DUNNINGTON R 

BARTHOLOW & MILLER LLP 

ATTORNEYS AT LAW 

250 Park Avenue I New York, NY 10177 I Telephone: 212.682.8811 I www.dunnington.com I rdowd@dunnington.coiJ,i"· 

VIA MAIL 

Commodity Futures Trading Commission 

Division of Swap Dealer and Intermediary Oversight 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Securities and Exchange Commission 

Brookfield Place 

200 Vesey Street, Suite 400 

New York, NY 10281-1022 

February 2, 2017 

Re: Request For Interpretation of a Particular Agreement, Contract or Transaction 

Pursuant to 17 C.F.R. § 1.8 

To Whom It May Concern: 

We represent Breakaway Courier Corporation ("Breakaway"), a New York entity. This 

request is made for the purposes of clarifying issues that have arisen in a New York litigation 

known as Breakaway Courier Corporation v. Berkshire Hathaway, Applied Underwriters, Inc. et 

al., (N.Y. Co. Index No. 654806/20l6)("Breakaway v. Applied:'). The Breakaway v. Applied 

complaint ("Complaint") is annexed hereto as Exhibit 1. 

In accordance with 17 C.F.R. § 1.8, Breakaway requests a joint interpretation from the 

Commodity Futures Trading Commission (the "CFTC") and the Securities and Exchange 

Commission ("SEC") (together, the "Commissions") as to whether a contract stylized as a 

Reinsurance Participation Agreement ("RPA") that was sold to Breakaway as a way of 

participating in "profits" is a swap, security-based swap or mixed swap related to an insurancelinked security. See 17 C.F.R. § l.8(a). Two versions of the RPA, one issued in 2009 and the 

other issued in 2012, are annexed to the Complaint as Exhibit B and Exhibit L (referred to herein 

as Exhibit 1-B and Exhibit 1-L respectively). 

c 
February 2, 2017 

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Section I 

Material Information Regarding The Terms Of The RPA 

DUNNINGTON 

BARTHOLOW & MILLER LLP 

The RPA is issued by a company known as Applied Underwriters Captive Risk 

Assurance Company ("AUCRA"), a subsidiary of Applied Underwriters, Inc. ("AUi"). AUi is 

owned by Berkshire Hathaway Inc. ("Berkshire"). AUI's subsidiaries tout their A+ Rating from 

A.M. Best, the leading provider of ratings and financial data in the insurance industry. However, 

that rating is dependent on the financial strength of Berkshire, upon whom the subsidiaries rely 

for credibility and support. 1 Non-insurers like AUi do not receive ratings from A.M. Best. 

However, AUCRA, despite its status as an insurer, is "not rated" by A.M. Best and is therefore 

not subject to their due diligence. AUi and Berkshire market the RPA to small to medium-sized 

companies seeking to purchase workers compensation insurance at a discount from publicly 

filed-rates. Despite being entitled a "Reinsurance Participation Agreement," the RPA states on its 

face that it is "for purposes of investment only." See Exhibits 1-B and 1-L. The function of the 

RP A is for small to medium-sized companies to exchange fixed workers compensation payments 

in favor of risky, variable returns on investment in the manner of a total return swap. 

Generally, companies wishing to purchase workers compensation insurance from AUi 

receive a "Workers Compensation Program Proposal & Rate Quotation." See Exhibit 2. AUi ties 

the offering of any insurance benefits to mandatory participation in the RPA by way of a 

"Request To Bind Coverages & Services." See Exhibit 1-A. We have also enclosed a United 

States Patent (Patent No. 7,908,157) acquired by AUi in 2011 for a "reinsurance participation 

plan." See Exhibit 3 (the "Patent"). A promissory note executed by Breakaway in favor of AUi 

is annexed to the Complaint as Exhibit 1-K. 

The legality of the RPA is currently being litigated by other companies and insurance 

regulators in various proceedings throughout the United States. In one such proceeding, In the 

Matter of Shasta Linen v. California Insurance Company, AHB-WCA-14-13 ("Shasta Linen"), 

the Insurance Commissioner of the State of California determined that the RP A was illegal and 

void as a matter of law and concluded that the RP A scheme was devised with the express goal of 

avoiding regulators, such as the Commissions. See Exhibit 1-E. Shortly thereafter, AUI's 

subsidiaries sought judicial review of the Shasta Linen decision. In that filing, AUi' s subsidiaries 

stated as follows: "The RPA is not an insurance policy. It provides no insurance coverage[.]" See 

Verified Petition for a Peremptory Writ of Mandate and Complaint, Case No. BS163243 (July 1, 

2016) at<][ 72. 

Section II 

The Economic Characteristics and Purpose of the Agreement 

The allegations of the Complaint, decision in Shasta Linen and the other available 

evidence clearly demonstrate that the RPA is a complex derivative that was purposely designed 

to evade regulation and which allows AUi and its affiliates to deceive consumers by promising 

rates below the publicly-filed workers compensation rates. 

1 http://www3.ambest.com/ambv/bestnews/presscontent.aspx?altsrc=l&refnum=24532 
February 2, 2017 

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For over 20 years, AUI has marketed its programs directly to regular individuals at small 

to medium-sized businesses through a distribution network system of independent insurance 

brokers and agents across the country.2 See also Exhibit 1, <J[ 45. AUI has become a sizeable 

company. By 2003, it had premium volume of over a billion dollars. 3 AUI was purchased by 

Berkshire in or around 2006.4 

Neither Berkshire or AUI are licensed to do the business of insurance in any jurisdiction 

within the United States. See Exhibit 1, <J[<J[ 52, 113, 151. In a 2016 media report in response to 

the nationwide litigation, general counsel for AUI stated that it "is not an insurance company.5

" 

In another report he boasted about his "innovative product," observin~ that "sometimes when 

you have an innovative product, regulators take a while to catch up to it. " 

The RPA is presented to consumers with a bold-faced title of "Reinsurance Participation 

Agreement." See Exhibits 1-B and 1-L. Consumers are led to believe that it is a "profit-sharing" 

"reinsurance" arrangement. See Exhibit 1, <J[<J[ 44-47. To insurance regulators, the RPA is 

represented as being "for purposes of investment only." See Exhibits 1-B and 1-L, <J[ 3. When 

AUI is in Court, the RPA is characterized both as reinsurance and an investment depending on 

what argument is being made. During oral argument in Breakaway v. Applied, counsel for AUI 

stated as follows: 

"Because, and I am looking now at Exhibit B, the RPA, if you look at paragraph 3 of it, 

specifically says, "participant", that's Breakaway, "is participating in this agreement for 

purposes of investment only." It's not an insurance policy. What it actually is, is a captive 

reinsurance arrangement, and it allows Breakaway, in this instance, to put money into, 

capitalize a cell, its owned individual, its own individual cell in this reinsurance 

agreement, and then, if it turns out that the losses are lower, they are going to get, in the 

end, lower costs on their insurance." 

See Exhibit 4 (Tr. Oral Arg., November 1, 2016, 36:22-37:7) 

Counsel for AUI has made similar representations in other sworn filings as well. See 

Brief For Defendant-Appellant Applied Underwriters, South Jersey Sanitation Co. v. Applied 

Underwriters, No. 13-cv-06717 (Doc. No. 003112015681, July 13, 20l5)("South Jersey"). In 

South Jersey, counsel for AUI represented as follows to the Court of Appeals for the Third 

Circuit: 

"South Jersey mischaracterizes the RPA as an agreement concerning an insurance policy 

and thus unenforceable under Nebraska law. To the contrary, the RPA is not an 

agreement concerning an insurance policy. Rather, the RPA is a contract whereby South 

Jersey, for 'investment' purposes would 'share in the underwriting results of the Workers' 

2 

www.auw.com 

3 www.roughnotes.com/rnmagazine/2003/june03/06p82.htm 

4 www.businesswire.com/news/home/20060208005272/en/Berkshire-Hathaway-Acquire-Applied-Underwriters 

5 www .insurancejournal.com/news/national/2016/ 10/03/428268.htm 6 www.bloomberg.com/news/articles/2016-11-04/buffett-backed-insurer-keeps-getting-sued-over-complex-products 
February 2, 2017 

Page4 

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Compensation policies of insurance issued' to where AUCRA, through a series of 

reinsurance contracts, had financial exposure on a number of workers' compensation 

policies, including the South Jersey policy. The RPA offered absolutely no insurance 

coverage to South Jersey for workers' compensation insurance. There was no named 

insured, no coverage identified and no premium set forth." 

Id. at p. 28-29. 

The Patent for the "reinsurance participation plan" owned by AUi is perhaps the clearest 

demonstration of the actual purpose and effect of the RP A. See Exhibit 3. Although the Patent 

purports to be a "reinsurance participation plan" that is "generally in the field of insurance," the 

Summary of the Invention demonstrates that the RPA is an investment that purposely shifts 

nearly unlimited risk back on the insured. Id. at p. 5. The Patent's stated intention is to provide 

insurance for a small to medium-sized company's "perceived risk" while at the same time 

allowing the insurance carrier to "collect enough premium to cover all expended losses." Far 

from being a "profit-sharing plan," the Patent reveals that the RPA is, in fact, a "risk sharing 

plan," whereby the reinsurance company will "in turn, provide[] a risk sharing participation 

program to the insured." Id. 

Section III 

The Requesting Person's Determination 

In Breakaway v. Applied, Breakaway asserts that the RPA is a fraud on unsophisticated 

small business owners who think they are getting insurance with a profit upside. Instead, 

companies like Breakaway are receiving what is characterized as an "investment" into an 

insurance-linked security. See Exhibits 1 and 1-B. Evidence submitted by AUi supports this 

characterization. See Exhibits 3 and 4. By entering into the RPA, insureds swap fixed payments 

(fixed workers compensation insurance payments) for payments based on the return of an 

underlying asset, in this case the gains and losses of the protected cell. See Exhibit 1-K. The 

RPA is sold as a private placement, and purports on its face to be an investment. See Exhibits 1-

B and 1-L. It is therefore Breakaway's belief that the RPA should be characterized as a swap 

and/or a mixed swap based on an insurance linked security. 

New York Insurance Law Section forbids unlicensed insurers from doing the business of 

insurance or collecting any funds in New York. New York State has a strong interest in ensuring 

that New York insureds have sufficient funds to pay out losses for injured workers and that the 

funds are available to protect workers. Upon information and belief, none of the funds collected 

by AUi were ever deposited into licensed insurers. State regulators and rating agencies are 

misled regarding the financial health of the insurers because they are shown documents which 

purport to show that the licensed entities have sufficient reserves, but which in actuality are 

nothing more than mere bookkeeping entries. The risk of financial collapse where entities owned 

by the same entity insure each other, thereby concentrating risk is grave -- particularly where, as 

here, there appears to be no parental guarantee from Berkshire Hathaway. See New York 

Department of Financial Services, Shining a Light on Shadow Insurance: A Little-known 
February 2, 2017 

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Loophole That Puts Insurance Policyholders and Taxpayers at Greater Risk (June 2013); 7 see 

also A.M. Best, A.M. Best Revises Outlooks to Negative For California Insurance Company and 

Its Affiliates (October 19, 2016) ("negative rating actions could result if operating performance 

performs markedly short of A.M. Best's expectations, if there is a considerable deterioration in 

the group's risk-adjusted capitalization, the group's business profile suffers as a result of 

reputation damage or if A.M. Best determines that the group's strategic importance to its 

ultimate parent (Berkshire Hathaway Inc.) no longer warrants rating enhancement.")8 

The McCarran-Ferguson Act (the "Act") provides that state law shall govern the 

regulation of insurance and that no act of Congress shall invalidate any state law unless the 

federal law specifically relates to insurance. See 15 U.S.C.A. § 1011, et seq. The Act thus 

mandates that a federal law that does not specifically regulate the business of insurance will not 

preempt a state law enacted for that purpose. A state law has the purpose of regulating the 

insurance industry if it has the "end, intention or aim of adjusting, managing, or controlling the 

business of insurance." U.S. Dept. of Treasury v. Fabe, 508 U.S. 491, 113 S. Ct. 2202 (1993). 

Accordingly, a lack of federal regulatory guidance has permitted AUi to conceal risk 

from state regulators, thus warranting a determination of whether the RPA constitutes a swap. 

AUI's RPA instrument satisfies the elements of 7 U.S.C.A. § la(47)(A), which defines a "swap", 

and 7 U.S.C.A. § la(47)(D), which defines a "mixed swap". AUi is a self-proclaimed financial 

services company that, in the RPA, sells an investment vehicle whose value is based on the 

"commodities, securities, instruments of indebtedness, indices, quantitative measures or other 

financial or economic interests or property of any kind." 7 U.S.C.A. § la(47)(A)(i). The RPA 

provides that payment or delivery is dependent on "the occurrence, nonoccurrence, or the extent 

of the occurrence of an event or contingency associated with a potential financial, economic, or 

commercial consequence." 7 U.S.C.A. § la(47)(A)(ii). The RPA provides that financial risk is 

transferred without conveying a current or future direct ownership interest in an asset. 7 

U.S.C.A. § la(47)(A)(iii). The RPA also meets the definition of a mixed swap pursuant to 7 

U.S.C.A. § la(47)(D) in that the swap is based on a security or loan - the profits or losses of the 

protected cell. See also 15 U.S.C.A. § 78c(68)(A) and (D). 

These statutory requirements are met via the text of the RP A as well as the practical 

purpose and effect of the RPA in conjunction with the other agreements. The RPA provides, in 

pertinent part as follows: 

"Participant is participating in this Agreement for purposes of investment only. The 

Participation has not been registered under the United States Securities Act of 1933, as 

amended or any state securities laws." 

See Exhibit 1-B, CJ{ 3. 

This type of arrangement has been identified by A.M. Best, but only where the derivative 

is being sold to a capital market participant (such as a bank). In an August 16, 2016 report 

7 http://www.dfs.ny.gov/reportpub/shadow_insurance_report_2013.pdf 

8 http://www3.ambest.com/ambv/bestnews/presscontent.aspx?altsrc=l&refnum=24532 
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entitled "Rating Reinsurance/Insurance Transformer Vehicles," A.M. Best provides a diagram 

explaining how reinsurance special purpose vehicles are used as "transformers" for insurance 

linked securities. 9 However, unlike in the arrangement described by A.M. Best, the RPA is 

targeted directly at small to medium-sized businesses unaware of the risks placed on them rather 

than sophisticated capital market participants. 

The value of the investment into the RPA is based upon insured loss events, making the 

RPA an "insurance linked security". See 15 U.S.C.A. § 78c(68)(A). The investor swaps a fixed 

insurance payment (see Exhibits 1-K and 2) for the variable returns on that underlying 

insurance linked security. The initial cash flows on the swap induce buyers to purchase because 

those cash flows are promised to be a discount in comparison to state-filed rates. However, when 

losses occur, payments due on the swap balloon because all of the credit risk for payment of the 

underlying insurance claims is shifted back to the buyers. The delivery of funds are dependent on 

underlying occurrences and the financial risk is transferred without the conveyance of a current 

or future ownership interest in an asset. See 7 U .S.C.A. § 1 ( 4 7)(A)(ii)-(iii). The practical effect of 

the foregoing is that the RP A functions as either a swap or a mixed swap based upon an 

insurance linked security. See 7 U.S.C.A. § 1(47)(A). 

Section IV 

Such Other Information As May Be Necessary 

Due to the numerous litigations regarding the illegality of the RPA under state insurance 

laws (e.g. Breakaway v. Applied, South Jersey and Shasta Linen) there is a multitude of 

additional publicly-available documentation which may be helpful to the CFTC and SEC's 

determination of the character and purpose of the RPA pursuant to 17 C.F.R. § 1.8. To the extent 

the Commissions require any additional documentation, Dunnington, Bartholow & Miller will 

provide it upon request. 

Thank you for your attention to this letter. 

Respectfully yours, 

Raymond J. Dowd 

Encl. 

9 http://www3.ambest.com/ambv/ratingmethodology/OpenPDF.aspx?rc=227390 
1

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

--------------------------------------------------------------X

BREAKAWAY COURIER CORPORATION, d/b/a

BREAKAWAY COURIER SYSTEMS

Plaintiff,

-against - 

BERKSHIRE HATHAWAY INC.,

CALIFORNIA INSURANCE COMPANY,

COMMERCIAL GENERAL INDEMNITY INC.,

APPLIED UNDERWRITERS, INC., A NEBRASKA 

CORPORATION, 

APPLIED RISK SERVICES, INC., A NEBRASKA 

CORPORATION, 

APPLIED RISK SERVICES OF NEW YORK, INC.,

A NEW YORK CORPORATION,

ARS INSURANCE AGENCY, INC.,

NORTH AMERICAN CASUALTY COMPANY, A 

NEBRASKA CORPORATION, 

CONTINENTAL INDEMNITY COMPANY, AN 

IOWA CORPORATION and 

APPLIED UNDERWRITERS CAPTIVE RISK 

ASSURANCE COMPANY, INC., AN IOWA 

CORPORATION

Defendants.

--------------------------------------------------------------X

Index No.

VERIFIED COMPLAINT

Plaintiff, Breakaway Courier Corporation d/b/a Breakaway Courier Systems 

(“Breakaway”) by and through its undersigned counsel, Dunnington Bartholow & Miller LLP, as 

and for its Verified Complaint against Defendants, alleges as follows:

PRELIMINARY STATEMENT

Breakaway is a New York City based company founded in 1988 with roughly three 

hundred employees that attempted to purchase legally-required workers’ compensation insurance 

FILED: NEW YORK COUNTY CLERK 09/09/2016 05:36 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 09/09/2016

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from Defendants. Instead, Breakaway became the victim of Defendants’ illegal and fraudulent 

scheme to steal insurance premiums and to expose Breakaway and its injured workers to 

unlimited risk. 

In violation of multiple provisions of New York Insurance Law, Defendants developed a 

complex scheme, targeted at New York consumers, to cause an unlicensed foreign insurance 

company to divert insurance premiums to yet another entity unlicensed by New York State and 

to unlawfully enrich themselves by siphoning those premiums off to defendant Berkshire 

Hathaway, its principals and its affiliates through a web of under-collateralized shell companies

described in relevant part below (the “Berkshire Hathaway Group”). On June 20, 2016, the 

scheme was declared illegal and void by the California Department of Insurance in Matter of 

Shasta Linen Supply, Inc. (AHB-WCA-14-31) (“Shasta”).1

Defendants’ fraudulent scheme is essentially a reverse Ponzi scheme. Defendants 

promise New York insureds such as Breakaway (1) discounted workers’ compensation 

insurance; (2) a share in underwriting profits from workers’ compensation insurance policies; (3) 

rewards for low incurred losses. Instead, the unsuspecting victims have signed a “Reinsurance 

Participation Agreement” (“RPA”) - a complex derivative instrument that shifts all risk of losses 

from worker injuries back onto the insureds. Unlike the publicly-filed, facially-valid workers’ 

compensation insurance policies, the RPAs are strictly-prohibited side agreements that materially 

alter the terms of the workers’ compensation insurance policy. Unlike a Ponzi scheme where 

early victims are paid with the investments of others, Berkshire Hathaway’s reverse Ponzi 

scheme requires insureds to cover each other’s losses. During this time, victims are led to 

believe that their “capital” is being paid into “protected cells” which will eventually be returned 

 

1

Attached hereto as Exhibit “E”.

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to them. Instead, Berkshire Hathaway illegally siphons off premiums through an unlicensed, 

unregistered and undercollateralized Hawaiian entity, leaving New York employers and injured 

workers without the funds that New York State requires to be available to cover losses due to 

worker injuries.

Workers’ compensation insurance in New York is highly regulated. New York law 

requires that insurers acquire “guaranteed-cost insurance” to protect injured workers. Over the 

last 100 years, actuaries have developed standards to predict how many injuries will be suffered 

by each type of worker with reasonable certainty. Actuaries generally calculate overall losses 

due to workplace injuries at 70% of each premium dollar collected. New York regulators require

that licensed New York insurers collect and preserve enough premiums to cover anticipated 

losses. As explained below, because Defendants’ illegal premium rates are calculated based on a 

lowball loss ratio, New York insureds will shortly be hit with crippling claims for losses and 

have no collateral reserved to protect injured workers.

By side-stepping New York regulations, Defendants have violated New York law and 

placed New York employers, injured workers and ultimately New York taxpayers at risk by 

causing employers such as Breakaway to enter into the RPA - an illegal, complex derivative 

instrument analogous to what is known on Wall Street as a “total return swap”. As injured New 

York workers make claims, Defendants use the RPA to hit New York insureds with huge, illegal 

premium bills – the functional equivalent of a “margin call”. As Shasta explains, this illegal 

scheme was concocted with the express goal of avoiding insurance licensing laws of the various 

states, including New York. Defendants’ scheme relies on withholding information from state 

regulators. The scheme has indeed put all of New York’s taxpayers at risk. Regulators in 

California, Vermont and Wisconsin have all condemned this scheme as illegal.

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Defendants have also concentrated risk by having affiliated entities cede risk to each 

other in a collusive manner, known as “shadow insurance”. In 2013, New York’s Department of 

Financial Services issued a scathing report attacking similar “shadow insurance” schemes and 

describing how such schemes put New York taxpayers at massive risk.

Plaintiff Breakaway is a victim of this illegal nationwide scheme. Breakaway is a bicycle 

courier service operating mainly in Manhattan. Breakaway was induced, to sign a “Profit 

Sharing” “Reinsurance Participation Agreement” (“RPA”) pursuant to which Defendants 

promised that Breakaway’s premiums would be held in a “protected cell” and that Breakaway 

would participate in the “underwriting results” of its workers’ compensation insurance. Unless 

Breakaway signed the RPA, it would not receive a workers compensation insurance policy. 

The RPA and the proposal that accompanied it promised Breakaway that its rates for 

workers’ compensation insurance would initially be lower than those rates required by New 

York’s regulators for guaranteed cost workers’ compensation insurance policies pursuant to rates 

filed by each licensed insurer. Under New York law, charging lower rates than the rates filed by 

a licensed insurance company with New York State is illegal. Breakaway did not know and had 

no reason to believe that the RPA was illegal. Under the pressure of boiler-room type tactics

described in Shasta, Breakaway signed the RPA. As explained in Shasta, in violation of New 

York law, the RPA contained an illegal and severe penalty for termination or non-renewal. 

Instead of a one-year guaranteed cost policy authorized by New York law, the RPA illegally 

required Breakaway to make a three-year commitment to purchase workers compensation 

insurance through Berkshire Hathaway.

