETCHEN M. NELSONJENNIFER F. NOVAKDOUGLAS WILSON OTTOLISA K. KIM PAIANN I. PARKAMY M. PELLMANKENNETH G. PETRULISMARGARET P. STEVENSMARIA E. STRATTONIVAN TETHERCOMM'R MELISSA N. WIDDIFIELD

AFFILIATED BAR ASSOCIATIONS

BEVERLY HILLS BAR ASSOCIATIONBLACK WOMEN LAWYERS ASSOCIATION OF LOS ANGELES, INC.BURBANK BAR ASSOCIATIONCENTURY CITY BAR ASSOCIATIONCONSUMER ATTORNEYS ASSOCIATION OF LOS ANGELESCULVER/MARINA BAR ASSOCIATIONEASTERN BAR ASSOCIATION OF LOS ANGELES COUNTYGLENDALE BAR ASSOCIATIONITALIAN AMERICAN LAWYERS ASSOCIATION OF LOS ANGELES COUNTYJAPANESE AMERICAN BAR ASSOCIATION OF GREATER LOS ANGELESJOHN M. LANGSTON BAR ASSOCIATIONKOREAN AMERICAN BAR ASSOCIATION OF SOUTHERN CALIFORNIALAWYERS’ CLUB OF LOS ANGELES COUNTYLHR: THE LESBIAN AND GAY BAR ASSOCIATIONLONG BEACH BAR ASSOCIATIONMEXICAN AMERICAN BAR ASSOCIATIONPASADENA BAR ASSOCIATIONSAN FERNANDO VALLEY BAR ASSOCIATIONSAN GABRIEL VALLEY BAR ASSOCIATIONSANTA MONICA BAR ASSOCIATIONSOUTH ASIAN BAR ASSOCIATION OF SOUTHERN CALIFORNIASOUTH BAY BAR ASSOCIATION OF LOS ANGELES COUNTY SOUTHEAST DISTRICT BAR ASSOCIATIONSOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATIONWHITTIER BAR ASSOCIATIONWOMEN LAWYERS ASSOCIATION OF LOS ANGELES

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f r o m t h e c h a i r

By Jerry Abeles, R. J. Comer, and Angela J. Davis

In the wake of the September 11 attacks,publications throughout the country grap-pled with the previously unimaginable

evil inflicted upon the World Trade Center, thePentagon, the four doomed jetliners, and theentirety of the civilized world. In the struggleto articulate our national experience of shockand anguish, the words “a daythat will live in infamy” appearedin countless publications. But ul-timately the date itself emergedas the reference to the horrors ofthat day, underscoring the ab-sence of any parallel. “Pearl Har-bor,” “Oklahoma City,” and the“Titanic” are tragedies that atleast have names. The scope and scale of theevents of September 11, however, are a chal-lenge to our very language; hence, simply“9/11” or “the events of 9/11.”

Gradually, as advertising returned to news-papers and regular programming to TV, welearned that the events of September 11demand new ways of looking at—and man-aging—our changed world. The events ofSeptember 11 present enormous challengesnot only to our leaders and policy makersbut also to historians, economists, educators,and even molecular biologists.

We also now know that what happened onSeptember 11—and what could happenagain—has engendered extraordinary legalquestions. The days immediately following theattacks saw multipronged modifications ofU.S. immigration policies and customs inspec-tion procedures. Within weeks of the attacks,Congress passed the Uniting and Strength-ening America by Providing AppropriateTools Required to Intercept and ObstructTerrorism Act of 2001, more commonlyknown by its shorter-winded acronym, theUSA PATRIOT Act. This year, a federal dis-trict court in Los Angeles dismissed a suitseeking release of al Qaeda suspects detainedat Guantanamo Bay.

The legal questions generated bySeptember 11, however, are by no means lim-ited to the realms of criminal procedure andinternational policy. As we go to press, theowners of the Condé Nast building in NewYork have secured an injunction preventingLaSalle Bank, the mortgage holder, from seiz-

ing the $3.2 million required topurchase a terrorism insurancepolicy that LaSalle contends isneeded to cure an act of defaulttriggered by the lack of suchcoverage. In a similar vein,Moody’s is revisiting the bondratings on $5 billion worth ofloans on high-profile buildings

throughout the country. Buildings lacking“adequate” terrorism insurance risk a down-grade in their mortgage bond rating—trig-gering ripple effects not only in the lendingindustry but also in pension funds requiringa threshold grade for bond investments.

Thousands of miles from ground zero,hotels in Louisiana and Hawaii have soughtrecovery under their coverage for businessinterruption. Another insurance issue con-cerns whether there were one or two “occur-rences” involving the hijacked planes and theWorld Trade Center—a question that soundsmore like an ontological puzzle from Phil-osophy 101 than the serious legal inquiry ithas become. Many of the legal issues toemerge from September 11 defy categoriza-tion. Indeed, the USA PATRIOT Act itselfimposes broad-ranging obligations upon thebanking industry while granting law enforce-ment the tools reflected in its name.

In devoting an issue to legal topics arisingfrom September 11, we know full well that itis impossible to address them all. We antici-pate that Los Angeles Lawyer will continue topublish articles on legal issues generated by9/11 for years to come. We also know that alegal publication cannot even begin to regis-ter our moral, spiritual, and emotional re-sponse to 9/11. In full recognition of this fact,we modestly dedicate this issue to the mem-ory of all who perished on that fateful day. ■

Jerry Abeles, R. J.Comer, and AngelaJ. Davis are thecoordinatingeditors of thisspecial issue.

Jerry Abeles is a business litigator withFriedemann, O’Brien, Goldberg & ZarianLLP. R. J. Comer practices land use law withAllen Matkins Leck Gamble & Mallory LLP.Angela J. Davis is an assistant U.S. attorneyin Los Angeles. Her views do not representthe Department of Justice.

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As this year’s president of the Barristers Section of the LosAngeles County Bar Association, I want to welcome you to theoldest association for new and young lawyers in the country.

Our purpose is to further the personal and professional developmentof our members, to promote public service projects, to improve theavailability of legal services to the public, and to provide a forum foraddressing legal and social issues of importance to our profession andcommunity. If you are a member of the Association and are 36 yearsof age or younger or have practiced for 10 years or less, you are a mem-ber of the Barristers.

Those are the facts, but a better way to learn about the Barristersis with a story. One of our committees is the Children’s RightsCommittee, and one of its projects is the Kid’s Court program. Kid’sCourt brings child witnesses of violent or sexual crimes to the court-house on a Saturday before they have to testify and educates them ina comforting manner. The Children’s Rights Committee recruitsjudges, district attorneys, victims’ assistance advocates, and inter-preters to volunteer, along with the members of the committee, to runthese Saturday programs.

One recent Saturday a four-year-old girl arrived with her older sib-lings and her caregiver at the Clara Shortridge Foltz Criminal CourtsBuilding. I will call her Alice, although that is not her real name. Alicewas scheduled to testify soon as an eyewitness at a murder trial, buton that day she was there for Kid’s Court. Alice followed the balloon-lined path to the entrance. Cutout footprints and colorful postersshowed her where to go. After receiving packets of crayons and col-oring books about court and testifying, she was brought to a court-room much like the one that she would be testifying in, except thiscourtroom was lined with teddy bears (courtesy of Comfort for CourtKids, Inc.) and there was a big stuffed gorilla in the center of the jurybox (courtesy of the volunteer judge).

The district attorney and victim’s assistance volunteers spoke tothe children about the legal system, their role in it, and some simpleways to relieve their anxiety about testifying. (Nothing about thechildren’s individual cases, however, was to be discussed.) All thejudges who have volunteered for the program have been fabulous, butthis judge had a particular gift for setting the children at ease. He spoketo them about court, then each child got a chance to sit in the witnessbox, be sworn in, and answer a few questions asked by the districtattorney about the color of their hair or their best friend.

And then it was Alice’s turn. She had watched her siblings go tothe stand before her, and she had smiled and laughed. When she cameto the stand, she had warmed up enough to respond to the simple ques-tions about her favorite color and food. The judge talked to her light-heartedly, and it was clear that she was much more at ease.

This was an amazing accomplishment. The volunteers did notknow that Alice had a crucial role to play in the trial in which she wouldtestify. The murder victim was Alice’s mother. Only Alice had witnessedthe murder. She had identified the alleged killer, but she had beenunable to talk about the incident in any detail. After Kid’s Court, shewas finally able to talk about what she had seen.

Although improving a child’s ability to be able to testify is part ofthe purpose of Kid’s Court, it is not the main reason that the Children’sRights Committee started the Kid’s Court program. The drivingforce for Kid’s Court came from a young attorney volunteer from aDowntown law firm. This volunteer was a child when she watched asa close relative of hers, also a very young child, had to testify in a high-profile case. That close relative suffered because of the lack of caregiven to child witnesses at that time.

Making a Difference

This story about Kid’s Court shows what one determined volun-teer can do when her efforts are combined with those of other vol-unteers and the Barristers. The presiding judge of criminal court, thedistrict attorney’s office, and our many volunteers saw the value of theprogram and threw their wholehearted support behind it. But it wasonly through the efforts of new and young attorneys with initiative,combined with the resources of the Association, that Kid’s Courtcame to exist. I want to thank this past year’s committee leader-ship—Barbara Bacon, Anna Strasburg, and Susan Skelding—fortheir efforts in continuing and building on Kid’s Court.

There are many reasons to be involved in the Barristers, includ-ing opportunities for new and young lawyers to develop a professionalreputation beyond their firm or agency.The Barristers provides a network ofother new and young lawyers to learnabout other job opportunities—and, infact, many Barristers I know have foundtheir next job through the contacts theymade with other Barristers. The Bar-risters creates opportunities for new andyoung lawyers to develop leadershipskills, to interact with judges, and toserve the community.

Kid’s Court is just one project of onecommittee of the Barristers. This pastyear, Gillian Friedman led our ContinuingLegal Education Committee in organizingthree workshops on basic litigation skills.One associate from a major Downtown

b a r r i s t e r s t i p s

By Elizabeth Calciano

The Barristers Section Continues Its WorkThe personal and professional achievements of

our volunteers inspire their successors

Elizabeth Calciano ispresident of theBarristers.

LOS ANGELES LAWYER / SEPTEMBER 2002 11

law firm who attended all three programstold us that the workshops had “completelychanged” the way he felt about being an asso-ciate at a big firm, and he felt “indispensable”because of his new knowledge.

More to Come

This year we plan to implement many newprojects. We are working with the Associationto bring the Nuts and Bolts of Litigation back,beginning in the late fall. This series of train-ing programs gives new lawyers the oppor-tunity to learn from “masters of the art oflawyering,” as Judge Lee Smalley Edmon putit when she inaugurated this program in heryear as the Association’s president.

Our Community Outreach Committeealso is expanding its efforts. In conjunctionwith the Association’s 125th anniversary,Community Law Day in May will be expand-ing to serve more community members withmore Ask-A-Lawyer events. Further, in con-junction with Public Counsel, the Barristersis reinstituting our Homeless OutreachProject, in which volunteer lawyers will assisthomeless persons who are seeking a freshstart in life at the PATH Homeless facility inHollywood. Also in partnership with PublicCounsel, we are recruiting and holding train-ings for Barristers to be guardians ad litem foryouth in foster care. Guardians ad litem aregreatly needed in order to make decisions forfoster children in suits that have been broughton their behalf, because these children donot have parents who are able to do so.

In the coming year we plan to refocus ourefforts on networking and professional devel-opment events to better serve our members.In addition to assisting with the Association’scareer development seminars, we plan tosponsor networking events. We are reachingout to our many affiliates to cosponsor moreprograms together. There are many strongaffiliates, and by doing programs togetherwe believe we will serve new and younglawyers while improving the diversity of theAssociation. (If you are a leader of one of theAssociation’s affiliates, please contact me ifyou have a program that you believe would beworthwhile to sponsor together.)

Please visit the Barristers page of theAssociation Web site at www.lacba.org andread more. Barristers who provide their e-mail addresses to the Association will receiveour e-newsletter, featuring a schedule of ouractivities and committee meetings. You mayalso contact me at [email protected] or use our online guide to receive more infor-mation. Feel free to tell me how we can bemore responsive to new and young lawyers,and let me know if there is a program inwhich you believe the Barristers should beinvolved. ■


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On September 11, 2001,nearly 3,000 people werekilled in the worst terror-

ist attack this country has everseen. The victims left behind fam-ilies that are suf fering monu-mental personal and pecuniarylosses. Traditionally, the legalsystem has been the avenue ofcompensation for families suf-fering the loss of a loved one. Inresponse to the tragedy, however,federal legislation was quicklypassed to aid the victims ofSeptember 11 with an alternativesource of compensation—theSeptember 11 Victim Compensa-tion Fund of 2001. As a practicaland a political necessity Congresscreated the fund as par t of abroader ef for t toprotect the finan-cial viability of thenation’s airlines.1

Families of victimsmust now choosebetween civil liti-gation and thisfund. Both optionscar r y risks thatmust be carefullyconsidered.

Within days of the hijackingsof two American Airlines and twoUnited Airlines flights, lobbyistsfor the airlines were on CapitolHill seeking financial aid andfinancial protection. The lobby-

ing efforts resulted in a statutethat provided both. The AirTransportation Safety and SystemStabilization Act authorized $5billion in direct aid to the airlinesand another $10 billion in loans.2

It also limited the liability ofAmerican and United for claimsresulting from the attacks to theirinsurance coverage.3 Each air-craft carried approximately $1.5billion in liability insurance.4 Laterlegislation limited the liability ofother potential civil defendants.5

Given the number of victimskilled and injured in the terroristattack on the World Trade Centerand the potential for massiveproperty and business claims,many believed that limitingclaims to insurance coverage wastantamount to denying the rightsof victims to sue the airlines fordamages. To answer this criti-cism, the September 11 Fund wasdesigned not to replace civil liti-gation but rather to be an attrac-tive alternative. In that respect, itis a rare piece of legislation.Generally, when states and thefederal government have leg-

islated away theright to sue, theyhave replaced itwith a mandatoryadministrative res-olution system. Forexample, the work-ers’ compensationlaws of states pro-vide workers withan alternative com-

pensation method for workplaceinjuries. For the most part theselaws prohibit lawsuits against theemployer, making workers’ com-pensation the exclusive availableremedy. In contrast, the victims ofSeptember 11 have a choice

between the fund and civil litiga-tion. Families of victims cannotchoose both, however; in order toenter the fund, a family must giveup its right to sue. The exceptionis filing a civil lawsuit against theterrorists and coconspirators,which is expressly preserved.6

The decision whether toaccept payment from the fund orto pursue civil litigation is difficultin some cases and quite easy inothers. Numerous factors mustbe considered, and those factorsvary dramatically from case tocase and from family to family.For those who consider litigation,the liability of domestic defen-dants is uncertain, and there arelimited insurance funds to satisfyjudgments. Also, lawsuits couldtake 10 years or more to resolve.On the other hand, the fund isnew, untested, and unproven. Noone knows whether it will be fairand reasonable to the victims’families. The statute and regula-tions that control the fund giveunlimited discretion to the specialmaster, who is appointed by theJustice Department, and there isno right to appeal any perceivedabuse of that discretion.

Families should decide whichpath to take only after gaining anunderstanding of the risks anduncertainties of both options.Victims on the ground and in theWorld Trade Center, for exam-ple, face legal circumstances thatare different from those faced byvictims in the four hijacked air-planes. The litigation risks fac-ing the victims of American Flight11 and United Flight 175 (whichhit the World Trade Center) dif-fer from those of the victims ofAmerican Flight 77 (whichcrashed into the Pentagon) and

from those of the victims ofUnited Flight 93 (which crashedin Pennsylvania). The Stabiliza-tion Act’s limitation of liability toinsurance coverage looms largefor the World Trade Centerflights, because thousands ofground victims (and propertydamage and business lossclaimants) could be vying for thesame limited insurance coverage.On the other hand, coverageshould be suf ficient for thePentagon and Pennsylvaniacrashes. Even the families ofthose victims, however, may bebetter of f selecting the fund,which in some cases can be moregenerous than the wrongful deathdamages available under statelaw. (See “The Choice-of-LawQuestion,” page 14.)

Considering the Fund

For many, the most attractivefeature of the fund is likely to bethat fault does not have to beproven.7 The Department of Jus-tice has indicated that “the fundis designed to provide a no-faultalternative to tort litigation.”8 Thefamilies of any individual, otherthan a terrorist, whose life waslost at the World Trade Center,the Pentagon, or Pennsylvaniaare eligible.9 For those who wereinjured in the attacks, the require-ments are 1) that they were atthe crash sites and were treatedby a medical professional within24 hours of injury or rescue—orfor those who did not realize theextent of their injury, within 72hours of injury, and 2) that theinjury required at least 24 hoursof hospitalization or was a causeof a temporary or permanent par-tial disability, incapacity, or dis-figurement.10

The Choice between the VictimCompensation Fund and Litigation

September 11

families must

thoroughly

evaluate their

situation

Noah H. Kushlefsky is a partner withKreindler & Kreindlerin New York, wherehe specializes inwrongful death andpersonal injurylitigation.

By Noah H. Kushlefsky

p r a c t i c e t i p s


The fund statute permits victims torecover economic and noneconomic losses.The language of the statute is as generous asany state’s law permitting these types of dam-ages. Economic loss is defined as any pecu-niary loss recoverable under the applicablestate law.11 The definition of noneconomicloss is broad: “‘non-economic losses’ meanslosses for physical and emotional pain, suf-fering, inconvenience, physical impairment,mental anguish, disfigurement, loss of enjoy-ment of life, loss of society and companion-ship, loss of consortium…hedonic dam-ages…and all other nonpecuniary losses ofany kind or nature.”12 For many of the victims’families, noneconomic damages under the

fund seem to go beyond what would be recov-erable in wrongful death litigation.

For example, all four hijacked flights werebound for California, and dozens of Californiaresidents were killed in the attacks. UnderCalifornia law, noneconomic damages arerecoverable for loss of companionship andloss of society, but compensation for the griefor the emotional distress of the survivors isdisallowed.13 Under a strict reading of thefund statute, however, damages for theselosses should be recoverable. The majority ofthe victims of the September 11 attacksresided in New York and New Jersey. In bothstates, wrongful death damages are limited topecuniary loss to survivors, and there is no

recovery for noneconomic losses at all.14

Another attraction of the fund is that it isrequired to be quick. The special master hasonly 120 days to issue a written decision aftera claim is fully submitted.15 During that 120-day period, the claimant has a right to a hear-ing and to present evidence and documents.16

Finally, the statute does not place any lim-itations on the amounts that can be awardedunder the fund, and there are no damagescaps in an individual case.17 No specificamount of money has been set aside to com-pensate the victims.

Why then, with all these apparent benefits,did less than 10 percent of the families of vic-tims choose the fund in the first severalmonths that it was accepting applications?The answer is likely to involve two factors.First, the fund is a brand new creation with notrack record, and families are uncertain howtheir cases will be treated. So much discretionrests with the special master that familiesare loath to waive their rights to litigate whenthey do not know what entry into the fundreally implies. Second, awards under the fundwill be offset by a number of collateral pay-ments to victims’ families—including lifeinsurance, which is not an offset in civil liti-gation.18 These and other presumptive restric-tions on noneconomic loss contribute to ageneral skepticism among families and thelawyers representing them.

The fund requires that “all collateralsources, including life insurance, pensionfunds, death benefit programs, and paymentsmade by Federal, State, or local governments”be deducted from any award.19 The parame-ters for these offsets are described in interimfinal rules and final rules, which have beenpublished by the Justice Department and thespecial master.20 The interim final rules andthe final rules must be read together becausethey supplement each other. The rules notonly set out the regulations but also containnarrative interpretations of the statute that willbe used in setting awards.

The rules provide guidance on how thecollateral source provision will be imple-mented. For example, in the interim finalrules it is determined that charitable dona-tions received by a family would not be con-sidered an offset to a fund award.21

Most of the victims in the World TradeCenter were killed in the course and scope oftheir employment, and their families are eli-gible for workers’ compensation benefits.Both workers’ compensation and SocialSecurity benefits will be a deduction under thefund, but the final rules make it clear that“contingent” benefits will not be an offset.22

Benefits to widows are contingent, for exam-ple, because under both workers’ compen-sation and Social Security rules, if a widow


The Choice-of-Law Question

Families choosing civil litigation over the September 11 Victim Compensation Fundface the question of which state’s law will govern damages awards. Each case will requirea choice-of-law analysis in which the court will consider the laws of various states thathave a connection to the litigants and litigation.

For example, the families of California residents killed in the crashes of American AirlinesFlight 11 and United Airlines Flight 175 have four potential jurisdictions: New York (the placeof the crashes), California (the domicile of the victims), either Texas or Illinois (the principalplaces of business for American Airlines and United Airlines, respectively), and Georgia (theprincipal place of business of Argenbright Security). The Air Transportation Security and SystemStabilization Act provides that New York’s choice-of-law rules apply because the crashoccurred there. New York, in turn, uses a flexible approach in order to apply the law of thejurisdiction with the most significant interest in or relationship to the case.1

In wrongful death cases, New York focuses on the state that has the most significant inter-est in the particular issue to be decided and distinguishes between liability and damages.2

When damages are the issue, New York courts will usually look to the law of the domicileof the parties, which in the example are California and Texas or Illinois.3 In New York, whenthose laws are in conflict, a rebuttable presumption is raised in favor of the law of the placeof injury, with the rationale being that the parties intentionally associated there. This ratio-nale does not make sense when applied to interstate air travel, because the place of the injuryis often fortuitous. Neither the airlines nor the passengers on Flights 11 and 175 voluntarilyassociated with New York on September 11, so it is not a center of the relationship of theparties. Nevertheless, a presumption of New York law will be raised. Attorneys may overcomethe presumption by showing that an application of domicile law (in the example, California)will advance the purposes of the laws without impairing the multistate system or producinguncertainty.4

In a general sense, the state in which the injury occurred and the defendant’s home statehave a greater interest in regulating a defendant’s conduct, but this understanding is not setby rule. Another premise is that the home state of a victim has a greater interest in assuringadequate compensation for the injury. Under that premise, California damages law shouldapply to the cases involving California residents. More generous than New York law, Californialaw permits recovery for loss of companionship and loss of society in addition to recovery foreconomic loss. New York law limits recoveries to economic loss.

Choice-of-law analysis is very subjective, and courts have tremendous discretion, so theultimate selection is uncertain. When one disaster leads to cases involving victims frommany states, another factor to consider is a court’s preference for uniformity, which in theexample would argue for application of New York law. Ultimately, the choice-of-law analy-sis adds another burden of uncertainty for families of the victims of September 11.—N.H.K.

1 Brink’s Ltd. v. South African Airways, 93 F. 3d 1022, 1030 (2d Cir. 1996).2 Schulz v. Boy Scouts of Am., Inc., 65 N.Y. 2d 189, 197, 491 N.Y.S. 2d 90, 480 N.E. 2d 679 (1985).3 Brink’s, 93 F. 3d at 1031 (quoting Cooney v. Osgood Machinery, Inc., 81 N.Y. 2d at 72, 595 N.Y.S. 2d 919,612 N.E. 2d 277 (1993)).4 Neumeier v. Kuehner, 31 N.Y. 2d 121, 335 N.Y. S. 2d 64 (1972).

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remarries the benefits stop. The final rulesrecognize that contingent benefits are notcapable of calculation and cannot be an offset.To the extent that benefits have already beenpaid, they will be a deduction. Benefits tochildren, which continue until they reach 18,will be an offset because they are calculable.

Pension programs are also a collateralsource offset under the fund. This is partic-ularly onerous for the families of the hun-dreds of New York City Fire Department andPolice Department personnel killed in thecollapse of the buildings, because the familiesare eligible for substantial line-of-duty deathpensions that could greatly diminish theircompensation under the fund. The final rulesdo make the allowance that to the extent thata pension is self-funded, it will not be an off-set.23 Life insurance is the collateral offsetthat will send the most families into court-rooms. For families with life insurance, it canhave a devastating effect on recovery from thefund. Depending on the economic loss claimand the amount of life insurance, when com-bined with other collateral sources, the fundmay in some cases provide no benefit at all.

Another disadvantage of the fund lies in itstreatment of noneconomic loss. What thestatute gave, the Justice Department tookaway. New York and New Jersey do not rec-ognize noneconomic losses in wrongful deathcases, but even so, the fund offers families inthose states only an illusory advantage overlitigation. New York and New Jersey bothprovide for survival causes of action, whichare separate from wrongful death claims.24

Under the survival statutes, personal injuryclaims that a decedent had before death sur-vive the death. Both states recognize claimsfor physical and emotional pain and sufferingand fear of impending death.25 For the victimsin the hijacked aircraft and in the World TradeCenter, the claims for pain and suffering andfear of death are substantial. Take, for exam-ple, the World Trade Center occupants onfloors above where the airplanes hit. Afterthe planes hit, North Tower occupants weretrapped for an hour and a half and SouthTower occupants for over an hour before thetowers collapsed. The survival claims for painand suffering are staggering—likewise forthe airplane passengers who witnessed themurders of crew members and experiencedthe hijackings. But the fund lumps these sur-vival claims together with the noneconomicloss claims and then sets the standard forrecovery at only $250,000, a fraction of whatcould be awarded in litigation.26

Perhaps the most troubling aspect of thefund is the special master’s unfettered dis-cretion. Families that accept the fund waivetheir right to a jury trial, and there is no rightto appeal the special master’s determination.27

The statute, the interim rules, and thefinal rules place unlimited authority in thespecial master in setting awards and arguablyallow the official to disregard every otherprovision of the statute and the regulations.Section 405 of the statute states that the spe-cial master shall review a claim and make anaward “based on the harm to the claimant, thefacts of the claim, and the individual circum-stances of the claimant.”28 This statutory pro-vision was translated into a needs test whenthe rules were published. The interim and thefinal rules state that simply calculating eco-nomic loss and noneconomic loss will beinsufficient relative to the needs of the fami-lies of some victims and excessive relative tothe needs of others.29 The special master hasthe unbridled power to reduce or erase anaward under the fund, and the claimant hasno ability to challenge that decision. The mas-ter has the authority to determine that a fam-ily has no need and that there should be noaward. The special master’s power trumpsall other provisions of the victim compensa-tion fund and creates a risk that does notexist in civil litigation. This is not to say thatcivil litigation does not present substantialrisks of their own. The risks of litigation mustbe weighed against the risks of the fundbefore making a choice between the two.

The Litigation Option

Families who choose to litigate face myr-iad potential problems, which can be placedinto two categories: proving liability and col-lecting the damages. There are numerouspotential defendants, but almost all with deeppockets have been protected by federal leg-islation. Potential defendants that have notbeen protected have limited insurance andscant assets. The class of wrongful death andpersonal injury claimants eligible to recoverin litigation is boundless. Beyond the nearly3,000 people killed in the terrorist attacks,tens of thousands of personal injury claimscan be brought, ranging from injured occu-pants of the towers and people on the streetsto residents of lower Manhattan. The fund isonly available to personal injury claimantswho sought immediate medical care, so thou-sands of injured victims do not have the fundas an option. In addition to people, hundredsof businesses in the vicinity of the towerslost substantial business and property. Thefund is also unavailable to them. In short,there could be tens of billions of dollars inclaims, and only a fraction of that amountmay be available to claimants.

