Citigroup in Dismissal of Negligence Claims Brought by World Trade Center Insurer

January 26, 2005

Cleary Gottlieb won dismissal of claims against Citigroup Inc. and Citigroup Global Markets Holdings Inc. made by Industrial Risk Insurers (“IRI”), the insurers of the owner of Seven World Trade Center. The claims brought in the United States District Court for the Southern District of New York alleged that Citigroup’s gross negligence caused that building to collapse. The court dismissed these claims with prejudice.

IRI insured Silverstein Properties, Inc. the ground lessee and owner of Seven World Trade Center. Suing as Silverstein’s subrogee, IRI alleged that the fuel system of the emergency backup generator that Citigroup maintained contributed to the collapse of Seven World Trade Center on September 11, 2001. IRI sought damages against Citigroup under a theory of gross negligence. Citigroup filed a motion to dismiss all claims.

The judgment held that lease agreements between Citigroup and Silverstein specifically released Citigroup from any liability in regard to the generator. The insurance policy issued by IRI recognized this release. IRI claimed that public policy required that their claim of gross negligence defeat the release. The court held that IRI did not state a claim for gross negligence, affirming the release. Furthermore, the court held that Silverstein assumed the risk of injury because of its involvement in the construction and design of the emergency generator system and that the parties’ agreement to waive subrogation claims would be effective even with respect to gross negligence claims.