Rather than collecting Breakaway premiums through a New York-licensed entity, the 

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Berkshire Hathaway Group caused an unlicensed Nebraska Corporation to collect Breakaway’s 

premiums, ostensibly for deposit into another unlicensed Berkshire Hathaway-owned British 

Virgin Islands “protected cell”. The money literally disappeared—illegally swept into an 

unlicensed Hawaiian entity—and has not been accounted for, despite due demand.

Not only is it illegal to sell reinsurance to an insured in New York, it is also illegal to 

rebate underwriting proceeds to an insured or to make misleading statements in connection with 

the sale of insurance in New York. The Donnelly Act provides treble damages and forbids 

persons with market power in the reinsurance market such as the Berkshire Hathaway Group to 

tie illegal investment products such as the RPA (the tied product) or payroll processing services 

(another tied product) to statutorily-mandated insurance (the tying product). Because Breakaway 

was damaged by Berkshire Hathaway’s illegal tying scheme which is an unlawful restraint of 

trade, treble damages are warranted.

But according to actuarial calculations, Breakaway’s damages are just beginning and thus 

Breakaway seeks urgent relief from the Court. In New York, injured workers file claims long 

after the coverage period has ended. Despite its misleading and contradictory language 

promising “profits” and “insurance” and a “protected cell” – the RPA has been interpreted by 

Berkshire Hathaway as placing ALL of the risk of loss from claims back onto the insured. The 

RPA’s terms (as interpreted by Berkshire Hathaway) provide that insureds such as Breakaway 

will be—and indeed have been—billed by the Berkshire Hathaway Group for every single loss 

their injured employees suffer, compounded by a multiplier.

As explained below, this scheme is a fraudulent broadside attack on the safety and 

solvency of New York’s workers compensation insurance scheme. Because the RPA, through 

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misleading, contradictory and opaque language, shifts all of the risk of loss back onto the insured 

employer, usually targeting small businesses like Breakaway lacking in commercial 

sophistication, it creates a massive systemic risk of undercollateralization that threatens all New 

Yorkers. 

Breakaway urgently requires this Court’s protection from the risk to which it has been 

exposed. New York Insurance Law Sec. 1213(c) requires that unlicensed insurers operating in 

New York or collecting premiums from New York insureds post a bond prior to being permitted 

to assert defenses or claims in a New York State Court. Breakaway requests such a bond. In 

determining the reasonable amount of a bond to protect Breakaway’s interests, a bond in the 

amount of value at risk (“VaR”) which Berkshire Hathaway’s RPA seeks to impose upon 

Breakaway is a fair measure of the required bond. As detailed below, this Court should set a 

bond of not less than $6,061,659.02 as a condition of the various members of the Berkshire 

Hathaway Group appearing in or defending this action.

A. Background

Workers Compensation Insurance – New York Law and Public Policy

1. The Triangle Shirtwaist Factory fire in Manhattan, New York City on March 25, 

1911 was the deadliest industrial disaster in the history of the city, and one of the deadliest in US 

history. It was the greatest workplace disaster in New York until the attack on the World Trade 

Center on September 11. 

2. The fire galvanized labor and led to many reforms in safety, health, and labor 

laws. It helped lead to the workers' compensation insurance system here in New York and across 

the country. New York enacted a no–fault workers' compensation system for nearly a century. 

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Before enactment of the Workers' Compensation Law, when a worker was injured, the only 

remedy was to sue in the courts. When that happened, the employer could always raise an 

objection that the worker had assumed the risk of employment, or the injury was caused by the 

worker's negligence or that of another worker. The “no fault” system eliminated such employer 

defenses.

3. Today, New York’s Workers' Compensation Law guarantees both medical care 

and weekly cash benefits to workers who are injured on the job. Weekly cash benefits and 

medical care are paid by the employer's insurance carrier, as directed by the Workers' 

Compensation Board. Employers pay for this insurance, and may not require the employee to 

contribute to the cost of compensation. 

4. Importantly, there is no “cap” on liability for New York employers. If a worker 

reports an injury even a decade after employment, the employer is liable.

5. The paramount interest of New York in worker and workplace safety and in 

ensuring funds to pay for injuries has led New York to enact and maintain one of the toughest 

insurance laws in the nation to ensure that insurance companies operating in New York are wellcollateralized.

6. When insurance companies fail, the taxpayers of New York are liable for any 

shortfalls by and through the New York State Insurance Fund. 

7. Thus the protections of the Insurance Law of the State of New York embody a 

fundamental public policy choice of the people of the State of New York to adequately protect 

workers and closely monitor the activities of insurers.

B. Parties And Jurisdiction

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8. Breakaway is a domestic corporation with a principal place of business at 444 

West 36th Street, New York. 

9. Breakaway is a New York City-based company that has been in business for more 

than twenty (20) years and provides courier and delivery services as well as warehousing, 

logistics and temporary office support services. 

10. Upon information and belief, Berkshire Hathaway Inc. is a Delaware corporation 

with a primary place of business located at 3555 Farnam Street, Omaha, NE 68131.

11. Upon information and belief, Defendant Applied Underwriters, Inc. (herein 

referred to as "Applied Underwriters") is a Nebraska corporation located at 10805 Old Mill 

Road, Omaha, NE 68154, doing business in New York as an underwriter, issuer, reinsurer, 

claims handler and administrator of workers' compensation insurance policies.

12. Upon information and belief, Defendant Applied Risk Services, Inc. (herein 

referred to as "ARS") is a Nebraska corporation located at 10805 Old Mill Road, Omaha, NE 

68154.

13. Upon information and belief, ARS is a member of Berkshire Hathaway Group, 

and is an affiliate and/or parent company to Co-Defendants’ Applied Underwriters Captive Risk 

Assurance Company, Inc. (“AUCRA”), North American Casualty Company, Applied Risk 

Services of New York, Inc., Applied Underwriters, Inc. and Continental Indemnity Company 

(collectively “Berkshire Hathaway Group”). 

14. ARS INSURANCE AGENCY, INC. is a Nebraska Corporation registered with 

the New York State Department of Financial Services License Number 937411 with a business 

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address of 10805 Old Mill Road, Omaha, NB 68154 as the property and casualty agent of 

Continental Indemnity Company and California Insurance Company.

15. Upon information and belief, defendant Applied Risk Services of New York, Inc. 

(“ARSNY”) is a domestic business corporation with an authorized agent located at 340 

Broadway, Saratoga Springs, New York 12866, and at all times referenced herein was, and is, 

AUCRA’s agent in New York serving as AUCRA’s billing and auditing agent. Accordingly, 

ARSNY is responsible for paying any sums due to AUCRA’s participants in New York State. 

According to New York Department of State records, ARSNY’s Chief Executive Officer, Steven 

Menzies, and its principal executive office are located at 10805 Old Mill Road, Omaha, NE, 

68154.

16. Upon information and belief, ARSNY is a third party administrator licensed by 

the New York State Workers’ Compensation Board with offices located at 470 Park Avenue 

South, 12th Floor, New York, New York 10016. www.wcb.ny.gov/content/main/reps/tpalistingsec50_3bd.pdf

17. Upon information and belief, Defendant California Insurance Company is a 

California-domiciled corporation with its principal place of business located at 10805 Old Mill 

Road, Omaha, Nebraska 68154.

18. Upon information and belief, Defendant Applied Underwriters Captive Risk 

Assurance Company, Inc. (AUCRA, as defined above) is a company organized under the laws of 

Iowa, with a principal place of business and headquarters located at 10805 Old Mill Road, 

Omaha, NE 68154, and at all times referenced herein was, and is, doing business in the State of 

New York as a reinsurer which issues illegal reinsurance policies of insurance and/or reinsurance 

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agreements, including those which pertain to workers' compensation. 

19. According to a December 2013 California Insurance Department Examiner’s 

Report, AUCRA is owned by a series of holding companies that are ultimately owned by 

Berkshire Hathaway Inc. (owned 34.41% by Warren Buffett). Commercial General Indemnity, 

Inc. (“CGI”) and Applied Group Insurance Holdings, Inc. are Hawaii captives owned by AU 

Holding Company Inc. (Delaware) which is in turn owned by Sid Ferenc (holding a 7.5% 

interest), Steven Menzies (holding a 11.5% interest) and Berkshire Hathaway (holding an 81% 

interest), which in turn owns AUCRA and Continental. These holding companies receive

portions of premiums paid by New York insureds, such as Breakaway.

20. Commercial General Indemnity, Inc. (“CGI”) is an unlicensed, unrated Hawaii

captive insurance entity located at c/o AON Insurance Managers (USA) Inc., 201 Merchant 

Street, Honolulu, Hawaii 96813 registration number 113368D1.

21. Upon information and belief, Marc Tract, a partner in Katten Muchin Rosenman 

LLP, 575 Madison Avenue, New York, New York 10022 serves on the Board of Directors of 

AUCRA and in that role participates in AUCRA’s governance and directs AUCRA’s activities 

from his office located in the State, County and City of New York.

22. Upon information and belief, Defendant Continental Indemnity Company 

(“Continental”) is a company organized under the laws of Iowa, with a principal place of 

business and headquarters located at 10805 Old Mill Road, Omaha, NE 68154, and at all times 

referenced herein was doing business in the State of New York as an insurance carrier issuing 

policies of insurance including workers' compensation. 

23. Upon information and belief, defendant North American Casualty Co. d/b/a North 

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American Casualty Agency (“NAC”) is a Nebraska corporation licensed to do business in the 

State of New York. Upon information and belief, its executive office is located at 10805 Old 

Mill Road, Omaha, NE 68154. 

24. According to a September 11, 2012 report of the Insurance Commissioner of 

Pennsylvania, Warren Buffet is the sole ultimate controlling person of NACC, which is 100% 

owned by Applied Underwriters, Inc.

25. At all times herein mentioned, Defendants were and are “doing business” in the 

State of New York as defined in N.Y. Ins. Law § 1101(b). 

26. At all times herein mentioned, Defendants were engaged in the business of 

insurance in the State of New York and/or transacted business in the State of New York and/or 

committed tortious acts directed at and having an effect in the State of New York and are thus 

subject to general and specific jurisdiction in the State of New York. 

27. At all times herein mentioned, Defendants were coconspirators in an illegal 

scheme to defraud Breakaway of insurance premiums and insurance coverage and were the

agents, servants, and employees of the other named Defendants, and were acting within the 

scope of their agency and employment, and with the knowledge and consent of their principal 

and employer. As described in Shasta at 10-11, the corporate officers of the various Berkshire 

Hathaway entities are almost identical in each of the affiliated entities, with Warren Buffet 

having ultimate control.2

C. Relevant Provisions Of The New York State Insurance Law 

 

2

Exhibit “E” In Re Application of North American Casualty Co. in Support of the Request for Approval to Acquire 

Control of Pennsylvania General Insurance Company dated September 11, 2012.

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28. New York Insurance Law §2102 requires insurance producers, adjusters, brokers 

and reinsurance intermediaries to be licensed and forbids unlicensed actors to collect fees for

certain insurance-related activities. 

29. New York Insurance law §2117 forbids any person, firm, association or 

corporation to act as agent for, to assist in any way in effectuating an insurance contract or to act 

as a broker for an unlicensed insurer. 

30. New York Insurance Law §1101 defines “insurance contract” as “any agreement 

or other transaction whereby one party, the “insurer”, is obligated to confer benefit of pecuniary 

value upon another party, the “insured” or “beneficiary”, dependent upon the happening of a 

fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such 

happening, a material interest which will be adversely affected by the happening of such event.

31. New York Insurance Law §1101 defines doing business in New York State as 

“making, or proposing to make, as insurer, any insurance contract, including either issuance or 

delivery of a policy or contract of insurance to a resident of this state or to any firm, association, 

or corporation authorized to do business herein, or solicitation of applications for any such 

policies or contracts.”

32. New York Insurance Law §2101(k) states that an “insurance producer” means an 

insurance agent, title insurance agent, insurance broker, reinsurance intermediary, excess lines 

broker, or any other person required to be licensed under the laws of this state to sell, solicit or 

negotiate insurance.

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33. On January 1, 2011 an Emergency Regulation came into effect in 

New York State requiring insurance producers to disclose compensation. 

11NYCRR 30.3 (“Section 30.3”):

EMERGENCY REGULATION

(a) [...] an insurance producer selling an insurance contract shall disclose the 

following information to the purchaser orally or in a prominent writing at 

or prior to the time of application for the insurance contract:

(1) a description of the role of the insurance producer in the sale;

(2) whether the insurance producer will receive compensation from 

the selling insurer or other third party based in whole or in part on the 

insurance contract the producer sells;

(3) that the compensation paid to the insurance producer may vary 

depending on a number of factors, including (if applicable) the 

insurance contract and the insurer that the purchaser selects, the 

volume of business the producer provides to the insurer or the 

profitability of the insurance contracts that the producer provides to 

the insurer; and

(4) that the purchaser may obtain information about the compensation 

expected to be received by the producer based in whole or in part on 

the sale, and the compensation expected to be received based in 

whole or in part on any alternative quotes presented by the producer, 

by requesting such information from the producer.

(b) If the purchaser requests more information about the producer's 

compensation prior to the issuance of the insurance contract, the 

producer shall disclose the following information to the purchaser in a 

prominent writing at or prior to the issuance of the insurance contract, 

except that if time is of the essence to issue the insurance contract, then 

within five business days:

(1) a description of the nature, amount and source of any compensation 

to be received by the producer or any parent, subsidiary or affiliate based 

in whole or in part on the sale;

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(2) a description of any alternative quotes presented by the producer, 

including the coverage, premium and compensation that the insurance 

producer or any parent, subsidiary or affiliate would have received based 

in whole or in part on the sale of any such alternative coverage;

(3) a description of any material ownership interest the insurance 

producer or any parent, subsidiary or affiliate has in the insurer issuing 

the insurance contract or any parent, subsidiary or affiliate;

(4) a description of any material ownership interest the insurer issuing 

the insurance contract or any parent, subsidiary or affiliates has in the 

insurance producer or any parent, subsidiary or affiliate; and

(5) a statement whether the insurance producer is prohibited by law from 

altering the amount of compensation received from the insurer based in 

whole or in part on the sale.

(c) If the purchaser requests more information about the producer's 

compensation after issuance of the insurance contract but less than 30 

days after issuance, then the insurance producer shall disclose to the 

purchaser in a prominent writing the information required by subdivision 

(b) of this section within five business days.

(d) If the nature, amount or value of any compensation to be disclosed by the 

insurance producer is not known at the time of the disclosure required by 

subdivision (b) or (c) of this section, then the insurance producer shall 

include in the disclosure:

(1) a description of the circumstances that may determine the receipt 

and amount or value of such compensation; and

(2) a reasonable estimate of the amount or value, which may be stated 

as a range of amounts or values.

(e) If the disclosure required by subdivision (a) of this section is provided 

orally, then the insurance producer shall also disclose the information 

required by subdivision (a) of this section to the purchaser in a prominent 

writing no later than the issuance of the insurance contract.

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(f) An insurance producer shall not make statements to a purchaser 

contradicting the disclosures required by this section or any other 

misleading or knowingly inaccurate statements about the role of the

insurance producer in the sale or compensation.

34. New York Insurance Law §2324 forbids an insurer to rebate premiums to an

insured or to offer any valuable consideration or benefit as an inducement to enter into an 

insurance contract. The relevant provisions read as follows:

2324 (a) No authorized insurer, no licensed insurance agent, no licensed 

insurance broker, and no employee or other representative of any such 

insurer, agent or broker shall make, procure or negotiate any contract of 

insurance other than as plainly expressed in the policy or other written 

contract issued or to be issued as evidence thereof, or shall directly or 

indirectly, by giving or sharing a commission or in any manner whatsoever, 

pay or allow or offer to pay or allow to the insured or to any employee of the 

insured, either as an inducement to the making of insurance or after 

insurance has been effected, any rebate from the premium which is specified 

in the policy, or any special favor or advantage in the dividends or other 

benefit to accrue thereon, or shall give or offer to give any valuable 

consideration or inducement of any kind, directly or indirectly, which is not 

specified in such policy or contract, other than any valuable consideration, 

including but not limited to merchandise or periodical subscriptions, not 

exceeding twenty-five dollars in value, or shall give, sell or purchase, or 

offer to give, sell or purchase, as an inducement to the making of such 

insurance or in connection therewith, any stock, bond or other securities or 

any dividends or profits accrued thereon, nor shall the insured, his agent or 

representative knowingly receive directly or indirectly, any such rebate or 

special favor or advantage,[.....].

2324 (b) Within the meaning of subsection (a) hereof, the sharing of a 

commission with the insured shall be deemed to include any case in which a 

licensed insurance agent or a licensed insurance broker which is a subsidiary 

corporation of, or a corporation affiliated with, any corporation insured, 

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received commissions for the negotiation or procurement of any policy or 

contract of insurance for the insured.

35. It is unlawful in New York for an insurer to issue a workers’ compensation policy 

that varies from the policy language, endorsements and rates filed with the New York 

Compensation Insurance Rating Board (“NYCIRB”). New York Insurance Law §§ 2313, 2347; 

see also http://go.nycirb.org/dl/manwcel/wcel_main.cfm (a manual containing NYCIRB rules and 

procedures for filing forms and rates and penalties for failure to do so).

36. New York Insurance Law § 1213(c) requires that unauthorized foreign or alien 

insurers obtain a license or post security before appearing in a New York court. Therefore, to the 

extent any of Defendants are unauthorized, Breakaway requests that the Court set an appropriate 

bond prior to the filing of any pleading.

37. For the purposes of Insurance Law 1213(c), a Motion to Dismiss is a “pleading”.

Levin v. Intercontinental Cas. Ins. Co., 268 A.D.2d 205, 206, 700 N.Y.S.2d 683 (1st Dept. 2000) 

aff’d 95 N.Y.2d 523, 742 N.E.2d 109 (2000).

38. Workers’ compensation insurance is required in New York pursuant to the 

Workers’ Compensation Act of 1914 codified as a New York Workers’ Compensation Law. 

39. Workers’ compensation insurance may be purchased from New York State via the 

New York State Insurance Fund or through authorized private insurers. 

40. New York State requires approval of workers’ compensation insurance rates. 

Rates are computed based on the loss history for each type of job according to actuarial tables. 

Policies and endorsements must be filed with the New York Compensation Insurance Rating 

Board (“NYCIRB”). See New York Workers’ Compensation and Employers Liability Manual 

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available at http://go.nycirb.org/dl/manwcel/wcel_main.cfm.

41. New York Insurance Law § 2314 provides that “[n]o authorized insurer shall, and 

no licensed insurance agent, no title insurance agent, no employee or other representative of an 

authorized insurer, and no licensed insurance broker shall knowingly, charge or demand a rate or 

receive a premium that departs from the rates, rating plans, classifications, schedules, rules and 

standards in effect on behalf of the insurer, or shall issue or make any policy or contract 

involving a violation thereof.” 

D. Facts

a. Breakaway Seeks Workers’ Compensation Insurance And Enters Into 

The Fraudulent And Illegal Request To Bind

42. In 2009 Breakaway sought to purchase workers’ compensation insurance.

43. In 2009, Breakaway was presented with a recommendation by its broker that it 

purchase “Premier Exclusive” workers’ compensation insurance through Applied.

44. Consistent with Berkshire Hathaway’s representations that Applied’s services 

provided risk-reduction and profit sharing services, Breakaway was presented with sales materials 

describing a profit-sharing plan that would save Breakaway money on workers compensation 

insurance premiums with “maximum” and “minimum” premiums that would, at the same time, 

permit Breakaway to participate in underwriting profits. 

45. According to the 2013 annual report of Berkshire Hathaway:

Applied Underwriters, Inc. (“Applied”) is a leading provider of payroll and 

insurance services to small and mid-sized employers. Applied, through its 

subsidiaries principally markets SolutionOne®, a product that bundles 

workers’ compensation and other employment related insurance coverages 

and business services into a seamless package that is designed to reduce the 

risks and remove the burden of administrative and regulatory requirements 

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faced by small to mid-sized employers. Applied also markets 

EquityComp® which is a workers’ compensation–only product targeted to 

medium sized employers with a profit sharing component. 

(http://www.berkshirehathaway.com/2013ar/201310-K.pdf)

46. However, in order to purchase workers’ compensation insurance from Applied 

Underwriters, Breakaway was required by Berkshire Hathaway Group to first enter into a 

coercive and illegal “Request to Bind Coverages & Services” that required Breakaway to waive 

rights guaranteed by New York law, such as the right to choose a deductible for a guaranteed 

cost workers’ compensation plan. The “Request to Bind” also required that Breakaway execute 

a RPA with AUCRA. Attached hereto as Exhibit A is a true copy of the Request to Bind 

Coverage & Services. 

47. Rather than provide the workers’ compensation insurance Breakaway requested 

and reasonably was led to believe it had purchased, Defendants induced Breakaway to enter into 

an illegal “reinsurance” scheme styled as a “Profit Sharing Plan” under the brand name “Premier 

Exclusive” to share in “underwriting results.” 

48. According to the Request to Bind, the Premier Exclusive plan required a minimum 

commitment to purchase workers’ compensation insurance of three (3) years. 

49. The Request to Bind required, as a condition of participating in a “Profit Sharing 

Plan” in which it would be issued workers’ compensation insurance, that Breakaway waive its 

right to select a deductible as guaranteed by New York law in the case of guaranteed cost 

workers’ compensation insurance policies.

50. The Request to Bind’s requirement of a three-year commitment is illegal and void 

under New York law because it purports to modify the conditions of a workers’ compensation 

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policy and, upon information and belief, the terms of the Request to Bind have not been 

disclosed to NYCIRB.

51. The Request to Bind is fraudulent and misleading because Breakaway was 

induced to purchase Premier Exclusive based upon the representation that Breakaway would 

become part of a plan to share underwriting profits related to workers’ compensation insurance 

premiums in violation of the Insurance Law. 

52. In fact, by executing the Request to Bind, Breakaway was induced to enter into an 

illegal “reinsurance” scheme through which insurance premiums were siphoned off through 

AUCRA, an entity that is unlicensed to engage in the business of insurance in New York, and 

transferred outside the State of New York to AUCRA affiliates.

53. Breakaway does not know the location of its premium payments and the amounts 

being held by or under the control of AUCRA or its affiliates have not been accounted for 

despite demand.

b. Breakaway Is Required To Enter Into The Illegal And Void RPA

54. The aforementioned “reinsurance” scheme was presented in the form of the RPA

to Breakaway as an “investment” that would permit Breakaway to pay lower insurance 

premiums as well as save and recoup money by receiving premium rebates if there was an 

underwriting profit. A true copy of the 2009 RPA is annexed hereto as Exhibit B. 