The original Airline Stabilization Act lim-ited the exposure of the airlines to liability. Alater amendment greatly expanded the pro-tection to the manufacturers of the aircraft,owners and operators of the airports involved,

and any entity or person with a property inter-est in the World Trade Center. The city ofNew York, which is self-insured, had its lia-bility capped at $350 million.30 The statutespecifically excludes the private companiesthat provided security at the airports.31

It seems clear that no one victimized in theWorld Trade Center tragedy will collect fulldamages in litigation. Once all the claims inlitigation are evaluated and valued, the limitedfunds that are available will likely be awardedon a proportional basis. It is impossible topredict what percent of the actual damages ineach case will be awarded. This is not so forthe victims of the Pentagon and Pennsylvaniacrashes. The insurance coverage for thosecrashes likely will be sufficient to satisfy allsuccessful claims.

The limited funds will likely also causethe civil case to drag on for years. Even if lia-bility is not contested and some defendants orinsurers decide to pay the policies into thecourt for later distribution rather than liti-gate, tens of thousands of claims will have tobe evaluated before the funds can be allo-cated. This is in stark contrast to the requiredexpediency of the fund.

If the defendants or their insurers chooseto contest liability, the victims are in for along and complicated fight. Potential defen-dants include American Airlines and UnitedAirlines; the operators of Logan Airport,Newark Airport, and Dulles Airport; the com-panies that provided airline security for theflights; the domestic flight schools that trainedthe terrorist pilots; the owner and lessee of theWorld Trade Center; the architects, engi-neers, and material suppliers for the WorldTrade Center; and the city of New York. It isdoubtful that World Trade Center occupantshave viable theories of liability against thecity of New York, but rescue workers sent toground zero may.

The success of a suit against any of thesepotential defendants requires proof that theyhad a duty to the plaintiffs, that there wasnegligence (or a breach of the duty), and thatthe negligence was a proximate cause of theinjury. Proximate cause includes an elementof foreseeability.32 The fund does not presentclaimants with these hurdles because it doesnot address liability.

The elements of duty, proximate cause,and foreseeability greatly distinguish claims.For example, it is clear that the airlines hada duty to the passengers on the airplanes,but did they have a duty to the occupants ofthe WTC and the Pentagon or to the peopleon the street in New York killed by fallingdebris? What about business owners on theground? An argument can be made that an air-line has a duty to everyone on the ground, butit is by no means a certainty.


Likewise, while it was certainly foresee-able to the airlines that negligent passengersecurity could cause harm to passengers onthe airplane, it is more of a challenge to provethat poor security on a flight from Boston toCalifornia could cause harm to occupants ofthe World Trade Center or others on theground. The same analysis applies to thesecurity companies and the operators of theairports. In short, while the $3 billion in avi-ation insurance may be the largest source ofcompensation available in litigation, it may notbe available to anyone but the airline pas-sengers.

The victims in the Twin Towers may lookto Silverstein Proper ties and the Por tAuthority of New York and New Jersey, thelessor and owner of the buildings, on the the-ory that they provided no proper emergencyevacuation route or plan. In fact, after thefirst hijacked airplane struck Tower One,occupants of Tower Two were told to remainin their offices, and many families of the vic-tims in Tower Two are incensed by thatinstruction. Nonetheless, the decision by thebuilding management to keep occupants inthe building is probably protected by NewYork’s emergency doctrine.33 Building man-agers were faced with an emergency not oftheir making, and under that condition theemergency doctrine allows decision makerswide latitude to act reasonably under the cir-cumstances.34 These defendants will likelyargue that debris and bodies were falling tothe street from Tower One, they had no infor-mation about a second hijacked airplane, andthey reasoned that under the circumstancesstaying in the building was the safest courseof action.

Another major risk of litigation is jurorreaction to a lawsuit against American com-panies in response to an attack against thiscountry. Tort litigation is always more com-plicated when a nonparty actor is the directcause of the injuries because a defendant canpoint to the nonparty as the sole or primarycause. Plaintiffs’ attorneys, however, rou-tinely deal with this issue. In the case arisingout of the terrorist bombing of Pan AmericanFlight 103 over Lockerbie, Scotland, a juryfound that Pan Am was guilty of willful mis-conduct for inadequate security, despite thefact that terrorists, not Pan Am, destroyed theaircraft.35 Nevertheless, September 11 hasgalvanized the country, and how a jury willreact to a civil lawsuit against U.S. compa-nies is difficult to predict.

For some families the choice between thefund and litigation is a simple one, becausecertain cases are valued higher in the fund.Take, for example, the case of an unmarriedadult victim who is survived only by parents.Under New York and New Jersey law this

type of case may be valued well under $1 mil-lion, since the standard for wrongful deathdamages is economic loss, and the decedentwas not supporting anyone. On the otherhand, the fund presumes financial support inevery case and simply increases the deduc-tion for the victim’s personal consumptionwhen there was no spouse or children to sup-port. In some of these cases the fund mayaward well over $2 million, depending on thevictim’s age and earnings at the time ofdeath.36

The speed of the fund makes it a neces-sary choice among families facing economichardship. For others, the decision is not assimple, and an analysis should be prepared.No decision can be made between litigationand the fund until the economic loss is metic-ulously analyzed and the claim is prepared. Inthe preparation of the claim, no distinctionshould be drawn between the fund and liti-gation. Once the claim is complete, the col-lateral offsets must be considered to deter-mine how much they will affect the value ofthe claim in the fund. With the of fsetsreviewed, families should have a reasonableidea of what the fund would likely award andcan compare this result with what maybecome available through litigation. Eventhen, families must still rely heavily on legaladvice, because the litigation process willtake years, and a decision between the fundand litigation must be made within the statuteof limitations.37

For many, the decision will be based on animmediate need for money. For others, thedecision will be based on an unwillingness todeal with years of litigation and uncertainty.Still others will balance the risks and poten-tial rewards of each choice and make thedecision they believe is best. Lawyers repre-senting the families will have to help theirclients make an informed choice betweenthe uncertainty of the fund and the uncer-tainty of litigation—a choice affecting therest of their lives. ■

1 Air Transportation Safety and System Stabilization Act,Pub. L. No. 107-42 (Sept. 22, 2001), available athttp://www.usdoj.gov/victimcompensation/civil_01_txt.html.2 Id. §101(a).3 Id. §408(a).4 A Nation Challenged: The Insurers; Sales Are Resumedfor Coverage of Airlines for Terror Damage, N.Y. TIMES,Sept. 25, 2001, at C4.5 Aviation and Transportation Security Act, Pub. L. No.107-71 (Nov. 19, 2001).6 Air Transportation Safety and System Stabilization Act,§405(c)(3)(B)(ii). Families and victims who choosethe fund are permitted to sue terrorists and terror-sponsoring nations. 28 C.F.R. pt. 104, AG Order No.2564-2002, 1105-AA79 at 11246.7 “[T]he Special Master shall not consider negligenceor any other theory of liability.” Air TransportationSafety and System Stabilization Act §405(b)(2).

8 September 11th Victim Compensation Fund of 2001,67 Fed. Reg. 11,233, 11,237 (2002) (to be codified at 28C.F.R. pt. 104).9 Air Transportation Safety and System Stabilization Act§405(c)(2).10 28 C.F.R. §104.2(c)(1). At the discretion of the spe-cial master appointed to administer the fund, rescue per-sonnel can seek compensation even if they do not meetthese time requirements. See Final Rule, 28 C.F.R. pt.104, CIV 104F, AG Order No. 2564-2002 at 11234 (2001).11 Air Transportation Safety and System Stabilization Act§402(5).12 Id. §402(7).13 Carr v. Pacific Tel. Co., 26 Cal. App. 3d 537 (1972).14 N.J. STAT. ANN. §2A:31; N.Y. EST. POWERS & TRUSTS.15 Air Transportation Safety and System Stabilization Act§405(b)(3).16 Id. §405(b)(4), (b)(5).17 28 C.F.R. pt. 104, CIV 104F, AG Order No. 2564-2002, 1105-AA79 at 20. Presumptions for noneconomicloss ($250,000 per decedent plus $100,000 per depen-dent) will act as de facto caps in the majority of cases.28 C.F.R. §104.44; 28 C.F.R. pt. 104, CIV 104F, AGOrder No. 2564-2002, 1105-AA79 at 17.18 Air Transportation Safety and System Stabilization Act§402(4).19 Id.20 See Final Rule, 28 C.F.R. pt. 104, CIV 104F, AG OrderNo. 2564-2002 (2001) and Interim Final Rule withRequest for Comments, 28 C.F.R. pt. 104, CIV 104P, AGOrder No. 2541-2001 (2001), available at http://www.usdoj.gov/victimcompensation/civil_01_txt.html. Theattorney general is responsible for setting regulationsfor administration of the fund. Air Transportation Safetyand System Stabilization Act §404(a)(2).21 28 C.F.R. pt. 104, CIV 104P, AG Order No. 2541-2001, 1105-AA79.22 28 C.F.R. pt. 104, CIV 104F, AG Order No. 2564-2002, 1105-AA79 at 11233.23 Id. at 11234.24 N.J. STAT. ANN. §2A:15-3; N.Y. EST. POWERS & TRUSTS

§11-3.2.25 Shu-Tao Lin v. McDonnell Douglas Corp., 742 F. 2d45, 53 (2d Cir. 1984); Schiavo v. Owens-CorningFiberglass Corp., 660 A. 2d 515 (N.J. Super. A.D. 1995).26 28 C.F.R. §104.44.27 Air Transportation Safety and System Stabilization Act§§405(b)(1)(B)(ii), 405(b)(3).28 Id. §405(b)(1)(B)(ii).29 28 C.F.R. pt. 104, CIV 104P, AG Order No. 2541-2001, 1105-AA79 at 66274; 28 C.F.R. pt. 104, CIV 104F,AG Order No. 2564-2002, 1105-AA79 at 11234.30 Air Transportation Safety and System Stabilization Act§201(b)(2)(a)(1) and (3).31 Id. §201(b)(2)(a)(3)(c).32 Nallan v. Helmsley-Spear, Inc., 50 N.Y. 2d 507, 429N.Y.S. 2d 606, 407 N.E. 2d 451 (1980).33 Amaro v. City of New York, 40 N.Y. 2d 30, 386 N.Y.S.2d 19, 351 N.E. 2d 665 (1976).34 Id.35 In re Air Disaster at Lockerbie, Scotland, on Dec. 21,1988, 37 F. 3d 804 (1994), cert. denied sub nom., Pan Am.World Airways, Inc. v. Pagnucco, 513 U.S. 1126, 115 S.Ct. 934, 130 L. Ed. 2d 880 (1995).36 The final rule includes a chart of presumptive awardsin various types of cases and includes the methodologyemployed by the fund for calculating the loss. Thechart for cases involving adults survived by parentsrange from $300,000 for elderly victims to $2.5 millionfor younger victims with high earnings. 28 C.F.R. pt.104, CIV 104F, AG Order No. 2564-2002, 1105-AA79 at11233.37 Families have two years from December 21, 2001, tofile with the fund, and state statutes of limitations willapply in litigation.


The nation resolved soonafter the terrorist attackson September 11 to recov-

er and rebuild. As the nationmourned, few could avoid won-dering who would foot the bill.The stunning losses promptedan outpouring of governmental,corporate, and charitable reliefto affected families. The federalgovernment hastily enactedmajor aid and economic stimu-lus legislation. Property insur-ance companiesand their reinsur-ers are expected topay roughly halfthe total propertydamage losses—and currently theseare estimated to beas high as $100 bil-lion.1 Insuranceindustry of ficialsannounced soonafter the attacksthat insurers wouldhonor claims underexisting propertyinsurance policiesand that the indus-try’s capital reserves were ade-quate to pay the huge estimatedlosses.2 At the same time, how-ever, most insurers began issuingtheir new property insurance poli-cies with an exclusion from cov-erage for losses due to acts of

terrorism. The resulting uncer-tainty over the availability ofinsurance coverage for acts ofterrorism has affected to somedegree every insured real estateasset and mortgage loan in theUnited States and prompted leg-islation to provide federal terror-ism insurance.

Some observers have sug-gested that the insurance indus-try should have anticipated andreserved against the risks of ter-rorism in the United Statesbecause the risks already wereapparent before September 11.Investor Warren Buffet has beenwidely quoted as saying that afterthe Oklahoma City bombing andthe 1993 attack on the WorldTrade Center, the insuranceindustry failed to appreciate therisks of terrorism.3 Another com-mentator has suggested, how-

ever, that no quan-titative models forthe evaluation ofrisk could have predicted the at-tacks because cat-astrophes like theone that occurredon September 11are unpredictable.4

Yet, the insuranceindustry has beenforced to developways to predict theheretofore unpre-dictable in order to offer terrorism insurance again.

Owners of real estate, theirlenders, and their counsel haveworked to understand, reduce,and insure against the risks ofterror in ways that balance theinterests and demands of the par-ties involved.

Some of the developing mod-els for determining terrorism riskand magnitude of potential lossfrom a terrorist act assume thatthe degree of risk is proportionalto the relative prominence of thereal estate asset. While the logicof such an assumption is undeni-able, currently the nation may beoverly inclined to view acts of ter-rorism only as major catastro-phes like the events of September11. The experience of othernations suggests that a terroristact is just as likely to occur in asuburban pizza parlor or crowdedoffice plaza as it is at a nationallandmark. Therefore, every placeis at risk to some degree and

should be examined to determinewhether exposure to risk shouldbe reduced by prevention, effec-tive emergency response, andinsurance.5

Typical all-risk property insur-ance policies in existence onSeptember 11 for real estateassets in the United States cov-ered losses resulting from actsof terrorism, irrespective of thetype, size, or value of the realestate asset insured. All-risk prop-erty insurance policies actuallycontain numerous exclusions anddo not cover losses resultingfrom, for example, flood, earth-quake, boiler explosion, acts ofwar, and nuclear damage. How-

Insuring the Risks of TerrorQuestions of

the cost and

application of

terror insurance

remain open

Gregg J. Loubier is apartner in AllenMatkins Leck Gamble& Mallory LLPspecializing in realestate finance, andJason B. Aro is anassociate with thesame firm specializ-ing in real estate andland use. The authorsthank associateAmanda Nagata forher researchassistance.

By Gregg J. Loubier and Jason B. Aro



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ever, on September 11, coverage for acts ofterrorism was not excluded from most stan-dard coverage.

After that day, the insurance industry andpolicyholders focused on the war risk exclu-sion in existing property insurance policies.Many contemplated whether insurers wouldinvoke that exclusion to avoid paying claimsarising from the attacks, particularly afterPresident Bush declared that the terroristacts constituted an act of war.6 The war riskexclusion describes a “hostile or warlikeaction in time of peace or war…by any gov-ernment or sovereign power (de jure or defacto), or by any authority maintaining orusing military, naval or air forces…or…byan agent of any such government, power,authority or forces.”7 Despite the characteri-zations of events by governmental officials,the acts of terrorism on September 11 do notconstitute acts of war for purposes of the warrisk exclusion in a property insurance policy.The perpetrators were not agents of a sover-eign government or a group with any inci-dence of sovereignty. Accordingly, insurersdid not invoke the war risk exclusion.

The insurance industry acted swiftly, how-ever, to limit or exclude coverage for acts ofterrorism when writing new all-risk propertyinsurance policies after September 11. Bydoing so, any insured that wants or needs tobuy terrorism insurance now must obtainseparate terrorism coverage if it is available.California property owners are familiar withthe need to purchase separate earthquakeinsurance to obtain coverage for earthquakedamage, which is otherwise excluded fromthe standard property insurance policy. Andjust as the availability of earthquake insuranceall but evaporated after the 1994 Northridgeearthquake, after September 11, terrorisminsurance became largely unavailable almostovernight and, consistent with the law of sup-ply and demand, any terrorism insuranceavailable could be purchased only at pricesuneconomic for most insureds.

Definitions and Exclusions

The insurance industry is highly regu-lated, and the industry’s efforts to exclude ter-rorism coverage have occurred within its reg-ulatory boundaries. The Insurance ServicesOffice (ISO) is an organization that providesinsurance industry advisory services anddrafts standard forms of insurance policy pro-visions for hundreds of U.S. insurance com-panies. The ISO promulgated a terrorismrisk exclusion that has been ratified by moststate commissioners of insurance whereinsurers must file for approval of insuranceforms.8 Essentially, the ISO exclusion for acommercial property policy defines “terror-ism” as the use or threat of force or violence

when the effect is to intimidate or coerce agovernment or population or to disrupt anysegment of the economy, or when the intentis to intimidate or coerce a government or pro-mote political, ideological, religious, social, oreconomic objectives or to promote or opposea philosophy or ideology.9 The ISO exclusionalso excludes coverage for any claim involv-ing terrorism with nuclear materials or thedispersal or release of pathogenic or poiso-nous biological or chemical materials, regard-less of the damage sustained. Claims causedby incidents of terrorism that exceed $25 mil-lion in total insured damage to property in theUnited States and Canada are also excluded.10

A single incident includes acts of terrorismthat occur within a 72-hour period and appearto be carried out in concert. The ISO exclu-sion for a commercial general liability policyis similar to the standard commercial propertypolicy exclusion except that the $25 millionproperty damage threshold is not limitedgeographically, and the exclusion may betriggered if there is death or serious physicalinjury to at least 50 people.11

Notably, California, New York, Texas,Georgia, and Florida have withheld approvalof the ISO terrorism exclusions.12 As an exam-ple of the concerns these states expressed,the California Department of Insurancestated:• The $25 million countrywide damagethreshold is unreasonably low.• The 72-hour incident period may be arbi-trary and/or unfair.• The total exclusion for biological and chem-ical incidents may be overly broad and unrea-sonable.• The 50-person death or injury require-ment for liability exclusion may be unrea-sonably low and arbitrary.• The exclusions as a whole may have anti-competitive effects.13

While California and other states debatethe merits of the ISO exclusion, anecdotalevidence indicates that insurers operatingfrom the nonratifying states are writing prop-erty insurance policies through affiliated com-panies that operate from other states thathave approved a terrorism exclusion.14 Tofurther complicate the insurance landscape,30 states (including California) are StandardFire Policy jurisdictions.15 SFP states requirethat property insurance cover direct fire dam-age no matter what caused the fire, even ter-rorism or nuclear events. Thus, terrorismexclusions in SFP states should not defeatclaims for losses resulting from terrorism ifthe losses arise from an ensuing fire. SFPcoverage may provide some comfort to prop-erty owners without terrorism coverage.Insurers writing policies in SFP states may beexpected to review and possibly adjust pre-

miums to reflect any terrorism risk judged tobe embedded in the fire policy.

Impact on Financing

The limitation or exclusion of terrorismcoverage in property insurance policies hasbroadly affected commercial real estate andmortgage finance. Most commercial realestate assets are financed, and therefore mort-gage lenders determine to a certain extenthow real property security for mortgage loansis insured. Virtually all mortgages existingbefore September 11 required that the realproperty security for the loan must be insuredunder an all-risk property insurance policy,but mortgage lenders seldom specificallyrequired terrorism insurance. Most mort-gage loan documents list in detail the specifictypes of insurance required and also generallyobligate the borrower to provide “such otherinsurance as lender may reasonably require”(or a variation thereof).

Since September 11, mortgage lendersand loan servicers nationwide are reviewingthese insurance provisions in existing mort-gage loan documents against existing orrenewal insurance policies to determinewhether borrowers are providing the insur-ance coverage that is required by the docu-ments and, if not, whether the lender can orshould demand terrorism insurance coverage.Servicers of commercial mortgage loan port-folios have borne a heavy burden in time andexpense under taking this monumentalreview.16

In many cases, difficulties for the bor-rower ensue when a lender or ser vicerdecides that the property must have terror-ism insurance. Lenders and borrowers bigand small have been caught in a rapidlychanging environment in which few can agreeupon the standard for quantifying terrorismrisk. If a lender decides that terrorism insur-ance is necessary, the coverage may be un-available or available only at confiscatoryrates. Several notewor thy battles haveerupted between lenders and borrowers afterlenders demanded expensive terrorism cov-erage for such high-profile assets as the Mallof America in Minnesota, the Condé NastBuilding in New York, and the OprylandResort and Convention Center in Nashville.17

These disputes are inevitable when thedemand for insurance and its supply at eco-nomic rates remain out of balance. By andlarge, however, lenders have not pushed loansinto default when confronted with absent orinadequate terrorism insurance coverage.18

Anecdotal evidence suggests, however, thatsome lenders have obtained the coverageand charged the borrower for the cost.

By the end of the first quarter of 2002, ahandful of large companies were offering ter-


rorism coverage at premiums significantlylower than those quoted at the beginning ofthe quarter.19 The profit motive has reportedlyattracted significant new capital to the ter-rorism insurance market, which should maketerrorism coverage more available at increas-ingly competitive rates.20 Even so, availableinsurance amounts may be too low anddeductibles too high, and policies may becanceled by the insurer on short notice. Fewpolicies may be available where insurers actto limit geographic and concentration risk.21

In addition, most terrorism coverage excludesprotection for biological or chemical attacks.22

Reinsurers and others continue to argue thatterrorism risk is virtually impossible to quan-tify, making it uninsurable. As a result, insur-ers may remain unable to satisfy demand forterrorism insurance for the short term.23

For new mortgage loans, many lendersare requiring terrorism coverage that is basedon a selected standard. Generally, the new lan-guage may require terrorism coverage 1)outright, 2) if commercially available regard-less of cost, or 3) if available at commerciallyreasonable rates. There are several variationson these basic standards. Depending on theevaluation of risk and the negotiating strengthof the parties, terrorism insurance may berequired under one standard or another, butonly if prudent or institutional owners of sim-ilar properties are obtaining such insuranceor if prudent or institutional lenders arerequiring such coverage for similar proper-ties. The parties may agree to cap the bor-rower’s annual premium expense to providerequired coverage, which may be based on amultiple of the prevailing premium for suchcoverage at the time of loan origination.Alternatively, the amount of terrorism cov-erage may be limited to an amount less thanthe full replacement cost of the asset or higherdeductibles may be permitted. To avoid gapsin coverage, counsel should make certainthat the language of the terrorism coveragemirrors the terrorism exclusion in the all-risk property policy.

Evaluating the Risk

A perceived need in the mortgage capitalmarkets has fostered the development of amodel for evaluating the risk of terrorism.This model has been applied to commercialmortgage-backed securities (CMBS), throughwhich a significant portion of the nation’scommercial mortgage debt has been securi-tized. (In fact, the mortgage encumberingthe World Trade Center was securitized lessthan 60 days before September 11.24)Investors in CMBS receive a return on theirinvestment from the income stream generatedby the mortgages backing the securities,which are usually bonds. Investors purchase

CMBS in reliance on the ratings assigned tothe bonds by one of the major credit ratingagencies. The ratings assigned to CMBSderive in part from the availability of insuranceagainst the risks posed by events that mightinterrupt payments to the bondholders.

Moody’s Investors Service, one of theleading rating agencies, has developed aframework that calculates the ef fect onCMBS ratings of the relative likelihood thata real estate asset will be targeted by terror-ists.25 Moody’s work has contributed sub-stantially to the debate over the need for ter-rorism insurance on CMBS loans and hasinformed the review of servicers of the insur-ance requirements that affect existing CMBSmortgage loans. Moody’s framework assumesthat, given the nature of terrorism, the moreprominent an asset the more likely it will bea target of an act of terrorism. The frame-work consists of a matrix in which the riskdecreases as the number of loans in a CMBSloan pool increases (i.e., the risk is spreadover a large pool of loans secured by a diverserange of real estate assets) and as the relativeprominence of the real estate assets securingthe loans in the pool diminishes. Conversely,the risk increases as the pool size diminishesand as the prominence of the real assetssecuring the loans in the pool increases. Thus,the rating of CMBS issued to investors in a so-called single-asset securitization of a mort-gage loan secured by a lien on a high-profileasset such as the Sears Tower in Chicagocould be affected significantly by terrorismrisk considerations, while the rating of CMBSbacked by a large and diverse pool of loanssecured by low-profile assets would be lessaffected.

The risks of terror also directly affectproperty owners and their tenants. Counselfor owners of commercial real estate shouldbe aware of ways to reduce the risk of attackand minimize loss of life and damage to prop-erty if an attack occurs. Since September 11,those working in and visiting downtown LosAngeles and other areas must comply withnew security measures and participate inevacuation drills. One view suggests that allbusinesses operate under a higher standardof care after September 11, with a duty toreduce potential exposure to claims for per-sonal injury, property damage, and otherdirect and indirect losses that could resultfrom terrorist acts.26

A study prepared by RAND for theBuilding Owners and Managers Associationof Greater Los Angeles evaluates the threatof terrorism to downtown Los Angeles andrecommends ways to reduce and managethe risks to safeguard the health and safety ofthe downtown community.27 The RAND studyproposes that the likelihood that a real estate

asset would become the target of terrorismdepends on the relative vulnerability of the tar-get and the potential consequences (includ-ing physical and psychological consequences)of the attack.28 The prominence of the targetaffects the degree of potential vulnerabilityand consequences that might follow an attack.Under the RAND model, risk reduction mea-sures are most indicated for a building that isseverely vulnerable, such as one in which acertain tenant might be targeted for attack,and the consequences of an attack would becatastrophic.29

RAND suggests that there is little a build-ing owner can do to prevent attacks like thoseof September 11. Responsibility for prevent-ing such acts of terrorism falls largely to thefederal government. Access control andperimeter security are practical first lines ofdefense that can discourage the more likelyforms of attack that building owners can real-istically expect to deter. RAND also stronglyencourages building owners to focus on theprimary lesson of September 11, which isthat response measures—such as effectiveevacuation plans—save lives. Overall, theRAND study proposes that a proper balancemust be struck between the need for securityand the realities of the business environmentin which the owners and occupants of build-ings operate.30

Given the random nature of terrorism,prevention and response measures cannotentirely mitigate the risks of terror, and insur-ance will remain a critical part of terrorismrisk management. Insurance costs and thecosts of risk reduction measures incurredby landlords may be passed through to ten-ants who must pay the costs as part of com-mon area maintenance charges under theterms of tenant leases. The landlord’s abilityto pass on such costs can be cold comfortbecause increased costs can affect the mar-ketability of the landlord’s asset. For example,the marketability of a high-profile Class Aoffice building in a central business districtmay be decreased by the lender’s decision torequire expensive terrorism insurance whena neighboring lower-profile Class A officebuilding escapes the expense. Tenants maybear increased expense under property insur-ance policies that the tenants maintain directlywith respect to the leased property. If possi-ble, the landlord should be a named insuredunder the tenant’s terrorism insurance policy.

