(Adds New York City, insurer comments, paragraphs 13-14)
By Jonathan Stempel
NEW YORK, June 9 (Reuters) - A judge acted prematurely in awarding a $55 million bonus payment to thousands of rescue and cleanup workers at the World Trade Center site who settled lawsuits against New York City over damage to their health, a federal appeals court decided on Monday.
The 2nd U.S. Circuit Court of Appeals said U.S. District Judge Alvin Hellerstein in Manhattan failed to address an ambiguity in a 2010 settlement regarding the percentage of eligible firefighters, police officers, construction workers, cleaning workers and others who accepted the terms.
New York City contended that the bonus payment should be just $12.5 million because the settlement acceptance rate, which was the basis for the payout, was 96 percent, not the 99 percent found by Hellerstein.
Monday's decision voided that finding and returned the case to Hellerstein, who oversees much of the litigation over the Sept. 11, 2001 attacks.
The settlement was part of litigation with the city, the Port Authority of New York and New Jersey, contractors and others under which more than 10,000 workers claiming respiratory and other illnesses stood to receive as much as $725 million.
Writing for the appeals court, Circuit Judge Denny Chin said Hellerstein should review how the parties, when negotiating the settlement, intended to treat 384 plaintiffs who he dismissed from the case in 2010 because they did not pursue their claims.
The city said these plaintiffs should have been counted when computing the acceptance rate, thus lowering it.
"Reasonable minds could disagree as to whether the phrase 'plaintiffs who dismiss' includes 'plaintiffs who are dismissed,'" Chin wrote.
The 2nd Circuit also voided a separate $5 million payment to the workers, and concluded that Hellerstein acted reasonably in capping fees for the plaintiffs' lawyers at $187 million, and refusing to award them a contingent fee from the bonus payment.
Hellerstein "recognized that overcompensation of attorneys would take away money from needy plaintiffs," and was "rightly sensitive to the public perception of overall fairness," Chin wrote.
The plaintiffs are represented by the law firms Napoli Bern Ripka Shkolnik, and Worby Groner Edelman.
Paul Napoli, one of the lawyers handling the case, had no immediate comment. David Worby, a partner at Worby Groner Edelman, was not immediately available for comment.
Nick Paolucci, a spokesman for the New York City Law Department, said that office is reviewing the decision.
WTC Captive Insurance Co, the city's insurer, had no comment on the outcome. The insurer was formed in 2004 to insure the city, contractors, subcontractors and others over claims arising from the debris removal process after the Twin Towers' collapse.
The case is In re: World Trade Center Disaster Site Litigation, 2nd U.S. Circuit Court of Appeals, No. 11-4021. (Reporting by Jonathan Stempel in New York; Editing by David Gregorio)