55. As set forth in the July 2009 Plan Analysis, the premium quote estimated, for a 

three-year period, a “Projected 3-year Plan Maximum Cost” of $403,161 and a “Projected 3-year 

Plan Minimum Cost” of $105,442 (or $134,387 annual maximum and $35,147 annual

minimum). Attached hereto as Exhibit C is a true copy of a July 1, 2009 Applied Underwriters 

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Premier Exclusive “Plan Analysis” issued to Breakaway. Attached hereto as Exhibit D is a true 

copy of a Plan Analysis issued to Breakaway for January 2012 to April 2012. 

56. Upon information and belief, Berkshire Hathaway Group knew or should have 

known that these maximums and minimums were vastly understated and fraudulently used these 

low figures to lure Breakaway into executing the RPA with the intention of charging a much 

higher rate that could not be determined by Breakaway based upon the documents it was 

provided by Defendants.

c. The Berkshire Hathaway Group’s Reinsurance Scheme Is Declared To 

Be Illegal

57. On June 20, 2016, the Insurance Commissioner of the State of California affirmed 

a decision in Shasta Linen Supply, Inc. v. California Insurance Company File AHB-WCA-14-13 

concluding that Berkshire Hathaway Group’s RPA is an illegal scheme designed to avoid state 

regulators and directing Applied to return funds to plaintiff Shasta Linen Supply, Inc. A copy of 

this decision is annexed hereto as Exhibit E.

58. Perhaps even more alarming than the California Department of Insurance’s Shasta 

decision, a 2013 Iowa Insurance Examiner’s report of AUCRA appears to indicate that AUCRA 

is not putting any client insurance premiums into “protected cells”. Instead, AUCRA pays one 

of its affiliates an excessive and highly dubious “reinsurance” fee in excess of $120,000,000 for 

2013 alone. Attached hereto as Exhibit F is a true and correct copy of the 2013 Iowa Insurance 

Examiner’s Examination Report of Applied Underwriters Captive Risk Assurance Company, 

Inc. As set forth therein, AUCRA commenced operations in Iowa on 2011 and the 2013 

Examination Report is the first report issued concerning AUCRA. 

59. The 2013 Iowa report suggests that the Hawaii captive CGI gets the funds through 

a collusive “excess loss agreement” that siphons off the very funds that Breakaway was induced 

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to believe would be returned as “profit” to Breakaway.

60. Upon information and belief, in this way CGI “sweeps” all monies left in 

AUCRA (which should rightfully have been held in Breakaway’s “protected cell”) out of CGI 

and upon information and belief pays such monies to the shareholders of Berkshire Hathaway

d. The Berkshire Hathaway Group’s Illegal Actions Harm Breakaway

61. Following execution of the RPA, workers’ compensation policies were issued to 

Breakaway by Continental Indemnity Company between 2009 and 2013. A true copy of the 

2010-2011 policy is attached hereto as Exhibit G. A true copy of the 2011-2012 policy is 

attached hereto as Exhibit H. A true copy of the 2012-2013 policy is attached hereto as Exhibit 

I. A true copy of the 2013-2014 policy is attached hereto as Exhibit J. 

62. Applied billed Breakaway, and Breakaway paid workers’ compensation premiums

in the amount of $863,048.74 during the Policy Period. 

63. As explained below, the RPA’s terms were so obscure as to be unintelligible and 

AUCRA has interpreted the RPA’s in such a manner to shift unlimited liability back onto 

Breakaway while retaining the funds that Breakaway believed were deposited in a protected cell 

as an investment. In sum, Breakaway never received the workers’ compensation it sought but 

instead purchased an alleged investment vehicle in the form of reinsurance that reflects all risk 

and unlimited liability back on to the insured. Moreover, Breakaway paid more in premiums 

than authorized by law.

64. It is illegal to sell reinsurance to a non-insurer in New York. Despite this, 

defendant AUCRA—by an illegal reinsurance scheme—impermissibly sells and delivers RPAs 

within New York that purport to amend the terms of publicly filed and facially valid workers’ 

compensation employment insurance policies to non-insurers, such as Breakaway.

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65. At all times, AUCRA represented, and Breakaway reasonably believed that it was 

paying premiums for workers’ compensation insurance. 

66. For example, on April 16, 2012, AUCRA demanded, and Breakaway executed a 

promissory note to AUCRA in the amount of $110,348.40 for amounts due under the RPA. A 

true copy of the promissory note is annexed hereto as Exhibit K.

67. The promissory note states as follows at paragraph 7:

Cancellation of Workers’ Compensation Policy. Maker acknowledges that the amount 

due under this Note represents unpaid workers’ compensation premium. As a result, in 

the Event of a Default under Paragraph 4(a), Holder may cause any workers’ 

compensation policy issued to Maker to be cancelled in accordance with the insurance 

laws of the state in which the Maker’s principal place of business is located. (Ex. K

emphasis supplied)

68. As set forth in the Request to Bind Coverage and Services, issuance of the 

workers’ compensation insurance policy from an affiliate of Berkshire Hathaway Group is 

contingent upon the applicant’s execution of a RPA issued by AUCRA. (See Exhibit A). 

69. Breakaway executed an RPA effective as of July 1, 2009. The RPA is also 

executed by:

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, 

INC., SOLELY FOR AND ON BEHALF OF PROTECTED CELL NO. 816280

(See Exhibit B). 

70. Thus, AUCRA never executed the RPA.

71. Thereafter, AUCRA caused Continental to issue workers’ compensation insurance 

policies to Breakaway for the years 2009-2012 (the “Policies”).

72. During the Policy Period, July 1, 2009 to November 6, 2013, Breakaway paid 

$863,048.74 to Berkshire Hathaway Group for workers compensation premiums. 

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73. Upon information and belief, Breakaway paid far more in workers’ compensation 

premiums than permitted by New York law. 

74. The Premier Exclusive Policies expired on June 30, 2012. 

75. In or about early June of 2012, Lloyd Ferenc of Applied Underwriters offered 

Breakaway two renewal options: a yearly renewal of the existing plan or a three-year renewal 

called “Solution One.” 

76. The Solution One option required Breakaway to use Berkshire Hathaway Group’s 

payroll management service as a condition for Applied extending a discount on workers’

compensation policy premiums and guaranteeing three years of workers’ compensation policy 

renewals.

77. In New York, requiring an insured to purchase payroll management services in 

exchange for discounted workers’ compensation insurance is illegal and also constitutes “tying” 

in violation of New York’s antitrust laws.

78. Following the expiration of the Premier Exclusive Policies, Breakaway purchased 

Solution One for a three year period.

79. As a condition of receiving workers’ compensation policies under the Solution 

One plan, however, Breakaway was required to execute another RPA in 2012. The RPA is also 

signed by: 

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC., 

SOLELY FOR AND ON BEHALF OF PROTECTED CELL NO. 816280

A true copy of the 2012 RPA is annexed hereto as Exhibit L.

80. Continental issued workers compensation policies under Solution One plan for the 

years 2012-2014 (the “Solution One Policies”).

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81. The 2012 RPA was executed as of July 1, 2012 with AUCRA BVI.

82. According to a report of the California Department of Insurance, AUCRA BVI 

ceased to exist on December 9, 2011.

83. Thus, Breakaway signed an agreement with a non-existent entity, rendering the 

RPA illegal, void and unenforceable as against Breakaway.

84. Breakaway was informed by Ferenc that the maximum rate to be charged as 

premium would be 11.89%. However, Breakaway was charged premium rates in excess of that 

amount as high as 17.385%.

85. As shown in the chart below, Applied’s projections of the cost of the plan 

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skyrocketed in early 2013 from a max of $399,196 for the entire three years to a max of 

$756,472.

86. Applied claims that it utilizes loss pick containment factors (“LPCF”) when a 

claim is made against a policy in order to calculate reserves to be charged to the insured.

87. These LPCFs are nowhere defined or limited in the Premier Exclusive documents.

88. Upon information and belief, Applied LPCFs are completely arbitrary and not 

reasonably related to the value of a given claim.

89. Upon information and belief, Applied willfully fails to disclose its basis for 

calculating LPCFs to extract higher payments from its clients. 

90. Thus, the “max” and “min” depicted in the above chart are completely arbitrary 

and self-serving fictions invented by Applied to enrich itself.

91. Upon information and belief, Applied manipulates LPCFs to artificially inflate

premiums based on small claims and losses. In doing so, Berkshire Hathaway Group caused 

injury to Breakaway and others similarly situated who cannot operate their businesses legally 

without maintaining workers’ compensation policies or risk suffering other damage (e.g. false 

credit reports) should they not comply with Berkshire Hathaway Group’s unfounded demands 

for inflated premiums. 

92. By applying fictional and self-serving LPCFs, Berkshire Hathaway Group

enriches itself by rampantly overcharging its clients, including Breakaway.

93. During the first nine (9) months following its entry into the Solution One plan, 

Breakaway was charged $163,410 in premium even though Breakaway had previously been

informed that the maximum premium that could be charged was $104,750. This represents an 

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overcharge of $58,660. 

94. Upon information, despite representations to the contrary in sales materials 

presented to Breakaway prior to Breakaway executing the RPA, there is no actual fixed 

maximum premium under the Solution One plan because every time a claim is made, the 

premium amount, according to Berkshire Hathaway Group’s apparent practice, can go up in 

excess of Breakaway’s actual liabilities in the case of a worker being injured in New York State. 

95. Breakaway repeatedly sought clarification from Applied concerning the increase 

in its premium charges. However, Applied was unable to provide a reasonable explanation as to 

why Breakaway’s premium charges exceeded the amount stated in the Plan Analysis’ and other 

documents. 

96. Nor, despite repeated demands, has Berkshire Hathaway Group ever accounted 

for monies paid into the “protected cell” or provided an explanation of its fees.

97. As set forth above, New York law requires that fees and commissions be 

disclosed to purchasers of insurance upon request.

98. As set forth above, under New York law, reinsurance agreements (or “treaties”)

are lawful only between insurance companies.

99. At no time did Defendants inform Breakaway that it was illegal for Breakaway to 

purchase reinsurance.

100. At no time did Defendants inform Breakaway that AUCRA is not licensed to 

issue insurance or reinsurance in the State of New York.

101. At no time did Defendants inform Breakaway that New York Insurance Law 

prohibits charging insured parties insurance rates based on forms not approved by NYCIRB.

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102. At no time did Defendants inform Breakaway that New York Insurance Law § 

2314 prohibits charging insured rates that are not authorized. 

103. Upon information and belief, neither the Request to Bind Services nor RPAs have 

been approved by or filed with New York State.

104. Upon information and belief, the Request to Bind Services and RPAs are not filed 

in order for Berkshire Hathaway Group to avoid regulation by DFS and New York State 

generally. 

105. Accordingly, because the Request to Bind Services and the RPAs have not been 

filed with New York State they are illegal, void and unenforceable.

106. The Request to Bind Services and the RPAs are illegal and void because they

purport to increase the rates charged to Breakaway and to unlawfully transfer all financial risk 

from worker injuries back to Breakaway in violation of law and public policy.

107. As a matter of law, “insurance” requires the transfer of risk.

108. Because Defendants do not assume any risk of loss in connection with the 

“reinsurance” scheme, they have not provided insurance to Breakaway despite collecting 

hundred of thousands of dollars in alleged premium. 

109. At all times, Breakaway believed that it was purchasing “insurance” to reduce risk 

in the event of a worker’s injury. 

110. Breakaway is not an insurance company. 

111. Defendants purport to have sold reinsurance to Breakaway. 

112. Upon information and belief, Continental workers’ compensation insurance 

policies were issued to Breakaway between November of 2009 and December of 2013 and, upon 

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information and belief, such policies are still facially-valid and in full force and effect.

113. However, Applied Underwriters Inc. and AUCRA were not licensed or authorized 

to sell reinsurance and thus any attempts—as the RPA does—to alter the facially valid 

Continental terms and rates are illegal, void and unenforceable.

114. The RPAs described above are therefore null, void, illegal and unenforceable.

115. On June 10, 2015, The Workers’ Comp Executive reported that Applied’s rates 

filed with the California Insurance Department were completely unrelated to the rates AUCRA

charged insureds under its RPA (the “WCE Article”). A true copy of the WCE Article is 

annexed as Exhibit M. 

116. The WCE article describes how Patrick Watson, Applied’s sales manager who 

worked with AUCRA for over a decade “testified under oath that he has never participated in 

and has never heard of anyone else who has been involved in the return of premium or deposits 

to a client.” (WCE article at 9).

117. Accordingly, in addition to the Request to Bind and the RPA’s being illegal under 

New York law, Watson’s testimony provides direct evidence that Berkshire Hathaway Group 

sold Breakaway the RPA knowingly intending to defraud Breakaway.

118. Breakaway has suffered and continues to suffer actual damages caused by the 

Berkshire Hathaway Group’s illegal conduct as set forth above. Among other damages suffered, 

Berkshire Hathaway Group’s conduct has (i) harmed Breakaway’s ability to access credit, 

specifically, causing Citibank to end its credit relationship with Breakaway (ii) increasing the 

price and making less favorable the terms on which Breakaway has actually accessed credit, 

including forcing Breakaway to take out a Small Business Administration loan at an additional 

cost of $100,000 in expenses; (iii) providing inferior payroll management services requiring

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Breakaway to allocate staff to correct constant errors by hand and to spend an inordinate amount 

of time on administrative issues resulting in both expenses and an actual loss of business and 

potential business; (iv) placed Breakaway at risk of substantial risk of suffering losses from 

future claims requiring it to expend additional amounts on insurance and other costs; (v) 

negatively impacted the overall business market value of Breakaway.

119. In light of the foregoing, Breakaway is entitled to compensatory damages, lost 

profits, disgorgement of fees, consequential damages, special damages and any other damages as 

may be available under statutory or common law together with an award of interest, costs and 

fees including reasonable attorneys’ fees. 

CAUSES OF ACTION

COUNT I

AGAINST BERKSHIRE HATHAWAY GROUP

FRAUD AND VIOLATIONS OF NEW YORK INSURANCE LAW (REGULATING 

WORKERS COMPENSATION INSURANCE RATES AND ANTIREBATING 

PROVISIONS) WARRANTING A DECLARATION THAT THE CONTRACT IS 

ILLEGAL AND VOID

120. Plaintiffs re-allege the foregoing paragraphs as if fully stated herein.

121. CPLR 3001 authorizes the Court to issue a declaratory judgment in connection 

with a justiciable controversy.

122. A justiciable controversy exists regarding the insurance products provided by 

Berkshire Hathaway Group. 

123. New York Insurance Law Chapter 23 and regulations promulgated by the New 

York Compensation Insurance Board require that rates charged for Workers’ Compensation 

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insurance policies be filed with and approved by the New York State Department of Insurance. 

New York Insurance Law §2347; http://go.nycirb.org/dl/manwcel/wcel_main.cfm (manual 

containing NYCIRB rules and procedures for filing forms and rates and penalties for failure to do 

so).

124. The RPAs purport to charge rates to Breakaway in amounts in excess of the rates 

approved by New York State Department of Insurance.

125. Under New York law, insurance agreements that purport to vary workers’ 

compensation rates are illegal and void. Public Service Mutual Insurance Co. v. Rosebon Realty 

Co., 39 Misc.2d 663, 664, 241 N.Y.S.2d 555, 557 (Civ. Ct. N.Y. Co. 1963) (“insurers are 

forbidden to charge or receive rates which deviate from those filed with the Superintendent. The 

filed rates thus have the force of law and any agreement changing or varying such rates would be 

invalid.”); American Motorists Insurance Co. v. New York Seven-Up Bottling Co., 18 A.D.2d 36, 

238 N.Y.S.2d 80 (1st Dep't 1963) (where insurance premium rates were properly filed, insurer 

cannot deviate from those rates); Stephen Peabody, Jr. & Co., Inc. v. Travelers Insurance Co.,

240 N.Y. 511, 148 N.E. 661 (1925) (holding that rates for workers' compensation premiums 

must be fixed by the Superintendent of Insurance and finding it “impossible for the [insurer] to

fix a rate ... which did not have the approval of the State authorities.”).

126. Because the RPAs purport to deviate from the rates approved by New York State 

and transfer risk of loss for injured worker claims back to Breakaway, the RPAs violate

numerous provisions of the New York Insurance Law, are illegal, null, void and unenforceable.

127. Accordingly, Plaintiff prays for a declaration that the RPAs violate the New York 

State Insurance Law, are illegal, against public policy and are therefore void pursuant to CPLR 

3001 as well as an order directing that Berkshire Hathaway Group return all premiums paid by 

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Breakaway, to wit an amount of no less than eight hundred sixty-three thousand forty-eight 

dollars and seventy-four cents ($863,048.74), together with a disgorgement of all profits and 

damages, together with punitive damages, in an amount to be determined by a jury

COUNT II

AGAINST BERKSHIRE HATHAWAY GROUP

VIOLATIONS OF NEW YORK INSURANCE LAW §2324

(FRAUD BASED ON ILLEGAL REBATING) 

128. Plaintiffs re-allege the foregoing paragraphs as if fully stated herein.

129. CPLR 3001 authorizes the Court to issue a declaratory judgment in connection 

with a justiciable controversy.

130. A justiciable controversy exists regarding the insurance and investment products 

provided by Berkshire Hathaway Group. 

131. New York Insurance Law §2324 forbids rebating.

132. In offering a “Profit Sharing Plan” that offers to permit Breakaway to “participate 

in underwriting proceeds,” Berkshire Hathaway Group committed a fraud on Breakaway in two 

respects. First, Berkshire Hathaway Group never informed Breakaway that its scheme was 

illegal because New York forbids rebating of insurance premiums to customers of insurance. 

Second, the scheme is not a profit-sharing plan.

133. The RPAs purport to promise to Breakaway rebates and cost savings in variance 

of the amounts of the policies in amounts in excess of the rates approved by New York State 

Department of Insurance.

134. Accordingly, the RPAs violate New York’s anti-rebating provisions expressed in 

N.Y. Ins. Law §2324. Under New York law, insurance agreements that purport to vary Workers’ 

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Compensation rates are illegal and void. 

135. Because the RPAs purport to deviate from the rates approved by New York State 

and transfer risk of loss for injured worker claims back to Breakaway, the RPAs violate the New 

York Insurance Law, are illegal, null, void and unenforceable.

136. Accordingly, Plaintiff prays for a declaration that the RPAs violate the New York 

State Insurance Law, are illegal, against public policy and are therefore void pursuant to CPLR 

3001 as well as an order, as authorized by N.Y. Ins. Law 4226 directing that Berkshire Hathaway 

Group return all premiums paid by Breakaway, to wit an amount of no less than eight hundred 

sixty-three thousand forty-eight dollars and seventy-four cents ($863,048.74) together with 

interest and attorneys fees, together with a disgorgement of all profits and damages in an amount, 

together with punitive damages, to be determined by a jury.

COUNT III

AGAINST BERKSHIRE HATHAWAY GROUP

VIOLATIONS OF NEW YORK INSURANCE LAW CHAPTER 23 (REGULATING 

WORKERS COMPENSATION INSURANCE RATES) WARRANTING 

DECLARATORY AND MONETARY RELIEF FOR ILLEGALITY OF 

UNAUTHORIZED REINSURANCE POLICIES

137. Plaintiffs re-allege the foregoing paragraphs as if fully stated herein.

138. New York State permits insurance companies to enter into reinsurance contracts 

with each other.

139. New York State forbids non-insurance companies or individual residents of New 

York State to enter into reinsurance agreements.

140. The RPAs purport to describe a “reinsurance” between Breakaway, a non-insurer,

on the one hand, and AUCRA, an insurance company, on the other hand.

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141. Because reinsurance contracts between a non-insurance company such as

Breakaway and an insurance company like Applied, specifically AUCRA, are forbidden by New 

York law, the RPAs are illegal, void and unenforceable and against public policy.

142. Accordingly, Plaintiff prays for a declaration that the RPAs violate the New York 

State Insurance Law, are illegal, and against public policy and are therefore void, that the 

Premier Exclusive Policies and Solution One Policies remain effective pursuant to CPLR 3001,

as well as an order directing that Berkshire Hathaway Group return all premiums paid by 

Breakaway, to wit an amount of no less than eight hundred sixty-three thousand forty-eight 

dollars and seventy-four cents ($863,048.74) together with interest and attorneys fees,, together 

with a disgorgement of all profits and damages in an amount, together with punitive damages, to 

be determined by a jury.

COUNT IV

AGAINST BERKSHIRE HATHAWAY GROUP (IN THE ALTERNATIVE)

RESCISSION OF REINSURANCE PARTICIAPTION AGREEEMENTS AND/OR 

RESCISSORY DAMAGES AND/OR REFORMATION

143. Breakaway re-alleges the foregoing paragraphs as if fully stated herein.

144. Berkshire Hathaway Group made knowing misrepresentations of fact concerning 

the alleged workers’ compensation insurance it was providing to Breakaway and fraudulently 

induced Breakaway to enter into the relevant contracts. Specifically, the reinsurance was in fact 

prohibited by law.

145. Berkshire Hathaway Group made the foregoing misrepresentations with the intent 

to deceive, to defraud and to profit from Breakaway. In short, Berkshire Hathaway Group

improperly transferred all risk back to Breakaway thus failing to provide any consideration to 

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Breakaway thus defeating the entire purpose of the RPAs. 

146. Accordingly, to the extent declaratory, monetary and/or injunctive relief is not 

available, the Court should rescind the RPAs and order rescissory damages in an amount of no 

less than eight hundred sixty-three thousand forty-eight dollars and seventy-four cents 

($863,048.74)) and/or reform the RPAs so as to make them lawful, together with a disgorgement 

of all profits and damages in an amount, together with punitive damages, to be determined by a 

jury. 

COUNT V

AGAINST BERKSHIRE HATHAWAY GROUP

FRAUDULENT BUSINESS PRACTICES UNDER GEN. BUS LAW § 349

147. Breakaway re-alleges the foregoing paragraphs as if fully stated herein.

148. Section 349 of the New York General Business Law provides that “[d]eceptive 

acts or practices in the conduct of any business, trade or commerce or in the furnishing of any 

service in this state are hereby declared unlawful. 

149. Subsection (h) of Section 349 of the General Business Law provides Plaintiffs 

with a private right of action. 

150. Upon information and belief, Breakaway is not a licensed reinsurance 

intermediary.

151. Upon information and belief, Berkshire Hathaway Group is not a licensed 

reinsurer.