Proposed Legislative Solutions

The events of September 11 occurred inthe midst of an economic downturn in whichreal estate remained a bright spot in an oth-erwise slow economy. Industry groups lob-bied heavily for federal terrorism insurance,and proposed legislation gained momentum


once the president and Congress determinedthat uncertainties over terrorism insurancecould adversely affect jobs and economicgrowth.31 Industry groups have argued thatfederal terrorism insurance is essentialbecause the insurance industry may neverwrite affordable coverage for large, expensive,and highly vulnerable real estate, or for thebiological, nuclear, or chemical attacks thatare a growing concern. On the other hand,many have questioned the wisdom of creat-ing a potentially huge new federal burdenthrough what has been characterized as abailout of the insurance industry.

The House of Representatives and theSenate passed terrorism insurance bills thatwill not likely become law before the currentsession of Congress ends. The House billwould provide a one-year risk programwhereby the federal government would makeloans available to pay 90 percent of claimsbetween $1 billion and $20 billion.32 TheSenate plan would pay 80 percent of lossesresulting from a terrorist attack up to $10 bil-lion after insurers have absorbed certainlosses based on their market share. The gov-ernment would pay 90 percent of losses there-after.33 Republicans have favored restrictionson lawsuits by victims of terrorism againstboth the government and businesses.34

Democrats favor limiting suits against thegovernment but argue that limiting suitsagainst businesses diminishes the incentiveto prevent attacks.35

Even as the momentum toward final fed-eral legislation has increased, a recent FederalReserve Board study reported that the highcost of terrorism coverage has had “little orno” effect on the demand for loans to financehigh-profile projects, and many banks do notrequire terrorism coverage at all.36 Suchreports indicate that a consensus has yet todevelop as to whether the economy will suf-fer any long-term adverse impact from the ter-rorism insurance turmoil caused bySeptember 11 and whether the federal gov-ernment should legislate a solution. ■

1 Terrorism Insurance Roundtable 2002, 4 CMBS WORLD

1, 46 (Spring 2002).2 MOODY’S INVESTORS SERVICE, CMBS: Moody’s Approachto Terrorism Insurance for U.S. Commercial Real Estate,in STRUCTURED FINANCE: SPECIAL REPORT (Mar. 1, 2002).3 Terrorism Insurance Roundtable 2002, 4 CMBS WORLD

45 (Spring 2002). One report quoted an insuranceindustry analyst who believes the insurance industry’sincreased exposure to a catastrophe such as theSeptember 11 attacks results from the soft insurancemarket over the last decade, which induced manyinsurers to write broad insurance coverage. MOODY’SINVESTORS SERVICE, The Credit Impact of September 11,2001, on the Insurance Industry, in MOODY’S SPECIAL

REPORT 3 (Oct. 2001).4 Mark Adelson, How the Events of September 11 AffectThinking about Risk, 4 CMBS WORLD 2, 54 (Summer2002).


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5 Terrorism Insurance Roundtable 2002, 4 CMBS WORLD

46 (Spring 2002).6 America Attacked, LOS ANGELES TIMES, Sept. 13, 2001.7 The war risk exclusion commonly reads:

This policy excludes loss or damage caused by,or resulting from, contributed to, or aggra-vated by: hostile or warlike action in time ofpeace or war, including action in hindering,combating, or defending against an actual,impending or expected attack, (i) by any gov-ernment or sovereign power (de jure or defacto), or by any authority maintaining or usingmilitary, naval or air forces; or (ii) by military,naval or air forces; or (iii) by an agent of anysuch government, power, authority or forces,it being understood that any discharge, explo-sion or use of any weapon of war employingnuclear fission or fusion shall be conclusivelypresumed to be such a hostile or warlike actionby such a government, power, authority orforces.

8 MOODY’S INVESTORS SERVICE, CMBS: Moody’s Approachto Terrorism Insurance for U.S. Commercial Real Estate,in STRUCTURED FINANCE: SPECIAL REPORT 6 (Mar. 1,2002).9 The ISO exclusion defines “terrorism”:

Activities against persons, organizations orproperty of any nature:(1) That involve the following or preparation forthe following:(a) Use or threat of force or violence; or(b) Commission or threat of a dangerous act;or(c) Commission or threat of an act that inter-feres with or disrupts an electronic, commu-nication, information, or mechanical system;

and(2) When one or both of the following applies:(a) The effect is to intimidate or coerce a gov-ernment or the civilian population or any seg-ment thereof, or to disrupt any segment of theeconomy; or(b) It appears that the intent is to intimidate orcoerce a government, or to further political,ideological, religious, social or economic objec-tives or to express (or express opposition to)a philosophy or ideology.

See Exclusion of Terrorism (with Limited Exception)and Exclusion of War and Military Action, ISOPROPERTIES, INC., 1-2 (2001).10 Id.11 Id. at 1-3.12 See MOODY’S INVESTORS SERVICE, CMBS: Moody’sApproach to Terrorism Insurance for U.S. CommercialReal Estate, in STRUCTURED FINANCE: SPECIAL REPORT 6(Mar. 1, 2002); Terrorism Insurance Roundtable 2002,4 CMBS WORLD 42 (Spring 2002).13 Press Release, California Department of Insurance,California Insurance Commissioner Rejects ProposedTerrorism Insurance Exclusion Filings (Jan. 8, 2002).14 Terrorism Insurance Roundtable 2002, 4 CMBSWORLD 42 (Spring 2002); Terrorism Coverage Remainsin Doubt, STANDARD & POOR’S 2 (Apr. 15, 2002).15 MOODY’S INVESTORS SERVICE, CMBS: Moody’s Approachto Terrorism Insurance for U.S. Commercial Real Estate,in STRUCTURED FINANCE: SPECIAL REPORT 5 (Mar. 1,2002).16 Terror-Insurance Reviews Taxing Servicers,COMMERCIAL MORTGAGE ALERT 1 (June 21, 2002).17 Terror Insurance: More Available, COMMERCIAL

MORTGAGE ALERT, Mar. 29, 2002, at 2; Terror-InsuranceFlap Ensnares Opryland Deal, COMMERCIAL MORTGAGE

ALERT, May 31, 2002, at 1.18 Id.19 Terror Insurance: More Available, COMMERCIAL

MORTGAGE ALERT, Mar. 29, 2002, at 2.20 Id. (noting $20 billion in new capital to supportissuance of new terrorism insurance coverage).21 Id.22 Terror-Insurance Flap Ensnares Opryland Deal,COMMERCIAL MORTGAGE ALERT, May 31, 2002, at 1, 7.23 Terrorism Coverage Remains in Doubt, STANDARD &POOR’S, Apr. 15, 2002, at 4.24 See news archives at CommercialRealEstateDirect.com.25 MOODY’S INVESTORS SERVICE, CMBS: Moody’s Approachto Terrorism Insurance for U.S. Commercial Real Estate,in STRUCTURED FINANCE: SPECIAL REPORT 1 (Mar. 1,2002).26 John Gibeaut, World of Change, A.B.A. J., May 2002,at 44.27 RAND CORP., Safety and Security in Los Angeles High-Rise Buildings after 9/11, in DOCUMENTED BRIEFING

(2002).28 Id. at 11.29 Id. at 18-19.30 Id. at 55.31 U.S. GENERAL ACCOUNTING OFFICE, TerrorismInsurance: Rising Uninsured Exposure to AttacksHeightens Potential Economic Vulnerabilities, inGAO02472T 7-14 (Feb. 27, 2002).32 Senate Passes Aid to Insurers on Terrorism, NEW YORK

TIMES, June 19, 2002, at C1.33 Id.34 Id. at C13.35 Id.36 Survey: No Big Terror-Coverage Effect, THE AMERICAN

BANKER, May 13, 2002, at 1.


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W ith the arrival of theone-year anniversary ofthe September 11 ter-

rorist attacks, Americans will col-lectively pause and contemplatethe many changes to our nationin the past year. The tragic loss oflife and the turmoil and devasta-tion experienced by the familieswho lost loved ones obviouslyovershadow all other thoughtsand considerations.

The fact that the attacks wereperpetrated by persons who werenationals of other countries hascaused and will cause manychanges to U.S. immigration poli-cies. In the days immediatelyafter September 11,immigration regu-lations were amen-ded, visa categorieswere modified, newimmigration lawswere passed, immi-gration detentionpolicies were mod-ified, immigrationand customs in-spections becamemore rigorous, andbills with immigration compo-nents were introduced in Con-gress to combat terrorism.1

Nine days after the terroristattacks, one of the first acts ofthe Immigration and Naturali-zation Service was to amend a

regulation in order to permit theINS to detain aliens longer thanpreviously allowed.2 Under theprior regulation, the INS wasrequired to make a determina-tion within 24 hours of an arrestwhether to release the arrestedalien on bond or the alien’s ownrecognizance and to instituteremoval proceedings. For rea-sons of national security, theamendment extended the timeto 48 hours after the arrest,except in the event of “emer-gency or other extraordinary cir-cumstances.”3

Congress also cited nationalsecurity as the basis for its post-September 11 legislative endeav-ors. One bill passed by Congressand enacted into law amendedSection 214(k) of the Immigrationand Nationality Act (INA) to pro-vide for a permanent S visa clas-sification. The S visa will begranted to aliens who possesscritical information regardingcriminal or terrorist organizationsand will supply or have supplied

it to law enforce-ment agencies.4

Congress alsopassed, and thepresident signed,the Enhanced Bor-der Security andVisa Entry ReformAct of 2002,5 whichrequires a closerreview of all visaapplicants, includ-ing students. The

new law would strengthen themonitoring of foreign students inthe United States and provide fora more frequent review of schoolsto ensure compliance with alllaws.6

The most significant and

talked-about measure, however, isthe United and StrengtheningAmerica by Providing Appro-priate Tools Required to Interceptand Obstruct Terrorism Act,which has become known as theUSA PATRIOT Act.7 PresidentGeorge Bush signed this bill on October 26, 2001, after littlemore than a month’s debate inCongress. The USA PATRIOTAct grants law enforcementsweeping authorization in its conduct of searches, its use ofelectronic surveillance, and itsability to detain persons sus-pected to be terrorists. The USAPATRIOT Act expands the defin-ition of “terrorism” for purposes ofinadmissibility and removal ofaliens,8 requires mandatory deten-tion of aliens certified by the U.S.attorney general to have engagedin terrorist activities, and limitsjudicial review.9

On the other hand, the newlaw also recognizes that nonciti-zens were among the victims ofthe terrorist acts of September11. Thus the act generously pre-serves some immigration bene-fits for noncitizens that would oth-erwise have been extinguishedby death or loss of employment.10

For example, if a U.S. citizen hadfiled a relative visa petition (INSform I-130) or fiancé petition onbehalf of a spouse, child, or fiancéon or before September 11, 2001,that petition would have been nul-lified by the death of the peti-tioner. Section 421 of the USAPATRIOT Act preserves the abil-ity of a surviving spouse, child, orfiancé of a U.S. citizen killed inthe attacks of September 11 tofile his or her own petition forspecial immigrant status usingINS form I-360. If the U.S. citi-

zen had not filed a visa petition fora spouse or a child, under Section423 of the act surviving spousesor children may file I-130 visapetitions on their own behalfwithin two years of the death oftheir U.S. citizen spouse or par-ent. For a surviving spouse toqualify, he or she cannot havebeen legally separated from thedeceased U.S. citizen at the timeof the citizen’s death, and the sur-viving spouse cannot remarryand continue to seek this benefitunder the new law.

For surviving spouses andchildren of deceased lawful per-manent resident aliens, the newlaw provides two options. UnderSection 421 of the USA PATRIOTAct, the surviving spouse or chil-dren may self-petition for specialimmigrant status. Under Section423(b), petitions for a spouse,child, or unmarried adult son ordaughter by a permanent resi-dent alien killed in the September11 attacks will not be considerednullified by the death of the peti-tioner and will continue to beprocessed as if the petitioner hadnot been killed. The complete listof sur vivors’ benefits are de-scribed in Sections 421 through423 of the USA PATRIOT Act.

The USA PATRIOT Act alsoamended Section 110 of the Il-legal Immigration and ImmigrantResponsibility Act of 1996.11

Section 110 had sought to estab-lish an exit departure control sys-tem, but opposition from variousborder and business interestsscuttled implementation of thatsystem. However, the events ofSeptember 11 changed the polit-ical climate, and Congress order-ed the INS to fully and expedi-tiously implement the “integrated

The Immigration Landscape in theAftermath of September 11

New laws, policies,

and regulations

present challenges

to immigrants and

their counsel

Howard Hom, a solepractitioner in LosAngeles, has beendesignated aCertified Specialist inImmigration andNationality Law bythe California Boardof LegalSpecialization.

By Howard Hom



entry and exit data system.”12

On June 5, 2002, the Department of Justiceannounced the creation of a new NationalSecurity Entry-Exit Registration System,which is to be deployed as quickly as possi-ble. The new system requires that certainindividuals be fingerprinted, photographed,and registered. These individuals include allnationals of Iran, Iraq, Libya, Sudan, andSyria; certain other nationals of other coun-tries whom the State Department and theINS determine to be heightened nationalsecurity or law enforcement risks; and otheraliens identified by INS inspectors basedupon specific criteria to be established bythe Department of Justice.

Under this new system, aliens who fallinto these categories must report to the INSand register if they will be staying in theUnited States for at least 30 days. The aliensmust visit the offices of the INS at the 30-day point of their stay in the United States andthereafter every 12 months until they depart.The aliens must also report to the INS at thetime of departure. If an alien fails to register,he or she will be reported to law enforce-ment agencies. The alien will be subject to a$1,000 fine and the prospect of removal fromthe United States.13

New Rules

In the aftermath of September 11, therewere dozens of other immigration-relatedbills introduced in Congress. The fate of thesebills has not yet been decided, but many othersignificant changes in immigration policywere wrought by agency fiat.

Several of the changes will have an impactin the areas of custody, deportation, andremoval. For example, the INS and theExecutive Office for Immigration Review,which is composed of the immigration courtsand the Board of Immigration Appeals, pro-mulgated an interim rule on October 31, 2001,that established a temporary automatic stayof an immigration judge’s decision to order analien released from INS custody in cases inwhich the INS had ordered the alien heldwithout bond or had set a bond amount of$10,000 or more.14 This rule, which amends8 CFR Section 3.19(i), delays an alien’s releasefrom custody for 10 days to allow the INS todecide if it wishes to appeal the custody deter-mination to the Board of Immigration Appeals.

Another rule that will affect aliens in cus-tody emerged on October 31, 2001. This rule,published by the Bureau of Prisons, amended28 CFR Parts 500 and 501 to permit the mon-itoring of attorney-client mail or communi-cations of inmates and detainees in federalcustody if the attorney general has certifiedthat reasonable suspicions exist that aninmate may be involved in terrorism.

A more problematic policy change was theannouncement by the INS that it had begunsending to the FBI the names of more than300,000 aliens who have failed to depart fromthe United States after having been ordereddeported or removed. Those names will nowbe included in the FBI’s National Crime Infor-mation Center database, which is accessible bylocal police agencies. Thus any alien who hasoverstayed an order of deportation or removalmay now be located and deported as a resultof contact with local law enforcement, whetheror not the alien is suspected to be in any wayinvolved in terrorism.15

Even more significant is the AbsconderApprehension Initiative, which sets up appre-hension teams of INS agents to locate aliensordered deported or removed who have failedto surrender for deportation.16 This dragnetcovers all aliens—whether criminals, terror-ists, or nonimmigrant visitors who merelyoverstayed their period of authorized stay—who are under a deportation order but havenot departed the United States.

There is a new requirement that any alienunder a final order of removal who fails to sur-render for removal within 30 days of the finalorder will forfeit all rights to discretionaryrelief.17 Thus, for example, an alien client whois granted the privilege of voluntary departureunder INA Section 240B18 for a period of 60days may now have to surrender within 30days and be in custody for the balance of thevoluntary departure period.

Aside from the new rules affecting themonitoring and deportation of abscondersand suspected terrorists, immigration prac-titioners face many more mundane challengesin this new world of post-September 11 immi-gration law. The INS recently announced thatarriving visitors will no longer be routinelyauthorized to stay for six months. The newpolicy is to grant only a 30-day stay unless animmigration inspector processing the arrivalof an alien is convinced that a longer periodis “fair and reasonable for the completion ofthe purpose of the visit.”19 This new policy,although well intended, will only add to thedelays experienced by arriving passengersduring immigration and customs inspectionsand may do little to deter a terrorist who isbent on carrying out his or her evil deedswithin 30 days or is unconcerned about stay-ing longer than permitted.

At the same time, the INS also announcednew requirements for changing visitor statusto student status. The rule would require thatas a condition precedent for applying for achange of status to study, the alien visitormust have advised the immigration inspectorat the time of arrival of his or her intent tostudy rather than merely visit.20 This pre-sents an interesting dilemma for the prospec-

tive student, because in the past the INS hastaken the position that an alien who has thepreconceived intent to study is not admissibleas a visitor for pleasure.21

Assuming that an inspector allows an aliento enter as a prospective student visitor, thealien will encounter an additional roadblock tostudying. The new rule prohibits an alien stu-dent from commencing study until after theINS has approved an application to change thealien’s visitor status to student status.22 If a B-1 or B-2 visitor commences studies prior to theapproval of the change of status, the visitor willbe considered to be in violation of the condi-tions of his or her visitor status and becomesubject to removal from the United States.23

For immigration practitioners who assisttheir clients in obtaining visas abroad, thetime-honored practice of consular-shopping atU.S. consular posts at the Mexican or Cana-dian border may no longer be feasible. In thepost-September 11 immigration scheme thereare additional security clearances that willdelay the scheduling of a visa appointment,clearances that may delay the issuance of thevisa, and a regulatory change that makes avisa trip to a border post much more risky.

In the past, many aliens who were alreadylegally in the United States chose to applyfor a visa at one of the border posts after theyhad already received their visa petitionapproval notice, because they understoodthat a denial of their visa application would notpreclude their reentry into the United States.For example, an alien in possession of a valid,unexpired INS document called the I-94 andaccompanying documentation verifying cur-rent lawful status could travel to a contiguouscountry and reenter the United States notwith-standing the expiration of the underlying visa.However, in a change announced on March7, 2002, 22 CFR Section 41.112(d) has beenamended to eliminate automatic revalidationof an expired visa. The new rule eliminatesthis benefit to persons who apply for and aredenied a visa at the border. Future restrictionsin this area are expected in the form of newlegislation, because Congress has instructedthe Department of State to review the processin which consular officers issue visas.

Some post-September 11 changes will havean impact on the immigration practitionersengaged in routine family- or employment-based petitions and applications. In mid-April2002, the INS instituted a new security clear-ance procedure called the Interagency BorderInspection System (IBIS). Prior to the approvalof an application or petition for any immigra-tion benefit, the names of the applicant and thepetitioner must be checked with the IBIS. Inmid-May, the INS extended the IBIS clear-ance to encompass applicants for naturaliza-tion, of which there has been a flood since


September 11. This new clearance require-ment created a new delay for many appli-cants—including those for adjustment of sta-tus as well as naturalization—because someINS offices only had limited access to theIBIS and not enough officers had been trainedon the new system. Surprisingly, notwith-standing this additional delay, the Los Angelesand San Diego INS offices have actually accel-erated their scheduling of inter views.Applicants for adjustment of status are beingcalled in for interviews approximately eightmonths after they file their applications, downfrom the 30 months that applicants in LosAngeles had experienced as recently as justprior to September 11, 2001.

Reorganizing the System

In addition to the myriad changes in immi-gration policy, the very structure of the immi-gration court system and the INS is about tobe revamped. The U.S. attorney generalannounced in February 2002 a proposed rulethat will reorganize the Board of ImmigrationAppeals by reducing the number of boardmembers in order to speed up the appellateprocess.24 The board will shrink to 11 per-sons from its current 21. The plan is to haveappeals heard by a single board member inmost cases rather than the current method ofhearings by three-member panels. The pro-posed rule will have a 180-day transitionalperiod during which the board is expected toclear up its backlog of appeals expeditiously.At the end of the 180-day period, members ofthe 21-member board will be asked to leaveuntil only 11 remain.25 The attorney generalwill designate which board members will beallowed to stay on the job. This scenariobrings to mind a 1954 case in which there wasan allegation that the attorney general hadimpermissibly influenced the decision-makingprocess of the Board of Immigration Appeals.The U.S. Supreme Court agreed.26

Lest anyone think that the attorney gen-eral is singling out the lawyers on the Boardof Immigration Appeals for scrutiny, he hasalso commenced implementation of a majorreorganization of the INS.27 At the same time,Congress has weighed into the imbrogliowith its own reorganization plan.28 PresidentBush proposed the creation of the Depart-ment of Homeland Security, which wouldabsorb the INS from the Department of Jus-tice.29 Recently the House of Representativespassed a bill creating the Department ofHomeland Security that would transfer theenforcement functions of the INS to the newdepartment while leaving the immigrationbenefits portion of the INS with the Depart-ment of Justice.30

Notwithstanding all these changes, immi-gration attorneys generally report that busi-


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ness is at similar levels to the period prior toSeptember 11, although attorneys who handleimmigration litigation report an increase inbusiness. Those attorneys who handle familyand business immigration report that busi-ness is about the same as before the terroristattacks. The decrease in certain applicationsappears to be attributable more to the gen-eral economic slowdown, in the high-tech sec-tor in particular, than to the events of Sep-tember 11. Although there may be a decreasein certain types of cases, such as visa proc-essing in Canada or Mexico, immigration prac-titioners are certain to be counseling newclients who have concerns about being subjectto heightened scrutiny and who wish to protectthemselves, perhaps by applying to legalizetheir status. Now that the very existence of theINS is at issue and the agency is being buffetedby the political winds, the old adage among vet-erans in the immigration field is as true nowas before—the INS needs immigrants as muchas immigrants need the INS. ■

1 78 INTERPRETER RELEASES 1493 (Sept. 24, 2001).2 66 Fed Reg. 48334-35 (Sept. 20, 2001).3 8 C.F.R. §287.3(d).4 Pub. L. No. 107-45 (Oct. 1, 2001).5 Enhanced Border Security and Visa Entry Reform Actof 2002, Pub. L. No. 107-173 (May 14, 2002).6 State Department cable, ADALC No 1.7 United and Strengthening America by ProvidingAppropriate Tools Required to Intercept and ObstructTerrorism Act (the USA PATRIOT Act), Pub. L. No. 107-56, 115 Stat. 272 (2001).8 Id . §411(a) (amending 8 U.S.C. §1182(a)(3),§1227(a)(4)(A) and (B)).9 Id. §412(a) (adding §236A to the Immigration andNationality Act, 8 U.S.C. §1226a (1994 ed.)).10 Id. tit. IV, subtitle C.11 Illegal Immigration and Immigrant ResponsibilityAct of 1996, Pub L. No. 104-208, as amended by Pub. L.No. 105-259, Pub. L. No. 105-277, and Pub. L. No. 106-215.12 The USA PATRIOT Act, supra note 7, §414.13 67 Fed. Reg. 40581 (June 13, 2002).14 66 Fed. Reg. 54909-12 (Oct. 31, 2001).15 78 INTERPRETER RELEASES 1899-00 (Dec. 17, 2001).16 79 INTERPRETER RELEASES 261-2 (Feb. 18, 2002).17 67 Fed. Reg. 31157 (May 9, 2002).18 8 U.S.C. §1229c.19 67 Fed Reg. 18065-18069 (Apr. 12, 2002).20 67 Fed Reg. 18062-18064 (Apr. 12, 2002).21 9 FOREIGN AFFAIRS MANUAL §40.63 n.4.7-1.22 8 C.F.R. §248.1(c)(3) (Apr. 9, 2002).23 67 Fed. Reg. 18062-18064 (Apr. 12, 2002); INA§237(a)(1), 8 U.S.C. §1227(a)(1).24 67 Fed Reg. 7310 (Feb. 19, 2002).25 Id. at 7312.26 See United States ex rel. Accardi v. Shaughnessy, 347U.S. 260, 267-68, 74 S. Ct. 499, 503-04, 98 L. Ed. 681(1954).27 78 INTERPRETER RELEASES 1821 (Dec. 3, 2001).28 The Barbara Jordan Immigration Reform andAccountability Act, H.R. 3231, 79 INTERPRETER RELEASES

545 (Apr. 15, 2002); Immigration Reform, Account-ability, and Security Enhancement Act of 2002, S. 2444,79 INTERPRETER RELEASES 656 (May 6, 2002).29 LOS ANGELES TIMES, June 6, 2002, at A1.30 LOS ANGELES TIMES, July 27, 2002, at A1.


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Correspondent banking isthe provision of bankingservices by one bank to

another. Historically, this prac-tice has enabled foreign banks(called respondent banks) to con-duct business for and provide ser-vices to individual and institu-tional customers in the UnitedStates through correspondentbank accounts maintained in U.S.-based banks (called correspon-dent banks). By virtue of thesecorrespondent relationships,respondent banks have avoidedthe financial costs and regulatoryhurdles that areassociated withlicensing, staffing,and operating full-ser vice banks inthe United States.

The worldwidedemand for andpopularity of U.S.dollars and thelucrative potentialof correspondentbanking have re-sulted in the devel-opment of thou-sands of correspondent bankingrelationships, which account formore than $1 trillion in wire trans-fers per day. Lax oversight andinadequate self-policing, however,have made correspondent bank-ing susceptible to abuse by those

engaged in money launderingand terrorism. These abusesbecame apparent in the days thatfollowed September 11, 2001.

On October 26, 2001, in thewake of the most devastating ter-rorist attack in the nation’s his-tor y, President George Bushsigned into law a comprehensiveset of antiterrorism and anti-money laundering laws. Col-lectively called the Uniting andStrengthening America byProviding Appropriate Tools Re-quired to Intercept and ObstructTer rorism Act of 20011 andknown as the USA PATRIOT Act,these new laws impose signifi-cant new duties on a wide arrayof American financial institu-tions—including banks, insur-ance companies, brokeragehouses, and currency exchanges.

Encompassed under Title IIIof the act is the InternationalMoney Laundering Abatementand Anti-Terrorism Financing Act

of 2001 (IMLAFA).This legislationincreases the re-sponsibilities offinancial institu-tions regarding thedetection of moneylaundering. To-gether, the USAPATRIOT Act andIMLAFA serve toredefine the limitsof international fi-nance and, in turn,the relationship

between financial institutions andtheir clients.

Among the changes that willbe felt immediately are thoseaffecting the historically unfet-tered practice of correspondentbanking. These changes will for-

ever alter the way in which U.S.banks conduct business withtheir foreign counterparts. Thesechanges also will require both in-house and outside counsel notonly to appreciate the nuances ofthe new statutory and regulatoryprovisions governing this area ofbanking but also to provideinsightful guidance to clients whootherwise risk running afoul ofthe new act’s provisions.

The act now requires finan-cial institutions to establish appro-priate, specific, and, when nec-essary, enhanced due diligencepolicies for all correspondent andprivate banking accounts locatedin the United States and owned orcontrolled by non-U.S. persons.