152. Berkshire Hathaway Group engages in business, trade, commerce and the 

furnishing of services in New York.

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153. Berkshire Hathaway Group engages in such conduct even though it is, as 

explained above, not licensed to do so in certain cases and has failed, willfully, to comply with 

the New York Insurance State Law. 

154. Berkshire Hathaway Group made false and deceptive representations including 

but not limited to the fact that it was providing legal workers’ compensation to Breakaway.

155. Berkshire Hathaway Group never informed Breakaway that unauthorized 

producers were delivering insurance products to it in New York. 

156. As set forth above, the RPAs are illegal and void and Berkshire Hathaway 

Group’s related conduct in New York is in violation of Gen. Bus Law § 349.

157. Breakaway reasonably relied on the false and misleading representations to its 

detriment. 

158. Accordingly, Plaintiffs are entitled to damages in an amount of no less than eight 

hundred sixty-three thousand forty-eight dollars and seventy-four cents ($863,048.74)), treble 

damages up to $1000 and reasonable attorneys’ fees per Gen. Bus Law § 349(h).

COUNT VI

AGAINST BERKSHIRE HATHAWAY GROUP

COMMON LAW FRAUD (WITH PARTICULARIZED ALLEGATION PURSUANT TO 

CPLR 3016)

159. Breakaway re-alleges the foregoing paragraphs as if fully stated herein.

160. A New York common law fraud claim is defined as “a representation of fact, 

which is untrue and either known by defendant to be untrue or recklessly made, which is offered 

to deceive and to induce the other party to act upon it, and which causes injury.”

161. Upon information and belief, Breakaway is one of the largest distributors of 

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Berkshire Hathaway Group products in New York. 

162. Berkshire Hathaway Group engages in efforts to market and sell Applied 

products. 

163. Under New York law, where a person without authority to act as a reinsurance 

intermediary brokers such a policy by misrepresenting his authority solely to gain commissions, 

this is a fraud and the appropriate measure of damages is the full amount of premiums paid. 

Anglo-Iberia Underwriting Management Co. v. Lodderhose, 282 F.Supp.2d 126 (2003).

164. New York Insurance Law §2102 requires reinsurance intermediaries to be 

licensed.

165. Upon information and belief, Breakaway is not a licensed reinsurance 

intermediary.

166. Upon information and belief, Berkshire Hathaway Group is not a licensed 

reinsurer.

167. The RPA was presented by Defendants as a “profit-sharing plan” and legitimate 

workers’ compensation insurance product. 

168. Based on the representations of Defendants, Breakaway reasonably believed that 

it was purchasing workers compensation insurance that would protect against losses, yet permit 

for repayments if it experienced low claims.

169. A reading of the RPAs as explained more fully above, however, reveals that this 

“profit-sharing” scheme had no element of insurance, including impossible to understand terms 

as well as undisclosed or misrepresented factors and fees. Indeed, rather than receiving 

insurance as it requested, Breakaway actually was signing on to a reverse Ponzi scheme that 

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exposed it to unlimited losses in a manner guaranteed to dramatically increase the cost of any 

claim.

170. Because the scheme contained no element of risk transfer to an insurer, the 

scheme was both a fraud on Breakaway, which thought it had insurance, and on the citizens of 

New York State whose workers were exposed to catastrophic losses limited to the 

creditworthiness of Breakaway itself. 

171. Because Berkshire Hathaway Group knew that the scheme was a fraud and 

because Breakaway knew or should have known that the scheme was a fraud, Plaintiff is entitled 

to a disgorgement of all premiums paid, together with prejudgment interest and punitive damages 

in an amount to be determined at trial but in no event less than eight hundred sixty-three 

thousand forty-eight dollars and seventy-four cents ($863,048.74) , together with a disgorgement 

of all profits and damages in an amount, together with punitive damages, to be determined by a 

jury.

COUNT VII

AGAINST BERKSHIRE HATHAWAY GROUP

NEGLIGENT MISREPRESENTATION

172. Breakaway re-alleges the foregoing paragraphs as if fully stated herein.

173. Under New York law, the elements for a negligent misrepresentation claim are 

that (1) the defendant had a duty, as a result of a special relationship, to give correct information; 

(2) the defendant made a false representation that he or she should have known was incorrect; (3) 

the information supplied in the representation was known by the defendant to be desired by the 

plaintiff for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the 

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plaintiff reasonably relied on it to his or her detriment.

174. As set forth above, Breakaway requested a workers’ compensation insurance 

policy based on its anticipated needs.

175. Breakaway sought, and received, Berkshire Hathaway Group’s advice in 

determining the correct insurance policy based on its payroll, its loss history, and the type of 

activities that it engaged in.

176. Rather than selling an insurance product, Berkshire Hathaway Group assured 

Breakaway that the purported “profit-sharing” scheme would fit.

177. Berkshire Hathaway’s tremendous profits were illegal and should be disgorged. 

178. Because the RPA scheme effectively exposes Breakaway to unlimited risk from 

worker injuries and because Berkshire Hathaway Group held itself out as having special 

expertise in recommending Applied products to Breakaway, Berkshire Hathaway Group is liable 

to Breakaway for the full amount of premiums paid, together with disgorgement of any profits. 

179. Based on the foregoing, Breakaway is entitled to a disgorgement of all premiums 

paid, together with prejudgment interest and punitive damages in an amount to be determined at 

trial.

180. Breakaway is therefore entitled to actual and punitive damages in an amount to be 

determined at trial but in no event less than eight hundred sixty-three thousand forty-eight dollars 

and seventy-four cents ($863,048.74), together with a disgorgement of all profits and damages in 

an amount, together with punitive damages, to be determined by a jury.

COUNT VIII

AGAINST BERKSHIRE HATHAWAY GROUP

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BREACH OF FIDUCIARY DUTY/DUTY OF TRUST

(NEGLIGENT MISREPRESENTATION)

181. Plaintiffs re-allege the foregoing paragraphs as if fully stated herein.

182. Berkshire Hathaway Group advised Breakaway that monies paid to Applied 

would be placed into a “protected cell”.

183. Berkshire Hathaway Group advised Breakaway that by entrusting its payroll and 

workers’ compensation planning to Applied, the Premier Exclusive products would reduce 

Breakaway’s risk and administrative costs.

184. Applied represented that its products were appropriate for small and medium 

businesses to manage risk.

185. Applied represented that its products were an “investment” that would result in 

“profit sharing”.

186. Breakaway entrusted Applied with its premiums under circumstances giving rise 

to a confidential duty and a duty to speak with care. Kimmel v. Schaefer, 89 N.Y.2d 257 (1996).

187. Berkshire Hathaway Group knew or should have known that the Applied products 

passed the risk of catastrophic loss to Breakaway, would likely result in Breakaway paying 

excessive premiums for workers’ compensation insurance and, given the structure of the Applied 

plan, had little to no chance of returning any profit.

188. Berkshire Hathaway Group knew or should have known that Applied would apply 

excessive fees, charges and “reinsurance” fees to Breakaway’s premiums, thus eliminating the 

possibility that Breakaway would receive any profits.

189. Based on the foregoing, Breakaway is entitled to a return of principal, together 

with together with interest and attorneys fees, together with a disgorgement of all profits and 

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damages in an amount, together with punitive damages, to be determined by a jury.

COUNT IX

AGAINST BERKSHIRE HATHAWAY GROUP

BREACH OF FIDUCIARY DUTY

(SELF-DEALING/COMMINGLING TRUST ASSETS)

190. Breakaway re-alleges the foregoing paragraphs as if fully stated herein.

191. Berkshire Hathaway Group advised Breakaway that monies paid to Berkshire 

Hathaway Group would be placed into a “protected cell”.

192. Berkshire Hathaway Group advised Breakaway that by entrusting its payroll and 

workers’ compensation planning to Applied, the Premier Exclusive products would reduce 

Breakaway’s risk and administrative costs.

193. Applied represented that its products were appropriate for small and medium 

businesses to manage risk.

194. Applied represented that its products were an “investment” that would result in 

“profit sharing”.

195. As described above, rather than work in good faith to generate profits that it 

would share with Breakaway, Berkshire Hathaway Group engaged in a series of illegal and selfdealing transactions that enriched Applied at Breakaway’s expense and were never disclosed to 

Breakaway.

196. Based on the foregoing, Berkshire Hathaway Group should account for and 

disgorge its profits to Breakaway, together with damages in an amount, together with punitive 

damages, to be determined by a jury.

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COUNT X

AGAINST BERKSHIRE HATHAWAY GROUP

VIOLATIONS OF NEW YORK GENERAL BUSINESS LAW § 340

(DONNELLY ACT – ILLEGAL RESTRAINT OF TRADE, TYING AND 

BOYCOTTING)

197. Plaintiffs re-allege the foregoing paragraphs as if fully stated herein.

198. The Berkshire Hathaway Group has market power in the reinsurance market

relevant to the allegations herein.

199. As acknowledged in Berkshire Hathaway Group’s 2013 annual report, BHG 

engages in the practice of “bundling” investment products (insurance and reinsurance) as

described above.

200. This “bundling” practice is illegal and constitutes “tying” under the antitrust laws.

201. Tying is the practice of selling one product or service as a mandatory addition to 

the purchase of a different product or service. 

202. A tying sale makes the sale of one good (the tying good) to the de facto customer 

(or de jure customer) conditional on the purchase of a second distinctive good (the tied good).

203. Tying agreements are unlawful restraints of trade violating the Donnelly Act, 

N.Y. G.B.L. § 340.

204. The Donnelly Act, N.Y.G.B.L. § 340(1) provides:

Every contract, agreement, arrangement or combination whereby

A monopoly in the conduct of any business, trade or commerce or in the furnishing of 

any service in this state, is or may be established or maintained, or whereby

Competition or the free exercise of any activity in the conduct of any business, trade or 

commerce or in the furnishing of any service in this state is or may be restrained or 

whereby

For the purpose of establishing or maintaining any such monopoly or unlawfully 

interfering with the free exercise of any activity in the conduct of any business, trade or 

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commerce or in the furnishing of any service in this state any business, trade or 

commerce or the furnishing of any service is or may be restrained, is hereby declared to 

be against public policy, illegal and void.

205. Insurance products and services are subject to The Donnelly Act, N.Y.G.B.L. 

§340(3) which provides: “the provisions of this article shall apply to licensed insurers, licensed 

insurance agents, licensed insurance brokers, licensed independent adjusters and other persons 

and organizations subject to the provisions of the insurance law, to the extent not regulated by 

provisions of article twenty-three of the insurance law....”

206. An insurance policy to cover claims resulting from injury to workers in New York

desired by Breakaway is the tying product.

207. The RPA is the “tied” product.

208. As set forth above, Breakaway was coerced into purchasing the non-insurance 

product – the RPA – as a condition of the Berkshire Hathaway Group issuing a valid workers’ 

compensation policy.

209. The RPA is a “debt instrument” not “insurance” because the RPA does not 

contain a “stop loss” component.

210. Breakaway was forced by Berkshire Hathaway Group to sign a coercive “Request 

to Bind Coverage” before Breakaway was permitted to see the RPA.

211. Breakaway was then forced by Berkshire Hathaway Group to sign the RPA which 

contained onerous and illegal terms before the workers compensation policy was issued.

212. As described more fully in Shasta, Berkshire Hathaway Group’s coercive “boiler 

room” tactics were part of its tying scheme.

213. Berkshire Hathaway Group had sufficient economic power in the tying product 

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market to coerce purchaser acceptance.

214. According to the most recent report of the Insurance Information Institute, the 

2014 net premiums written by U.S. property and casualty reinsurers was $50,012,241,000 (just 

over fifty billion dollars). www.iii.org/fact-statistic/reinsurance (last accessed 9/7/16).

215. In the same report, the “2014 Top 10 U.S. Property/Casualty Reinsurers of U.S. 

Business By Premium Written” lists National Indemnity Company (Berkshire Hathaway) as 

number one with $26,447,145,000 (just over twenty-six billion dollars). www.iii.org/factstatistic/reinsurance (last accessed 9/7/16).

216. Upon information and belief, Berkshire Hathaway Group is the largest direct 

writer of workers’ compensation insurance in the United States.

217. Upon information and belief, Berkshire Hathaway Group is the largest primary 

writer of high hazard workers’ compensation policies in New York State, achieving levels of 

30% or more in certain categories.

218. According to a 2015 industry report, Berkshire Hathaway Group workers’ 

compensation net written premium grew by 408.5% since 2009.

219. Berkshire Hathaway Group’s coercive tying scheme had an anticompetitive effect 

on Breakaway, on injured workers in New York and on taxpayers.

220. By coercing New York businesses into signing the RPA through a threatened 

boycott, Berkshire Hathaway Group swindled consumers into agreeing to 70% profit margins for 

Berkshire Hathaway Group of each premium dollar, where New York’s actuarial experience

221. Under The Donnelly Act, New York General Business Law §340 et seq., 

Breakaway is entitled to treble damages in an amount to be determined, but not less than three 

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times the value at risk to which it has been exposed.

COUNT XI

AGAINST BERKSHIRE HATHAWAY GROUP

FALSE ADVERTISING AND DECEPTIVE TRADE PRACTICES UNDER INS. 

LAW §§ 1102(a), 2122(a) AND GENERAL BUSINESS LAW § 350 et. seq. 

222. Plaintiffs re-allege the foregoing paragraphs as if fully stated herein.

223. The Berkshire Hathaway Group published advertising materials including 

descriptive literature that represented to customers in New York, including Breakaway, that they 

were purchasing legally required workers’ compensation insurance from entities authorized to 

provide insurance in the State of New York. 

224. The Berkshire Hathaway Group’s advertising materials did not disclose material 

facts about the alleged workers’ compensation insurance including, among other things, the facts 

that (i) unauthorized producers would provide insurance products in New York; (ii) that the 

receipt of any alleged workers’ compensation policies were contingent upon execution of the 

unfiled and unlawful RPA; (iii) that no insurance was being provided because all risk of loss was 

being reflected back onto the alleged insured by scheme detailed above; (iv) that it is illegal to 

require or incentivize an insured to purchase an insurance product by, among other things, 

offering to rebate or refund premiums or provide unlawfully tied services such as the 

SolutionOne payroll services to the sale of insurance. 

225. New York law prohibits false advertising. See Gen. Bus. Law § 350 et. seq. 

226. Advertising for insurance products is strictly regulated by New York State. See 

Ins. Law § 2122. 

227. Among other things, New York law the identity of the “actual insurer” must be 

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provided. 11 NYCRR § 215.13. 

228. In light of the scheme detailed above, it is impossible for the Berkshire Hathaway 

Group to comply with this mandate because no actual insurance (i.e. risk of loss) is being 

provided. 

229. The Berkshire Hathaway Group’s conduct constitutes false advertising and unfair 

trade practices. 

230. Therefore, Breakaway is entitled to damages and equitable relief together with an 

award of costs and fees including reasonable attorneys’ fees, together with a disgorgement of all 

profits and damages in an amount, together with punitive damages, to be determined by a jury.

RESERVATION OF RIGHTS AND JURY DEMAND

231. Breakaway reserves the right to assert any additional claims as may become 

evident during discovery or otherwise. 

232. Breakaway hereby rejects any pleading filed in this action that fails to comply 

with Ins. Law § 1213. 

233. Breakaway demands a trial by jury on all claims so triable.

WHEREFORE, Breakaway prays for judgment as follows:

A. That the Court declare the Reinsurance Participation Agreements to be in 

violation of the Insurance Law, illegal, null, void and unenforceable;

B. That the Court declare the Continental policies to be lawful and in full effect;

C. That, pursuant to the authority cited herein, this Court issue a Judgment awarding 

Breakaway all premiums paid, together with prejudgment interest and punitive damages in an 

amount to be determined at trial but in no event less than eight hundred sixty-three thousand 

forty-eight dollars and seventy-four cents ($863,048.74)

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D. That Breakaway be awarded damages for Applied Underwriters' intentional 

and/or fraudulent misrepresentation, negligent misrepresentation and violations of The Donnelly

Act] in an amount to be determined at trial but in no event less than eighteen million dollars.

E. That Breakaway be awarded compensatory damages, lost profits, disgorgement of 

fees, consequential damages, special damages and any other damages as may be available under 

statutory or common law in an amount to be determined at trial. 

F. That Breakaway be awarded treble, exemplary and/or punitive damages for the 

intentional, fraudulent, negligent and/or malicious conduct of Applied in an amount to be 

determined at trial;

G. For attorneys’ fees, disbursements and costs incurred for this action as available 

by statute or otherwise; and

H. For any such other or further relief as the Court may deem just, proper and 

equitable.

DATED: New York, New York

September 9, 2016

DUNNINGTON BARTHOLOW & MILLER LLP

Attorneys for Plaintiff

By: /s Raymond J. Dowd___________

Raymond J. Dowd

Samuel A. Blaustein 

Dunnington Bartholow & Miller

250 Park Avenue, Suite 1103

New York, New York 10177

(212) 682-8811

rdowd@dunnington.com

sblaustein@dunnington.com

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INDEX NO. UNASSIGNED

NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 09/09/2016

REQUEST TO BIND COVERAGES & SERVICES 

TO: 

RE: 

Applied Underwriters 

Attn: New Accounts Processing 

P.O. Box 3646, Omaha, NE 68103 

Fax: 877-234-4451 

Premier Exclusive Quote #2 17289-1 , Proposed Effective Date 07 /01 /09 

The applicant(s) identified below, w hether one or more (collectively the "Applicant"), request that Applied Underwriters, Inc. through its affiliates and/or 

subsidiaries (collectively "Applied") pursuant to the Workers' Compensation Program Proposal & Rate Quotation (the "Proposal") cause to be issued to 

Applicant one or more workers' compensation insurance policies and such other insurance coverages identified in the Proposal (collectively the "Policies") 

subject to Applicant executing the following agreements (collectively the "Agreements"): ( I) Reinsurance Participation Agreement; and where available. 

(2) Premium Finance Agreement. 

1) Breakaway Courier Corporation 

Applicant represents and warrants that: (I) individuals performing services for hire for Applicant are properly employed only by Applicant when performing such services for hire; (2) all individuals performing services for hire for Applicant will be paid only through payroll reported to Applied; and (3) 

Applicant, individual ly, either directly or indirectly, separately or on behalf of or in connection with any other person, persons, partnership, limited 

liability company, affiliate or subsidiary, as a director, officer, stockholder, partner, limited partner, member, has not submitted an application, or currently 

has an application pending with Applied or has obtained insurance coverage and/or services from Applied except as listed below on the date indicated. If 

none, state none. 

Applicant acknowledges that under AL. AR. CO, DE, FL, GA. HI, IL, KY, MA, ME, MN, MT, NE, NH. NM, NY. OK, OR, PA, RI, SC, TX, and VT law. 

Applicant has the option to choose from various deductible amounts for its guaranteed cost workers' compensation policy. but that opting for a deductible 

precludes participation in the Profit Sharing Plan. Applicant being fully advised, knowingly waives and gives up its right to choose a deductible under 

applicable law as further consideration to participate in the Profit Sharing Plan. 

The initial term of the Agreements will be for three (3) years, beginning on the Proposed Effective Date. Additional fees apply in the event of early 

cancellation. Applicant along with Applicant's insurance agent was offered for review a Workers' Compensation Program Summary and Scenarios 

worksheet (the ''Summary") and was offered the opportunity to participate in a conference call with Applied's technical representatives to answer any 

questions about the Proposal and Summary. Applicant understands the Proposal and has had sufficient time to review all of the terms, conditions and 

stipulations regarding the Proposal with Applicant's advisers including Applicant's insurance agent. Any and all questions concerning the Proposal have 

been answered to Applicant's full satisfaction. Applicant accepts the Proposal including all of its terms, conditions and stipulations. 

Here 

Applicant understands that Applied engages in alternative dispute resolution of conflicts. Applicant further agrees that any claims, disputes 

and/or controversies between the parties involving the Proposal or any part thereof (including but not limited to the Agreements and Policies) 

shall be resolved by alternative dispute resolution and submitted to and determined exclusively by binding arbitration under the Federal 

Arbitration Act in conformity with the Arbitration Act of the State of Nebraska. Arbitration shall be in accordance with JAMS by a single 

arbitrator, with the arbitration held in Omaha, cbraska. Each party shall pay one-half of the cost of the arbitration, and the arbitrator is not 

authorized to award consequential or punitive damages. 

This acknowledgment and disclosure is intended to confirm receipt of the Proposal and Applicant's acceptance of the Proposal along with certain 

additional terms and conditions. Only the Agreements and Policies contain the actual operative provisions. The rates charged to Applicant include one 

hundred dollars (SI 00.00) as specific consideration for this alternative dispute resolution process. The agreement to arbitrate, as set forth above, is 

enforceable independent of any other agreements and/or policies between Applied, its affiliates and the Applicant. Applicant represents and warrants that 

the individual executing this Request to Bind Coverages and Services has the requisite express authority and is duly authorized to execute this Request to 

Bind Coverages and Services, in addition to any and all other documents necessary to implement the Proposal. Applicant's representations and warranties 

set fonh herein shall survive and are incorporated by reference into the Agreements and Policies. 

Ver. ppo_3052_3a 
Please read this form carefully, and return as soon as possible by fax and mail to: 

Applied Underwriters 

P.O. Box 3646 

Omaha, NE 68103 

Fax: 877-234-4431 

You have requested that worker's compensation coverage be in force effective 07/01 /09 . 

You are required to complete and return this form either because ( 1) you have requested 

that workers' compensation insurance coverage be in force retroactively, or (2) prior 

workers' compensation insurance coverage was not in force up to the requested effective 

date. 

You understand and acknowledge that no coverage is currently in force. Workers' 

compensation coverage will only be in force once this form is received, and all other 

requirements have been met to our satisfaction. We reserve the right to rescind all 

workers' compensation coverage should you fail to initiate all services, including payroll 

processing, within 30 days of the effective date of workers' compensation insurance 

coverage. 

Statement of No Known Losses 

I certify that I am an officer or principal and authorized to bind: 

Company 

Address 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013 

hereby certify that no claims, losses, accidents, or circumstances that might give rise to 

a Workers' Compensation claim have occurred beginning with the effective date and time 

of coverage listed above and the date and time to which I have made this certification. 

I further hereby state that there are no claims, losses, accidents, or circumstances that 

might give rise to a Workers' Compensation claim have occurred prior to the effective date 

and time of coverage listed above that were not otherwise reported and covered by an 

authorized workers' compensation insurance policy. 

In the event a claim is made against us contrary to the preceding certification and which 

was known or should have been known by your company, you waive any right to subm it 

that claim to us, and further indemnify and hold us harmless from any and all damages, 

eys fees we may incur in connection with that claim. 