The U.S. Senate Report

The act is the result of notonly the events of September 11but also a congressional investi-gation into the practices of cor-respondent banking and its ties tointernational money laundering.On February 5, 2001, the minor-ity staf f of the U.S. Senate’sPermanent Subcommittee onInvestigations issued a reporttitled Correspondent Banking: AGateway for Money Laundering.2

The report detailed seriousdeficiencies in the correspondentbanking system and identifiedthree categories of foreign banksthat indicated a greater likelihoodof money laundering: shell banks,of fshore banks, and bankslocated in jurisdictions with weakmoney laundering controls.3 Thesubcommittee’s recommenda-tions initially met resistance fromthe banking community and, tosome extent, Congress. SenatorPhil Gramm, one of the report’scritics, argued that stricter regu-

lations would increase the costof banking and violate the pri-vacy rights of bank customers.4

The report seemed to be des-tined for an unceremoniousdemise—until the morning hoursof September 11, after which itreceived renewed attention.

The report’s conclusions werestraightforward:• U.S. banks, through corre-spondent accounts with high-riskforeign banks, were often unwit-ting conduits for illicit fundsacquired through drug traffick-ing, fraud, tax evasion, Internetgambling, and other crimes.• Poor due diligence by U.S.banks routinely enabled corre-spondent accounts to be openedfor poorly regulated or managedbanks, and, at times, the ownersand customers of corrupt banks.• Correspondent accounts gaveforeign banks and their ownersand customers access to theAmerican banking system, whichis known for its soundness.• Correspondent accounts alsogave access to the internationalwire transfer system—the mostimportant link in the money laun-dering chain—making it possi-ble for individuals engaged in ille-gal activities to commingle anddisguise dirty monies and ren-der tracing virtually impossible.5

The impact on law enforce-ment perhaps is best describedby Mary Lee Warren, deputyassistant attorney general of theU.S. Depar tment of Justice’sCriminal Division, who stated:“Correspondent bank accountsare used in the ‘layering’ or ‘inte-gration’ stages of money laun-dering and continue to frustratethe efforts of law enforcementinto the movement of criminally

Correspondent Banking afterSeptember 11

New controls

will combat money

laundering and

money transfers

that aid illegal acts

Fernando L. Aenlle-Rocha is a partner atMcDermott, Will &Emery in LosAngeles, where hespecializes in whitecollar criminaldefense. He servedfor more than 12years as a prosecutorin financial crimescases.

By Fernando L. Aenlle-Rocha


derived funds into or through countries wherelaw enforcement’s ability to identify the truebeneficial owner of the funds is impaired oraltogether prevented.”6

The sentiment of the Senate Sub-committee on Investigations was best cap-tured by Senator Carl Levin, who was theranking minority leader of the committee andnow is its chair, who stated: “We can’t con-demn jurisdictions with weak anti-moneylaundering controls, weak banking oversight,and unregulated offshore sectors, and thentolerate U.S. banks doing business with thevery banks these jurisdictions license andunleash on the world.”7

The Senate report described and analyzedvarious weaknesses in the current corre-spondent banking system. Among these are:

Inadequate anti-money launderingprograms. U.S. banks used relatively unso-phisticated anti-money laundering proceduresin their correspondent banking operationsand conducted inadequate due diligence as tothe respondent bank and its customers. Thislaxness was aggravated by the lack of anti-money laundering training and coordinationbetween compliance officers and correspon-dent bankers, and the absence of proactiveanti-money laundering programs to detectand report suspicious activity in correspon-dent accounts.8

Misconceptions about money laun-dering. Correspondent bankers erroneouslyassumed their services were not susceptibleto money laundering, believing that launder-ers dealt only in cash. This, of course, hasnever been entirely the case. For example, ina case prosecuted by the U.S. Attorney’sOffice for the Central District of California,United States v. Rayhani,9 two moneyexchange houses located in the United ArabEmirates opened correspondent accountswith a U.S.-based bank. Unknown to the U.S.bank, the accounts were used to launder largesums of monies earned from transportingtons of heroin and morphine base manufac-tured in Pakistan for distribution in WesternEurope and the United States. The corre-spondent accounts enabled the drug traf-fickers and money launderers to pool theirassets. Funds went into and out of theaccounts through the use of numerous wiretransfers. Once the wire transfers were com-plete, it became nearly impossible to ascertainthe identities of the ultimate beneficiaries.

A thorough investigation of these financialinstitutions resulted in the prosecution andconviction of numerous individuals and theseizure and forfeiture of millions of U.S. dol-lars from those accounts. The U.S.-basedbank never suspected money launderingdespite the very large sums of currency mov-ing in and out of the accounts on a daily basis

by foreign remitters from known drug-pro-ducing nations.

The conflicting roles of correspon-dent bankers. The typical correspondentbanker in the United States has been bur-dened by conflicting roles. One has been toexpand business, open new accounts, increasedeposits, and sell additional services to exist-ing accounts. The second has been to imple-ment anti-money laundering techniques, eval-uate risks associated with new accounts,monitor transactions, and report suspiciousactivity. The greater the conflict between thetwo roles, the greater the bank’s susceptibil-ity to money laundering acts.10

Some banks exacerbated the inherentconflict by compensating their correspon-dent banking officers according to the num-ber of new accounts they opened or theincome they generated for the bank. In thisenvironment, a correspondent banker’srefusal to open new accounts, close existingaccounts, or limit the scope of the servicesof fered to existing clients reduces thebanker’s compensation and adversely affectshis or her ability to succeed at the bank—theperfect recipe for a doomed anti-money laun-dering program.11

A lack of foreign oversight. There wasa prevailing misconception among corre-spondent banks that they could rely on therespondent bank’s license as evidence of itsgood standing in the foreign country and thatfurther due diligence was not required toprotect themselves from money launderingclaims.12 In fact, certain nations consistentlyfail to regulate and supervise their domesticfinancial institutions adequately.

The Senate report described a bank inthe Republic of Montenegro that boasted onits Web site about its lax supervisory regimeand minimal licensing requirements. Thisbank was able to gain access to the interna-tional wire transfer system through the cor-respondent banking system despite its blatantdisregard for international money launder-ing laws. Neither the unverifiable assurancesof foreign regulators nor the issuance of aforeign bank license can truly guarantee anoffshore bank’s bona fides.13

The practice of nesting. Nesting is thecustom of allowing one respondent bank touse another respondent bank’s correspon-dent banking relationship. The Senate reportcharacterized nesting as an insidious traditionthat exposed domestic banks to criminal andcivil liability.14 In an example, the report tellsof a U.S.-based respondent bank that denieda request by a Dominican bank to open a cor-respondent account. The denied bank thensimply opened a correspondent account withanother Dominican bank that already had acorrespondent banking relationship with that

U.S.-based bank. No correspondent bank sur-veyed for the Senate report had any policy orprocedure in place to deal effectively withnested accounts.15

Reliance on foreign banks’ auditedfinancial statements. Correspondent banksoften placed undue weight on a foreign bank’saudited financial statements to determine sol-vency and the quality of a foreign bank’s oper-ations. In light of the recent failure of Enronand others, it is clear that financial statementsare only as good as their underlying data.Only if that data is accurate and truthful willthe statements reflect the true financial con-dition of the institution. The report concludedthat U.S.-based respondent banks cannotafford to rely entirely on the representationsof bank auditors in foreign countries.16

IMLAFA and the USA PATRIOT Act

Section 311 of IMLAFA has added a newSection 5318A to Title 31 USC. This new sec-tion gives the secretary of the treasury “broaddiscretion…to take measures tailored to…par-ticular money laundering problems.”17 As oneof those measures, Section 5318A authorizesthe secretary to require domestic financialinstitutions18 that open or maintain corre-spondent accounts19 in the United States onbehalf of foreign financial institutions to obtaincertain information in connection with theforeign financial institutions’ customers andrepresentatives.

This information can include the identityof every customer of the foreign financialinstitution who is allowed to use, or whosetransactions are routed through, the corre-spondent account. It can also include the typeof information that domestic financial insti-tutions typically gather from their U.S.-basedcustomers during their ordinary course ofbusiness. This informational requirementwas added to IMLAFA to combat nesting.

Section 312 of IMLAFA also adds a newSection 5318(i) to Title 31 USC.20 Section5318(i)(1) imposes general due diligencerequirements on domestic financial institu-tions that open or maintain correspondentaccounts in the United States for non-U.S.persons. The new statute requires the cre-ation and implementation of specific, appro-priate and, if necessary, enhanced due dili-gence policies, procedures, and controls thatare reasonably designed to identify and reportinstances of money laundering through cor-respondent accounts. Although the term “rea-sonably designed” awaits interpretation, atfirst blush, it appears to reflect an acknowl-edgment that not all money launderingschemes can be reasonably detected.

Title 31 USC Section 5318(i)(2) mandatesenhanced due diligence requirements in open-ing or maintaining correspondent accounts on


behalf of certain types of foreign financialinstitutions that are called designated respon-dent banks. Designated respondent banksinclude foreign banks operating under an off-shore banking license and foreign banks oper-ating under a foreign banking license issuedby a country that has been designated asnoncooperative with international anti-moneylaundering efforts, both by the United Statesand by an intergovernmental group to whichthe United States belongs.21 Additionally, theact requires enhanced due diligence for cor-respondent accounts with foreign banks oper-ating under a foreign banking license that,according to the secretary, requires specialmeasures.

The enhanced due diligence requirementswill require domestic financial institutions totake several steps:1) Determine the identity of the owners of thedesignated respondent bank, along with thenature and extent of each owner’s interest.2) Conduct an ongoing review and analysis ofall correspondent accounts for the purpose ofidentifying any suspicious transactions.3) Determine whether the designated respon-dent bank provides correspondent accountsto other foreign banks (these are known assecond tier respondent banks) and, if so,determine the identity of those second tierrespondent banks and conduct appropriatedue diligence as a way of guarding furtheragainst the practice of nesting.

Violations of the due diligence require-ments can result in criminal fines or civilpenalties of no less than twice the amount ofthe transaction up to a total of $1 million.22

IMLAFA also authorizes the secretary to pro-hibit or impose conditions on the opening ormaintenance of correspondent accounts bydomestic financial institutions on behalf offoreign financial institutions. Before doingso, the secretary is required to consult withthe attorney general, the secretary of state,and the chairman of the board of governorsof the Federal Reserve.

This prohibition is especially applicable toforeign shell banks. Section 313 of IMLAFAadds a new Section 5318(j) to Title 31 USCthat addresses shell banks.23 A shell bank isa foreign bank lacking any physical presencein any country. The physical presence require-ment is satisfied if the bank maintains a placeof business at a fixed address in the foreignbank’s licensing jurisdiction. The fixedaddress cannot be an electronic address, andit must serve as the place where the foreignbank has at least one full-time employee,maintains its operating and business records,and is subject to inspection by the foreignbank’s regulatory licensing authority.

Section 5318(j) includes two mandates.First, it prohibits any covered financial insti-

tution24 in the United States from opening ormaintaining a correspondent account for ashell bank.25 Second, it requires covered finan-cial institutions to take reasonable steps to ver-ify whether foreign banks that have corre-spondent accounts in the United States areproviding any banking services to shell banks.

Section 5318(j) carves out an exemptionfrom these two requirements for any shellbank that is affiliated26 with any depositoryinstitution, credit union, or foreign bank thathas a physical presence in either the UnitedStates or a foreign country and is subject tosupervision by the relevant banking author-ity responsible for overseeing the affiliatedfinancial institution. Recently enacted guide-lines issued by the U.S. Department of theTreasury direct banks to obtain a signed cer-tification from each correspondent accountholder stating that it either is not a shell bankor is qualified under the above exemption.27

Section 319 of IMLAFA adds a new Section5318(k) to Title 31 USC.28 Pursuant to Section5318(k)(3)(B)(i), every “covered financialinstitution” that maintains a correspondentaccount in the United States for a foreignfinancial institution must maintain recordsthat identify the owners of the respondentforeign bank and the name and address of anindividual who resides in the United Statesand has the authority to accept service ofprocess for any records pertaining to theaccount. On request these records must beprovided to a federal law enforcement agentwithin seven days.

Section 319 also authorizes the secretaryof the treasury and the attorney general toissue a subpoena or summons to any foreignfinancial institution that maintains corre-spondent accounts in the United States for anyrecords relating to those accounts. If the for-eign financial institution fails to comply withthe subpoena, the U.S.-based financial insti-tution will be required to terminate its cor-respondent relationship with the foreign bankwithin 10 days of receiving notice from thegovernment of the foreign bank’s failure tocomply with the subpoena. Failure to termi-nate the correspondent relationship will sub-ject the U.S. bank to a civil penalty of $10,000for each day the relationship continues. Froma bank’s perspective, the only saving provisionof this section is that the U.S.-based bankwill be immune from liability for terminatingits relationship with the foreign bank.

Foreign financial institutions that mayhave considered themselves beyond the reachof U.S. law enforcement must now pay specialattention to Section 317 of IMLAFA, whichgrants federal courts long-arm jurisdictionover certain foreign individuals and financialinstitutions.29 Specifically, a federal court willnow be able to exercise jurisdiction over any

foreign financial institution that has beenserved with process, pursuant to establishedlaws and rules of procedure, and that hasminimum contacts with the United States.The minimum contacts requirement can besatisfied whenever the foreign financial insti-tution maintains a correspondent account inthe United States. Clearly, this provision isintended to enable criminal prosecution offoreign banks and their agents in the UnitedStates for money laundering activities.

Lastly, Section 352 of IMLAFA amends31 USC Section 5318(h) to require financialinstitutions to implement basic anti-moneylaundering programs. The programs will berequired to encompass policies and proce-dures, employee training, and the selection ofa compliance officer and auditor responsiblefor the ongoing testing of the program.30

It is now evident that all U.S.-based finan-cial institutions will be required to fulfill, at aminimum, certain basic due diligence require-ments. For certain banks and other financialinstitutions unaccustomed to such inquiries,compliance with the act will require a con-certed effort to keep track of correspondentaccounts and, when appropriate, investigateforeign institutions and their owners andaccount holders. To demonstrate commit-ment to the act, financial institutions shouldconsider implementing the following mea-sures immediately:• Conduct the same know-your-customerinquiry with foreign accounts that financialinstitutions typically perform for domesticaccounts.• Adopt and implement an exacting due dili-gence protocol for the correspondent bank-ing department. This will help screen andmonitor problematic institutions such as shellbanks, offshore banks, and banks in countrieswith weak anti-money laundering mecha-nisms.• Conduct a detailed country-by-countryanalysis. There are currently 19 noncooper-ating countries and territories identified bythe Treasury Department’s Financial ActionTask Force on Money Laundering. Financialinstitutions need to be aware of these coun-tries and identify all accounts originating fromor moving through them. This exercise willalso help financial institutions comply with theTrading with the Enemy Act, which prohibitsfinancial transactions with designated nations.• Conduct a systematic review of all currentcorrespondent accounts with foreign banks toidentify high-risk banks and close accountswith problem banks.• Conduct regular monitoring of corre-spondent bank accounts and review all relatedwire transfer activity.• Conduct training of correspondent bankersin order to enable them to identify potential


misconduct by foreign respondent banks.• Take affirmative steps aimed at getting toknow client respondent banks. This can con-sist of studying and analyzing the nature of therespondent bank’s business as well as secur-ing a realistic net worth of the bank. Thesesteps will also help in identifying shell or off-shore banks with little or no physical presencein a foreign country.• Determine whether any potential foreignbank clients are at all involved in any lawenforcement or regulatory actions related tomoney laundering, fraud, tax evasion, or drugtrafficking.• Take affirmative steps aimed at familiar-izing domestic financial institutions with theclients of their foreign bank’s clients.

Although one cannot predict the degree towhich prosecutors and bank regulators ulti-mately will enforce the act’s provisions, it isundeniable that correspondent banking hasbeen forever altered as a result of the eventsof September 11. The extent to which finan-cial institutions avoid running afoul of theact will turn, in large part, on their willingnessand determination to implement protectivemeasures. The commitment to such mea-sures will ultimately determine whether U.S.-based financial institutions successfully avoidthe penalties associated with the act whilecontinuing to maintain and foster legitimatecorrespondent banking relationships. ■

1 Uniting and Strengthening America by ProvidingAppropriate Tools Required to Intercept and ObstructTerrorism Act of 2001, Pub. L. No. 107-56, 110 Stat. 1274(2001).2 U.S. SENATE, COMMITTEE ON GOVERNMENTAL AFFAIRS,MINORITY STAFF OF THE PERMANENT SUBCOMMITTEE ON

INVESTIGATIONS, REPORT ON CORRESPONDENT BANKING: AGATEWAY FOR MONEY LAUNDERING (Feb. 5, 2001) [here-inafter SENATE REPORT].3 Id. at 1, 14-17.4 See Financial Arsenal: New Laws Should Help CutTerrorists’ Cash Flow, SARASOTA HERALD TRIB., Nov. 6,2001.5 SENATE REPORT, supra note 2, at 1-2, 13, 56.6 See Bruce Zagaris, Money Laundering and BankSecrecy, 17 INT’L ENFORCEMENT L. REP. (May 2001).7 Opening Statement of Sen. Carl Levin (D-Mich.) beforethe U.S. S. Permanent Subcomm. on Investigations,Hearings on the Role of Correspondent Banking in MoneyLaundering, Mar. 1, 2001, 107th Cong., 1st Sess., avail-able at http://www.senate.gov/~gov_affairs/030101_levin.htm.8 SENATE REPORT, supra note 2, at 3, 26-27, 30-31.9 United States v. Rayhani, Case No. CR-95-984-JGD(C.D. Cal.).10 SENATE REPORT, supra note 2, at 32-33.11 Id. at 33.12 Id. at 36-37.13 Id. at 37.14 Id. at 34-35.15 Id. at 35-36.16 Id. at 37-38.17 International Money Laundering Abatement andAnti-Terrorism Financing Act of 2001 §302(b)(5) (withintit. 3 of Pub. L. No. 107-56, 110 Stat. 1274 (2001)) [here-inafter IMLAFA].


Judgments EnforcedJudgments EnforcedLaw Office of Donald P. Brigham

23232 Peralta Dr., Suite 204, Laguna Hills, CA 92653P: 949.206.1661F: 949.206.9718

[email protected] AV Rated

http://www.computerish.com

18 IMLAFA uses “financial institution” as the term isdefined at 31 U.S.C. §5312(a)(2) of the Bank SecrecyAct. The definition includes commercial banks, thrifts,credit unions, broker-dealers, mutual funds, insurancecompanies, U.S. branches and agencies of foreignbanks, money transmitters, and other entities capableof handling large volumes of currency and other pay-ments.19 IMLAFA defines a “correspondent account” as anaccount established to receive deposits from or makepayments of a foreign financial institution or to handleother financial transactions related to the foreign finan-cial institution.20 On July 23, 2002, 270 days after the enactment dateof IMLAFA, 31 U.S.C. §5318(i) took effect. All due dili-gence requirements apply to all correspondent accountsopened before or after the enactment of the section. Thesecretary of the treasury was also required—within180 days of the enactment of IMLAFA (i.e., April 24,2002)—to promulgate all regulations needed to definefurther and implement the requisite due diligence stan-dards.21 To date, the only intergovernmental organizationthat disseminates a list of noncooperative nations is theFinancial Action Task Force on Money Laundering(FATF). The United States belongs to this group andcurrently has approved of its list of noncooperativecountries. The current FATF list: Cook Islands,Dominica, Egypt, Grenada, Guatemala, Hungary,Indonesia, Israel, Lebanon, Marshall Islands, Myanmar,Nauru, Nigeria, Niue, Philippines, Russia, St. Kitts andNevis, St. Vincent and the Grenadines, and Ukraine.22 See 31 U.S.C. §§5322(d), 5321(a)(7).23 31 U.S.C. §5318(j) (effective Dec. 25, 2001—60 daysafter the enactment of IMLAFA).24 The term “covered financial institution” does notinclude all U.S. financial institutions. Instead, it includesinsured banks, commercial banks or trust companies,private bankers, agencies or branches of foreign banksin the United States, insured institutions, thrifts, and reg-istered broker-dealers.25 The act required the closing of all correspondentaccounts for shell banks by Dec. 25, 2001.26 An affiliate is a foreign bank that is controlled by, orunder the common control of, a depository institution,credit union, or foreign bank.27 See Ron Garver, Wiggle Room on Christmas Deadline,AMERICAN BANKER, Nov. 28, 2001.28 Section 5318(k) took effect on Dec. 25, 2001, 60 daysafter the enactment of IMLAFA.29 See 18 U.S.C. §1956(b)(2).30 Pursuant to IMLAFA’s requirements, on Feb. 26,2002, the National Association of Securities Dealers,which supervises and examines over 3,500 U.S.-basedsecurities firms, issued a regulation requiring firmsto enact a five-pronged anti-money laundering programby Apr. 24, 2002. See NASD RULE 3011. Similarly, onApr. 24, 2002, the Financial Crimes EnforcementNetwork of the Department of the Treasury enacted aseries of federal regulations requiring financial insti-tutions to establish anti-money laundering programsconsistent with the requirements of the newly amended31 U.S.C. §5318(h). See 31 C.F.R. §§103.120 et seq.These rules apply to a wide array of financial institutions,including banks, savings associations, credit unions, reg-istered brokers and dealers in securities, futures com-mission merchants, casinos, money services businesses(including currency dealers or exchangers, check cash-ers, issuers of travelers checks or money orders, andmoney transmitters), operators of credit card systems,and mutual funds. For now, all other financial institu-tions are temporarily exempted pending further studyby the Financial Crimes Enforcement Network andthe Treasury Department of the money launderingrisks posed by such institutions. See 31 C.F.R. §103.170.


3435 Wilshire Blvd. • Suite 2700 • Los Angeles, Calif. 90010

Maturing Cases

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Richard W. SwartzRichard W. Swartz

• More than 30 years experience as a real estate lawyer dealing withindustrial, commercial, office and shopping centers including purchas-es, sales, leasing, ground leasing, financing, development, joint ven-tures, construction, real estate brokerage, title insurance, easements andprotective covenants.

• 18 years as counsel to the forms committee of the American IndustrialReal Estate Association, publishers of the AIR lease and purchase forms.

• Real estate law and ADR lecturer on programs sponsored by theCalifornia State Bar, the extension divisions of UCLA, UCI, USCB andvarious educational and realty organizations.

NEUTRAL REAL ESTATE ARBITRATOR

Arthur Mazirow

PENTHOUSE SUITE 1200, 3415 SEPULVEDA BOULEVARD, LOS ANGELES CA 90034-6060PHONE: 310-255-6114 • FAX: 310-391-4042 • E-MAIL: [email protected] • www.ffslaw.com

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Drastic times requiredrastic measures. Thesavagery of September11 must yield to justice,which means that fugi-tives stuffed in caves orseeking refuge in far-

flung lands must inexorably be producedbefore U.S. courts for judgment on theirheinous acts. The pursuit of these interna-tional terrorists, wherever in the world theyhide, is a mission of vital importance to thenational security of the United States—indeedto the civilized world.

Technology (particularly satellite com-munications technology), international com-merce, and the rapidly expanding interna-tional presence of U.S. law enforcement haveworked in the last 30 years to make the worlda much smaller place for international crim-inals. Laws passed by Congress now reachand thus regulate conduct occurring farbeyond U.S. borders. The first series of leg-islation was prompted by a spate of airlinehijackings in the 1960s and early 1970s.1 TheComprehensive Crime Control Act of 1984criminalized the act of taking Americans

hostages anywhere in the world. The act fur-ther provided U.S. courts with jurisdictionover any crime occurring “outside the juris-diction of any nation” when the offense iscommitted by or against a U.S. person.2 In theOmnibus Diplomatic Security and Antiter-rorism Act of 1986, Congress went further,criminalizing acts of violence occurring any-where outside the United States if the victimis an American citizen.3 The 1996 Antiter-rorism and Ef fective Death Penalty Act(AEDPA) outlawed, among other things, pro-viding material support or resources to for-eign organizations engaged in terrorist activ-ities—one of several criminal statutes invokedin the prosecution of John Walker Lindh, whois charged with providing his “personal ser-vices” to the Taliban.4

Concurrent with this expansion of Ameri-


KEN

SU

SYN

SKI

George B. Newhouse Jr. is a partner withThelen, Reid & Priest, where he practices com-plex civil litigation and white-collar criminaldefense. He served for 12 years as an assistantU.S. attorney in Los Angeles, where he acted asthe coordinator for counterterrorism and espi-onage prosecutions for 5 years.

THE LONG ARMOF THE LAW

By GEORGE B. NEWHOUSE JR.

The United States has statutory authorityto pursue terrorists wherever theymay be found throughout the world

can criminal jurisdiction, the overseas pres-ence of U.S. law enforcement agencies hasmushroomed in recent years. Various fed-eral agencies, including the Federal Bureauof Investigation, Drug Enforcement Agency,Internal Revenue Service, and U.S. CustomsService, now have offices in many foreigncountries. Between 1967 and 2000, the DEAexpanded its presence abroad from a dozenagents in 8 foreign countries to 338 agents in44 countries.5 The FBI’s overseas enforce-ment has likewise expanded to 34 legalattaché offices (known as LEGATs). FBIagents are now stationed in 52 countries.These U.S. agents, working closely with theirforeign counterparts, serve principally to col-lect evidence in criminal matters eventuallyprosecuted in the United States and in com-bating international terrorism.6

While the reach of U.S. law enforcementoverseas has been greatly extended in recentyears and undoubtedly will reach unprece-dented levels as a result of September 11,the Constitution’s reach has been corre-spondingly limited by recent Supreme Courtdecisions. As recently as 1986, when the ThirdRestatement on Foreign Relations Law wasarticulated, it was thought that constitutionalprotections set forth in the U.S. Bill of Rightswould be applied to U.S. actions abroad aswell as at home.7 The Supreme Court ex-pressed a contrary view in a series of casesbeginning with United States v. Verdugo-Urquidez8 in 1990, in which the Court heldthat the Fourth Amendment did not apply toa warrantless search in Mexico conductedby U.S. agents. Anticipating with chilling per-spicacity the future need for U.S. latitude intaking action in foreign lands unrestrained bylimitations imposed by the U.S. Constitution,the Supreme Court said:

For better or worse, we live in a worldof nation-states in which our govern-ment must be able to function effec-tively in the company of sovereignnations. Some who violate our lawsmay live outside our borders under aregime quite different from that whichobtains in this country.…Situationsthreatening to important Americaninterests may arise halfway around theglobe, situations which…require anAmerican response with armed force.If there are to be restrictions onsearches and seizures which occurincident to such American action, theymust be imposed by the politicalbranches through diplomatic under-standing, treaty or legislation.9

When international terrorists or U.S. fugi-tives are detected in these sovereign nations,various methods may be used by the politicalbranch of government to extract them. Three

principal means, which effect increasinglyserious consequences, have evolved throughwhich such criminals may be brought, invari-ably against their will, before a U.S. courtand thus subjected to American justice: 1)extradition, 2) irregular rendition, and 3) theexercise of war powers. Collectively, theseprocesses are termed generically as rendi-tion. The preferred method under interna-tional law is extradition.