Witness Signature Printed Name Title Date I Time 
FILED: NEW YORK COUNTY CLERK 09/30/2016 05:29 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 53 RECEIVED NYSCEF: 09/30/2016

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COM PANY, INC. 

PARTICIPANT NO. 816280 

REINSURANCE PARTICIPATION AGREEMENT 

This reinsurance participation agreement (this "Agreement") is made and entered into by and between 

Applied Underwriters Captive Risk Assurance Company, Inc., a company organized and existing under the 

laws of the British Virgin Islands ("Company") as of July 1, 2009 and 

Breakaway Courier Corporation (collectively, "Participant"). 

Whereas, Participant is desirous of participating in the Company's segregated protected cell reinsurance program designated Segregated Account No. 816280 ("Participation"); and 

Whereas, the Company has entered into a Reinsurance Treaty (hereinafter referred to as the "Treaty") 

with California Insurance Company (NAIC No. 0031 -38865) and, through its pooling arrangement, with other 

affiliates of Applied Underwriters, Inc., including, but not limited to Continental Indemnity Company (NAIC No. 

0031 -28258) (collectively the "Issuing Insurers"); and 

Whereas, the Participant desires the Company to establish a segregated protected cell whereby the 

Participant may share in the underwriting results of the Workers ' Compensation policies of insurance issued 

for the benefit of the Participant by the Issuing Insurers (the "Policies"); and 

Whereas the Company will allocate a portion of the premium and losses under this Agreement to the 

Participant' s segregated protected cell, 

Now, therefore, in consideration of the mutual promises and undertakings set forth herein the parties 

do hereby agree as follows: 

1. Participant agrees to part1c1pate in the Company's segregated protected cell reinsurance program in accordance with Schedule 1 attached hereto and incorporated herein by reference. 

2. Participant's interest in the Company is solely as a segregated protected "cell" with segregation 

of the Company's assets and liabilities among the segregated accounts (known as " cells ") established by the 

Company. There is no "joint and several" liability. The cells of the Company are not liable for the debts and 

obligations and are not bound with respect to contracts entered into by another cell. Participant further 

acknowledges and agrees that Participant: (1) will look solely to the assets of Participant's cell for satisfaction 

of the Company's liabilities hereunder; (2) has consulted with legal counsel and other insurance advisers as to 

the applicability and effect of this Agreement; (3) irrevocably waives any right, substantive or procedural, 

which Participant may have to challenge the effectiveness and the Company's ability and right to segregate 

assets among the cells; and (4) covenants not to sue, attach, pursue or make any claim against or with 

respect to any asset, property or right of the Company which is not an asset, property or right of Participant' s 

segregated protected cell. 

3. Participant is participating in this Agreement for purposes of investment only. The Participation 

has not been registered under the United States Securities Act of 1 933, as amended or any state securities 

laws. The Participation shall not be sold, transferred, hypothecated, pledged or otherwise assigned or encumbered and Participant acknowledges the following: 

Ver. aco_5 100_2a 

"This Participation has not been registered under the Securities Act of 1933, as amended or 

qualified under any state securities law. This Participation has been acquired for investment 

and may not be sold, transferred , hypothecated, pledged or otherwise assigned or encumbered in the absence of registration or an exemption therefrom under such act and such laws." 

4. This Agreement may not be modified, amended or supplemented in any manner except in writPage 1 of 10 © 2008, Applied Underwriters, Inc. 
ing signed by the parties hereto and represents the entire understanding and agreement between the parties 

with respect to the subject matter hereof and supersedes all prior negotiations, proposals, letters of intent, 

correspondence and understandings relating to the subject matter hereof. The initial term of this Agreement 

(the "Active Term") is for three (3) years. All existing obligations from each party to the other or to third 

parties shall remain in force as of the expiration of the Active Term until this Agreement is terminated (the 

"Run-Off Term") as set forth in Schedule 1. 

During the Active Term of this Agreement, Workers' Compensation Insurance coverage will be provided to 

Participant by one or more of the Issuing Insurers . If Participant elects to cancel this Agreement, or if any of 

the Policies are cancelled or non-renewed prior to the end of the Active Term ("Early Cancellation"). the 

Participant shall abide by the Early Cancellation terms set forth in Schedule 1 . 

If the Issuing Insurer is required to provide Workers' Compensation Insurance coverage on behalf of the 

Participant outside of the Active Term (the "Extension Period"), special extension terms ("Extension Terms ") 

will apply during the Extension Period. The Extension Terms are: (1) Participant through their cell will be liable 

for all losses occurring during the Extension Period without limitation on any Policies issued by the Issuing 

Insurers on behalf of Participant; (2) the Company will allocate to Participant's cell an amount equal to 45% 

of premium earned during the Extension Period under any Policies issued by the Issuing Insurers on behalf of 

Participant; (3) Participant will immediately pay to the Company a cash deposit equal to 55% of the premium 

anticipated , as determined exclusively by the Company, during the Extension Period under any Policies issued 

by the Issuing Insurers on behalf of Participant; (4) Participant will maintain at all times a cash deposit with the 

Company sufficient to cover outstanding losses occurring during the Extension Period plus incurred but not 

reserved and/or reported losses (IBNR) as determined exclusively by the Company; and (5) Participant will 

immediately pay to the Company an Early Cancellation fee equal to 20% of the premium anticipated, as 

determined exclusively by the Company, during the Extension Period under Policies issued by the Issuing 

Insurers on behalf of Participant. 

5. Participant acknowledges that under the laws of some states, Participant may have the option 

to choose from various deductible amounts as a part of its Policies, but that opting for a deductible would 

preclude Participant from entering into this Agreement. Applicant, being fully advised, knowingly waives and 

relinquishes its right to choose a deductible on the Policies under applicable law as further consideration for 

this Agreement. 

6 . Participant may not assign or transfer its rights under this Agreement to any third party without 

the written consent of the Company which consent may be withheld in the Company 's absolute discretion. 

7. The parties' obl igations under this Agreement shall survive the Active Term of this Agreement, 

and shall be extinguished only when the Company no longer has any potential or actual liability to the Issuing 

Insurers with respect to the Policies reinsured by the Company under the Treaty. 

8. Applied Risk Services, Inc. (Applied Risk Services of New York, Inc. in New York State) has 

been appointed the billing agent for the Company and the Issuing Insurers and is authorized by the Company, 

Issuing Insurers, and Participant to account for offset and true up any and all amounts due each of the parties. 

Participant will allow the Company to audit Participant's records on reasonable notice and during normal 

business hours that relate to the Policies . These records include, but are not limited to ledgers, journals, 

reg isters, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and 

retrieving data. Information developed by audit will be used to assign worker classifications, determine the 

compensability of payroll and c laims, and determine final premium and cession amounts. 

9. In the event the Participant is in default of any obligations to the Company under this Agreement 

or under any other agreement with any affiliate of the Company (Affiliated Agreements). the Company may 

take all reasonable steps to protect its and its affiliates' interests. The parties hereto shall have the right to the 

fullest extent provided by law to offset or recoup any balances due from one to the other under this Agreement or any Affiliated Agreements. 

10. In consideration of the mutual benefits arising under this Agreement, Participant hereby grants 

to Company, effective from and after the date hereof, a lien and security interest in all assets of Participant's 

Ver. 8CO 5100 28 Page 2 of 10 
cell to secure payment of any amounts owed by Participant under this Agreement. The prov1s1ons of this 

section shall create a security agreement under the Uniform Commercial Code (the "Code") so that Company 

shall have and may enforce a security interest on all of Participant's assets in Participant's cell. Participant 

agrees to execute as debtor any financing statement Company may reasonably request in order that Company's 

security interest be protected pursuant to the Code, or Company is authorized to file a copy of this Agreement 

for such purpose. 

11. Participant hereby represents and warrants to the Company as fo llows: 

(A) Participant (i) is duly organized, validly existing and in good standing under the laws of its 

domiciliary jurisdiction, (if a corporation, partnership, or limited liability company). and (ii) has adequate power 

and authority and full legal right to carry on the businesses in which it is presently engaged and presently 

proposes to engage. 

(8) Participant has adequate power and authority and has full legal right (i) to enter into this Agreement and (ii) to perform all of its agreements and obligations under this Agreement. 

(C) The execution and delivery by Participant of this Agreement and the performance by Participant 

of all of its undertakings and obligations under this Agreement, including any payments requ ired to be made 

by Participant to the Company under this Agreement, have been duly and properly authorized by all necessary 

action on the part of Participant, and do not and will not (a) contravene any provision of the charter or by-laws 

of Participant (if a corporation, partnership or limited liability company) or other constitutional or governing 

documentation of Participant (each as in effect on the date hereof), (b) conflict with, or result in a breach of, 

the terms, conditions or provisions of, or constitute a default under, or (except as otherwise contemplated 

and required or permitted by this Agreement) result in the creation of any mortgage, lien, pledge, charge, 

security interest or other encumbrance upon any of the property of Participant under any agreement, trust 

deed, indenture, mortgage or other instrument to which Participant is a party or by which Participant or its 

respective property is bound or affected on the date hereof, (c) violate or contravene any provision of any law 

or published regulation or any published order, ruling or interpretation thereunder or any decree, order or 

judgment of any court or governmental or regulatory authority, bureau, agency or official (all as in effect on 

the date hereof and applicable to Participant). (d) require any waivers , consents or approvals by any of the 

creditors or trustees for creditors of record of Participant, or (e) require any consents or approvals by any 

Participant (except such as have been duly obtained and are in full force and effect on the date hereof). 

(0) This Agreement, when executed and delivered, shall have been duly and properly executed and 

delivered by Participant. 

(E) The agreements and obligations of Participant contained in this Agreement constitute legal, 

valid and binding obligations of Participant, enforceable against Participant in accordance with their terms. 

(F) The information that has been and/or will be supplied to the Company by Participant or on 

Participant's behalf with respect to this Agreement is accurate and complete, and with respect to financial 

information, comports with generally accepted account ing principles. 

12. Participant acknowledges that the Company has not made, and does not make, any oral, written 

or other representations , whether explicit, implied or otherwise, upon which Participant may rely concerning 

any possible tax benefits that may be derived from this Agreement. Participant further acknowledges that any 

tax liability resulting from this Agreement, including but not limited to any tax assessments or re lated examinat ions conducted by the Internal Revenue Service or other taxing authority, w ill be the sole responsib ility of 

Participant. 

13. Nothing in this section shall be deemed to amend or alter the due date of any obligation under 

this Agreement. Rather, this section is only intended to provide a mechanism for resolving accounting 

disputes in good faith. 

(A) It is the express intention of the parties to resolve any disputes arising under this Agreement 

without resort to litigation in order to protect the confidentiality of their relationship and their respective 

businesses and affairs. Any dispute or controversy that is not resolved informally pursuant to sub-paragraph 

(8) of Paragraph 13 arising out of or re lated to this Agreement shall be fully determined in the British Virgin 

Ver. ace 5100 2a Page 3 of 10 
Islands under the provisions of the American Arbitrat ion Association. 

(8) All disputes between the parties relating in any way to ( 1) the execution and delivery, construction or enforceability of this Agreement, (2) the management or operations of the Company, or (3) any other 

breach or claimed breach of this Agreement or the transactions contemplated herein shall be settled amicably 

by good faith discussion among all of the parties hereto, and, failing such amicable settlement, finally determined exclusively by binding arbitration in accordance with the procedures provided herein. The reference to 

this arbitration clause in any specific provision of this Agreement is for emphasis only, and is not intended to 

limit the scope, extent or intent of this arbitration clause, or to mean that any other provision of this Agreement shall not be fully subject to the terms of this arbitration clause. All disputes arising with respect to any 

provision of this Agreement shall be fully subject to the terms of this arbitration clause. 

(C) Either party may initiate arbitration by serving written demand upon the other party or parties . 

The demand shall state in summary form the issues in dispute in a manner that reasonably may be expected 

to apprise the other party of the nature of the controversy and the particular damage or injury claimed. The 

party receiving the demand shall answer in writing within 30 days and include in such answer a summary of 

any additional issues known or believed to be in dispute by such party described in a manner that reasonably 

may be expected to apprise the other party of the nature of the controversy and the particular damage or 

injury claimed . Failure to answer will be construed as a denial of the issues in demand . 

(D) The parties shall select a mutually acceptable arbitrator within 30 days of the demand for 

arbitration. If the parties are unable to agree on an arbitrator within the 30 days, then each party shall appoint 

an arbitrator within 30 days thereof. If a party fails to appoint its arbitrator within such 30 day period, the 

party shall thereby w aive its right to do so, and the other party's selected arbitrator shall act as the sole 

arbitrator. All arbitrators shall be active or retired, disinterested officials of insurance or reinsurance companies not under the control or management of either party to this Agreement and will not have personal or 

financial interests in the resu lt of the arbitration. 

(E) If two party-appointed arbitrators have been selected, the selected arbitrators shall then choose 

an umpire within 30 days from the date thereof. If the two arbitrators are unable to agree upon an umpire 

within 30 days after the appointment of the party-appointed arbitrators, the two party-appointed arbitrators 

shall each exchange a list of three (3) umpire candidates. Within ten (10) days thereafter, each partyappointed arbitrator shall strike two names from the other's list. The umpire shall be selected from the 

remaining two names by the drawing of lots no later than ten ( 10) days thereafter. 

(F) If more than one arbitrator shall be appointed, the arbitrators shall cooperate to avoid unnecessary expense and to accomplish the speedy, effective and fair disposition of the disputes at issue. The 

arbitrator or arbitrators shall have the authority to conduct conferences and hearings, hear arguments of the 

parties and take the testimony of witnesses. All witnesses will be made available for cross-examination by 

the parties. The arbitrators may order the parties to exchange information or make witnesses avai lable to the 

opposing party prior to any arbitration hearing. 

(G) The arbitrator or arbitrators shall render a written decision (by majority determination if more 

than one arbitrator) and award within 30 days of the close of the arbitration proceeding. Judgment upon the 

award rendered by the arbitrator or arbitrators may be entered by any court of competent jurisdiction in 

Nebraska or application may be made in such court for judicial acceptance of the award and an order of 

enforcement as the law of Nebraska may require or allow. 

(H) The award of the arbitrator or arbitrators shall be binding and conclusive on the parties, and shall 

be kept confidential by the parties to the greatest extent possible . No disclosure of the award shall be made 

except as required by the law or as necessary or appropriate to effect the enforcement thereof. 

(I) All arbitration proceedings shall be conducted in the English language in accordance with the 

rules of the American Arbitration Association and shall take place in Tortola, British Virgin Islands or at some 

other location agreed to by the parties. 

(J) The arbitrator or arbitrators shall be advised of all the provisions of this arbitration clause. 

Ver aco 5 100 2a Page 4 of 10 
(K) This arbitration clause shall survive the termination of this Agreement and be deemed to be an 

obligation of the parties which is independent of, and without regard to, the validity of this Agreement. 

(L) Punitive damages will not be awarded . The arbitrator(s) may, however, in their discretion award 

such other costs and expenses as they deem appropriate, including, but not limited to, attorneys' fees, the 

costs of arbitration and arbitrators' fees. 

(M) Participant acknowledges and agrees that it will benefit from this Agreement and that a breach 

of the covenants herein would cause Company irreparable damage that could not adequately be compensated 

by monetary compensation. Accordingly, it is understood and agreed that in the event of any such breach or 

threatened breach, Company may apply to a court of competent jurisdiction for, and shall be entitled to, 

injunctive relief from such court, without the requirement of posting a bond or proof of damages, designed to 

cure existing breaches and to prevent a future occurrence or threatened future occurrence of like breaches on 

the part of Participant. It is further understood and agreed that the remedies and recourses herein provided 

shall be in addition to, and not in lieu of any other remedy or recourse which is available to Company either at 

law or in equity in the absence of this Paragraph including without limitation the right to damages. 

14. Participant hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the 

Courts of Nebraska for the purpose of enforcing any arbitration award rendered hereunder and all other 

purposes related to this Agreement, and agrees to accept service of process in any case instituted in Nebraska 

related to this Agreement and further agrees not to challenge venue in Nebraska provided such process is 

delivered in accordance with the applicable rules for service of process then in effect in Nebraska. To the 

extent necessary, this consent shall be construed as a limited waiver of sovereign immunity only with respect 

to this Agreement. 

1 5. All notices, requests, demands or other communications to the Company provided for herein 

shall be in writing, shall be delivered by hand, by first-class mail, postage prepaid, or by any form of commercial overnight courier, and shall be addressed to the parties hereto at their respective addresses listed below 

or to such other persons or addresses as the relevant party shall designate as to itself from time to time in a 

writing delivered in like manner to Applied Underwriters Captive Risk Assurance Company, P.O. Box 3646, 

Omaha, NE 68103-0646 and to Participant at: 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013 

Either party may designate a new address for notices by providing written notice to the other party as 

provided in this paragraph, or in the absence of such notification from Participant, at the address to which 

Participant's last billing statement was sent. 

16. This Agreement shall be exclusively governed by and construed in accordance with the laws of 

Nebraska and any matter concerning this Agreement that is not subject to the dispute resolution provisions of 

Paragraph 1 3 hereof shall be resolved exclusively by the courts of Nebraska without reference to its conflict 

of laws. 

1 7. All amounts referred to herein are expressed in United States Dollars and all payments shall be 

made in such dollars . 

18. Waiver. No delay or failure to require performance of any prov1s1on of this Agreement shall 

constitute a waiver of the performance of such provision on any other instance. No waiver of any of the 

provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof 

(whether or not similar) nor shall such waiver constitute a continuing waiver unless expressed in writing and 

signed by all parties. 

19. Participation by Participant in this Agreement is subject to the prior written consent of the 

Company. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than 

the parties hereto and their affiliates, successors and ass igns, any rights, remedies , obligations or liabilities 

under or by reason of this Agreement, except as expressly provided herein. 

Ver. aco 5100 2a Page 5 of 10 
IN WITNESS WHEREOF, the parties have set their hand. 

PARTICIPANT APPLIED UNDERWRITERS CAPTIVE RISK 

ASSURANCE COMPANY, INC., SOLELY FOR AND 

ON BEHALF OF PROTECTED CELL NO . 816280 

By: 

Name: 

Tit le: 

Date: 7-1- O°f 

Ver. aco_5100_2a Page 6 of 10 
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. 

PARTICIPANT NO. 81628 0 

REINSURANCE PARTICIPATION AGREEMENT 

SCHEDULE 1 

EFFECTIVE DATE: JULY 1, 2009 

This Schedule 1 applies as of the Effective Date to all payroll, premium, and losses occurring under the 

Policies notwithstanding any Extension Terms which may apply ("Effective Period"). For purposes of this 

Schedule 1, unless otherwise noted, capitalized terms shall have the meaning set forth in the Agreement. 

1 . Participant hereby subscribes to 

Program No. 565, Enforce Coverage Group Preferred Program, ("Program 565"). 

All participants subscribing to Program 565 are collectively referred to as "Subscribing Participants." The 

losses occurring under the policies of the Subscribing Participants are pooled for purposes of all calculations 

in this Schedule 1. 

2. Calculation of Premium and loss Amounts. 

(a) Policy Payroll is defined as compensable payroll occurring during the Eff ective Period under the Policies 

subject to all customary limitations and caps. The Loss Pick Containment Amount is defined as the amount 

equal to the product of Policy Payroll and the respective Loss Pick Containment Rates listed in Table C. These 

rates are per $100 of Policy Payroll and are fixed for the Effective Period. Changes in experience modifiers 

and other modification or differential factors of the Policies will not affect these rates . If Policy Payroll occurs 

under a classification not listed herein, the Company shall, in its sole discretion, determine a rate for that 

classification commensurate with the rates otherwise listed and with t he filed and approved rates of the 

Issuing Insurers. 

(b) The Program Loss Pick Containment Amount is defined as the sum over the Effective Period of the Loss 

Pick Containment Amounts for all of the Subscribing Participants calculated using the rates agreed to by each 

of the Subscribing Participants. 

(c) The Company will calculate loss development factors ("LDF's") for each loss under the Policies of the 

Subscribing Participants directly from the loss development factors published by the government rating bureau in the state where the exposure occurred. LDF's are subject to change without notice. The LDF's in 

effect as of the date of this Schedule 1 are listed in Table A (a composite using Policy Payroll by state is 

shown). If during the Active Term the Participant: i) is processing payroll with an affiliate of the Company, the 

LDF's titled "Weekly" will be used; or ii) is not processing payroll with an affiliate of the Company, the LDF's 

titled "Monthly" will be used. Unless an agreement for renewal is offered by an affiliate of the Company and 

then accepted by the Participant within six (6) months of the end of the Active Term, the LDF's titled "RunOff" will be used . In determining the age of a claim, the Company in its sole discretion will use either the date 

of occurrence or the date the claim was reported. 

(d) Participant's Ultimate Loss is defined as aggregate incurred losses under the Policies multiplied by the 

applicable LDF. The Participant's Loss Ratio equals Participant's Ultimate Loss divided by the Loss Pick 

Containment Amount. 

(e) Program Ultimate Loss is defined as aggregate losses incurred under the Policies of the Subscribing 

Participants during the Effective Period multiplied by the applicable LDF. The Program Loss Ratio equals 

Program Ultimate Loss divided by the Program Loss Pick Containment Amount. 

(f) The Exposure Group Adjustment Factor is determined from Table B using the Program Loss Ratio with 

intermediate values to be interpolated . The Exposure Group Adjustment Factor Table has been determined 

using NCCI Expected Unlimited Loss Group 23 and is subject to change without notice if Policy Payroll for 

Program 565 varies from estimates made in preparing this Schedule 1 or if NCCI Table M is Revised. 

Ver. aco_5112_2a Page 7 of 10 
3. Allocation of Premium and Losses. 

An amount, equal to the premium earned under the Policies in excess of the Loss Pick Containment Amount 

multiplied by the applicable Exposure Group Adjustment Factor multiplied by the Allocation Factor listed in 

Table B, will be allocated to the Participant's cell. Fees for services charged by any affiliate of the Company 

are not considered premium under the Policies. 

The Participant's share of the pooled losses ("Allocated Losses") shall equal the Loss Pick Containment 

Amount multiplied by the greater of {i) the Program Loss Ratio; or {ii) the Participant's Loss Ratio if it is greater 

than 0. 65. The Participant, through its cell account, will be responsible for Allocated Losses in aggregate up 

to the Cumulative Aggregate Limit which equals 0.9600 multiplied by the Loss Pick Containment Amount. 