ExtraditionInternational extradition occurs when a per-son suspected of committing a crime in onecountry (the requesting country) but who isfound in another country (the host country)is surrendered through diplomatic means fortrial or punishment in the requesting country.Extradition is based on fundamental principlesof international law reflecting respect for theterritorial integrity of another country, specif-ically the notion that agents of one govern-ment cannot enter and perform sovereignacts—arresting suspected criminals—in theterritory of another state without the hoststate’s permission, implicit or explicit.10 Theextradition process is necessarily formal anddefined by treaty.11 A treaty obligation, theSupreme Court has held, invokes obligationsmore compelling than just international law;it is “the law of the land…equivalent to an actof the [federal] legislature.”12 So, require-ments of law resulting from the executivebranch’s entering into extradition treaties areimpor tant and may be enforced by thecourts.13

A fundamental aspect of any extraditiontreaty is the principle of reciprocity: A for-eign government (the host country) grants anextradition request in reliance on a promiseof future extradition of an alleged offendersought by the host country who may be foundin the requesting country.14 Most treatiesspecify a limited number of specific extra-ditable offenses, which generally must con-stitute a criminal offense in both nations. It israre, for example, for a tax offense or aninchoate crime, such as conspiracy, to beextraditable. A second principle, reflected inmost extradition treaties, is the impositionof an obligation on the host country either toextradite or prosecute criminal suspects foundwithin its borders.15 Modern treaties typicallyrequire the contracting nations to provide“the greatest measure of assistance in con-nection with the criminal proceedings,whether that be to extradite or prosecute.”16

For extradition treaties to work effectively,this duty must be exercised, of course, withappropriate diligence.17

U.S. efforts to invoke extradition treatieshave frequently been stymied by a number oflongstanding exceptions. Israel, Mexico, and

many European countries have consistentlyadhered to a policy of refusing to extraditetheir own citizens, a practice that derivesfrom the medieval principle that loyal sub-jects of the crown were entitled to ius de nonevocando, the right not to be withdrawn fromthe jurisdiction and protection of the crown.18

Some countries, most notably Canada andMexico, will refuse to extradite fugitives (evenU.S. citizens) who, on account of their crimes,are subject to the death penalty. The Mexicangovernment further refuses to hand over per-sons potentially subject to life sentences (with-out possibly of parole), making the extraditionprocess south of the border particularly prob-lematic.19

Extradition treaties invariably containanother loophole—the “political of fenseexception”—which has frequently frustratedU.S. law enforcement in its efforts to extraditeforeign terrorists who profess their crimes tobe political in nature.20 The exception, in-tended to apply to true political dissidents, hasoften been applied by politically sympatheticcourts to terrorists who prefer to articulatetheir nostrum of political change throughbombs rather than words, and indeed, thisvery rationale has hindered the extraditionfrom the United States of at least one IRAterrorist.21

The U.S. Department of Justice coordi-nates all foreign extradition requests throughits Office of International Affairs (OIA) which“provides information and advice to Federaland State Prosecutors about the procedure forrequesting extradition from abroad.”22 Everyextradition treaty to which the United Statesis a party requires that a formal request forextradition be forwarded through diplomaticchannels with appropriate supporting docu-mentation to comport with the host coun-try’s due process requirements. Such docu-mentation typically consists of an affidavitfrom the U.S. prosecutor setting forth thefacts underlying the offense as well as infor-mation on the specific crimes allegedly com-mitted and the evidence of their commis-sion.23 In urgent cases, a provisional arrestwarrant may be sought, enabling the hostcountry to apprehend and detain the fugitivepending submission of a formal extraditionrequest.24 If the OIA determines that theoffense and the fugitive are extraditable underthe terms of the treaty, there are few factualdefenses available to the fugitive to resist theextradition process, which generally resultsin the successful extradition of the subjectafter a preferably short delay.

Extradition law generally requires thereceiving nation to try the extradited personsolely on the charges set forth in the extra-dition request. This principle was reaffirmedby the Supreme Court in United States v.


Rauscher.25 Rauscher had been extradited byEngland to the United States pursuant to the1842 Webster-Ashburton Treaty to stand trialfor murder on the high seas. Once the defen-dant arrived in the United States, he wasprosecuted on a related but different charge.Although the treaty did not expressly pro-hibit the United States from varying thecharges against the accused, the Court heldthat the “doctrine of specialty,” which waspart of customary international law, requiredan extraditing government to confine its pros-ecution to the charges for which the individ-ual was surrendered. Consistent with thisprinciple, the Supreme Court held that thetreaty implicitly contained such a require-ment, which was then enforceable by thedefendant.26

Irregular RenditionAlthough extradition is the preferred methodunder settled principles of international law,it obviously does not always work. Indeedthe efficacy of extradition is frequently dimin-ished by political unrest, lack of foreign will(including political resistance borne of cor-rupt influences), or simply the absence of anextradition treaty. Sometimes, the process isjust too time-consuming. Other times politicalcomplications make formal extradition pro-ceedings problematic. When this situationpresents itself, self-help sometimes comesinto play, a concept euphemistically termedirregular rendition.

In short, irregular rendition is borne offrustration caused by the unwillingness of a country upon which a valid extraditionrequest has been made to carry out its inter-national obligations (that is, to prosecute orextradite the fugitive). The historical roots forirregular rendition run deep; indeed the practice goes back further than regular ren-dition—the practice of extradition. In U.S. history, frequent exchanges of prisonersoccurring on the borders of Canada and Mex-ico were the result of such self-help. A noto-rious historical example was the manner by which the United States retrieved JohnSurratt, who was accused of conspiracy inthe assassination of Abraham Lincoln. Surrattwas snatched forcibly by U.S. agents fromAlexandria, Egypt, where he had fled follow-ing the assassination.27

The varieties of irregular rendition fallroughly into three categories:• Transnational forcible abduction. Onesovereign may simply kidnap the culprit seek-ing refuge in a foreign land, an action that isinvariably against the law of the foreign juris-diction. In some cases, the abductee is liter-ally cast over the U.S. border by foreignagents working for or at the direction ofagents of the U.S. government and promptly

taken into custody.• Informal surrender. Without formalprocess, the foreign jurisdiction may simplygrant permission or silently accede to therequesting nation’s demand for the surrenderof the fugitive or it may affirmatively move todeport or expel him or her. This practice,also referred to as disguised extradition,occurs frequently in cases in which the fugi-tive is not a citizen of the host country.28

Handing the fugitive over in this manner hasoccurred with some frequency between theUnited States and Canada.29 An example ofinformal surrender is the February 1995arrest by FBI agents in Islamabad, Pakistan,of international terrorist Ramzi AhmedYousef, the mastermind of the 1993 WorldTrade Center bombing. Yousef was quietlyhanded over to U.S. agents by the Pakistanisand transported the following day to theUnited States without any formal extraditionproceeding or protest.30

• Lures. Tricked by subterfuge or deception,the fugitive may be lured from an extradi-tion refuge to U.S. territory, internationalwaters, or to another country permittingextradition to the United States. Fugitiveshave been enticed back to the United Statesin the past by schemes promising that theywere winners of a prize or sweepstakes or “byinviting a fugitive by telephone to a party inthe United States.”31 A high-profile exampleof a successful lure occurred in 1987 when theFBI and CIA enticed suspected terroristFawaz Yunis, a citizen of Lebanon, into a ves-sel in international waters off the coast ofCyprus under the guise of participating in adrug deal. Once Yunis stepped on board, theFBI arrested him on charges of aircraft piracy,returning him to the United States on U.S.naval craft. Yunis’s jurisdictional challengein district court to the manner of his arrestultimately proved fruitless.32

Transnational forcible abduction—that is,unlawful abduction of international fugitives—is by far the most controversial of the threevarieties of irregular rendition, with the mostnotorious instance probably being the 1960kidnapping of Adolf Eichmann by Israeliagents. Eichmann, one of the principal par-ticipants in Hitler’s Final Solution, fled Europein the aftermath of World War II, eventuallysettling in Argentina under an assumed name.Tracked by his relentless Israeli pursuers,Eichmann was seized one night after he gotoff work at an automobile factory, bundledunto a private plane chartered by the Israeligovernment, and flown to Israel. Argentinavehemently protested the kidnapping as aviolation of its sovereignty, charging that“through its agents, Israel had violated thesovereignty of Argentina.”33 Ultimately, noth-ing came of these protests, and Eichmann

was tried by an Israeli court, convicted, andexecuted in 1962.

Forcible transnational abduction typicallyraises legal issues when a fugitive arrives inthe United States. The defendant may chal-lenge the U.S. court’s jurisdiction, particu-larly when the accused’s physical presencewas the direct result of an illegal abduction ofsome variety and the offended governmentdid not waive the violation. International lawis frequently invoked. Indeed, the Restatementof Foreign Relations Law provides that whenan offended nation makes a demand for anindividual’s return under such circumstances,international law requires that the demand behonored.34

Like Israel in the Eichmann case, U.S.courts have generally ignored this rule. Thus,in Ker v. Illinois,35 the Supreme Court heldthat an otherwise illegal abduction did notdivest the U.S. court of jurisdiction. In thatcase, a fugitive was kidnapped in Peru by a pri-vate security guard despite the existence ofan extradition treaty between the UnitedStates and Peru and the issuance of an extra-dition warrant. Forcibly returned to Illinois fortrial, Ker moved to dismiss the indictment.Holding that the circumstances of Ker’s arrestdid not implicate the defendant’s constitu-tional rights, the Supreme Court stated:“[S]uch forcible abduction is no sufficientreason why the party should not answer whenbrought within the jurisdiction of the courtwhich has the right to try him for suchoffense.”36 On similar facts, the court reaf-firmed this principle nearly a half centurylater in Frisbie v. Collins,37 and the doctrine isnow known as the Ker-Frisbie doctrine.

The Ker-Frisbie doctrine was believed tohave its limits, however. For one thing, inneither case did the sovereign whose ox wasgored, so to speak, complain about the incur-sion on its sovereignty, despite its failure tocarry out the extradition request. Second, inKer the kidnapping was performed by pri-vate agents and was not sanctioned (which isto say, not aided or endorsed) by govern-ment agents. Moreover, in United States v.Toscanino,38 the Second Circuit imposed animportant qualification on the wide latitude ofthe Ker-Frisbie doctrine.

In that case, the fugitive, an Italian citizenliving in South America, was kidnapped inMontevideo, Uruguay, and transported toBrazil, where he was tortured for weeks whilesubjected to prolonged interrogation. He wasthen drugged and flown against his will to theUnited States to stand trial on drug charges,all of this done allegedly with the complicity,if not direct involvement, of U.S. agents. Thecourt refused to af firm jurisdiction overToscanino based on the patent uncon-scionability of these circumstances viewed


in total. Nevertheless, the fol-lowing year a different panel ofthe same court of appeals nar-rowed Toscanino, holding inUnited States ex rel Lujan v.Gengler,39 that, absent allega-tions of brutality by U.S. gov-ernment agents, an illegalabduction alone was insufficientto divest the trial court of juris-diction. The cour t thus re-stricted Toscanino’s applicationto instances of “shocking gov-ernmental misconduct.” TheToscanino exception, moreover,has never been endorsed by the Supreme Court and wasrejected outright by the SeventhCircuit in Matta-Ballesteros v.Henman.40

In 1992, the limits of Ker-Frisbie were stretched furtherby the strange case of Dr.Humberto Alvarez-Machain,41

a Mexican physician who wasabducted at gunpoint from hismedical office in Guadalajara,Mexico, and flown in a privateplane to El Paso, Texas, wherehe was arrested by DEA agentswho had procured his indict-ment for crimes allegedly com-mitted in Mexico.

The Machain case is anexcellent example of the legalmaxim that hard cases make bad law.Ultimately U.S. authorities prosecuted 19 peo-ple, including high-ranking Mexican politi-cians, police officers, narcotics traffickers,and Machain, for the grisly 1985 kidnapping,torture, and murder of DEA special agentEnrique Camarena-Salazar and his pilot inMexico. Seven persons ultimately were con-victed, all in U.S. federal courts.42 Theseheinous crimes committed against a U.S. offi-cer brought the full weight of the U.S. gov-ernment to bear on the prosecutions. As onefederal prosecutor later wrote, “It is concededthat Alvarez-Machain was abducted by Mex-ican police officers who were acting at the re-quest of the DEA,” just as it was clear to U.S.authorities that Machain had assisted in theagent’s interrogation by Mexican drug lords“by administering medication to Special AgentCamarena to revive him and to keep himalive so he could be further tortured andinterrogated.”43 Despite these extraordinaryfacts, the Mexican government moved neitherto extradite Machain nor to prosecute him orhis coconspirators.44 This international intran-sigence was simply too great for the U.S. gov-ernment, in particular for U.S. law enforce-ment and the DEA, so plans were made to

bring the principal of fenders, includingMachain, before U.S. courts by any meansnecessary, even if that meant creating aninternational incident with Mexico—which, ofcourse, it did.

Predictably enough, Machain moved todismiss the indictment, claiming that the dis-trict court lacked jurisdiction to try himbecause his forcible abduction at the handsof U.S. agents violated the United States-Mexico Extradition Treaty, violated interna-tional law, and, unlike Ker, was the subject ofa formal diplomatic protest by the Mexicangovernment.45 Machain argued that Article 9of the treaty set forth the exclusive means bywhich the United States could gain custody ofa fugitive in Mexico, and that the UnitedStates deliberately violated the treaty when itelected to take Machain by force. Under thetreaty, neither country is duty-bound to extra-dite its nationals, and if Mexico chose not toprosecute him, Machain argued, the UnitedStates was without remedy—and, notablywithout justice. Accepting this argument,District Court Judge Edward Rafeedie dis-missed the indictment and ordered Machain’srepatriation to Mexico. The Ninth Circuitaffirmed.46

The Supreme Cour t re-versed the repatriation order inan opinion by Chief Justice Wil-liam Rehnquist. The SupremeCourt’s analysis turned on twofundamental issues: first, wheth-er the U.S. government violatedthe treaty with Mexico by theadmittedly unlawful abductionof Machain by U.S. agents, and,second, regardless of the treaty,whether the defendant couldraise a jurisdictional challengebased upon his abduction in vio-lation of international law.Applying a literalist and text-specific approach to the firstquestion, the Supreme Courtanalyzed the United States-Mexico Extradition Treaty, con-cluding that the treaty merelyprovided a means, but not anexclusive one, of obtaining juris-diction over a fugitive. Accor-dingly, the Supreme Court heldthat the U.S. government didnot violate the extradition treatywhen it chose to ignore it. Thetreaty, thus “provides a mecha-nism which would not other-wise exist…and establish[es]procedures to be followed whenthe treaty is invoked.”47 Theseprovisions, the Supreme Courtheld, were permissive rather

than exclusive or mandatory: The UnitedStates was not “prohibited” by the treaty fromacts of irregular rendition or other extralegalmeans of removing a wanted fugitive fromMexico.

Although the Court appeared to recog-nize that the kidnapping was “shocking” (atleast to Mexico) and potentially occasioned a“violation of general international law princi-ples,” the Court held that Machain’s “abduc-tion was not in violation of the ExtraditionTreaty between the United States andMexico.” Since the treaty was not violated, theCourt saw no need to analyze the secondquestion about the violation of internationallaw, finding that issue to be controlled byKer. “The fact of respondent’s forcible abduc-tion does not therefore prohibit his trial in acourt in the United States for violations ofthe criminal laws of the United States.”48

The Machain decision has generated agreat volume of scholarly and internationallegal discourse, much of it harsh, nearly all ofit critical. Professor (now Undersecretary ofthe Treasury) Jimmy Gurule has defendedthe practice and the court’s decision aptly:

International law [also] imposes a dutyon the state [Mexico] to protect the


safety of foreign individuals within itsborders—here, Special AgentCamarena.…A state is required to actwith “due diligence” to prevent thecommission of acts of violence and ter-rorism within its jurisdiction…[andwhile the right of territorial sovereigntyis impor tant] it is not absolute.Customary international law recog-nizes the right of a nation to interveneto protect the safety of its nationalsabroad.49

Gunboat ExtraditionThe third type of rendition self-help is militaryin nature—literally sending in the 82ndAirborne, as the Supreme Court appeared toanticipate in Verdugo-Urquidez. Direct mili-tary action in the form of invasions, coerciveuse of military force, and the involuntaryremoval of individuals charged with criminalactivity in the United States was used infre-quently in the last century, although this tac-tic has shown increasing favor in the battleagainst terrorists and narcoterrorists and therogue states supporting them. Direct mili-tary action has the benefit of being fast anddecisive. Appeals are rare. Sovereignty issuesarise, of course, but in some cases the sov-ereign is unable to muster a protest.

In 1985, faced with a lack of internationalassistance in apprehending the hijackers ofthe ocean liner Achille Lauro who killed U.S.citizens in committing their crimes, the UnitedStates resorted to a military option, deployingAmerican fighter jets to intercept an Egyptianaircraft carrying the hijackers away fromtheir crime and divert the plane to Italy, wherethe terrorists were taken into custody.

In 1989, the military option was chosenagain, this time to reach into a sovereign for-eign nation and extract a narcoterrorist whojust happened also to be the head of state:General Manuel Antonio Noriega of Panama.U.S. military forces invaded Panama onDecember 20, 1989. Noriega sought refuge inthe Vatican Embassy in Panama City onChristmas eve, eventually surrendering toU.S. troops who controlled the capital. TheUnited States gave three reasons for its inva-sion of Panama: 1) to capture Noriega and pro-duce him for trial in the United States on asealed indictment, 2) to protect Americanlives, and 3) to protect U.S. interests in thecanal.50 Whatever the justification, like theTaliban and al Qaeda fighters removed fromAfghanistan more than 10 years later byAmerican armed forces, Noriega was swiftlydelivered to U.S. jurisdiction. Once in theUnited States, Noriega sought to dismiss thevarious indictments lodged against him, argu-ing that, as the deposed former head of state,he could not, under principles of sovereign

immunity, be prosecuted. He further con-tended that he was a political prisoner broughtforcibly and illegally before the jurisdiction ofa U.S. court.

The district court rejected Noriega’sclaims, and on appeal the Eleventh Circuitaffirmed. Rejecting Noriega’s claim to sov-ereign immunity under the Foreign SovereignImmunities Act,51 the court held, with a touchof irony, that the executive branch had “man-ifested its clear sentiment that Noriega shouldbe denied head-of-state immunity.”52 The courtalso rejected Noriega’s claim that his prose-cution should have been foreclosed becausehe was “brought to the United States in vio-lation of the Treaty Providing for the Extra-dition of Criminals” between the United Statesand Panama, ruling that this challenge wasforeclosed by Machain.53 Finally, Noriegaargued the direct military means by which hewas brought to the United States—a “militaryinvasion”—constituted outrageous and uncon-scionable conduct sufficient to “shock thejudicial conscience,” thus implicating dueprocess rights. The court rejected this con-tention as well, finding that Noriega’s dueprocess claim was controlled “by Ker-Frisbiedoctrine, which holds that a defendant cannotdefeat personal jurisdiction by asserting theillegality of the procurement of his pres-ence.”54 So even a military invasion, it seems,will not serve to block the prosecution of adefendant once the abducted fugitive arrivesin the United States.

Employment of abduction or similar meth-ods—rendition by paratrooper—raises seri-ous ethical, diplomatic, and legal concernsthat are rooted, at least, in international law.Undoubtedly, it will not be difficult to musterdomestic support for such exceptional mea-sures in the wake of the September 11 ter-rorist attacks on the United States. Indeedevery indication is that Americans favorstrong and decisive action. Few would objectto American agents abducting Osama binLaden and transporting him back to theUnited States for trial if he were to be foundin a country not amenable to extradition, andit is clear that absent truly outrageous behav-ior on the part of U.S. agents involved in theabduction, U.S. courts will not entertain dueprocess or other constitutional challenges tothe manner by which the terrorists arebrought before a U.S. court. Indeed, recentstatements by Chief Justice Rehnquist indi-cate a receptivity of the courts to bend con-stitutional protections in times of war. “One isreminded,” the chief justice remarked to agroup of federal judges, “of the Latin maxim,inter arma silent leges. In time of war, thelaws are silent.”55

Irregular rendition, therefore, may turnout to be the best weapon of the United States

in the war against terrorism. As powerful aweapon as it is, however, it is worthwhile topause and consider the political and diplo-matic costs of its rapid deployment beforeutilizing such methods to bring terrorists tojustice in the United States. At the very least,U.S. forces, military and prosecutorial, shouldexhaust all extradition efforts and all availablechannels of diplomatic relief before resortingto drastic measures of self help.

Failure to do so on a regular and system-atic basis could undermine U.S. foreign pol-icy and the nation’s professed adherence tothe rule of law, just as Israel paid dearly indiplomatic capital for its abduction of Eich-mann in 1960. Israel’s cause then was no lessjust, no less compelling, than the need of theUnited States to secure justice in U.S. courts.As compelling as the need appears to be to dojustice by these heinous terrorists, when thelaw falls silent—even if only temporarily qui-eted by the exigencies of war—because theends are perceived to be grave, the law isweakened, and so with it our fundamentalliberties. ■

1 See Federal Aviation Amendments of 1961, 49 U.S.C.§1472 (1988); Anti-Hijacking Act of 1974, 49 U.S.C.app. §1472.2 Comprehensive Crime Control Act of 1984, 18 U.S.C.§1203.3 Omnibus Diplomatic Security and Antiterrorism Actof 1986, 18 U.S.C. §2332.4 See The Antiterrorism and Effective Death Penalty Actof 1996, 18 U.S.C. §§2339A, 2339B. Walker is chargedwith, among other things, providing “material supportand assistance” to organizations designated as “ter-rorist” by the Secretary of State under 8 U.S.C. §1189.Providing such “material support or services” is allegedby the government in that case to include providing“personnel” or personal services in a foreign country,arguably a broad assertion of jurisdictional authority.5 See U.S. DEPARTMENT OF JUSTICE, DEA BRIEFING BOOK,available at http://www.usdoj.gov/dea/pubs/briefing/7.htm.6 See http://www.fbi.gov/contact/legat/legat1.htm.7 See RESTATEMENT (THIRD) OF FOREIGN RELATIONS §433cmt. a.8 United States v. Verdugo-Urquidez, 494 U.S. 259, 275(1990).9 Id. at 274 (internal citations omitted).10 See John G. Kester, Some Myths of United StatesExtradition Law, 76 GEO. L. J. 1441, 1454 (1988).11 See United States v. Rauscher, 119 U.S. 407, 411(1886) (observing that practice of extradition rested ontreaty obligations and principles of international comity).12 Id. at 418.13 Extradition has not always been used for morallyworthwhile purposes, however. In the United States,early extradition cases were the product of efforts toforcibly return fugitive slaves to the United States fromMexico. See ETHAN A. NADELMAN, COPS ACROSS BORDERS:THE INTERNATIONALIZATION OF UNITED STATES CRIMINAL

LAW ENFORCEMENT 33-45 (1993).14 Bilateral extradition treaties to which the UnitedStates is a party are set forth in the table following 18U.S.C. §3181.15 For example, three broad-based international treatiesspawned by the aircraft hijacking epidemic of the 1970sand the 1979 takeover of the U.S. Embassy in Iran—the


Convention for the Suppression of Unlawful Seizure ofAircraft, 1971, art. 7, 22 U.S.T. 1641, 1646 [hereinafterHague Convention], the Convention for the Suppressionof Unlawful Acts Against the Safety of Civil Aviation(Sabotage), 1971, art. 7, 24 U.S.T. 565, 571 [hereinafterMontreal Convention], and the International ConventionAgainst the Taking of Hostages, 1978, art. 8, 18 I.L.M.1456, 1460 [hereinafter Hostages Convention]—allrequired the host country to either extradite or prose-cute the offender on the charges pressed by the request-ing country.16 See The Hague Convention, art. 6, 22 U.S.T. 1645-46;Montreal Convention, art. 6, 24 U.S.T. 570.17 In Laura Janes (U.S.A.) v. United Mexican States, 4Rep. Int’l Arb. Awards 82, 86-87 (1925), a case that pre-sented parallels with the murder 50 years later of DEAAgent Enrique Camarena-Salazar, the United Statesalleged that Mexican authorities had multiple eyewit-nesses to the murder of a U.S. citizen in Mexico but didnothing to apprehend the suspect, who fled the sceneon foot. In an arbitration between the two countries, theMexican government was found liable for “not havingmeasured up to its duty of diligently prosecuting andproperly punishing the offender.”18 Michael Plachta, (Non-) Extradition of Nationals: ANever-ending Story? 13 EMORY INT’L L. REV. 77, 82(1999).19 See Killers Slip Away to Mexico, LOS ANGELES TIMES,May 27, 2002, at 1.20 See BARBARA M. YARNOLD, INTERNATIONAL FUGITIVES

16-17 (1991).21 See e.g., Quinn v. Robinson, 783 F. 2d 776 (9th Cir.1986) (IRA terrorist claimed that his extradition onmurder charges qualified under a political offenseexemption.).22 U.S. DEPARTMENT OF JUSTICE, U.S. ATTORNEY’S MANUAL

9-15.210.