4. Capital Deposits. Participant agrees to make and maintain a capital deposit in its cell equal to the Estimated 

Annual Loss Pick Containment Amount shown in Table C multiplied by 10% during year 1; 10% during year 

2; or 10% thereafter. The Estimated Annual Loss Pick Containment Amount and the resulting capital deposit 

are subject to change in the Company's sole discretion if Policy Payroll varies from estimates made as of the 

Effective Date of this Schedule 1. 

5. Additional Capital Deposits. Participant further agrees to make and maintain in its cell account an additional 

capital deposit equal to the lesser of Allocated Losses or the Cumulative Aggregate Limit. For the purposes of 

calculating the additional capital deposit, a Program Loss Ratio of no less than 65 % will be used in year 1, 

40% in year 2, and 30% thereafter. During the Run-Off Term , capital deposits will be calculated using the 

LDF's titled "Run-Off'' at a schedule determined by the Company but no less frequently than annually beginning nine months after the expiration of all Policies. 

6. Notwithstanding anything to the contrary in the Agreement, the Company may terminate the Agreement 

and liquidate the Participant's cell in its sole discretion if i) the Participant's maximum liability has been 

reached and three years have elapsed since the expiration of all of the Policies; or ii) the amount of paid losses 

allocated to the Participant's cell under the Policies has exceeded the Participant's maximum liability; or iii) 

seven years have elapsed since the expiration of all of the Policies; or iv) the Company deems itself insecure 

w ith respect to the Participant's ability or willingness to fulfill its obligations under the Agreement. 

7. In the event of Early Cancellation whether by the Participant or by the Company {limited to non-pay or a 

material change in risk): {a) the Exposure Group Adjustment Factor will be multiplied by 1.25; {b) the Cumulative Aggregate Limit will be determined using Policy Payroll annualized to reflect the full term of the Agreement; and {c) the following amounts will be immediately due and payable to the Company: i) any remaining 

premium, including short rate penalties, due under the Policies; ii) a capital deposit equal to the Participant's 

cell's maximum liability; and iii) a Cancellation Fee equal to 8% of the Estimated Annual Loss Pick Containment Amount. 

8. Beginning one year after the inception of Program 565, the Company may in its sole discretion transfer the 

Subscribing Participants to a similar program if at any time triple the current annualized Program Loss Pick 

Containment Amount does not meet the threshold defined for at least NCCI Expected Unlimited Loss 

Group 23. 

9. In the event of any confl ict between the Agreement and this Schedule 1, this Schedule 1 shall control. 

Ver. aco_51 12_2a 

APPLIED UNDERWRITERS CAPTIVE RISK 

ASSURANCE COMPANY, INC. , SOLELY FOR AND 

ON BEHALF OF PROTECTED CELL NO. 8 16280 

Page 8 of 10 
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. 

~l2im Ag~ 

Month 

FrQm 

00 

07 

10 

13 

16 

19 

22 

25 

28 

31 

34 

Ver eco 6120 2a 

Month 

_Tu_ 

06 

09 

12 

15 

18 

21 

24 

27 

30 

33 

36 

Loss 

fiS!1iQ 

0.00 

0.10 

0.20· 

0.30 

0.40 

0.50 

0.60 

0 .70 

0.80 

0.90 

PARTICIPANT NO. 816280 

REINSURANCE PARTICIPATION AGREEMENT 

SCHEDULE 1 TABLES 

EFFECTIVE DATE: JULY 1, 2009 

TABLE A 

Loss Development Factors 

Weekly Monthly 

Open 

Cl2ims 

3.306 

3.280 

3.264 

3.247 

3.231 

3.112 

2.952 

2.804 

2.667 

2.580 

2.517 

Closed Open Closed 

!:;l2im~ Claims ~l51im:2 

1.232 3.372 1.257 

1.151 3.346 1.175 

1.101 3.329 1.123 

1.084 3.312 1.106 

1.078 3.295 1.099 

1.069 3 .174 1.090 

1.055 3.011 1.076 

1.046 2.860 1.067 

1.044 2 .720 1.065 

1.040 2.632 1.060 

1.032 2.567 1.053 

TABLE B 

Exposure Group Adjustment Factors 

Adjustment 

Factor 

1.0000 

1.2836 

1.6326 

1 .5158 

1.3793 

1.2038 

1.0672 

0.9696 

1.1114 

1.1063 

Loss 

B.fili.Q 

1.00 

1.10 

1.20 

1.30 

1.40 

1.50 

1.60 

1.70 

1.80 

1.90 

The Allocation Factor is 0 .34. 

Page 9 of 10 

Run-Off 

Open 

Cl2ims 

5.527 

5 .527 

5.527 

4 .904 

4 .904 

4.904 

4.904 

4.033 

4.033 

4 .033 

4.033 

Adjustment 

Factor 

0.9629 

0.9629 

0.9824 

0.9824 

0.9824 

0.9824 

0.9824 

0.9824 

0.9824 

0.9824 

Closed 

~laim~ 

1.201 

1.201 

1.201 

1 .111 

1 . 111 

1 . 111 

1 . 111 

1.064 

1.064 

1.064 

1.064 
Ver. aco 6122 2• 

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. 

PARTICIPANT NO. 816280 

REINSURANCE PARTICIPATION AGREEMENT 

SCHEDULE 1 TABLES 

EFFECTIVE DA TE: JULY 1, 2009 

TABLE C 

Loss Pick Containment Rates and Estimated Annual Amounts 

Class 

Code 

NY 7242 

NY 8810 

NY 8742 

NY 7231 

Loss Pick 

Containment Rate 

8.07 

0 .26 

0.44 

6.72 

Estimated Annual 

Payroll 

985,000 

790,000 

700,000 

270,000 

The Total Estimated Annual Loss Pick Containment Amount is $102,718. 

Page 10 of 10 
( 

335 WEST 35TH STREET, 9th FLOOR 

NEW YORK, NY 10001-1726 

(212) 947-4455 

m'b~~ E Applied Underwriters 

cffibank CITIBANK, N.A. BR. #300 

CHINATOWN FINANCIAL CENTER 

6053 

164 Canal Street, 2nd Floor, New York, NY 10013 

1·8/210 

7/9/2009 

$ **11,433.00 

__ le re irty ~_-T re * __ ooLLARs 

MEMO 

Applied Underwriters 

PO Box 3646 

Ohaha,NE 68103 

de osit__on Q.it 

1• 
Ii ~1!~!-r~Ys 335 West 35th Street, 9th Floor 

New York, NY 10001 -1726 

I 1II11I11I111IIIII11111II111I1 I I 

New Accounts Processing 

Applied Underwriters 

PO Box 3646 

Omaha, NE 681 03 
INDEX NO. UNASSIGNED

NYSCEF DOC. NO. 5 RECEIVED NYSCEF: 09/09/2016

APPLIEn t·~ UNDERWRITERS 6t:f 

Breakaway Courier Systems 

PO Box 780 

New York, NY 10013 

PREMIER Lt 

GxcLUSIVE 

Plan Analysis 

Table of Contents 

Section 

Page 1 of 9 

Account No. 81 6280 

Plan Term 07 /01 /09 to 06/30/12 

For the Period 1 0/01 /09 to 12/31 /09 

Questions? Changes? Comments? 

Your account manager is: 

James C. Hofstetter 

42 (877)234-4420 

IFAXI (877)234-4421 

~ P.O. Box 3646 

Omaha, NE 68103-0646 

Page 

Summary of Workers' Compensation Plan Charges..................... .. 2 

Projected Plan Volume............ .................................................. 3 

Analysis of Program Costs........................................................ 4 

Adjusted Workers' Compensation Pay-In Rates............................ 7 

Claims Analysis..................................................... .......... ......... 7 

Claims Listing.......................................................................... 9 
APPLIEn t·~ UNDERWRITERS M 

Summary of 

Workers' 

Compensation 

Plan Charges Period 

10/01 /09 to 12/31 /09 

10/01 /09 to 12/31 /09 

10/01 /09 to 12/31 /09 

10/01 /09 to 12/31 /09 

Total Charges 

Initial Capital Deposit 

Summary of Plan Charges 10/01/09 to 12/31/09 

Class Code Payroll Reported 

NY7231 $76,212 

NY7242 272,350 

NY8742 168,259 

NY8810 190,020 

$706,841 

Summary of Plan Charges to Date 

Total Amount of Charges on Prior Plan Analyses 

Total Amount of Charges for the Period 10/01 /09 to 12/31 /09 

Total Billed Amounts 

Page 2 of 9 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 

For the Period 10/01 /09 to 12/31 /09 

Rate 

6.05 

7.27 

0.40 

0.24 

Amount 

$4,611 

19,800 

673 

456 

$25,540 

$10,272 

18,816 

25,540 

$54,628 
APPLIEn f·~ UNDERWRITERS ~ 

Projected 

Plan Volume 

Plan to Date 

Payroll Reported Rate 

Class Code 07101 /09-12/31 /09 per $100 

NY7231 $133,971 

NY7242 470, 156 

NY8742 307,825 

NY8810 349,409 

Total $1,261,361 

Maximum Cost Factor 

Minimum Cost Factor 

Aggregate Retention (Loss Limit) Factor 

Projected 3-year Plan Maximum Cost 

Projected 3-year Plan Minimum Cost 

6.72 

8.07 

0.44 

0 .26 

Loss Pick 

Containment Amount 

$9,001 

37,934 

1,342 

907 

$49, 184 

Estimated Annualized Loss Pick Containment Amount 

Page 3 of 9 

Account No. 816280 

Plan Term 07/01 /09 to 06/30/12 

For the Period 1 0/01 /09 to 12/31 /09 

Projected for Total Plan 

Payroll Projected Payroll Projected Rate Loss Pick 

01 /01 /10-06/30/12 07 /01 /09-06/30/12 per $100 

$688,692 $822,663 

2,501 ,370 2,971,526 

1,761,949 2,069,774 

1,989,681 2,339,090 

$6,941,692 $8,203,053 

1.30 

0.34 

0.96 

$310,124 x 1.30 

$310,124 x 0 .34 

$310,124 / 3 = 

$403,161 

$105,442 

$103,375 

6.72 

8.07 

0.44 

0.26 

Containment Amount 

$55,271 

239, 755 

9 ,026 

6 ,072 

$310, 124 
APPLIEn f·~ UNDERWRITERS M 

Analysis of 

Program 

Costs Description 

Projected Total 3-year Plan Loss Pick Containment Amount 

Percentage of Plan Remaining, 01 /01 / 10 to 06/30/ 12 

Projected Future Loss Ratio 

Projected Future Claims, 01 /01/10 to 06/30/12 

Projected Total 3-year Plan Loss Pick Containment Amount 

Adjustment Factor to Program Loss Ratio 

Adjusted Current Program Claims 

Projected Total 3-year Plan Claims 

Projected Total 3-year Plan Cost (see table on next page) 

Percentage of Plan Completed as of 12/31 /09 

Estimated Plan Cost To Date 

Estimated Plan Cost 

Page 4 of 9 

Account No. 816280 

Plan Term 07/01 /09 to 06/30/ 12 

For the Period 10/01 /09 to 12/31 /09 

As of 12/31 /09 

$310,124 

84.14% 

66% 

$310, 124 

0.1085 

$172,219 

33,648 

205,867 

309, 193 

15.86% 

$49,038 
APPLIED f.~ UNDERWRITERS M 

Analysis of 

Program 

Costs, 

Continued 

As of 12/31 /09 

Page 5 of 9 

Account No. 816280 

Plan Term 07/01 /09 to 06/30/12 

For the Period 10/01 /09 to 1 2/31 /09 

Final Plan Cost at Various Claims Cost Levels 

Ultimate Claims Total 3-year Plan Cost 

$0 $105,194 

35,912 197,642 

56,412 229,181 

74,895 241,493 

93,347 253,805 

111 ,800 261 ,993 

130,252 270,211 

148,735 278,398 

169,235 288,663 

187,687 300,975 

206, 170 311 ,240 

220,529 321,474 

241,028 352,797 

263,605 393,268 

290,245 397,393 

316,915 399,439 

347,680 401,486 

2,050,228 403,161 

$205,867 $309, 193 

The amounts above are consistent with the Workers' Compensation Program Summary and Scenarios Worksheet you 

were offered and the procedures described in your Reinsurance Participation Agreement. 
APPLIEn f·~ UNDERWRITERS '1:1 

Analysis of 

Program 

Costs, 

Continued 

Total Deposit and Pay-In Requirements 

Description Amounts as of 12/31 /09 

Estimated Annualized Loss Pick Containment Amount $103,375 

Deposit Percentage 10% 

Fixed Portion of Deposit Requirement 

Loss Pick Containment Amount to Date 49, 184 (a) 

Presumed Loss Ratio for the First Plan Year 65% 

Presumed Losses to Date 31,970 (b) 

Adjusted Current Program Claims 33,648 (c) 

Retained Losses (greater of b and c) 

Capital Deposit Requirement 

Loss Pick Containment Amount to Date 49, 184 (a) 

Minimum Cost Factor 0.34 (e) 

Retained Loss Ratio (d I a) 68% 

Exposure Group Adjustment Factor 0.9697 (f) 

Base Fees (ax e x f) 

Total Pay-In Amount Due Under Your Contract 

Total Pay-In We Are Requiring through 12/31/09 

Less: Amount You Have Paid-In through 12/31 /09 

Pay-In Difference as of 1 2/31 /09 * 

Page 6 of 9 

Account No. 816280 

Plan Term 07 /01 /09 to 06/30/12 

For the Period 1 0/01 /09 to 12/31 /09 

$10,338 

33,648 (d) 

43,986 

16,216 

60,202 

54,628 

54,628 

$-

* Your Pay-In factor will be adjusted to reconcile the total pay-in we are requiring and the amount you have paid in through 

12131109. 
APPLIEn t·~ Page 7 of 9 

Account No. 816280 

Plan Term 07/01 /09 to 06/30/12 UNDERWRITERS M For the Period 1 0/01 /09 to 12/31 /09 

Adjusted 

Workers' 

Compensation 

Pay-In Rates 

Claims 

Analysis 

..... 

c 

::i 

0 

E 

<{ 

Rate Effective Net Pay-In 

Description Class Code Date Rate 

Trucking-Mail/Package &Driver NY7231 01/01 /10 4 .70 

Bicycle Delivery NY7242 01 /01 /10 5.65 

Outside Salesperson NY8742 01 /01 /10 0.31 

Clerical NY8810 01 /01 /10 0 .18 

Summary of Member Claims 

$55,000 

$50,000 

$40,000 

$30,000 

$20,000 

$10,000 

$0 

2009 - 2010 2010 - 201 1 201 1 - 201 2 

• Total Incurred •Total Paid • Indemnity Claim Count 

Indemnity Total Total 

Year Claim Count Claim Count Total Incurred Total Paid Outstanding 

2009 - 2010 - 1 $14 - $14 

2010-2011 - - - - -

2011 - 2012 - - - - -

Claim Inventory 

Acti vity for 1010112009 to 1213112009 

Incident Only Medical Only Indemnity 

New Claims - 1 - New Open Claims - - - New Closed Claims - 1 - New Claim Closures - 1 - Reopened Claims - - -

Total Open Claims - - - Total Closed Claims - 1 - Total Claims - 1 -

() 

0 

c 

::i 

..... 
APPLIEn f·~ UNDERWRITERS M 

Page 8 of 9 

Account No. 816280 

Plan Term 07 /01 /09 to 06/30/ 12 

For the Period 10101 /09 to 12/31 /09 

Reporting Lag 

Date of Injury to Employer Notify Date 

Average 

0-3 days 4-7 days 8+ days Reporting Lag 

2009 - 2010 1 22 

2010 - 2011 - 0 

2011 - 2012 - 0 

This period 1 22 

Reporting lag measures the time between the employee being injured and you notifying 

us of the injury. Statistically, we are able to settle fast-reported claims more quickly and 

cost effectively than those where there is a delay of more than a few days. 
Claims 

Listing 

APPLIEn t·~ UNDERWRITERS M 

Insured: 

Policy Number: 

Policy Period: 

Breakaway Courier Systems 

55-816280-01-01 

07/01/09 - 07/01/10 

Claim# State - Code Accident Description 

Claimant Status Nature of Injury 

Loss Type Part of Body 

43729 NY - NY7242 Injured by Motor Vehicle 

Litzenberg, Jason Closed 

MO 

Policy: 55-816280-01-01 

Contusion 

Hip 

Open Claims: 0 

Totals for Insured: Breakaway Courier Systems 

Open LT Claims: O Closed LT Claims: 

Open MO & IR Claims: 0 Closed MO & IR Claims: 

Total Claims Open: 0 Total Claims Closed: 

Total Claims : 1 

Date of Injury 

Date Reported 

Date Closed 

10/26/09 

11 /17 /09 

12/01 /09 

Closed Claims: 

0 Lost Time: 

MO &IR: 

Total 

xpense 

Type 

IND 

MED 

EXP 

TOTAL 

Incurred 

14 

14 

14 

14 

14 

Page 9 of 9 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 

For the Period 10/01 /09 to 12/31 /09 

Valuation Date: 12/31 /09 

IR = Incident Report, MO = Medical Only, LT = Lost Time 

Paid-toDate Outstanding 

14 

14 

14 

14 

14 

Recovery 

Incurred 

Less 

Recovery 

14 

14 

14 

14 

14 
INDEX NO. UNASSIGNED

NYSCEF DOC. NO. 6 RECEIVED NYSCEF: 09/09/2016

APPLIEn·t·~ UNDERWRITERS ~ 

Breakaway Courier Systems 

PO Box 780 

New York, NY 10013 

PREMIER!.\) 

GXCLUSIVE" 

Plan Analysis 

Table of Contents 

Section 

Page 1of13 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

Questions? Comments? 

Your account manager is: 

Trevor Rowell 

Z' (8771234-4420 

IFAXI (877)234-4421 

[8:I P.O. Box 3646 

Omaha, NE 68103-0646 

Page 

Summary of Workers' Compensation Plan Charges ........... ,,.......... 2 

Projected Plan Volume.,, .................. ,,,, ............ ,, ... ,, ............ ,,.... 3 

Analysis of Program Costs ................ ,, ............... ,,,, ............... ,,,, 4 

Adjusted Workers' Compensation Pay-In Rates.,, .............. ,,.,,...... 7 

Claims Analysis ... ,,,, ............. ,,.,, ............... ,,,, ................. ,,......... 7 

Claims Listing ...... ,,,, ............ ,,,,,, ............... ,, .............. ,, ... ,, ........ 11 
APPLIEn·f.1'. 

UNDERWRITERS ~ 

Summary of 

Workers' 

Compensation 

Plan Charges 

Summary of Plan Charges 01/01/12 to 03/31/12 

Period Class Code Payroll Reported 

01/01/12 to 03/31/12 NY7231 60,398 

01/01/12 to .03/31/12 NY7242 276,670 

01/01/12 to 03/31/12 NY8742 86,589 

01/01/12 to 03/31/12 NY8810 203,878 

Total Charges $627,535 

Summary of Plan Charges to Date 

Initial Capital Deposit 

Total Amount of Charges on Prior Plan Analyses 

Total Amount of Charges for the Period 01 /01 /12 to 03/31 /12 

Supplemental Plan Charges on 03/31 /12 

Total Billed Amounts 

Page 2 of 13 

Account No. 816280 

Plan Term 07/01 /09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

Rate 

8.20 

9.84 

0.53 

0.32 

Amount 

4,953 

27,224 

459 

652 

$33,288 

$10,272 

253,094 

33.288 

93,997 

$390,651 
APPLIED"f•'-

uNnERwR1TERs .t:f 

Projected 

Plan Volume 

Plan to Date 

Payroll Reported Rate 

Class Code 07/01/09-03/31/12 per $100 

NY7231 $699,654 

NY7242 3,072,955 

NY8742 1,391,107 

NY8810 2,007,759 

Total $7, 171,475 

Maximum Cost Factor 

Minimum Cost Factor 

Aggregate Retention {loss Limit) Factor 

Projected 3-year Plan Maximum Cost 

Projected 3-year Plan Minimum Cost 

6.72 

8.07 

0.44 

0.26 

Loss Pick 

Containment Amount 

$47,006 

247,938 

6,067 

5,212 

$306,223 

Estimated Annualized Loss Pick Containment Amount 

Page 3 of 13 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

Projected for Total Plan 

Payroll Projected Payroll Projected Rate Loss Pick 

04/01 /12-06/30/12 07 /01 /09-06/30/12 per $100 

$65,368 

287,103 

129,970 

187 ,583 

$670,024 

1.30 

0.34 

0.96 

$334,833 x 1.30 

$334,833 x 0.34 

$334,833 I 3 

$765,022 

3,360,058 

1,521,077 

2, 195,342 

$7,841.499 

$435,283 

$113,843 

$111,611 

6.72 

8.07 

0.44 

0.26 

Containment Amount 

$51,398 

271,103 

6,633 

5,699 

$334,833 
APPLIED"f•~ UNDERWRITERS ~ 

Analysis of 

Program 

Costs Description 

Projected Total 3-year Plan Loss Pick Containment Amount 

Percentage of Plan Remaining, 04/01/12 to 06/30/12 

Projected Future Loss Ratio 

Projected Future Claims, 04/01 /12 to 06/30/12 

Projected Total 3-year Plan Loss Pick Containment Amount 

Adjustment Factor to Program Loss Ratio 

Adjusted Current Program Claims 

Projected Total 3-year Plan Claims 

Projected Total 3-year Plan Cost {see table on next page) 

Percentage of Plan Completed as of 03/31 /12 

Estimated Plan Cost To Date 

Estimated Plan Cost 

Page 4 of 13 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

As of 03/31/12 

$334,833 

8.54% 

66% 

$334,833 

0.9600 

$18,873 

321,440 

340,313 

431,265 

91.46% 

$394,435 
APPLIEn·t·'-

uNnERwRITERs ~ 

Analysis of 

Program 

Costs, 

Continued 

As of 03/31/12 

Final Plan Cost at Various Claims Cost Levels 

Ultimate Claims Total 3-year Plan Cost 

$0 $113,576 

38,774 213,389 

60,906 247,442 

80,862 260,735 

100,785 274,028 

120,707 282,867 

140,630 291,740 

160,586 300,580 

182,719 311,663 

202,641 324,956 

222,597 336,039 

238, 100 347,088 

260,233 380,907 

284,608 424,602 

313,371 429,056 

342, 166 431,265 

375,382 433,475 

2,213,584 435,283 

$340,313 $431,265 

Page 5 of 13 

Account No. 816280 

Plan Term 07 /01 /09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

The amounts above are consistent with the Workers' Compensation Program Summary and Scenarios Worksheet you 

were offered and the procedures described in your Reinsurance Participation Agreement. 
APPLIED·f·'-

uNnERwRITERs ;.,t:f 

Analysis of 

Program 

Costs, 

Continued 

Total Deposit and Pay-In Requirements 

Description Amounts as of 03/31112 

Estimated Annualized Loss Pick Containment Amount $111,611 

Deposit Percentage 10% 

Fixed Portion of Deposit Requirement 

Loss Pick Containment Amount to Date 306,223 (a) 