23 Id. at 9-15.240.24 Id. at 9-15.230.25 United States v. Rauscher, 119 U.S. 407 (1986).26 Id. at 430-31; see U.S. ATTORNEY’S MANUAL, supra note22, at 9-15.500 (pointing out that in some cases a vari-ance in the charges presented in the U.S. may be“waived” by the sending state).27 Surratt admitted joining a Confederate conspiracy toabduct President Lincoln but denied any complicity inthe president’s assassination, a charge that was ulti-mately tried to a hung jury.28 This method is recognized and accepted by the U.S.Department of Justice. See U.S. ATTORNEY’S MANUAL,supra note 22, 9-15.610.29 Paul Mitchell, English-Speaking Justice: EvolvingResponses to Transnational Forcible Abduction afterAlvarez-Machain, 29 CORNELL INT’L L. J. 383, 392 n.25(citing cases) (1996).30 See FEDERAL BUREAU OF INVESTIGATION, U.S. DEPART-MENT OF JUSTICE, TERRORISM IN THE UNITED STATES 9, 14(1997).31 Id., see also U.S. ATTORNEY’S MANUAL, supra note 22,at 9-15.630. Some countries, however, will not permitextradition if the defendant’s presence was procured bydeception or subterfuge. Id. at 9-15.620.32 See United States v. Yunis, 859 F. 2d 953 (D.C. Cir.1988).33 INTERNATIONAL FUGITIVES, supra note 20, at 53. TheIsraeli action received widespread international criticismas well and resulted in a U.N. Security Council resolu-tion condemning it. Id. at 56.34 See RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS

LAW OF THE UNITED STATES §432 cmt. c (1987).35 Ker v. Illinois, 119 U.S. 436 (1886).36 Id. at 444.37 Frisbie v. Collins, 342 U.S. 519, 522 (1952).38 United States v. Toscanino, 500 F. 2d 267 (2d Cir.),

reh’g denied, 504 F. 2d 1380 (2d Cir. 1974).39 United States ex rel Lujan v. Gengler, 510 F. 2d 62 (2dCir.), cert. denied, 421 U.S. 1001 (1975).40 Matta-Ballesteros v. Henman, 896 F. 2d 255, 263 (7thCir.), cert. denied, 111 S. Ct. 209 (1990) (Defendant’s kid-napping, torture, and delivery from Honduras to theUnited States created no due process violation or juris-dictional bar.).41 United States v. Alvarez-Machain, 504 U.S. 655 (1992).42 See United States v. Caro-Quintero, 745 F. Supp. 599,601-02 (C.D. Cal. 1990).43 Jimmy Gurule, Terrorism, Territorial Sovereignty,and the Forcible Apprehension of International CriminalsAbroad, 17 HASTINGS INT’L & COMP. L. REV. 457, 462(1994).44 Id. at 471-72.45 The Mexican government not only protested the ille-gal kidnapping and violation of its sovereignty, it peti-tioned the United States to extradite the lead DEAagent who directed the operation and took Machain intocustody when he reached the U.S.46 United States v. Alvarez-Machain, 946 F. 2d 1466(9th Cir. 1991), rev’d, 504 U.S. 655 (1992).47 Id., 504 U.S. at 665-66 (emphasis added).48 Id. at 663.49 Gurule, supra note 43, at 468.50 See United States v. Noriega, 117 F. 3d 1206 (11th Cir.1997).51 The Foreign Sovereign Immunities Act, 28 U.S.C.§§1602-1611.52 Noriega, 117 F. 3d at 1212.53 Id. at 1214.54 Id. (quoting United States v. Darby, 744 F. 2d 1508,1530 (11th Cir. 1984)).55 David G. Savage, Historically, Laws Bend in Time ofWar, Rehnquist Says, LOS ANGELES TIMES, June 15, 2002,at A22.


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On September 11, 2001,the world saw twoplanes crash into twodif ferent buildingsat New York’s WorldTrade Center some 16minutes apart, ignit-

ing two separate fires and ultimately resultingin the collapse of each of those buildings andcausing damage to other buildings in thevicinity. The world also learned of a planecrashing into a field in Pennsylvania and sawanother plane crash into the Pentagon. Fourplanes had been hijacked, belonging to twodifferent airlines leaving three different air-ports with two cities as their destinations.The destruction of the WTC and its continu-ing aftermath was transmitted globally, live

and nonstop, via television and other media,for the whole world to see.

The collapse of the WTC towers createdreverberations both near and far. Not onlywere businesses near ground zero affectedbut businesses throughout the country feltthe effects of the collapse, with many suffer-ing losses resulting from the interruption ofbusiness operations and the imposition ofcivil authority.

What exactly did the world see that day?Was the loss at the WTC towers, and theresulting damage, attributable directly or indi-rectly to one series of similar causes? Or wasthe loss and damage at each tower attributableto two separate and dissimilar causes? Can anevent be one thing to the general public andanother thing for insurance purposes? And

does the distinction make a difference? Whatinsurance is applicable to these losses? Whatrights, duties, and obligations do the insurersof the affected properties and persons haveto their policyholders? The answers lie inhow the applicable insurance contracts arephrased, interpreted, and applied.

The property insurance claims and suitsthat have emanated from the events ofSeptember 11 vary in scope. For claims and


Jean M. Lawler is a senior partner of Murchison& Cumming and chair of the firm’s insurancelaw and risk management practice group. Sheis secretary-treasurer of the Federation of Defenseand Corporate Counsel. Kenneth E. Goates ischair of Murchison & Cumming’s property in-surance and fraud investigations practice group.

Insurance coverage for the events of September11 will hinge upon the interpretation of often

ambiguous policy language

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suits involving the WTC, parties have raisedissues regarding whether the WTC towersmust be rebuilt before policy benefits arepayable, or whether monies can be paid asexpenses are incurred. Other suits havesought to adjudicate whether New Yorkcourts have jurisdiction over Bermuda insur-ers and whether arbitration in London couldbe enforced.1

Several of the WTC suits involve “occur-rence” issues under contracts of insurancethat were either not issued or not fully nego-tiated as of September 11.2 These, in partic-ular, have captured the imagination of thelegal and insurance communities with theintellectual aspects of the contractual issuespresented.

There are claims arising from damagedbuildings in the vicinity of the WTC. Mold inventilation systems of damaged buildings,having been opened to the elements, is a con-cern. Business owners just outside the des-ignated WTC prohibited zones in lowerManhattan worry about how they can keeptheir doors open, while businesses just acrossthe street and inside a prohibited zone maystill be unable to open.3 Hotels located in far-ranging locations, such as Louisiana, havefiled suit or are reported to have submittedclaims for business interruption losses.4

Billions of dollars are at stake.

One Occurrence or TwoIn October 2001, the first WTC insurancecoverage action was filed in the U.S. DistrictCourt for the Southern District of New York.5

Other suits involving the WTC property andits insurers followed soon thereafter in thesame court.6 These cases have been consol-

idated and are being handled by the samejudge. The trial date has been set for Nov-ember 15, 2002.

To understand the complexity of the insur-ance issues in these lawsuits, it is necessaryto examine the scope and nature of the insur-ance program that was being negotiated forthe WTC properties as of September 11. Incour t proceedings, the WTC has beendescribed as “a complex of seven commercialbuildings. The Port Authority owns Buildings1 through 6 and the underlying land, theretail mall underneath the complex, and theground beneath Building 7.”7 The Por tAuthority of New York and New Jerseyentered into a 99-year lease with various enti-ties controlled by Larry Silverstein on orabout July 16, 2001.8 The entities that leasedthe WTC properties from the Port Authorityare referred to by the court as the SilversteinParties.

The WTC property insurance programinvolves more than 20 insurance companiescollectively providing $3.5468 billion in peroccurrence limits, with a primary level of $10million per occurrence and 11 excess layers.9

Despite a projection that $5.05 billion in insur-ance would be necessary “both to replacethe buildings and cover the group’s rentalincome losses in the event of a catastrophicloss,” the insurers contend that the “lesseesinstead bought insurance almost sufficientto rebuild without regard to any possible lossof rental income.”10 Nonetheless, according tothe Silverstein Parties, this was the largestproperty insurance program ever issued ona single real estate complex, and theSilverstein Parties’ broker, Willis Limited,has been said to have “canvassed the world’s

insurance markets to place first party prop-erty coverage for their leasehold.”11

Primary policies for the property coverageprovided by The Travelers Indemnity Com-pany were initially issued on or about Sep-tember 14, 2001.12 SR International BusinessInsurance Co., Ltd.—referred to as SwissRe—is an excess insurer participating in theWTC insurance program. Swiss Re agreed“based upon the terms of signed placingslips…to underwrite 22% of the lessee’s cov-erage, excess of the primary $10 millionlayer.”13

Swiss Re claims that in June 2001, itsunderwriters received an underwriting sub-mission and placing slip from Willis.14 It con-tends that the underwriting submission con-tained the proposal of coverages, terms, andconditions for the Silverstein Parties’ interestsas lessees of the WTC and that the placingslip, which identified the terms of the cover-ages that Silverstein was seeking, was sub-mitted with a proposed policy form, the“WilProp form.”15

The proposed WilProp form included an“occurrence” definition providing that lossesattributable to any cause or series of causeswould be subject to a single occurrence limit.16

Specifically, the proposed occurrence lan-guage in the WilProp form provided:

Occurrence shall mean all losses ordamages that are attributable directlyor indirectly to one cause or one seriesof similar causes. All such losses willbe added together and the total amountof such losses will be treated as oneoccurrence irrespective of the periodof time or area over which such lossesoccur.17

Travelers agreed to participate in the pri-mary level of insurance and in various excesslevels, conditioning its willingness to do soupon it being the lead underwriter using itsown form of policy for property insurance—“the Travelers’ form”—rather than theWilProp form.18 Nonetheless, Travelersasserts that the WilProp form was the basisnot only for its decision to issue its policy butalso for the language in the deductible por-tion of its policy. Therefore Travelers, like theother insurers, is arguing that the attack onthe WTC constitutes only one occurrencedue to policy language, New York law, and theintentions of the parties as evidenced by theWilProp form.

As the representative of the SilversteinParties, Willis is alleged to have acceptedthe Travelers’ position as the lead under-writer and to have adopted the Travelers’form as the form policy, subject to some fur-ther modifications reflecting exposuresunique to the WTC.19 In this regard, theSilverstein Parties contend that “once the


U .S. District Judge John S. Martin Jr., in his Opinion and Order denying the Silverstein Partiesmotion for summary judgment in World Trade Center Properties v. Travelers IndemnityCompany,1 asked, “Is the term ‘occurrence’ ambiguous?” The judge continued, ”As Justice

Holmes noted more than 80 years ago, ‘A word is not a crystal, transparent and unchanged, it is theskin of a living thought and may vary greatly in color and content according to the circumstances andthe time in which it is used.’” The judge also supplied his own answer: “The history of litigation overthe meaning of the term ‘occurrence’ amply demonstrates that its meaning is far from unambiguousand must be divined from the particular context in which it is used.”

Earlier in his opinion, the judge noted, “Several hundred years ago, Lord Chief Justice Cokeobserved that truth is ‘the mother of justice.’” Judge Martin continued, “Our system of justice isfounded on the principle that litigation is to be a search for the truth; it is not some type of intellectualgame that is circumscribed by the inflexible rules that define it.”The judge’s conclusion was unambiguous.“While the Court is not unmindful of the Silverstein Parties’ interest in obtaining a prompt decision con-cerning the amount of money the insurers will have to contribute to the rebuilding of the World TradeCenter, that interest cannot outweigh the interest of justice in insuring that the true extent of that lia-bility is fairly and accurately determined.”—J.M.L. & K.E.G.

1 World Trade Ctr. Props. v. The Travelers Indem. Co., 01 CV 12738 (S.D. N.Y., filed Dec. 28, 2001), Opinion & Order DenyingPlaintiffs’ Motion for Summary Judgment (June 3, 2002).

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lead underwriter has been designated, it iscustomary that the co-insurers and excessinsurers will ‘follow the form’ of the leadunderwriter with respect to the terms of theirown coverage.”20

The Silverstein Parties have taken theposition that because the Travelers’ form con-tained no special or expanded definition of“occurrence,” it therefore left the term to beinterpreted and applied in accordance withNew York law. The Silverstein Parties con-tend, “Under New York law, absent any lan-guage to the contrary, an ‘occurrence’ isdefined as the immediate unfortunate eventresulting in a loss—and not any more remotecause, plot or scheme that may lie behind orbring about the immediate cause.”21

Swiss Re filed the initial coverage action,naming World Trade Center Properties, var-ious Silverstein and Westfield entities, thePort Authority of New York and New Jersey,and others with property interests in theWTC buildings as defendants, seeking a dec-laration of rights and duties of the parties tothe Swiss Re share of the insurance pro-gram.22 There is no issue about whether therewas in fact an agreement to provide insur-ance. Swiss Re specifically acknowledges inits complaint that “Swiss Re is prepared tohonor its insurance obligations following theSeptember 11 attack based upon insurancepolicy language provided by Mr. Silverstein’srepresentatives [Willis] at the time Swiss Reagreed to underwrite the property insurancefor the World Trade Center.”23 However, be-cause “there is insufficient insurance to bothrebuild the World Trade Center and to fundyears of rent interruption” and “the potentialpayment to the Silverstein group for years oflost rental income could erode coverage towhich other insureds under the policy areentitled for purposes of rebuilding,” Swiss Rerequests a declaration of rights.24

The primary question that the court hasbeen asked to address in connection withthese coverage actions is whether the prop-erty damage at the WTC resulted from oneoccurrence or two. The answer to this ques-tion will resolve the issue of the amount thatthe Silverstein Parties are entitled to recoverfrom its property insurers—that is, will theirrecovery consist of the maximum amountfor one occurrence or two.

Swiss Re, Travelers, and the other insur-ers have asserted that in accord with the pro-visions of the WilProp form, the intent of theparties dictate that the September 11 loss atthe WTC is the result of one occurrence, soonly the one occurrence limit of $3.5468 bil-lion is applicable. Swiss Re contends that itand Willis had exchanged a revised placingslip that incorporated various Swiss Re mod-ifications to the proposed WilProp terms,

making Swiss Re’s agreement to the terms ofthe insurance coverage a condition of itsobligation to the insured.25 In particular, SwissRe asser ts that as of September 11,“Willis…had represented to Swiss Re in itsunderwriting submission that [the WilProplanguage] would be the starting point for anySwiss Re policy.”26

The Silverstein Parties, on the other hand,have taken the position that their interpreta-tion of New York law on the meaning of“occurrence,” and their insistence that thelack of an “occurrence” definition in the Trav-elers policy should apply to the other policies,must result in a determination that therewere two occurrences and thus the limits fortwo occurrences (approximately $7.1 billion)should be available to the Silverstein Partiesin connection with their loss.

This issue of one occurrence or two isnot a simple matter of how many planes hithow many buildings and started how manyfires. The answer lies in whether the courtfinds the WilProp form to be the basis for allthe policies, including the Travelers policy,and if so, how the court then applies thewording of the form. Simply stated, this issueas to the number of occurrences is contrac-tually driven. To be resolved by the applica-tion of New York law, evidence regardingunderwriting negotiations and expectations ofthe parties regarding the terms and condi-tions of the insurance contracts has beenheld relevant to the determination of whetherthe WilProp form should be applied or ifthere is some other definition of “occurrence”that might be more reasonably applied. Onceit has been determined what specific policylanguage was negotiated and/or intended,the focus will move to applying the facts of theloss to the particular language adjudged to bepart of each particular insurance contract.(It should be noted that in other suits, theSilverstein Parties are reported to havereached settlements and agreed that onlyone occurrence payment is due.27)

This process invokes the universal thresh-old question regarding contract disputes:How is the contract to be interpreted? NewYork is a state that adheres to the general rulethat “courts will not look behind the plainmeaning of the words of a contract, no mat-ter how strong the extrinsic evidence thatthe parties intended something other thanthat which is indicated by their words.”28

However, “if the contract language is am-biguous, then the courts should look to extrin-sic evidence to determine the true intent ofthe parties.”29 Further, “[a] term is ambigu-ous when it is capable of more than one mean-ing when viewed objectively by a reasonablyintelligent person who has examined the con-text of the entire integrated agreement and


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1. How many buildings comprise the WorldTrade Center?

A. 2.B. 7.C. 6.D. 10.

2. Who owns the World Trade Center?A. The Silverstein Partners.B. The Port Authority of New York andNew Jersey.C. The city of New York.D. Citibank.

3. What is the amount of the primary level ofinsurance for the World Trade Center propertyinsurance program?

A. $1 million.B. $2 million.C. $5 million.D. $10 million.

4. What are the limits per occurrence for theWorld Trade Center property insurance pro-gram?

A. $1.555 billion.B. $3.5468 billion.C. $4.023 billion.D. $5.05 billion.

5. What is at issue in the World Trade Centeroccurrence coverage actions?

A. The WilProp form.B. The Travelers policy.C. A and B.D. None of the above.

6. Has the U.S. District Court for the SouthernDistrict of New York found the term “occur-rence” ambiguous?

Yes.No.

7. How does a court determine the meaningof a term that is not defined in the policy?

A. The court consults a dictionary andlegal authorities.B. The court examines the mutual intentof the parties.C. Prayer.D. A and B.

8. In a typical business interruption policy,there must be direct physical loss to coveredproperty.

True.False.

9. In a typical business interruption policy, thecause of loss or damage must be a coveredcause of loss.

True.False.

10. How far from the described premises cana vehicle be located for the loss of personalproperty within the vehicle to be covered by abusiness interruption policy?

A. 10 feet.B. 50 feet.C. 75 feet.D. 100 feet.

11. Under a typical business interruption pol-icy, will damage at a remote, unrelated sitetrigger business interruption coverage?

Yes.No.

12. What type of insurance may provide cov-erage for business interruption when there isdamage at a remote location?

A. The Wilprop form.B. The Travelers policy.C. Contingent business interruption.D. An all-risk policy.

13. What must be prevented in order for civilauthority coverage to apply?

A. Access to the described premises.B. Access to the neighbor’s premises.C. Access to police.D. Access to the fire station.

14. Who or what must prevent access to thedesignated premises in order for civil author-ity coverage to apply?

A. The insured.B. Civil authority.C. Tenants.D. Lawyers.

15. In order for the typical business interrup-tion coverage to apply, there must be:

A. Actual loss of income.B. Suspension of operations.C. Damages to covered property.D. All of the above.

16. What is the primary issue regarding civilauthority coverage before the court in 730Bienville Partners v. Assurance Company ofAmerica?

A. Physical damage to covered property.B. Liability of the airlines.C. The reasonableness of the airportshutdown order.D. All of the above.

17. Was there a civil authority order in effectnear ground zero, with prohibited or restrictedaccess zones?

Yes.No.

18. When does business interruption coverageend?

A. When the “period of restoration”ends.B. When the national state of emergencyis declared over.C. When the local government makes adecision that the interruption of businessis over.D. All of the above.

19. When does extra expense and civil author-ity coverage begin?

A. Upon the action taken by the civilauthority in prohibiting access to the de-scribed premises.B. On the date of direct physical loss.C. 72 hours after the civil authority pro-hibits access to the described premises.D. None of the above.

20. Extra expense and civil authority coverageends 1) three consecutive weeks after the civilauthority prohibits access to the describedpremises, or 2) when the insured’s businessincome coverage ends; whichever is later.

True.False.


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who is cognizant of the customs, practices,usages and terminology as generally under-stood in the particular trade or business.”30

With this as the threshold, on June 3,2002, in the first substantive legal opinion toemanate from the consolidated WTC cases,the trial judge in World Trade Center Propertiesv. The Travelers Indemnity Company found the term “occurrence” to be ambiguous. Hisruling applies to each of the occurrence-related WTC cases. (See “What’s in a Word,”page 40.) Thus the interpretation and appli-cation of the insurance contracts at issue will be made after consideration of extrinsicevidence:

In sum, none of the relevant casescompels a finding that the term “occur-rence” has such an unambiguousmeaning that, in its search for truth,justice should blind itself to the wealthof extrinsic evidence concerning theparties’ intentions that is available inthis case. This includes the specificdefinition of the term “occurrence” cir-culated by the insurance agent for theSilverstein Parties, testimony and doc-uments relating to the negotiationsprior to September 11th and the over-all structure of the insurance programfrom the WTC, and testimony and doc-umentary evidence concerning state-ments made after September 11th bythose who had been involved in nego-tiating the insurance contracts, inwhich they expressed their views onthe question of whether there had beenone or two occurrences.31

The judge’s opinion is similar to Californiaauthority on this issue, albeit from a slightlydifferent perspective. For example, in a caseinvolving the number of occurrences to beapplied under a property policy in a situationinvolving 653 thefts of diesel fuel from a pump-ing facility by tanker truck drivers over an 11-month period, a California appellate courtgrappled with “what meaning is to be giventhe undefined term ‘occurrence’, and couldthese thefts constitute only one occurrence soas to require application of a single deductiblerather than one for each of the six hundredfifty-three thefts?”32

The California court, like the Travelerscourt, first approached the threshold questionof contract interpretation before moving to thequestion of whether the undefined term“occurrence” was ambiguous:

The principles which govern the inter-pretation of insurance contracts areboth familiar and well settled. Understatutory rules of contract interpreta-tion, the mutual intention of the partiesat the time the contract is formed gov-erns interpretation. (Civ. Code § 1636.)

Such intent is to be inferred, if possi-ble, solely from the written provisionsof the contract. The “clear and explicit”meaning of these provisions, inter-preted in their “ordinary and popularsense,” unless “used by the parties ina technical sense or a special meaningis given to them by usage” (Civil Code§ 1644) controls judicial interpretation.(Civil Code § 1638.)….This relianceon common understanding of languageis bedrock. Equally important are therequirements of reasonableness andcontext. An insurance policy provisionis ambiguous when it is capable of twoor more constructions both of whichare reasonable.…[L]anguage in a con-tract must be construed in the contextof that instrument as a whole, and inthe circumstances of that case….”33

After referring to dictionary definitionsof “occurrence” and the manner in which theterm is defined in liability policies, the courtdetermined that the question of whether“occurrence” was an ambiguous term couldnot be resolved by reference to the ordinaryand everyday usage of the word. The courtthus concluded:

[W]e must interpret the term “occur-rence” in context, with regard to itsintended function in the policy. As usedin the policy, the term “occurrence”reasonably contemplates that multipleclaims could, in at least some circum-stances, be treated as a single occur-rence or loss. It appears reasonable tous that the term “occurrence” as usedin the deductible clause is effectivelyreferring to a loss. In our view…mul-tiple claims, all due to the same causeor a related cause, would be consid-ered a single loss….34

The matter was reversed and remanded tothe trial court for a determination as towhether there was “an organized and sys-tematic scheme [regarding] its diesel fuelproducts.” The court held that if such ascheme were to be established, the theftswould be treated as one single occurrence.

In considering this question of whether aseries of acts constituted a single occurrenceor multiple occurrences, the California courtlooked to the cause of the loss, with a par-ticular focus on the ruling in a factually sim-ilar Third Circuit case.35 In that case, the trialcourt had held that thefts “constituted oneoccurrence because they were part of a sin-gle continuous scheme,” determining “thateach theft was a part of a larger scheme…andthat the scheme to steal was the proximatecause of each theft.”36 In reaching its decision,the California court stated:

Courts, both in California and across

the country, have reached a similarconclusion when faced with a fact sit-uation involving a series of related actswhich can be attributed to a singlecause; and the same principle is appliedwhether the coverage involves prop-erty, liability or fidelity insurance.37

By contrast, the Ninth Circuit, in an unpub-lished opinion decided September 11, 2001,determined that arson fires at four differentcounty courthouses, set by the same indi-vidual, were four separate occurrences, withthe seeming distinction being whether or notthere had been a concerted plan of action.38

These are the same questions facing theNew York court in the WTC cases. By rulingin Travelers that the term “occurrence” wasambiguous, and in denying summary judg-ment for the Silverstein Parties, the courthas set the stage for the factual issues to bedeveloped, from which it can then determinethe intent of the parties as it interprets andapplies the insurance contracts at issue.Assuming that the language in the WilPropform is applied to the loss, it would appear thata reasonable reading of the “occurrence” def-inition and the factual information developedsince September 11 could dictate the findingof one occurrence rather than two.

Business InterruptionAmong the other September 11 insuranceclaims, claims of business interruption havebeen asserted by businesses in the New Yorkand Pentagon areas and by businesses locatedfar away from ground zero and the prohibitedzones of lower Manhattan. The losses andinsurance claims arising from September 11encompass a broad array of elements. Afterthe attacks in New York, Washington, andPennsylvania, the Federal Aviation Admin-istration shut down the country’s commercialairports, leaving stranded passengers, includ-ing tourists and people traveling on business.In New York, civil authority was imposeduntil September 17, 2001. Each of the pro-hibited zones in the WTC area had their ownlevel of allowable activity. As a result of thedamaged and contaminated commercial andresidential buildings in the areas surroundingthe WTC, businesses needed alternative of-fice space and people lost their jobs. Therewas an immediate drop in tourism.

Indeed, businesses throughout the nationthat are dependent upon tourism and travellost income, just as did those located in theWTC and its environs. These businesses havemade claims on their property policies toseek recovery of their lost profits. The typi-cal claimant is a hotel in a tourist locale suchas Hawaii or Las Vegas that relies on travel-ers who arrive by airplane. With the ground-ing of all airplanes and the closure of all air-


ports, hotels had an immediate decrease inoccupancy and loss of income.

Some unique business interruption claimsinclude those asserted by lessees in responseto various aspects of being relocated, includ-ing the way relocation to a new space was han-dled by a landlord, the cleanup efforts in thedamaged prior space, and rental obligations.

These claims and others have causedinsurers and insureds to examine their cov-erages for business interruption and the impo-sition of civil authority with renewed interest.The language in the Insurance ServicesOffice, Inc. (ISO) Business Interruption cov-erage form illustrates the typical businessinterruption coverage in insuring agreements:

We will pay for the actual loss ofBusiness Income you sustain due tothe necessary “suspension” of your“operations” during the “period ofrestoration.” The “suspension” mustbe caused by direct physical loss of ordamage to property at the premiseswhich are described in the Declar-ations and for which a BusinessIncome Limit of Insurance is shown inthe Declarations. The loss or damagemust be caused by or result from aCovered Cause of Loss. With respectto loss of or damage to personal prop-erty in the open or personal propertyin a vehicle, the described premisesinclude the area within 100 feet of thesite at which the described premisesare located.39

Thus, the coverage requires the followingelements:1) Actual loss of income.2) Suspension of operations.3) Direct physical loss to…

4) Covered property…5) Caused by a “covered cause of loss.”

With a hotel or a restaurant located in anairport, one can easily determine that thereis a loss of income and a suspension of oper-ations. These properties, however, were notdirectly physically damaged. Thus, the pri-mary issue for remote facilities and busi-

nesses is whether the WTC and the Pentagoncan be deemed “covered proper ty” asdescribed in the policy of the insured hotel orrestaurant. Traditionally, damaged propertyat a remote, unrelated site in most instancesis not covered property.

Courts have addressed the issue of directphysical loss in several instances with dif-fering results. In one case, the court rejectedan attempt by a hotel to recover lost revenueswhen a restaurant that was adjacent to thehotel was destroyed.40 Significantly, the hotelwas undamaged. In that case, the court foundthat the damage must be to the covered prop-erty of the insured in order for the businessinterruption coverage to be triggered.

However, at least one court found cover-age in a case in which there was an unques-tioned danger of direct physical loss to cov-ered property, which required the insuredto vacate the premises.41 The court equateddamages with risk and therefore the dangerof direct physical loss was covered. So theremay be some wiggle room in a policy andthe analysis of what the policy covers. In-sureds are likely to argue that, for example,at the time of the airport shutdown there wasa risk of direct physical loss to covered prop-erty. Note, however, that the airports wereonly closed for several days after September11. This argument would not appear to suc-ceed once the airports were opened and

planes were again flying.There are, however, certain unique ver-

sions of business interruption coverages that could apply to losses caused by the shut-down of the nation’s commercial airports andairlines. An example is insurance coverage for contingent business interruption. TheISO Contingent Business Interruption form

provides:This policy covers only against lossresulting directly from necessary inter-ruption of business conducted onpremises occupied by the Insured,caused by damage to or destruction ofany of the real or personal propertydescribed above and referred to asCONTRIBUTING PROPERTY(IES)and which is not operated by the In-sured, by the peril(s) insured againstduring the term of this policy, whichwholly or partially prevents the deliv-ery of materials to the Insured or toothers for the account of the Insuredand results directly in a necessary inter-ruption of the Insured’s business.42

Thus, if a hotel in Las Vegas needed sup-plies from a business located in a building thatincurred direct physical loss due to the eventsof September 11, coverage could be foundunder this endorsement. Given the potentialfor terrorist attacks in the future, and theinterconnection of businesses, it would bewise for insureds and their brokers to becomefamiliar with types of business interruptioncoverages that extend beyond the basic busi-ness interruption form.