Presumed Loss Ratio for the Third Plan Year 30o/o 

Presumed Losses to Date 91,867 (b) 

Adjusted Current Program Claims 321,440 (c) 

Retained Losses (greater of b and c) 

Capital Deposit Requirement 

Loss Pick Containment Amount to Date 306,223 (a) 

Minimum Cost Factor 0.34 (e) 

Retained Loss Ratio (d I a) 105o/o 

Exposure Group Adjustment Factor 0.9629 (f) 

Base Fees (a x e x f) 

Total Pay-In Amount Due Under Your Contract 

Total Pay-In We Are Requiring through 03/31/12 

Less: Total Pay-In We Required Prior to 03/31112 

Pay-In Difference as of 03/31 /12 * 

Page 6 of 13 

Account No. 816280 

Plan Term 07101109 to 06/30112 

For the Period 01/01112 to 03/31112 

$11,161 

321,440 (d) 

332,601 

100,253 

432,854 

392,915 

390,651 

$2,264 

* This is not a bill. Your Pay-In factor will be adjusted to reconcile the total pay-in we are requiring and the amount you have paid 

in through 03131112 . 
APPLIEn·t·"'-

Page 7 of 13 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 uNnERwR1TERs ~ For the Period 01/01/12 to 03/31/12 

Adjusted 

Workers' 

Compensation 

Pay-In Rates 

Claims 

Analysis 

~ 

c 

" 0 

E 

<( 

Rate Effective Net Pay-In 

Description Class Code Date Rate 

Trucking-Mail/Package &Driver NY7231 04/01/12 8.73 

Bicycle Delivery NY7242 04/01/12 10.49 

Outside Salesperson NY8742 04/01/12 0.57 

Clerical NY8810 04/01 /12 0.34 

Summary of Member Claims 

$100,000 

$90,000 

$80,000 

$70,000 

$60,000 

$50,000 

$40,000 

$30,000 

$20,000 

$10,000 

$0 

2009. 2010 2010 - 2011 2011-2012 

0 Total Incurred II Total Paid • Indemnity Claim Count 

Indemnity Total Total 

Year Claim Count Claim Count Total Incurred Total Paid Outstanding 

2009 - 2010 1 3 $23,365 $23,365 -

2010-2011 3 5 79,824 32,661 47' 163 

2011-2012 1 2 16,900 1,925 14,975 

Claim Inventory 

Activity far 01101112 ta 03/31112 

Description Incident Only Medical Only Indemnity 

New Claims - - 1 

New Open Claims - - 1 

New Closed Claims - - - New Claim Closures - - 1 

Reopened Claims - - 1 

Total Open Claims - 1 2 

Total Closed Claims - 4 3 

Total Claims - 5 5 

n 

0 

c 

" ~ 
10 

9 

8 

0 7 • 

~ 

0 6 

~ 5 

• 4 

.. •• 3 " 2 

0 

APPLIED"f• .. Page 8 of 13 

Account No. 816280 

Plan Term 07/01 /09 to 06/30/12 UNDERWRITERS At:! For the Period 01 /01 /12 to 03/31 /12 

2009 - 2010 

Reporting Lag 

Date of Injury to Employer Notify Date 

Average 

Period 0-3 days 4-7 days 8 + days Reporting Lag 

2009 - 2010 1 - 2 126 

2010- 2011 1 2 2 11 

2011-2012 - - 2 34 

This period - - 1 30 

Reporting lag measures the time between the employee being injured and you notifying 

us of the injury. Statistically, we are able to settle fast-reported claims more quickly and 

cost effectively than those where there is a delay of more than a few days. 

Analysis of Closed Indemnity Claim Counts 

Status 

Date of Injury Open Closed 

2009 - 2010 - 1 

Oo/o 1 OOo/o 

2010-2011 1 2 

33% 67% 

2011-2012 1 -

100% Oo/o 

2010 - 2011 2011-2012 

Date of Injury 

Total 

1 

3 

1 
APPLIED"f•._ 

UNDERWRITERS 6t:f 

Page 9 of 13 

Account No. 816280 

Plan Term 07 /01 /09 to 06130112 

For the Period 01/01/12 to 03/31/12 

Claims Summary by Accident Cause 

Indemnity Claim Count 

NCCI Accident Cause Grouping 

Fall, Slip, or Trip 

Motor Vehicle 

Striking Against or Stepping On 

Struck or Injured 

Total 

Indemnity Claim Count 

NCCI Body Part Grouping 

Lower Extremities 

Multiple Body Parts 

Upper Extremities 

Total 

Fall, Slip, or 

Trip 

Motor Vehicle 

Struck or 

Injured 

Claim Count 

Total Indemnity 

1 1 

2 1 

1 - 6 3 

10 5 

Total Incurred($) 

Total Incurred 

$3,824 

8,008 

19,547 

88,710 

$120,089 

Claims Summary by Body Part Injured 

Lower 

Extremities Upper ------

Extremities)./ 

Multiple Body 

Parts 

Total Incurred($) 

Claim Count 

Total Indemnity Total Incurred 

4 1 $74,033 

2 2 8,638 

4 2 37,418 

10 5 $120,089 

Average 

Incurred 

$3,824 

4,004 

19,547 

14,785 

$12,009 

Average 

Incurred 

$18,508 

4,319 

9,355 

$12,009 

Largest 

Loss 

$3,824 

5,000 

19,547 

70,000 

$70,000 

Lower 

Extremities 

Largest 

Loss 

$70,000 

5,000 

19,547 

$70,000 
APPLIEn·t· .. UNDERWRITERS 4t:f 

Page 10 of 13 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 

For the Period 01 /01 /12 to 03/31 /12 

Claims Summary by Nature of Injury 

Indemnity Claim Count 

Claim Count 

NCCI Nature of Injury Grouping Total Indemnity 

Multiple Injuries 1 1 

Specific Injury 9 4 

Total 10 5 

Total Incurred($) 

Average 

Total Incurred Incurred 

$3,638 $3,638 

116,451 12,939 

$120,089 $12,009 

Multiple 

Injuries 

Largest 

Loss 

$3,638 

70,000 

$70,000 
Claims 

Listing 

APPLIED"f•1l 

UNDERWRITERS 6.t:f 

Insured: 

Policy Number: 

Policy Period: 

Claim# 

Claimant 

43729 

Breakaway Courier Systems 

55-816280-01-01 

07/01/09 - 07/01/10 

State - Code Accident Description 

Status Nature of Injury 

Loss Type Part of Body 

NY - NY7242 

Litzenberg, Jason Closed 

Injured by Motor Vehicle 

Contusion 

MO Hip 

Date of Injury 

Date Reported 

Date Closed 

10/26/09 

11/17/09 

12/01 /09 

45053 NY - NY7242 Striking Against/Stationary Object 03/22/10 

Giltz, Robert Closed Fracture 03/24/10 

MO Shoulder(s) 05/23/11 

49213 NY - NY7242 Injured by Motor Vehicle 02/04/10 

Delucas, Mark A Closed Multiple Physical Injuries 01/26/11 

LT Multiple Body Parts 03/29/12 

Policy: 55-816280-01-01 Open Claims: 0 Closed Claims: 3 

xpense 

Type 

Incurred 

IND 

MED 162 

EXP 18 

TOTAL 180 

IND 

MED 17,049 

EXP 2.498 

TOTAL 19.547 

IND 3,355 

MED 

EXP 283 

T5TAL 3,638 

23,365 

Page 11 of 13 

Account No. 816280 

Plan Term 07/01/09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

Valuation Date: 03/31 /12 

IR = Incident Report, MO = Medical Only, LT = Lost Time 

Incurred 

Paid-to- Less 

Date Outstanding Recovery Recovery 

162 162 

18 18 

180 180 

17,049 17,049 

2,498 2.498 

19,547 19,547 

3,355 3,355 

283 283 

3,638 3,638 

23,365 23,365 
APPLIEn·t·'-

uNnERwR1TERs 6t:f 

Claims 

Listing, 

Continued 

Insured: 

Policy Number: 

Policy Period: 

Claim# 

Claimant 

47297 

Yockey, Alex 

48762 

Hall, Jesse 

49564 

Bryant, Asher 

50942 

Hoy, Charles 

51634 

Huggins, Michell 

Breakaway Courier Systems 

55-816280-01-02 

07/01/10 -07/01/11 

State - Code Accident Description 

Status Nature of Injury 

Loss Type Part of Body 

NY - NY7242 Injured by Motor Vehicle 

Closed Fracture 

LT Elbow 

NY - NY7242 Motor Vehicle/Collision 

Closed Fracture 

MO Foot 

NY - NY7242 Injured by Motor Vehicle 

Closed Fracture 

MO Great Toe 

NY - NY7242 Fall/Different Elevation 

Closed Fracture 

LT Wrist 

NY - NY7242 Injured by Motor Vehicle 

Open Fracture 

LT Ankle 

Policy: 55-816280-01-02 Open Claims: 

Date of Injury 

Date Reported 

Date Closed 

09/01/10 

09/08/10 

04/28/11 

12/17/10 

12/21/10 

07/29/11 

02/17/11 

02/18/11 

06/23/11 

05/11/11 

05/25/11 

11/30/11 

06/08/11 

07 /05/11 

Closed Claims: 

r::xpense 

Type 

Incurred 

IND 270 

MED 1,854 

EXP 23 

TOTAL 2, 147 

IND 

MED 2,726 

EXP 282 

TO'i'iiL 3,008 

IND 

MED 845 

EXP 

TOTAL 845 

IND 1,093 

MED 2,668 

EXP 62 

TO'i'iiL 3,824 

IND 28,000 

MED 33,000 

EXP 9,000 

TOTAL 70,000 

4 79,824 

Page 12 of 13 

Account No. 816280 

Plan Term 07 /01 /09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

Valuation Date: 03/31 /12 

IR = Incident Report, MO = Medical Only, LT = Lost Time 

Incurred 

Paid-to- Less 

Date Outstanding Recovery Recovery 

270 270 

1,854 1,854 

23 23 

2,147 2, 147 

2,726 2,726 

282 282 

3,008 3,008 

845 845 

845 845 

1,093 1,093 

2,668 2,668 

62 62 

3,824 3,824 

12,269 15,731 28,000 

4,599 28,401 33,000 

5,969 3,031 9,000 

22,837 47,163 70,000 

32,661 47, 163 79,824 
APPLIED"f•'-

uNDERwR1TERs ~ 

Claims 

Listing, 

Continued 

Insured: 

Policy Number: 

Policy Period: 

Claim# 

Claimant 

54156 

Pinkney, Walter 

55454 

Barrientos, Harry 

Breakaway Courier Systems 

55-816280-01-03 

07/01/11 -07/01/12 

State - Code Accident Description 

Status Nature of Injury 

Loss Type Part of Body 

NY - NY7242 Injured by Motor Vehicle 

Open Other Specific Injury 

MO Upper Arm 

NY - NY7242 Motor Vehicle/NOC 

Open Other Specific Injury 

LT Unclassified 

Policy: 55-816280-01-03 Open Claims: 2 

Totals for Insured: Breakaway Courier Systems 

Open LT Claims: 2 Closed LT Claims: 

Open MO & JR Claims: Closed MO & IR Claims: 

Total Claims Open: 3 Total Claims Closed: 

Total Claims : 10 

Date of Injury 

Date Reported 

Date Closed 

10/24/11 

12/02/11 

xpense 

Type 

IND 

MED 

EXP 

TOTAL 

02/01/12 IND 

03/02/12 MED 

EXP 

TOTAL 

Closed Claims; 0 

3 

4 

7 

Lost Time: 

MO &IR' 

Total 

Incurred 

9,750 

2,150 

11,900 

1,500 

1,500 

2,000 

5,000 

16,900 

84,609 

35,480 

120,089 

Page 13 of 13 

Account No. 816280 

Plan Term 07 /01 /09 to 06/30/12 

For the Period 01/01/12 to 03/31/12 

Valuation Date: 03/31 /12 

IR = Incident Report, MO = Medical Only, LT = Lost Time 

Paid-toDate 

1,925 

1,925 

1,925 

32,446 

25,505 

57,951 

Outstanding 

7.825 

2.150 

9,975 

1,500 

1,500 

2,000 

5.000 

14,975 

52, 163 

9,975 

62, 138 

Recovery 

Incurred 

Less 

Recovery 

9.750 

2, 150 

11,900 

1,500 

1,500 

2,000 

5,000 

16,900 

84,609 

35,480 

120,089 
INDEX NO. UNASSIGNED

NYSCEF DOC. NO. 7 RECEIVED NYSCEF: 09/09/2016

BEFORE THE INSURANCE COMMISSIONER 

OF THE STATE OF CALIFORNIA 

In the Matter of the Appeal of: File AHB-WCA-14-31 

SHASTA LINEN SUPPLY, INC. 

Appellant, 

From the Decision of the 

CALIFORNIA INSURANCE COMP ANY, 

Respondent. 

' ·. DECISION & ORDER 

I. Introduction 

Shasta Linen Supply, Inc. (Shasta Linen) appeals California Insurance Company's (CIC) 

decision rejecting Shasta Linen's claims that CIC failed to adhere to its rate filings and sold an 

rinfiled and unapproved insurance program titled EquityComp. 

For the reasons set forth below, the Insurance Commissioner of the State of California 

("Insurance Commissioner") finds that CIC's EquityComp program and the accompanying 

Reinsurance Participation Agreement (RP A) constitute a misapplication of the filed rates of CIC 

in violation of California Insurance Code section 11737. Further, the Commissioner finds that 

CIC's EquityComp program and the accompanying RP A constitute a collateral agreement 

pursuant to California Code of Regulations, title 10, section 2268, and CIC' s failure to file and 

secure approval ofEquityComp and the RP A, in violation of Insurance Code section 11658, 

renders the RP A void as a matter oflaw. 

I 
II. Statement of Issues 

1. Does CIC's EquityComp program constitute a misapplication of the filed rates of CIC 

in violation of California Insurance Code section 11737? 

2. Does CIC's EquityComp program's RPA constitute a collateral agreement modifying 

the rates and obligations of either the insured or insurer, and is it void as a matter of law since the 

RPA was not filed with the Workers' Compensation Insurance Rating Bureau and the 

Department of Insurance before its use in the State of California, pursuant to Insurance Code 

section 11658 and California Code of Regulations, title 10, sections 2268 and 2218? 

III. Contentions of the Parties 

Shasta Linen contends CIC violated numerous Insurance Code provisions, as well as the 

California Code of Regulations, by failing to file the EquityComp program and the RP A with the 

Workers' Compensation Insurance Rating Bureau (WCIRB)1 and the Insurance Commissioner. 

Specifically, Shasta Linen asserts the RP A constitutes a collateral agreement pursuant to 

California Code of Regulations, title 10, sections 2268 and 2218, and as such must be filed and 

approved by the Insurance Commissioner prior to use.

2 Shasta Linen argues CIC's failure to file 

the RP A violates Insurance Code sections 11658 and 11735, as well as Part 2, Section V of the 

Miscellaneous Regulations for the Recording and Reporting of Data.3 Shasta Linen also 

contends CIC violated Insurance Code section 381 by failing to specify, in Shasta Linen's 

workers' compensation insurance policy, the basis and rates upon which the final premium is to 

1 The WCIRB is a rating organization licensed by the Insurance Commissioner under Insurance Code sections 

11750 et seq. to assist the Commissioner in the development and administration of workers' compensation insurance 

classification and rating systems. The WCIRB serves as the Commissioner's designated statistical agent for the 

purpose of gathering and compiling experience data developed under California's workers' compensation and 

employers' liability insurance policies. (Ins. Code§ 117515). 

2 Appellant's Post-hearing Opening Brief, 4:7-17. 

3 Provisions of the Miscellaneous Regulations for the Recording and Reporting Data are part of the Insurance 

Commissioner's Regulations, codified in California Code of Regulations, title 10, section 2354. 

2 
be determined and paid.4 Lastly, Shasta Linen asserts CIC violated Insurance Code section 

11658.5, by failing to inform Shasta Linen of its right to negotiate the policy's dispute resolution 

provisions and by failing to secure written receipt of such disclosure prior to issuance of the 

policy. 5 Shasta Linen urges the Commissioner to bar CIC from enforcing the terms of 

EquityComp and the RP A, including the mandatory arbitration provisions. Shasta Linen also 

requests the Commissioner order CIC to return all monies contributed to Shasta Linen's cell 

account, except for those used to settle workers' compensation claims, as well as all fees 

collected and disbursed to Applied Underwriters, Inc. and Applied Underwriters Captive Risk 

Assurance Company. 6 

CIC initially asserts the California Department of Insurance (CDI) lacks jurisdiction over 

Shasta Linen's appeal. Specifically, CIC argues: (1) appeals filed under Insurance Code section 

11737, subdivision (f) may only determine "whether CIC has properly applied its [rate] filings to 

determine how much premium to charge" and may not address the potential illegality of the rate 

filing;7 (2) the RPA is between AUCRA and Shasta Linen, and reliefin this forum is not 

possible;8 (3) whether the RP A is an unlawful collateral agreement in violation of the Insurance 

Commissioner's Regulations is beyond the scope of the CD I's jurisdiction;9 and ( 4) only the 

Insurance Commissioner may initiate a hearing to disapprove an unfiled rate. 10 

With regard to the merits of Shasta Linen's claims, CIC argues the RP A is not a collateral 

agreement because it does not change the cost of insurance under the CIC policy, does not 

impact insurance rates, and does not modify the terms oft11e CIC insurance policy issued to 

4 Appellant's Post-hearing Opening Brief, 5:7-13. 5 Appellant's Post-hearing Opening Brief, 5: 15-23. 6 Appellant's Post-hearing Opening Brief, 6:1-3; 26:3-12. 7 Respondent's Post-hearing Opening Brief, 21:13-22:7. 

8 Respondent's Post-hearing Opening Brief, 22:8-18. 

9 Respondent's Post-hearing Opening Brief, 23:8-14. 

10 Respondent's Post-hearing Opening Brief, 23:21-24:6. 

3 
Shasta Linen. 11 Lastly, with regard to potential remedies, CIC contends the CDI may not void 

Shasta Linen's RPA. Instead, CIC argues that ifthe Commissioner finds that the RP A violates 

the Insurance Code or its applicable Regulations, the Commissioner may issue only a prospective 

order to cease use of the RP A, and is not permitted to void Shasta Linen's RP A. 12 

IV. Procedural History 

On August 29, 2014, Shasta Linen filed an appeal with the Department oflnsurance, 

Administrative Hearing Bureau (AHB) in response to CI C's July 31, 2014 decision rejecting 

Shasta Linen's Complaint and Request for Action. On September 5, 2014, the Chief 

Administrative Law Judge issued an Appeal Inception Notice and assigned the matter to 

Administrative Law Judge (ALJ) Kristin L. Rosi. 

On October 31, 2014, the ALJ conducted a telephonic status conference with all parties. 

, During the conference, the parties agreed to a discovery timetable and to the statement of the 

issue as identified above. The Ai,J set the matter for an evidentiary hearing commencing March 

9, 2015. 

At the hearing, Craig E. Farmer, Esq., of Farmer, Smith & Lane, LLP, appeared on behalf 

of Shasta Linen. Spencer Y. Kook, Esq. and Richard De La Mora, Esq., of Hinshaw & 

Culbertson, LLP, appeared on behalf of CIC. The parties submitted documentary evidence and 

presented witnesses. The evidentiary record includes witness testimony and all exhibits admitted 

into evidence as identified in the parties' Exhibit Lists. 

On March 17, 2015, CIC's General Counsel and co-author of the EquityComp program, 

Jeffrey Silver, invoked the attorney-client privilege and refused to answer any questions 

regarding EquityComp's creation or the RP A's terms. In order to create a more complete 

11 Respondent's Post-hearing Opening Brief, 26: 1-28:6; 30: 15-31 :7; 37: 19-41 :4. 

12 Respondent's Post-hearing Opening Brief, 41:6-42:3. 

4 
evidentiary record, on March 23, 2015, the ALJ convened a conference to discuss the 

presentation of an additional witness. During this conference, CIC agreed to present a witness 

able to testify about the EquityComp program and the RP A. In response to a joint request by the 

parties, on March 26, 2015, the ALJ issued an Order continuing the evidentiary hearing to May 

21 andMay22,2015. 

On April 30, 2015, the ALJ ordered additional evidence from both parties. Specifically, 

the ALJ ordered copies of CI C's Annual Statements, the total number ofEquityComp 

participants, the total number ofEquityComp participants who received refunds at the conclusion 

of the program, a list of complaints and grievances filed regarding the program, the percentage of 

EquityComp participants with open claims at the conclusion of the program, and an EquityComp 

loss ratio sensitivity analysis for 2013 and 2014. The ALJ also ordered copies of Shasta Linen's 

corporate tax returns, the total amounts paid in workers' compensation premium and losses for 

policy yea,rs 2013 and 2014, and the most recent experience rating modification. 

On May 8, 2015, CIC filed an Objection and Request for a Continuance in response to 

the ALJ's Order for Additional Evidence. CIC objected to the production of additional evidence 

arguing: (1) the ALJ lacks authority and jurisdiction to issue such an order; (2) the information is 

irrelevant; and (3) the information is confidential to third-party participants. 

On May 18, 2015, the ALJ overruled CI C's objections and ordered CIC to comply with 

the April 30, 2015 Order. On May 19, 2015, CIC infonned the ALJ it would not comply with the 

ALJ's Additional Evidence Order. At the hearing on May 21, 2015, CIC called Patrick Watson 

to testify in response to the ALJ' s request for a person most knowledgeable regarding 

EquityComp and the RP A. 

On July 24, 2015, the parties filed concurrent opening briefs and on August 10, 2015, the 

5 
parties filed their concurrent reply briefs. 