Civil AuthorityIn order to recover loss of income, insuredshave also looked to their coverage for the


By ruling in Travelers that the term“occurrence” was ambiguous, and in denyingsummary judgment for the Silverstein

Parties, the court has set the stage for the factualissues to be developed, from which it can thendetermine the intent of the parties as it interpretsand applies the insurance contracts at issue.

imposition of civil authority. The ISO CivilAuthority coverage form provides in perti-nent part:

We will pay for the actual loss ofBusiness Income you sustain and nec-essary Extra Expense caused by actionof civil authority that prohibits accessto the described premises due to directphysical loss of or damage to propertyother than at the described premises,caused by or resulting from anyCovered Cause of Loss.

The coverage for Business Incomewill begin 72 hours after the time ofthat action and will apply for a periodof up to three consecutive weeks aftercoverage begins.

The coverage for Extra Expensewill begin immediately after the time ofthat action and will end:(1) 3 consecutive weeks after the timeof that action; or(2) When your Business Income cov-erage ends;whichever is later.43

At first blush, this coverage would seemto apply to the income loss due to the shut-down of the commercial airports. However,under the requirements of the coverage, thecivil authority must prohibit access to theinsured’s premises, not merely render accessto the insured’s premises inconvenient or dif-ficult. For example, in a case stemming fromthe Los Angeles riots in 1992, the establish-ment of a curfew by civil authorities did notprevent access to the insured’s theaters fol-lowing the riots and therefore coverage wasnot triggered.44

The requirement that the civil authoritydeny direct access to the insured’s propertyis in accord with an opinion of the WisconsinSupreme Court.45 In that case, civil distur-bances in Milwaukee in 1967 resulted in a cur-few imposed on the city. There was no physi-cal damage to the insured’s property. TheWisconsin Supreme Court reviewed andadopted the analysis of the District of ColumbiaCourt of Appeals that a requirement for civilauthority coverage is that access to theinsured’s property be prohibited due to dam-age or destruction to the insured’s property.46

On similar facts, however, the MichiganCourt of Appeals arrived at the oppositeresult.47 Riots in the city of Detroit in 1967resulted in a curfew for the entire city. Theinsureds owned and operated movie theatersin the city, and the theaters were not physi-cally damaged by the riots. Nevertheless,they incurred a significant decrease in patron-age with an accompanying loss of income.The court found that the insureds’ had a rea-sonable expectation that if the peril occurredfor which the insurance provided protection,


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coverage for business interruption was avail-able irrespective of any physical damage tothe covered property. Significantly, the civilauthority clause of the policy did not statethat there was a necessity for direct physicaldamage.

The issue of whether coverage can befound under the civil authority coverage with-out physical damage to covered property isnow before the U.S. District Court for theEastern District of Louisiana in a September11 case.48 A hotel is seeking to invoke its civilauthority coverage due to the loss of busi-ness because of the issuance of the order toshut down all commercial airports in theUnited States. The insurer rejected the claimof the hotel because of the lack of physicaldamage to the airports. It will be instructiveto see if the court requires direct physical lossas a condition for coverage.

A civil authority order was in effect nearground zero for several days after theSeptember 11 attacks, with prohibited andrestricted access zones limiting pedestrianand motor vehicle traffic. Some policies havetime limitations for their civil authority cov-erage, so the coverage may apply only aftera certain number of days, which will limitrecoverable amounts.

As September 11 claims and suits areadjudicated, judges, juries, and lawyers willbe required to address issues under previ-ously unthinkable circumstances. Theseissues will be resolved based on a combina-tion of unique factual situations and con-tractual terms. The outcome of the insur-ance claims and litigation arising fromSeptember 11 will affect the manner in whichthe corporate community and the insuranceindustry manage their exposures and calcu-late the financial risks that they are willing toassume in the future. ■

1 World Trade Ctr. Props. v. ACE Bermuda Ins., Ltd. andXL Ins., Ltd., 01 CV 9731 (dismissed, Mar. 25, 2002).2 SR Int’l Bus. Ins. Co., Ltd. v. World Trade Ctr. Props.,01 CV 9291 (S.D. N.Y., filed Oct. 22, 2001) (JSM);World Trade Ctr. Props. v. The Travelers Indem. Co.,01 CV 12738 (S.D. N.Y., filed Dec. 28, 2001) (JSM); ACEBermuda Ins. Ltd. and XL Ins. Ltd., 01 CV 9731(dismis-sed). Copies of court filings in the WTC suits and othersuits related to September 11, as well as articles andother items regarding terrorism, can be found on theFederation of Defense & Corporate Counsel (FDCC)Web site, available at http://www.thefederation.org(begin search at Terrorism Ins. Guide).3 See generally the New York City Office of EmergencyManagement Prohibited Zone Maps, listing by datethose areas of lower Manhattan where pedestrian andauto access was (or remains) either prohibited or lim-ited, available at http://www.nyc.gov/html/oem/html/other/restricted_zones/frozen_zone_history_pdf_page.html.4 See, e.g., 730 Bienville Partners v. Assurance Co. ofAm., U.S.D.C. E.D. La. No. 02-0206 (Dec. 11, 2001).5 SR Int’l Bus. Ins. Co., Ltd., 01 CV 9291.6 Zurich Ins. v. Westfield Am., Inc., 01 CV 9898 (S.D.

N.Y., filed Nov. 8, 2001); ACE Bermuda Ins. Ltd. andXL Ins. Ltd., 01 CV 9731 (dismissed); The TravelersIndem. Co., 01 CV 12738; Combined Ins. v. CertainUnderwriters at Lloyds, 01 CV 10023 (S.D. N.Y., filedNov. 13, 2001).7 SR Int’l Bus. Ins. Co. Ltd., 01 CV 9291, Complaint ¶25.8 Id., Complaint ¶26.9 The Travelers Indem. Co., 01 CV 12738, Complaint¶23 and Exhibits A and B to Complaint (coveragecharts); ACE Bermuda Ins., Ltd. and XL Ins., Ltd., 01CV 9731, Complaint ¶¶29-30 (dismissed).10 SR Int’l Bus. Ins. Co. Ltd., 01 CV 9291, Complaint ¶28.11 The Travelers Indem. Co., 01 CV 12738, Complaint ¶5;SR Int’l Bus. Ins. Co. Ltd., 01 CV 9291, Complaint ¶28.12 The Travelers Indem. Co., 01 CV 12738, Complaint ¶5and Silverstein’s Summary Judgment Motion, at 4-5.13 SR Int’l Bus. Ins. Co. Ltd., 01 CV 9291, Complaint ¶29.14 Id., Complaint ¶30.15 Id., Complaint ¶¶30 and 31.16 Id., Complaint ¶31. (This occurrence issue involvesproperty insurance only, not general liability or airlineliability insurance—under the airline insurance, thereis a separate occurrence for each plane).17 Id., Complaint ¶31.18 World Trade Ctr. Props. v. The Travelers Indem.Co., 01 CV 12738 (S.D. N.Y., filed Dec. 28, 2001), Com-plaint ¶27.19 Id., Complaint ¶28.20 Id., Complaint ¶26.21 Id., Complaint ¶¶24 and 27.22 SR Int’l Bus. Ins. Co. Ltd. v. World Trade Ctr. Props.,01 CV 9291 (S.D. N.Y., filed Oct. 22, 2001) (JSM).23 Id., Complaint ¶2.24 Id.25 Id., Complaint ¶33.26 Id., Complaint ¶34.27 See the FDCC Web site, available at http://www.thefederation.org (begin search at Terrorism Ins.Guide).28 World Trade Ctr. Props. v. The Travelers Indem.Co., 01 CV 12738 (S.D. N.Y., filed Dec. 28, 2001) (JSM),Opinion & Order Denying Plaintiffs’ Motion forSummary Judgment, at 9 (June 3, 2002) (citing WWWAssocs. v. Gianconteri, 77 N.Y. 2d 157, 162 (1990)).29 Id.30 Id. at 10.31 Id. at 8, 13-14.32 EEOT Energy Corp. v. Storebrand Int’l Ins. Co., 45Cal. App. 4th 562, 572 (1996), rev. denied (Aug. 14,1996).33 Id. at 574.34 Id. at 575.35 PECO Energy Co. v. Boden, 64 F. 3d 852 (3d Cir.1995).36 Id. at 855, 856.37 EEOT Energy Corp., 45 Cal. App. 4th at 576.38 Lexington Ins. Co. v. The Travelers Indem. Co., 21Fed. Appx. 585, 2001 WL 1132677 (9th Cir. 2001).39 ISO form CP 00 30 10 00.40 Ramada Inn Ramogreen, Inc. v. The Travelers Indem.Co., 835 F. 2d 812 (11th Cir. 1988).41 Hampton Foods, Inc. v. Aetna Cas. & Surety Co., 787F. 2d 349 (8th Cir. 1986).42 ISO form 15 30 05/77.43 ISO form CP 00 30.44 Syufy Enters. v. Home Ins. Co. of Ind., 1995 WL129229, 1995 U.S. Dist. LEXIS 3771 (N.D. Cal. 1995).45 Adelman Laundry and Cleaners, Inc. v. Factory Ins.Ass’n, 59 Wis. 2d 145, 207 N.W. 2d 646 (1973).46 Two Caesars Corp. v. Jefferson Ins. Co., 280 A. 2d 305(1971).47 Sloan v. Phoenix of Hartford Ins. Co., 46 Mich. App.46, 207 N.W. 2d 434 (1973).48 730 Bienville Partners v. Assurance Co. of Am., U.S.D.C. E.D. La. No. 02-0206 (Dec. 11, 2001).


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In response to the attacks ofSeptember 11, 2001, and to the con-tinued threat of domestic terror-ism, the United States has launcheda war on terrorism and has under-taken numerous other steps toincrease the security of the nation,

including the capture and detention of hun-dreds of suspected al Qaeda terrorists. Aspart of these efforts, the United States hasestablished a framework for the use of mili-tary commissions, rather than the federalcourts, for prosecuting suspected terrorists.

The September 11 attacks by al Qaedaterrorists involved hijacked U.S. airplanesthat crashed into the World Trade Center,the Pentagon, and the Pennsylvania coun-tryside. These acts resulted in the deaths ofapproximately 3,000 people, almost all civil-ians.1 Unfor tunately, it appears that theSeptember 11 attacks are not the last of al

Qaeda’s terror campaign against the UnitedStates: according to Vice President DickCheney, “[T]he prospects of a future attackagainst the United States are almost certain.”2

The U.S. government believes that the use ofmilitary commissions (also referred to asmilitary tribunals) to try al Qaeda terroristswill, in part, help prevent future attacks by theorganization.

Assuming that the attacks on September11 were acts of war,3 they also constitutedwar crimes.4 As the American Bar AssociationTask Force on Terrorism and the Law, in itsReport and Recommendations on MilitaryCommissions, stated: “That a deliberate attackon noncombatant civilians violates the law ofwar is firmly embedded in customary law ofwar and also reflected in several conventionssuch as Common Article 3 of the GenevaConventions of 1949.”5

Shortly after the attacks, President George

Bush dispatched U.S. forces to Afghanistanand, together with allied forces, principallyfrom the United Kingdom, and a coalition ofAfghanistan fighters, routed the Talibanregime. As a result of its military campaign inAfghanistan as well as operations in neigh-boring states, the United States and its allieshave captured numerous suspected al Qaedaterrorists and their Taliban accomplices.

According to news reports, by early July2002, there were more than 564 suspected alQaeda terrorists and Taliban being held asdetainees at the U.S. Naval Base at Guan-tanamo Bay. The vast majority of the detaineesare Saudi Arabian or Pakistani nationals.6

The base at Guantanamo Bay is leased by


KEN

CO

RR

ALRobert C. O’Brien is a partner with the law firm

of Friedemann O’Brien Goldberg & ZarianLLP. He is a captain in the U.S. Army Reserve,Judge Advocate General’s Corps.

The military commissions that will try thecases of the detainees have been established

with appropriate due process guarantees

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TRYINGCIRCUMSTANCES

the United States from Cuba and, therefore,unlike other remote island bases such asthose in the South Pacific, does not technicallyconstitute U.S. territory subject to the juris-diction of U.S. district courts.7

The U.S. government has taken the posi-tion that the Geneva Conventions do not applyto al Qaeda detainees, because al Qaeda is nota “state-party” to the conventions but is a for-eign terrorist organization.8 Accordingly, alQaeda detainees do not have the status ofprisoners of war. On the other hand, the U.S.government has concluded that the GenevaConventions do apply to the Taliban. However,because the Taliban did not conduct theiroperations with any regard for the legal cri-teria for soldiers under Article 4 of the GenevaConventions of 1949, the United States doesnot accord them POW status.9 (See “WhyNot POWs?” this page.)

Although not recognized as POWs, thedetainees have been allowed many POW priv-ileges as a matter of policy. It has been widelyreported and noted by at least one court thatconditions at the base are being monitored by

the International Committee of the RedCross,10 and that the detainees are eatingwell and receiving excellent medical care.11

Moreover, the United States has stated thatthe detainees will not be subjected to physi-cal or mental abuse or cruel treatment.12 Thedetainees will be denied such POW privi-leges as access to a canteen to purchase food,soap and tobacco; a monthly advance of pay;the ability to maintain and review personalfinancial accounts; and the ability to receivescientific equipment, musical instruments,or sports outfits.13

The judicial process awaiting these ter-rorist suspects has been the subject of muchspeculation, and their detention has alreadybeen subject to legal attack in the UnitedStates. On January 20, 2002, the Coalition ofClergy, Lawyers and Professors filed a petitionfor writ of habeas corpus in the U.S. DistrictCourt for the Central District of California onbehalf of the detainees held at Guantanamo.14

In the action, Coalition of Clergy v. GeorgeWalker Bush, the petitioners alleged that thedetainment of the al Qaeda suspects violated

the U.S. Constitution because the detainees“(1) have been deprived of their liberty with-out due process of law, (2) have not beeninformed of the nature of the accusationsagainst them, and, (3) have not been affordedassistance of counsel.”15 In a first amendedpetition, the petitioners added a claim forcruel and unusual punishment.16 Among theirrequests for relief, the petitioners asked thatthe court “direct respondents to produce thedetainees for hearing” before the districtcourt in Los Angeles.17

In February 2002, Judge A. Howard Matzdismissed the petition and first amended peti-tion, holding that 1) the petitioners lackedstanding to assert claims on behalf of thedetainees, 2) the court did not have jurisdic-tion to hear the case, and 3) no federal districtcourt would have jurisdiction over the peti-tioners’ claims.18 The court’s holding regard-ing the lack of jurisdiction of district courtsover the detainees was most fatal to the peti-tion and was based on the controlling decisionof the U.S. Supreme Court in 1950 in Johnsonv. Eisentrager.19 Judge Matz held that thedetainees at Guantanamo Bay are like theGerman detainees in Eisentrager:

[They] are aliens; they were enemycombatants; they were captured incombat; they were abroad when cap-tured; they are abroad now; since theircapture, they have been under the con-trol of only the military; they have notstepped foot on American soil; andthere is no legal or judicial precedentsentitling them to pursue a writ ofhabeas corpus in American civiliancourt.20

Moreover, the court held that there arepractical reasons, such as “legitimate securityconcerns, that make it unwise for this or anycourt to take the unprecedented step of con-ferring such a right [of access to Americancourts] on these detainees.”21

The Military OrderWith the denial of the detainees’ right to seekrelief in the federal courts, the legal frame-work for the disposition of the detainees’cases now appears to be substantially in placeas a result of a military order issued byPresident Bush and an order promulgatedby Secretary of Defense Donald Rumsfeldestablishing military commissions to try sus-pected al Qaeda terrorists.

A congressional resolution authorizedPresident Bush to “use all necessary andappropriate force against those nations [and]organizations” involved in the September 11attacks.22 Anticipating the capture of al Qaedaterrorists and their accomplices and consis-tent with the congressional resolution, thepresident on November 13, 2001, issued a


S ome commentators recently have questioned why the United States is not treating captured alQaeda terrorists and Taliban fighters as prisoners of war. Article 4 of the Convention Relative tothe Treatment of Prisoners of War (also known as the Third Geneva Convention) sets forth the

criteria for persons entitled to POW status. Such persons include members of militias or other volunteercorps belonging to a party to a conflict, provided that the members are “commanded by a person respon-sible for his subordinates,” that they have a “fixed distinctive sign recognizable at a distance,” that theyare “carrying arms openly,” and that they conduct “their operations in accordance with the laws and cus-toms of war.”1

In explaining the U.S. decision that the Third Geneva Convention does not apply to al Qaeda terror-ists, U.S. Ambassador-at-Large for War Crimes Pierre-Richard Prosper stated:

The right to conduct armed conflict, lawful belligerency, is reserved only to states and recognizedarmed forces or groups under responsible command. Private persons lacking the basic indiciaof organization or the ability or willingness to conduct operations in accordance with the lawsof armed conflict have no legal right to wage warfare against a state. The members of al Qaedafail to meet the criteria to be lawful combatants under the law of war. In choosing to violate theselaws and customs of war and engage in hostilities, they become unlawful combatants. And theirconduct, in intentionally targeting and killing civilians in a time of international armed conflict,constitutes war crimes. As we have repeatedly stated, these were not ordinary domestic crimes,and the perpetrators cannot and should not be deemed to be ordinary “common criminals.”2

While the United States decided that the Third Geneva Convention does apply to captured Talibanfighters, it nonetheless declined to grant them POW status because, as Prosper states, they did not meetany of the criteria set forth in Article 4:

They are not under a responsible command. They do not conduct their operations in accordancewith the laws and customs of war. They do not have a fixed distinctive sign recognizable froma distance. And they do not carry their arms openly. Their conduct and history of attacking civil-ian populations, disregarding human life and conventional norms, and promotion of barbaric philoso-phies represents firm proof of their denied status.3

Notwithstanding its decision not to accord the al Qaeda and Taliban detainees legal POW status, theUnited States is providing the detainees with many POW privileges as a matter of policy.—R.C.O.

1 See http://www.unhchr.ch/html/menu3/b/91.htm (adopted Aug. 12, 1949).2 Ambassador Pierre-Richard Prosper, Issues, Status and Treatment of Taliban and al Qaeda Detainees (remarks atChatham House, London, UK, Feb. 20, 2002), available at http://www.state.gov/s/wci/rls/rm/2002/8491.htm.3 Id.

Why Not POWs?

militar y order titled the “Detention,Treatment and Trial of Certain Non-Citizensin the War Against Terrorism.” The militaryorder provided for the establishment of mil-itary commissions to try aliens charged withterrorism.23

The president made a number of findingsin the military order justifying his decision touse military commissions for the trial of alQaeda suspects. Most significantly, he foundthat the September 11 attacks created a stateof armed conflict between the United Statesand al Qaeda,24 that al Qaeda has both thecapability and intention to undertake furtherterrorist attacks against the United Statesthat could result in mass deaths and injuriesand the massive destruction of property, andthat al Qaeda’s actions may place at risk thecontinuity of the operations of the U.S. gov-ernment.25 Consequently, he found that usingmilitary commissions to try al Qaeda sus-pects would protect the United States and itscitizens, allow for the effective conduct ofmilitary operations, and prevent future ter-rorist attacks.26

These findings received significant sup-port among leading military and internationallegal scholars. Major General Michael J.Nardotti, a retired judge advocate general ofthe army, testified in Congress that the needfor military commissions under the currentcircumstances arises out of “legitimate con-cerns for public and individual safety, thecompromise of sensitive intelligence, and dueregard for the practical necessity to use as evi-dence information obtained in the course ofmilitary operation rather than through tradi-tional law enforcement means.”27

Ruth Wedgwood, a professor of law atYale and Johns Hopkins universities, wrotethat the president’s decision to use militarycommissions are backed by solid practicalrealities: “[D]isclosure of the methods usedby the government to follow the activities ofthe al Qaeda network, in order to prove acase in open court, could have disastrousconsequences, especially since it is believedthat al Qaeda has attempted to acquireweapons of mass destruction such as radio-logical bombs and nuclear devices.”28

Wedgwood noted that the al Qaeda networkis skilled in counterintelligence and haschanged communications systems severaltimes to block U.S. surveillance. An opentrial would permit “al Qaeda members [to]scrutinize the trial record to see what thegovernment knows about their operatingmethods.”29

In addition to concerns that criminal trialsmight frustrate attempts to prevent futureterrorism, Wedgwood also recognized thatunder the Federal Rules of Evidence, juries indistrict courts would be prevented from hear-

ing “various forms of probative evidence,including reliable hearsay,” whereas suchevidence would be admissible before a mili-tary commission.30 Finally, Wedgwood echoedconcerns regarding the safety of judges,juries, and innocent civilians living and work-ing near federal courthouses hearing al Qaedacases in urban areas.31

The application of the military order islimited by its terms to non-U.S. citizens aboutwhom there is reason to believe 1) they areor were members of al Qaeda; 2) they haveaided, abetted, or conspired with al Qaeda orare believed to have engaged in internationalterrorism; or 3) they are planning a terroristattack.32 (See “American Taliban,” page 52.)Under the military order these suspects mustbe treated humanely, without any adversedistinction based on race, color, religion, gen-der, origin of birth, wealth, or any similar cri-teria. They also must be afforded adequatefood, drinking water, shelter, clothing, andmedical treatment and allowed the free exer-cise of religion.33

The military order not only provides forthe detention of al Qaeda suspects and trial bymilitary commission; it also states that pun-ishment may include life imprisonment ordeath.34 The military commissions, whichmake findings of fact and law, must providethe suspects with “a full and fair trial.”35 Thisstandard, however, does not preclude relaxed

evidentiary rules that will allow, for exam-ple, the use of documents found by U.S. andallied soldiers in caves and terrorist hideoutsas evidence as well as the admission of reli-able hearsay evidence as long as the evidenceis relevant and probative.36 The military orderalso provides for less-than-unanimous ver-dicts for conviction and sentencing.37

By providing that defendants tried beforemilitary commissions will not be allowed toseek any remedy in U.S. state or federalcourts, foreign courts, or international tri-bunals, the military order seeks to prevent col-lateral attacks on the proceedings, verdicts,and sentences of the military commissions.38

Of course, whether this provision would causeany court, especially one of a foreign nationor an international tribunal, to reject a claimby a detainee is open to question.

Constitutionality of theCommissionsThe use of military commissions by theUnited States dates from the Revolution, whenGeneral George Washington established acourt of inquiry to try Major John André, aBritish officer and suspected spy. André wascaptured wearing civilian clothes and carry-ing documents obtained from BenedictArnold relating to the defense of West Point.He was tried and sentenced to death in sub-stantially the same manner that the British


had earlier dealt with an American officerand accused spy, Nathan Hale.39 Since thattime, militar y commissions have beenemployed in almost every American conflict,including the Mexican-American War (duringwhich the term “military commission” wasfirst used), the Civil War, the Spanish-AmericanWar, World War I and World War II.40

The U.S. Supreme Court has upheld theconstitutionality of military commissions onseveral occasions in various wars. In the casemost analogous to the present circumstances,Ex Parte Quirin,41 the court upheld the con-victions and sentences of eight German sabo-teurs who landed in New York by German U-boat and were subsequently arrested wearingcivilian clothes. They were tried and six ofthem sentenced to death pursuant to an orderissued on July 2, 1942, by President FranklinRoosevelt.42 President Roosevelt’s order wasvery similar to President Bush’s militaryorder.43

In Quirin, the court held that unlawfulcombatants are “subject to trial and punish-ment by military tribunals for acts which ren-der their belligerency unlawful.”44 The courtalso held that the accused in military com-missions are not entitled to the same consti-tutional safeguards afforded defendants incivilian courts:

[S]ection 2 of Article III and the Fifthand Sixth Amendments cannot betaken to have extended the right todemand a jury to trials by militarycommissions, or to have required thatoffenses against the law of war not tri-

able by jury at common law be triedonly in the civil courts.45

Other Western democracies also rely onmilitary commissions to punish unlawful com-batants in circumstances that are similar tothose involving suspected al Qaeda terror-ists. For example, last year, Switzerland pros-ecuted and convicted in a military tribunal aformer Rwandan mayor, arrested in Swit-zerland, for war crimes arising out of the mas-sacres of Tutsi civilians in his village inRwanda. The prosecution based its case onthe defendant’s violations of the Swiss MilitaryPenal Code for murder and violations of thelaws and customs of war, among othercharges. On appeal, in Niyonteze v. PublicProsecutor,46 the Tribunal Militaire deCassation upheld the validity of the military tri-bunal’s verdict and the tribunal’s punishmentof the defendant with a long prison sentence.47

Notwithstanding the well-establishedAmerican tradition of using military com-missions to try enemy combatants, the planto try suspected al Qaeda terrorists and theiraccomplices by military commission insteadof using the established criminal justice sys-tem has sparked some criticism.48 One promi-nent concern voiced by critics is the currentindefinite nature of the detainees’ confine-ment. Nevertheless, there appears to be aconsensus among legal scholars that mili-tary commissions are an appropriate responseto the al Qaeda attacks and continuing threatso long as adequate due process safeguardsare present to ensure that defendants receivea full and fair trial.

Still, the ABA Task Force on Terrorismand the Law conceded that the major disad-vantage of trying al Qaeda terrorists and theiraccomplices by military commissions is nota constitutional or legal matter but the per-ception that military commissions “lack ade-quate safeguards to ensure a fair trial.”49 Thetask force recognized that this perception“will depend significantly on the applicationof the order and the procedures used in anymilitary commission.”50

The Military Commission OrderOn March 21, 2002, Secretary of DefenseRumsfeld promulgated Military CommissionOrder No. 1 detailing the procedures to beused in military commissions.51 The com-missions are composed of three to sevenmembers, who preside over the trial and ren-der the verdict and sentence. The defendanton trial in a military commission is referredto in the order as the Accused. Although theprocedures and practices differ in some mate-rial aspects from the Federal Rules of CriminalProcedure, the protections for the accused aresubstantially the same as those afforded U.S.service personnel subject to court martial52

and address all the essential due process ele-ments necessary to ensure a fair trial.

Under Military Commission Order No.1, due process safeguards include:• The defendant will receive “a copy of thecharges [against him or her] in English and[a] language that the Accused understands.”53

• The defendant will be presumed innocentuntil proven guilty.54

• The standard for a conviction is “beyond areasonable doubt,” and the determination ofguilt will be based solely on the evidence thatis admitted during the trial.55

• The prosecution must provide the defensewith all the evidence that the prosecutionplans to introduce at trial, including exculpa-tory evidence.56

• The defendant has the right not to testifyat trial, and the members of the commissionwill draw “no adverse inference” from thedefendant’s decision to exercise this right.57

• The defendant has the right to obtain doc-uments for his or her defense and “[s]ummonthe witnesses to attend trial and testify” usingservice of process. In addition, “investigativeand other resources…[will be] made availableto the Defense.”58

• The defense will be able to cross-examinethe prosecution witnesses.59 All witnesseswill testify under oath.60

• The defendant will have the assistance ofappointed interpreters.61

• The defendant has the right to “be presentat every stage of the trial.”62

• The defendant is protected against doublejeopardy.63


A lthough precedent exists to support trying by military commission unlawful combatants whoclaim U.S. citizenship, President George Bush’s military order1 limits trials by military commissionto aliens. However, at least three post-September 11 detainees are or appear to be U.S. citi-

zens. The most notorious of the three, Marin County native John Walker Lindh, was indicted in federaldistrict court in Virginia. Lindh recently pled guilty to two charges: that he aided the former Taliban gov-ernment in Afghanistan in violation of U.S. law, and that he carried explosives while committing thatcrime. At press time he had not been sentenced, but he faces up to 20 years in prison.

The government has also designated former Chicago gang member and al Qaeda operative JosePadilla, also known as Abdullah Al Muhajir, and American-born Yasir Esam Hamdi as enemy combat-ants. They are both confined to a U.S. Navy brig in South Carolina in the custody of the Department ofDefense. Padilla was arrested at O’Hare International Airport upon arrival from Switzerland. He allegedlywas exploring a plan to build and explode a radiological dispersion device, or dirty bomb, in the UnitedStates. Hamdi was likely captured in Afganistan or Pakistan and was originally held at the U.S. navalbase in Guantanamo.

According to reporter Jess Bravin in the Wall Street Journal,2 government officials were concernedthat a federal judge might find Hamdi had the right to be heard in federal court. The government wantedto avoid a precedent requiring the commander at Guantanamo to turn over a detainee to U.S. marshalsin response to a court order. At press time, neither Padilla nor Hamdi have been criminally indicted orcharged before a military commission.—R.C.O.

1 Detention, Treatment and Trial of Certain Non-Citizens in the War Against Terrorism, 66 Fed. Reg. 57, 833 (Nov. 16, 2001).2 Jess Bravin, Guantanamo Bay Detainees Seek Hearings, WALL STREET J., July 3, 2002, at A4.

American Taliban

• The commission trial will be open to thepublic, except in circumstances involvingpublic safety, national security, or the disclo-sure of classified information or law enforce-ment sources.64

Under the military commission proce-dures, militar y defense counsel will beappointed for defendants, irrespective of indi-gence, “in advance of trial to prepare a defenseand until any findings and sentence becomefinal.”65 Defense counsel is charged withdefending the accused “zealously within thebounds of the law without regard to personalopinion as to the guilt of the Accused” and to“represent the interest of the Accused in anyreview process.”66 A defendant has the rightto select a judge advocate from any branch ofthe armed services to replace the appointeddefense counsel and may retain an Americancivilian attorney at his or her own expense toassist appointed defense counsel.67

The commissions are required to“[p]rovide a full and fair trial”68 and “[p]roceedimpartially and expeditiously excluding irrel-evant evidence, and preventing any unnec-essary interference or delay.”69 All who par-ticipate in a commission “shall take an oath toperform their duties faithfully.”70

The nature of the trial proceedings beforea military commission will be familiar to coun-sel from common law jurisdictions. The pro-ceedings begin with the opening statement ofthe prosecution and the presentation of itscase using witnesses and other evidence.71

The defense may elect to make an openingstatement following the opening statementof the prosecution or prior to presenting itsown case.72 Defense witnesses and evidencewill be heard after the prosecution finishes itspresentation.73 The parties may introduceevidence in rebuttal and surrebuttal.74 Theprosecution and defense may both presentclosing arguments with a reply permitted forthe prosecution.75

The members of the commission delib-erate and vote on a verdict by secret writtenballot in closed conference.76 A guilty verdictrequires “an affirmative vote of two-thirds ofthe members.”77 If the defendant is convicted,the commission “shall impose a sentence thatis appropriate to the offense or offenses forwhich there was a finding of Guilty, which sen-tence may include death, imprisonment for lifeor for any lesser term, payment of a fine orrestitution, or such other lawful punishmentas the Commission shall determine to beproper.”78

During sentencing proceedings, theaccused is entitled to review the evidencethat the prosecution intends to present beforesentencing79 and to make a statement80 andsubmit evidence of his or her own,81 all withthe assistance of defense counsel. Following


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the sentencing proceedings, the commissionmembers will again deliberate and vote on thesentence by secret written ballot in closedconference.82 The sentence also requiresagreement by two-thirds of the commissionmembers; however, a death sentence requiresa unanimous vote83 of a seven-member com-mission.84

All convictions and sentences will auto-matically be reviewed by a Review Panelestablished by the secretary of defense thatconsists of three military officers, at leastone of whom has experience as a judge.85

The Review Panel has 30 days to review theconviction and sentence and may then eitherforward the case to the president or the sec-retary of defense with a recommendationregarding the disposition of the matter orreturn the case for further proceedings tothe Appointing Authority—either the secre-tary of the defense or his designee—if amajority of the panel forms the “definite andfirm conviction that a material error of lawoccurred.”86

The verdict and sentence of a militarycommission is not final until it is affirmed bythe president, or, if he so designates, the sec-retary of defense.87 The president also has theright to “disapprove findings or change a find-ing of Guilty to a lesser-included offense, ormitigate, commute, defer or suspend the sen-tence imposed or any portion thereof.”88 A ver-dict of not guilty, however, cannot be changedto a verdict of guilty.89

As a response to the September 11, 2001,attacks on the United States and in light of thecontinuing and grave threat posed to thenation by the al Qaeda terrorist network andits accomplices, the use of military commis-sions to try suspected terrorists is appropri-ate both as a practical and legal matter. Thesecommissions will significantly reduce the riskthat classified information and law enforce-ment sources and methods will fall into thehands of al Qaeda operatives and therebyincrease the likelihood of preventing futureattacks on the United States and its allies.They will also allow prosecutors to introduceat trial reliable evidence collected on the bat-tlefield and by intelligence agents. Moreover,the use of military commissions will eliminatethe threat to the safety of civilian judges,jurors, witnesses, and the public that wouldarise from district court trials of suspected alQaeda terrorists.

Military commissions have a long historyin the United States and other civilized nationsand have repeatedly passed constitutionalmuster before the U.S. Supreme Court. Fur-thermore, the extensive procedural safe-guards promulgated by the president andthe secretary of defense are fully sufficient toensure due process rights and full and fair tri-


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1 See United Kingdom Press Release, “Responsibility forthe Terrorist Atrocities in the United States” (Oct. 4,2001), available at http://www.number-10.gov.uk/news.asp?NewsId=2686.2 Statement of Vice President Dick Cheney, quoted inDiana Jean Schemo, Cheney Expects More Terror forU.S., N.Y. TIMES, May 20, 2002, at A12.3 See AMERICAN BAR ASSOCIATION TASK FORCE ON

TERRORISM AND THE LAW REPORT AND RECOMMENDATIONS

ON MILITARY COMMISSIONS, Jan. 4, 2002, reprinted inTHE ARMY LAWYER, DA PAM 27-50-350, Mar. 2002, at 11[hereinafter ABA REPORT]. As noted by the task force,the question of whether the al Qaeda attacks were anact of war is somewhat complicated. “Although thereis room for argument on both sides, it can be reasonablyconcluded that these were acts of war.” Id. (emphasisadded). NATO’s action on September 12, 2001, lendsfurther support to the position that the September 11attacks constituted an act of war; NATO decided thatif the attacks were directed from abroad, they would becovered by Article 5 of the Washington Treaty because“an armed attack on one or more of the Allies in Europeor North America shall be considered an attack againstthem all.” Invocation of Article 5 Confirmed, NATOUpdate, available at http://www.nato.int/docu/update/2001/1001/e1002a.htm (Oct. 3, 2001). OnOctober 3, 2001, the secretary general of NATO statedthat since the attacks had been directed from abroad,they were, in fact, covered by Article 5 of the Wash-ington Treaty. Id. This was the first time in NATO’s his-tory that Article 5 has been invoked. Id.4 ABA REPORT, supra note 3, at 11.5 Id. (citation omitted).6 Jess Bravin, Guantanamo Bay Detainees Seek Hearings,WALL STREET J., July 3, 2002, at A4. See also Terrorism:Questions and Answers, Council on Foreign Relations,available at http://www.terrorismanswers.com/responses/detainees.html.7 Bravin, supra note 6.8 White House Fact Sheet on Status of Detainees atGuantanamo (Feb. 7, 2002), available at http://www.whitehouse.gov/news/releases/2002/02/20020207-13.html.9 Id.10 Coalition of Clergy v. George Walker Bush, Case No.CV 02-570 AHM (JTLx) (C.D. Cal. 2002), Order of thecourt dismissing the petition (Feb. 21, 2002), at 8. Seealso Bryan Robinson, A Slow Process: Lies and SilenceHamper Intelligence-Gathering at Guantanamo Bay,ABC News.com (Apr. 9, 2002), available at http://www.abcnews.go.com/sections/world/DailyNews/gitmo_threemonths020410.html (last visited Apr. 10,2002).11 See Bryan Robinson, supra note 10.12 White House Fact Sheet on Status of Detainees atGuantanamo, supra note 8.13 Id.14 Coalition of Clergy, Case No. CV 02-570 AHM, at 1-2.15 Id. at 2.16 Id. at 3 n.1.17 Id. at 3.18 Id. at 3-4.19 Johnson v. Eisentrager, 339 U.S. 763, 70 S. Ct. 936(1950).20 Coalition of Clergy, Case No. CV 02-570 AHM, Orderof the court dismissing the petition, at 19.21 Id.22 Authorization for Use of Military Force, Pub. L. No.107-40, 115 Stat. 224 (2001).23 Detention, Treatment and Trial of Certain Non-


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Citizens in the War Against Terrorism, 66 Fed. Reg.57,833 (Nov. 16, 2001) [hereinafter the Military Order].24 Id. §1(a).25 Id. §1(c).26 Id. §1(e).27 Major General (Ret.) Michael J. Nardotti, MilitaryCommissions, reprinted in THE ARMY LAWYER, DA PAM27-50-350, Mar. 2002, at 4 (remarks before the SenateJudiciary Committee Subcommittee on AdministrativeOversight and the Courts, Dec. 4, 2001).28 Ruth Wedgwood, Tribunals and the Events ofSeptember 11th, NEWSLETTER OF THE AMERICAN SOCIETY

OF INTERNATIONAL LAW, Jan./Feb. 2002, at 4.29 Id.30 Id.31 Id.32 The Military Order, supra note 23, §2(a)(1)-(2).33 Id. §3(a)-(d).

34 Id. §4(a).35 Id. §4(c)(2).36 Id. §4(c)(3)-(8).37 Id.38 Id. §7(e).39 See Major Michael O. Lacey, Military Commissions:A Historical Survey, THE ARMY LAWYER, DA PAM 27-50-350, Mar. 2002, at 42.40 Id.41 Ex Parte Quirin, 317 U.S. 1 (1942). See also Ex parteValladigham, 68 U.S. 243, 251 (1863) (denying writ ofcertiorari by Ohio politician convicted of declaring pro-Confederate sentiments during Civil War) and In reYamashita, 327 U.S. 1 (1946) (upholding constitution-ality of trial of Japanese general by military tribunal).42 Quirin, 317 U.S. 1.43 Michael O. Lacey, supra note 39, at 45.44 Quirin, 317 U.S. at 31.

45 Id. at 40.46 Niyonteze v. Public Prosecutor (Trib. Militaire deCassation, Switzerland, Apr. 27, 2001). For a detaileddescription in English of the proceedings in the case,see Luc Reydams, International Decisions, InternalArmed Conflict—Rwanda—war crimes—universal juris-diction, 96 AM. J. INT’L. L. 231 (Jan. 2002).47 Id.48 See, e.g., Editorial, Winging It at Guantanamo, N.Y.TIMES, Apr. 23, 2002 (“Inventing a parallel legal systemmay be found to be constitutional under the president’spowers as commander in chief. But there is no com-pelling justification for doing so and many good reasonsnot to.”). See also James Gordon Meek, CongressmanPlans Challenge to Rules for Terrorism Trials, L.A. DAILY

J., May 27, 2002, at 1, 5 (Congressman Adam Schiff’sbill “would significantly confront the Bush Ad-ministration’s plans for detaining and trying terrorismsuspects” by providing for judicial review of militarycommission verdicts and limiting the application ofthe military order to suspects believed to be “directlyresponsible for terrorist acts.”).49 ABA REPORT, supra note 3, at 17.50 Id.51 Department of Defense Military Commission OrderNo. 1, Procedures for Trials by Military Commissionsof Certain Non-United States Citizens in the War AgainstTerrorism, March 21, 2002, available at www.defenselink.mil/news/Mar2002/d20020321ord.pdf.[hereinafter Milltary Commission Order No. 1].52 For a comparison of rights, practices, and proce-dures in federal courts and courts-martial, see MichaelJ. Nardotti, supra note 27, at 2-3.53 Military Commission Order No. 1, supra note 51, §5A.54 Id. §5 B.55 Id. §5 C.56 Id. §5 E.57 Id. §5 F.58 Id. §5 H and §6 A(5)(a)-(d). Under §6 A(5)(d), acommission may also “[d]esignate special commis-sioners to take evidence.”59 Id. §5 I.60 Id. §6 C(2).61 Id. §5 J.62 Id. §5 K.63 Id. §5 P.64 Id. §5 O. See also id. §6 B(3) setting forth the groundsfor closure of a trial to the public.65 Id. §5 D.66 Id. §4 C(2)(a)-(b).67 Id. §4 C(3). See §4 C(3) for the pro hac vice require-ments for civilian attorneys.68 Id. §6 B(1).69 Id. §6 B(2).70 Id. §6 C(1).71 Id. §6 E(3)-(4).72 Id. §6 E(5).73 Id. §6 E(6).74 Id. §6 E(7).75 Id. §6 E(8).76 Id. §6 F.77 Id.78 Id. §6 G.79 Id. §5 L.80 Id. §5 M.81 Id. §5 N.82 Id. §6 F.83 Id. §6 G.84 Id.85 Id. §6 H(3)-(4).86 Id. §6 H(4).87 Id. §6 H(2), (5) and (6).88 Id. §6 H(6).89 Id. §6 H(2).


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Index to AdvertisersAon Direct Admin/LACBA Prof Liability, Inside Front Cvr

Tel. 800-634-9177 www.attorneys-advantage.com

AT&T Wireless, Inside Back Cvr

Tel. 213-253-2400 www.attwireless.com

Law Office of Donald P. Brigham, p. 30

Tel. 949-206-1661 e-mail: [email protected]

California Community Foundation, p. 10

Tel. 213-413-4130 www.calfund.org

The Chugh Firm, p. 55

Tel. 562-229-1220 www.chugh.com

Cohen Miskei & Mowrey LLP, p. 54

Tel. 818-986-5070

Coldwell Banker, p. 12


Commerce Escrow Company, p. 56

Tel. 213-484-0855 www.comescrow.com

Computerish Networks, Inc., p. 30

Tel. 800-811-8984 www.computerish.com

DataChasers, Inc., p. 46

Tel. 909-780-7892 www.datachasersinc.com

Fax & File, p. 55

Tel. 415-491-0606 www.faxfile.com

Steven L. Gleitman, Esq., p. 21

Tel. 310-553-5080

Hirson Wexler Perl Stark, p. 22

Tel. 323-936-0200 [email protected]

Hutchings Court Reporters, p. 26

Tel. 800-697-3120 www.hutchings.com

Immigration Case Preparation, p. 25

Tel. 818-508-7299 www.immcaseprep.com

InterLingua, p. 53

Tel. 310-792-3636 www.The-Translation-Station.com

International Bar Association, p. 25

Tel. +44 207 629 1206 www.ibanet.org

Jack Trimarco & Associates Polygraph, Inc., p. 53

Tel. 310-247-2637 www.behaveanalysis.com

Jeffrey Kichaven, p. 21

Tel. 310-556-1444 www.jeffkichaven.com

Jessica Langer Videography, p. 46


Kaplan, Sherman Law Offices, p. 55

Tel. 310-278-2510 www.skaplan.com

K & S Diversified Investments, Inc., p. 30


LACBA Business & Corporations Law Section, p. 15

Tel. 213-896-6560 www.lacba.org

lawnetinfo.com, p. 47

Tel. 818-727-1723 www.lawnetinfo.com

Lawyers Mutual Insurance Co., p. 7

Tel. 800-252-2045 www.lawyersmutual.com

LexisNexis, Inside Front Cvr, p. 9

Tel. 800-227-4908 www.lexisnexis.com

Lone Mountain Ranch, p. 8

Tel. 800-514-4644 www.lmranch.com

Arthur Mazirow, p. 31


Laurence D. Merritt, p. 46

Tel. 818-710-3823 www.legalknight.com

“Mr. Truck”, p. 47

Tel. 925-625-4994 or 800-337-4994 e-mail: [email protected]

National Jury Project West, p. 38

Tel. 510-832-2583 www.njp.com

Noriega Chiropractic Clinics, p. 57

Tel. 323-728-8268

On The Record, Inc., p. 21

Tel. 310-342-7170 www.ontherecord.com

Ostove, Krantz & Ostrove, p. 54

Tel. 323-939-3400 www.lawyers.com/ok&olaw

ProData Imaging, p. 6

Tel. 800-675-4566 www.prodataimaging.com

Quo Jure Corporation, p. 46

Tel. 800-843-0660 www.quojure.com

Revilla Investigative Group, p. 6

Tel. 818-551-7111

Sanli Pastore & Hill, Inc., p. 31

Tel. 310-571-3400 www.sphvalue.com

Anita Rae Shapiro, p. 55

Tel. 714-529-0415 www.adr-shapiro.com

Southland Civic Credit Union, p. 4

Tel. 800-426-1917 www.southlandcivic.org

Steven Sears, CPA-Attorney at Law, p. 47

www.searsatty.com

Richard W. Swartz, Esq., p. 31

Tel. 213-251-5486 [email protected]

UBS PaineWebber, p. 12

Tel. 562-495-5506

Law Office of Douglas S. Unger, p. 54


UPS, p. 2

Tel. 800-PICK-UPS www.ups.com

Vidcomgroup, Inc., p. 26

Tel. 310-826-2494 www.vidcomgroup.com

Vision Sciences Research Corporation, p. 8

Tel. 925-837-2083 www.visualforensics.com

West Group, p. 41, p. 53, Back Cvr

Tel. 800-762-5272 www.westgroup.com

Witkin & Eisinger, LLC, p. 54

Tel. 310-670-1500

Alice M. Yardum-Hunter, A Law Corp., p. 26

Tel. 818-609-1953 www.yardum-hunter.com


IndemnificationClauses inMergerAgreements

ON THURSDAY,

SEPTEMBER 19, the

Business and Corporations

Law Section will present a

program that will cover

baskets and caps,

holdbacks and other forms

of security, and the

enforcement of

indemnification rights. The

scheduled speaker is Neal

H. Brockmeyer. This event

will be held at the

LACBA/LEXIS Publishing

Conference Center, 281

South Figueroa Street,

Downtown. Parking at the

Figueroa Courtyard Garage

will be available for $7

with LACBA validation. On-

site registration will begin

at 11:45 A.M. and lunch at

noon, with the program

continuing from 12:30 to

2:00 P.M. Event code

number: 808LI19. CLE+PLUS

members free (meal not

included). Prices below

include meal.

$45—Business and

Corporations Law Section

members

$55—other LACBA

members

$65—all others, including

all who pay at the door

1.5 CLE hours

The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site athttp://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the September County Bar Update.

CLE Preview

ON TUESDAY, SEPTEMBER 24, the Attorney Errors and Omissions Prevention Committeeand the Attorneys’ Advantage Program will present a seminar on navigating the legalmalpractice minefield. Attorneys can receive a credit of up to 7.5 percent off their firm’smalpractice insurance premium by joining the Attorneys’ Advantage Program for threeconsecutive years following attendance at this seminar. To qualify for the full discount, atleast half of the firm’s attorneys must attend the entire program. The credit, thepercentage of which is subject to change, must be applied within one year of the seminarattendance date. At the seminar, speakers Wendy G. Carroll, Harry W. R. Chamberlain II,Randall A. Miller, and Andrew J. Waxler will discuss what all Los Angeles attorneys need toknow to avoid malpractice. The seminar will take place at the Hilton Los Angeles Airport,5711 West Century Boulevard in Los Angeles. Self-parking is $8, and valet parking is $12.On-site registration and continental breakfast will begin at 8:30 A.M., with the programcontinuing from 9 A.M. to 12:30 P.M. Event code number: 7093I24.$50—CLE+Plus members$100—other LACBA members$125—all others3.25 CLE hours, including 2 ethics hours

Risk Management Techniques for 2002

24th Annual Child Custody ColloquiumON SATURDAY, SEPTEMBER 28, the Family Law Section and the Los Angeles CountySuperior Court will present their dynamic annual child custody program. After anintroductory address by Judge Aviva K. Bobb and Lawrence E. Leone, the first sessionwill examine how to present the child’s evidence in a custody dispute (presented byJudge John W. Ouderkirk, Commissioner Ann Dobbs, Dianna J. Gould-Saltman, NealHersh, Roxane Lipton, and Stan J. Katz). After a break, this topic will be continued bya second panel consisting of Judge Rolf M. Treu, Commissioner John Chemeleski,Robert Neal Kipper, Pamela Stettner, Anthony J. Aloia, and Marjorie Cain Mitchell.Carol Anne Tavris will be the keynote speaker during lunch. The first afternoonsession will address how to resolve conflict when conflict itself is the issue. Thisdiscussion will feature Judge Richard Denner, Judge Lee Edmon, Dvorah Markman,Terri Asanovich, David Kuroda, Linda Louie, and Loretta Warabow as speakers. Thelast session will be presented by Judge Aviva K. Bobb, Judge Roy Paul, Glen H.Schwartz, Margaret A. Little, and Jaye-Jo Portanova.

The colloquium will take place at Le Meridien Hotel, 465 South La CienegaBoulevard in Los Angeles, with complimentary self-parking off Clifton Way on thenorth side of the street. Valet parking is available for $8 for those who indicate thatthey are attending a LACBA program. On-site registration will begin at 8 A.M., acontinental breakfast at 8:30, and lunch at 12:15 P.M.; the program will take placefrom 8:30 A.M. to 4:15 P.M. Event code number: 8095I28.$135—CLE+PLUS members$190—Family Law Section members$210—other LACBA members$230—all others (alternate prices available for mental health professionals,psychologists who require MCEP credit, nonprofit legal service providers, first-yearadmittees, and law students)6.25 CLE hours

Remember. Rebuild. Renew. These words embody the chal-lenge faced by the Lower Manhattan Development Corporationas it unveiled its proposals a few weeks ago for the recon-

struction of New York’s World Trade Center site. All the prelimi-nary designs under consideration prominently feature a memorial parkhonoring the men, women, and children whose lives tragically and pre-maturely came to an end on September 11, 2001.

It is doubtful that anyone in our lifetime will forget the devastationthat our nation experienced that September day. The acts of terror-ism perpetrated against this country did, however, unify Americansin unprecedented ways. Regardless of our politics, race, religion,gender, or sexual preference, we shared our grief and transcendedour differences to unite under one banner. The displays of red, white,and blue in all corners of our nation helped express emotions thatwords could not describe. In one of this country’s darkest hours, newheroes emerged from the rubble and chaos, exemplifying the verytraits that built the United States: determination, courage, and resolve.

With the passage of time, our lives inevitably return to normal andthe impact of even singularly momentous events begins to fade, espe-cially among members of a younger generation who have no directexperience with watershed moments in modern U.S. history. As withother defining moments for our country, the events of September 11have left an indelible mark on our heritage and our history. OnSeptember 11, it was our core values and the rights and libertiesembodied by our government that were assaulted. It is our duty asresponsible adults to ensure that our youth—tomorrow’s decision mak-ers—understand these events, their impact on our lives, and theirimprint on the nation’s identity.

Many years ago, Ernest Hemingway observed, “The world breakseveryone and afterwards many are stronger at the broken places.” OnSeptember 11, our world experienced a break of epic proportions.While we now endeavor to repair our nation’s fractured seams and dis-cover our renewed strength, a critical need exists for dialogue aboutthe principles of democracy and freedom and what it means to live ina country based upon those ideals.

To that end, on September 12, 2002, one day after the anniversaryof the tragic events, the Los Angeles County Bar Association, in col-laboration with the Los Angeles Unified School District, will presenta Dialogue in our Schools program. This program—chaired by LosAngeles Superior Court Judge Laurie D. Zelon, a past president of theAssociation, and Laura Farber, a partner at Hahn & Hahn and formerpresident of the Association’s Barristers Section—is modeled after theDialogue on Freedom initiative developed by the American BarAssociation in consultation with U.S. Supreme Court Justice AnthonyKennedy. It will focus high school students on the freedoms and

responsibilities that make our nation unique. As Justice Kennedyexplains, these dialogues “foster among our nation’s youth the iden-tification and understanding of fundamental American values andthose universal moral precepts that all free people share.”

The Los Angeles dialogues will take place simultaneously atapproximately 20 local public and private high schools and will cre-ate invaluable opportunities for students to explore with volunteerlawyers, judges, and community leaders the rights guaranteed by theU.S. Constitution and their meaning in light of the September 11tragedy. Our Association has also encouraged other California bargroups to conduct similar discussions in their cities. Later in themonth, on September 24, Justice Kennedy will share his views on theimportance of ongoing discussions with the volunteer lawyers, judges,teachers, and selected student participants at a post-dialogue “townhall” gathering.

Yes, a year has passed. While the words to describe fully both theevents and the emotions of that day still elude us, we must endeavorto connect with our youth as we move forward. As lawyers, we are ina unique position to share our knowledge of the U.S. Constitution, gov-ernment, and justice system, which define us as a country and reflectour nation’s soul. We can use our professional perspectives to explainthe values upon which our country was founded and our responsibilityto protect and preserve these values. As Robert Hirshon, 2001-02 ABApresident, said, “[W]e represent our citizens in our institutions of jus-tice. Our oath is the same oath taken by our elected officials: to pro-tect and defend our constitution and uphold our nation’s laws. We takethis oath seriously and were reminded bythe events of September 11 that we arejoined in this noble endeavor by millionsand millions of other Americans, eachof whom reaf firmed in one way oranother his or her commitment to ourconstitutional form of government.”

All of us can join as participants inthis dialogue on this first anniversary ofSeptember 11: Take time to talk withyour children, their friends, your neigh-bors next door. These dialogues, admit-tedly, are just a small step. They aren’tmeant to replace the original three Rs—reading, ‘riting, and ‘rithmetic—but theynonetheless can play a critical role in ournext generation’s commitment to thechallenges ahead—to remember, rebuild,and renew. ■

c l o s i n g a r g u m e n t

By Miriam Krinsky

A Lesson in the Three RsThe memory of September 11 challenges us to

awaken in our children a faith in our values

Miriam Krinsky is the 2002-03president of theAssociation. Her e-mail address [email protected].


http://www.attwireless.com

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