On August 11, 2015, CIC requested the ALJ take official notice of the Summary Denial 

issued in Sportsmobile West, Inc., AHB-WCA-06-7 and the Notice of Hearing and Order to 

Show Cause filed by the CDI against Zurich American Insurance Company of Illinois on 

February 27, 2012. On that same date, CIC also requested permission to file a supplemental 

declaration by Ellen Gardiner, pursuant to California Code of Regulations, title 10, section 

2509.66. On August 24, 2015, Shasta Linen filed objections to CIC's additional evidence and 

request for official notice. On September 16, 2015, the ALJ rejected CIC's request to file 

additional evidence. On that same date, the ALJ granted, in part, and rejected, in part, various 

requests for official notice and ordered the record closed. 

On Octol;>er 29, 2015, the ALJ reopened the record to accept the parties' executed 

Stipulated Protective.Order. By that same Order, the ALJ reclosed the record. 

On November 20, 2015, the ALlsubmitted her Proposed Decision and Order, which was 

adopted by Order of the Commissioner on January 21, 2016. 

CIC filed its Petition of Reconsideration dated February 5, 2016, and Shasta Linen also 

filed a Petition for Reconsideration dated February 17, 2016. 

On March 22, 2016, the Insurance Commissioner issued an Order Granting 

Reconsideration and Notice of Non-Adoption of Proposed Decision. 

V. Findings of Fact 

A review of the record found, by a preponderance of evidence, the following material 

facts, that are adopted herein. 13 

13 References to the transcript of the evidentiary hearing are "Tr." followed by the page number( s) and, where line 

references are used, a":" followed by the line number(s). Thus, a reference to Tr. 35: 14-18 is to page 35, lines 14-18 

of the transcript. Exhibits are referred to by the numbers assigned to them in the parties' Exhibit Lists. 

6 
A. Shasta Linen 

1. Company History 

Shasta Linen is a privately-held family-owned California corporation in the linen rental 

business. 14 Founded in 1948, Shasta Linen originally operated as a laundry and dry cleaning 

service. In the 1950s, the company ceased operating as a laundry and dry cleaning service and 

entered into the linen rental business. Shasta Linen's customers include restaurants, hotels, 

surgery centers and doctor's offices.15 

Shasta Linen employees pick up soiled linens and gannents from their customers and 

transport them back to Shasta's Sacramento laundry facility. There, the linens are counted, 

sorted, washed, dried and pressed. 16 Shasta Linen employees then return the cleaned linens to 

the customers. The laundry faciljty employs approximately 63 people who work five days a 

week. 17 

. Prior to December 2014,,Shasta Linen had two owners; Tom Hammer, President, and 

Gordon Macauley, Vice-President. Mr. Hammer and Mr, Macauley each owned 50% of the 

corporation. In December 2014, Mr. Hammer passed away and his 50% share was divided 

between his daughter, Noel Richardson, the current President of Shasta Linen, and his surviving 

spouse, Phyllis Hammer. Ms. Richardson received 20% of the corporate stock and Mrs. 

Hammer received the remaining 30%.18 

2. 2009 Purchase of EquityComp Program 

For decades, Shasta Linen employed Sacramento Valley Insurance Services (SVIS) as its 

14 Tr. 106:23-107:2. 15 Tr. 107:12-16. 

16 Tr. 108:5-11. 

17 Tr. 108:23-25, 

18 Tr. 100:7-9. 

7 
insurance broker. 19 In each of these years, SVIS secured Shasta Linen's workers' compensation 

insurance through a guaranteed cost policy. From 2002 through 2008, Shasta Linen's experience 

modification ranged from 66% to 80%, demonstrating that Shasta Linen had a more favorable 

loss experience than other businesses in its industry. 20 

In 2009, Shasta Linen anticipated an increase in its experience modification factor due to 

several earlier claims. In late 2009, Shasta Linen's broker presented the EquityComp program as 

an alternative to the traditional guaranteed cost policy and as a means to counter the effects of an 

increase in experience modification. At that same time, the broker presented quotes from other 

insurers offering guaranteed cost policies.21 The quotes were presented in descending cost order 

with Zenith Insurance Company quoting an annual premium of $446,541 and Insurance 

Company of the West (ICW) quoting an amrnal premium of $301,091. The broker placed 

EquityComp on the line below ICW,,with a note that stated "see attached."22 Attached to the 

rate quotes was a Program Propos,al and a Rate Quote from Applied Underwriters' ("AU") 

EquityComp program. The EquityComp rate quote indicated a minimum single-year premium 

of $107,541 and a maximum premium of $322,623 .

23 The broker did not present Shasta Linen 

with a copy of the Reinsurance Participation Agreement nor had the broker read the RP A at the 

19 SVIS was subsequently acquired by Pan American Underwriters, a wholly-owned subsidiary of Ascension 

Insurance Services. (Exh. 271-9). 20 Exh. 65. The WCIRB promulgates experience ratings for each qualified employer pursuant to the rules set f01th in 

the California Workers' Compensation Experience Rating Plan (ERP). Experience rating utilizes a policyholder's 

past claims experience to forecast future losses by measuring the policyholder's loss experience against the loss 

experience of policyholders in the same classification. to produce a prospective premium_ credit, debit or unity 

modification. (Ins. Code§ 11730, subd. (c)). The rules governing the reporting of loss data are found in the 

California Workers' Compensation Uniform Statistical Reporting Plan (USRP). Provisions of the ERP and USRP, 

including the Standard Classification System, are part of the Insurance Commissioner's regulations, codified at title 

10, California Code of Regulations, section 2352.L 21 Exh. 271-14; Exh 272-22. 22 Exh. 272-22. The Commissioner notes for the record that the broker named Applied Underwriters as the insurance 

carrier. The broker made no mention of CIC anywhere in his presentation. 23 Exh.201-3. 

8 

. I 
time he presented the program.

24 

After reviewing the premium and claim amount tables in AU's marketing materials, 

Shasta Linen agreed to enroll in the three-year EquityComp program.25 In December 2012, the 

final month of the three-year program, Shasta Linen received a monthly bill for $77,593.66.26 

By that time, Shasta Linen had already paid $934,466.60 in EquityComp costs over the three 

years and its captive cell held approximately $200,000.27 In January 2013, one month after the 

program ended and the workers' compensation insurance policy expired, Shasta Linen received a 

bill for an additional $166,619.75.28 Shasta Linen has not paid the additional $244,213.31 

arguing that such payments exceed the guaranteed cost policy's quoted amount, were not fully 

explained and are inconsistent with the guaranteed cost policy.29 CIC continues to compound 

. interest on these unpaid charges each month. In January 2014, CIC calculated Shasta Linen's 

final payment at $290,524.58.30 

B. CIC and Its Affiliated Entities 

1. Organizational Structure 

CIC California Insurance Company is a licensed property and casualty insurance 

company, domiciled in California and licensed to transact business in 26 states. CIC is whollyowned by North American Casualty Company, a non-insurer, which is in tnrn wholly-owned by 

Applied Underwriters, Inc. (AU), a Nebraska corporation.31 AU is an indirect subsidiary of 

Berkshire Hathaway Inc. AU is also the parent company for Applied Underwriters Captive Risk 

24 Exh. 271-26. The broker had never enrolled a client in EquityComp prior to enrolling Shasta Linen. 25 The guaranteed cost policy had an effective date ofJanuary l, 2010. Shasta Linen did not enroll in EquityComp 

until January 5, 2010. 

26 Exh. 213-23. 

27 Tr. 819:8-11; Tr. 232:3-7; Exh. 31-2. 28 Exh. 214-1. 

29 $77,593.66 + $166,619.75 ~ $244,213.31. 30 Exh. 214-16. 

31 Exh. 234-5; Tr. 1150:6-16. 

9 
Assurance Company, BVI (AUCRA) and Applied Risk Services (ARS). The following flow 

chart provides the organizational structure relevant to this proceeding: 

AU is a finan,cial service corporation that provides payroll processing services and 

underwrites workers' compensation insui'ance through its affiliated insurance companies to small 

and medium-sized employers. AU manages all of CI C's underwriting, investment, 

administrative, actuarial and claim services through a Management Services Agreement.32 AU 

also administers the EquityComp program on behalf of CIC. All EquityComp documents 

presented and signed by Shasta Linen bear the name and logo of Applied Underwriters, Inc. 

EquityComp is a registered trademark of AU and all AU employees work on CIC issues. 33 

AUCRA is an insurance company organized under the law of the British Virgin Islands 

and domiciled in Iowa.34 AUCRA's sole purpose in the Berkshire Hathaway family is to serve 

32 Exh. 274-7. 

33 Exh. 203-1; Tr. 706:23-707:4. 

34 Tr. 620:2-3. 

10 
as CI C's reinsurance arm.35 It does not reinsure any other entities or perform any other 

functions. 

Applied Risk Services (ARS) is the billing agent for EquityComp and serves as CIC's 

service agent.36 Under an Agency Agreement, ARS receives premium from policyholders and 

pays commissions to brokers on behalf of CIC. For this service, CIC reimburses ARS for the 

paid commissions. ARS and CIC are also parties to a Claims Services Agreement wherein ARS 

pays losses and loss adjustment expenses on CIC policies.37 CIC reimburses ARS for all losses 

and allocated loss adjustment expenses incurred on CIC claims. 

The Boards of Directors for CIC, AU, and AUCRA are identical in composition.38 Mr. 

Silver, CIC's and AU's General Counsel, serves on each of these Boards, as well as on the Board 

of ARS. Ms. Gardiner, AU's Chief Actuary, is an officer of all the entities involved in this 

litigation, namely, AU, CIC and AUCRA. 

CIC is also a party to an intercompany pooling agreement39 with its affiliated Berkshire 

Hathaway carriers. In 2010, the pooling agreement included CIC and Continental National 

Indemnity Company (CNI), with CIC assuming an 85% share and CNI assuming the remaining 

15%.40 In 2011, the pooling agreement expanded to include Illinois Insurance Company (IIC). 

CIC remained the lead company with an 80% share, while CNI assumed 15% and IIC assumed 

5%. In 2013, affiliate Pennsylvania Insurance (PIC) was added to the pooling arrangement. As 

a result, CIC's share reduced to 75%. 

35 Tr. 1154:3-15. 36 Tr. 1154:17-23; Exh. 234-6. 37 Exh. 274-8. 38 Tr. 1153:2-4; Tr. 863:1-3. 

39 In pooling arrangements, entities share exposures to possible loss. Casualty Actuarial Society, Foundations of 

Casualty Actuarial Science, (41

h ed. 2001), pp. 49-50. 

4

° CIC's 2010 Annual Statement, Management Discussion and Analysis. CIC's Annual Statements are available on 

the California Department oflnsurance's website. The Commissioner takes Official Notice ofCIC's Annual 

Statements from 2008 through 2014. 

11 
2. CIC's Workers' Compensation Policies 

CIC offers workers' compensation insurance through a guaranteed cost policy and a 

profit-sharing program. Each program is relevant to the underlying issue and described below. 

a. Gnaranteed Cost Policy 

A great majority of California employers receive workers' compensation insurance 

coverage through guaranteed cost policies.41 Under a guaranteed cost policy, the insured 

company pays a fixed annual premium for the policy term, regardless of subsequent loss 

experience. The fixed premium is the sum of the average losses and the basic fees. Average 

losses take into account the base rate for each classification assigned to the policy and the 

employer's experience modification factor. The fees are the estimated costs of providing the 

insurance; that is sales, underwriting, profit and other fixed costs. Thus, a company with average 

losses of$500,000, may be charged $750,000 in premium; $500,000 to cover expected loss 

payments and $250,000 in basic fees. 

Every guaranteed cost policy must adhere to the Insurance Code and its applicable 

Regulations. All rates charged in a guaranteed cost policy must be filed with the WCIRB and 

approved by the Insurance Commissioner prior to use. In addition, every guaranteed cost policy 

must contain statutorily-required dispute resolution and cancellation language.42 

CIC's guaranteed cost policies contain standard language approved by the Insurance 

Commissioner. For example, each policy states CIC's rates are filed with the Commissioner and 

open to public inspection. CIC warrants that it adheres to a single unifonn experience rating 

plan and applies such experience rating to each policy.43 In addition, CIC's guaranteed cost 

41 Tr. 310:4-6. 

42 Ins. Code § 11650 et seq. 

43 Exh. 209-17. 

12 
policies notify employers of the dispute resolution process provided under California Insurance 

Code section 11737, subdivision (f). CIC's Policyholder Notice provides that: 

If you are aggrieved by our decision adopting a change in a 

classification assignment that results in increased premium, or by 

the application of our rating system to your workers' compensation 

insurance, you may dispute these matters with us. If you are 

dissatisfied with the outcome of the initial dispute with us, you 

may send us a written Complaint and Request for Action as 

outlined below. 

You may send us a written Complaint and Request for Action 

requesting that we reconsider a change in a classification 

assignment that results in an increased premium and/or requesting 

that we review the manner in which our rating system has been 

applied in connection with the insurance afforded or offered you. 

Written Complaints and Requests for Action should be forwarded 

to: California Insurance Company, P.O. Box 281900, San 

.Francisco, CA 94128· 1900, Phone No. (877) 234-4450; Fax No. 

(415) 508-0374.44 

Pursuant to California Code of Regulations, title 10, section 2509.44, CIC must 

acknowledge the complaint within 30 days and indicate whether the complaint will be reviewed. 

If CIC agrees to review the complaint, it must issue a decision within 60 days of the 

acknowledgment letter. An insured dissatisfied with CIC's decision may appeal to the Insurance 

Commissioner. The policy's dispute resolution provision does not provide for binding 

arbitration or any other alternative dispute methods. 

CIC's guaranteed cost policies also include a cancellation provision and a "Short Rate 

Cancellation" Notice, as required by the Insurance Code.45 Part 5, subsection E of the CIC 

policy provides that following cancellation, the final premium will be determined as follows: 

44 Exh. 208-15. 

1. If we cancel, final premium will be calculated pro rata based on 

the time the policy was in force. Final premium will not be less 

than the pro rata share of the minimum premium. · 

45 Exh. 208-93; See also Ins. Code§ 481, subd. (c). 

13 
2. If you cancel, the final premium will be more than pro rata; it 

will be based on the time this policy was in force, and increased by 

our short rate calculation table and procedure. Final premium will 

not be less than the minimum premium.46 

The Short Rate penalty is a percentage of the full-term premium based on the number of days of 

coverage in the canceled policy.47 The Short Rate Calculation Table in CIC's guaranteed cost 

policies quotes subsection E and provides a formula for determining the early cancellation 

penalty. For example, an employer who pays an annual premium of $300,000 and cancels its 

policy after 100 days will owe $114,000; $82,192 in actual earned premium and $31,808 in 

penalties.48 After expiration of the policy, an employer may change insurance carriers without 

penalty. 

CIC's guaranteed cost policies also set a minimum and estimated annual premium based 

on an employer's payroll estimates, experience modification factor, and CI C's rates per $100 of 

payroll for each applic,able class'ification. After estimated taxes and fees, the guaranteed cost 

policies provide an employer with an annual premium estimate. The final premium due is 

calculated using actual payroll amounts assigned to a specific classification of the policy and the 

employer's experience modification factor. The final premium is not impacted by the actual 

losses incurred during that same policy period. 

b. The Guaranteed Cost Policies are the Sole Insurance 

Agreements 

The guaranteed cost policies issued by CIC in this matter all contain the same language 

that the policies are the sole insuring agreements between CIC and Shasta Linen and go on to 

state that, "The only agreements relating to this insurance are stated in this policy. The terms of 

46 Exh. 208-87. 47 The short-rate penalty discourages employers from switching insurers mid-policy year. 48 Exh. 208-20 to 208-22. 

14 
this policy may not be changed or waived except by endorsement issued by us to be part of this 

policy."49 

In addition, a standard form Policy Amendatory Endorsement-California is attached to 

each of the policies and state, "It is further agreed that this policy, including all endorsements 

forming a part thereof, constitutes the entire contract of insurance. No condition, provision, 

agreement, or understanding not set forth in this policy or such endorsements shall affect such 

contract or rights, duties, or privileges arising therefrom."50 [Emphasis added.] No endorsement 

is attached, endorsed, or included to the policies adding any provisions or changes relating to the 

RPA. 

Finally, the policies each state on page five, under Part Six-Conditions, C. Transfer of 

Your Rights !lJld Duties: "Your tights or duties under this policy many not be transferred 

without our written consent." 

c. EquityComp 

In conjunction with AU, CIC offers a "profit-sharing" loss sensitive program titled 

EquityComp. Loss sensitive programs are ones in which the premium for the policy year is 

impacted by the actual cost of claims incurred during the policy year. 51 By definition, loss 

sensitive plans are "profit-sharing."52 Generally, carriers market loss sensitive programs 

exclusively to large employers.53 In fact, many jurisdictions restrict the sale ofloss sensitive 

programs to employers whose annual premiums exceed $500,000. Large employers are typically 

better able to cope with loss and experience modification variations and are in a better position to 

control claims costs. Also, given the sophistication oflarger companies, these employers are 

49 Exhibits 208, 209, and 210. 50 Ibid. 

51 Tr. 595:9-14. 

52 Tr. 604:9-14. 

53 Tr. 310:10-16; see also ALJ Exh. 1. 

15 
better able to evaluate the cost effectiveness of the types of insurance policies available. 54 In 

essence, large employers are more prudent shoppers and can evaluate whether their costs match 

with an insurer's quote. 55 Loss sensitive programs are issued as endorsements to guaranteed cost 

policies and require the Insurance Commissioner's approval. 56 

EquityComp's profit-sharing plan is reflected in a Reinsurance Participation 

Agreement.57 Neither CIC nor its affiliated entities filed or sought approval for the RP A or the 

EquityComp program.

58 The EquityComp program, and its accompanying Reinsurance 

Participation Agreement, is discussed in Section C, infra. 

3. Financial Statements, Ratios and Market Share 

CIC is primarily a workers' compensation insurance carrier. Approximately 98 percent 

of its book ofbusiness is written in California workers' compensation.59 EquityComp currently 

generates 80 percent9f CIC's polfoy premium.60 That percentage has steadily increased since 

the program's inception in 2008. 

• In 2009, CIC's net earned premium totaled $71,512,000 with incurred losses and loss 

adjustment expenses (LAE) equaling $55,615,000. 61 This resulted in a net loss ratio of 

77.7% and a combined ratio of 109.7%.62 Accordingly, CIC had a negative net income 

of$4,419,116.63 

54 Tr. 310:17-23. 55 Tr. 311:4-11. 56 Tr. 875:2-4; An endorsement to an insurance policy "is an amendment to or modification of an existing policy of 

insurance" that "may alter or vary any term or condition of the policy" and that "may be attached to a policy at its 

inception or added during the term of the policy." Adams v. Explorer Ins. Co. (2003) 107 Cal.App.4th 438. 57 Tr. 621:2-16. 

58 Tr. 1169:18-20. 

59 Tr. 1155:24-1156:4. 

'

0 Tr. 865:19-22. Mr. Silver's testimony contradicted that of Ms. Gardiner on this issue. The Commissioner credits 

Ms. Gardiner's testimony on this issue, as Ms. Gardiner serves as the chief1mderwriter for AU and CIC. 

61 CIC's 2010 Annual Statement, Statement oflncome. 62 The net loss ratio is the sum of incurred losses and incmTed loss adjustment expenses divided by earned premium. 

These amounts are found on lines 1through3 ofCIC's Statement of Income. 

63 CIC's 2010 Annual Statement, Five-Year Historical Data. 

16 
• In 2010, CIC's net earned premium increased to $87,444,676, while its incurred losses 

and LAE dramatically decreased to $17,151,456. As a result of the significant decrease 

in losses, CIC net loss ratio dropped to 19.6% and its combined ratio declined to 54%.64 

This resulted in net income of$28,516,390. 

• In 2011, CIC's net earned premium rose 34 percent to $117,505,149 with incurred losses 

and LAE's of$34,725,83 l. That year, CIC's net loss ratio equaled 29.5% and its 

combined loss ratio equaled 55.7%. 65 CIC's net income for 2011 also increased to 

$36,573,942.66 

• In 2012, CIC saw a 16 percent earned premium increase with net earned premium 

totaling $135,598,473. CIC's losses and LAE equaled $17,116,000, for a net loss ratio of 

12.6% and a combined ratio pf 43.2%.67 CIC's net income in 2012 equaled $47,582,838. 

• In 2013, CIC's net earned premium increased another 37 percent to $186,034,034. CIC's 

losses and LAE totaled $59,8~4,816, for a net loss ratio of32.1 %. After underwriting 

expenses, CIC combined ratio equaled·6J.8%.68 CIC recorded net income of $48,928,910 

for 2013. 

• In 2014, CIC's net earned premium rose another 29 percent to $240,474,973. CIC's 

incurred losses and LAE's for that year equaled $72,484,214, for a net loss ratio of 

30.1 %.69 CIC's combined ratio for 2014 totaled 60% and CIC reported a net income of 

$65,540,948. 

64 CIC's 2010 Annual Statement, Statement ofincome & Five-Year Historical Data. 65 CIC's 2011 Annual Statement, Management's Discussion and Analysis, p. 4. 66 CIC's 2013 Annual Statement, Five-Year Historical Data. 67 CIC's 2012 Annual Statement, Management's Discussion and Analysis, p. 4. 68 CIC's 2013 Almual Statement, Management's Discussion and Analysis (Amended), p. 5. 69 CIC's 2014 Annual Statement, Management's Discussion and Al1alysis, p. 4. 

17 
In sum, CIC's profits since EquityComp's 2008 inception equal $227,713,912. The following 

chart illustrates CI C's increase in net earned premium and net income: 

300 

250 

200 

150 

100 

50 

0 

-50 

2009 

Fig. t: CI C's Net Earned Premium and Income 

(in millions) 

-Net Earned Premium 

-Net Income 

2010 2011 2012 2013 2014 

. In comparison, CIC's total. combined profit for the three years prior to EquityComp's 

2008 inception totaled $47,172,997.70 

From 2009 through 2014, CIC also posted significantly lower loss and combined ratios 

than other comparable carriers. CI C's calendar year ratios versus those of the industry as a 

whole are shown below: 71 

7

° CIC's 2010 Annual Statement, Five-Year Historical Data, p. 17. 

71 WCIRB's Insurer Experience Report on December 31, 2014, released April 20, 2015. This Report is available on 

the WCIRB's website. The Connnissioner takes Official Notice of the WCIRB's Insurer Experience Report. 

18 
80.00% 

60.00% 

40.00% 

20.00% 

0.00% 

100.00% 

80.00% 

60.00% 

40.00% 

20.00% 

0.00% 

Fig. 2: CIC's Net Loss Ratio v. Industry Aggregate 

mi CIC's Net Loss Ratio 

w Industry Aggregate Loss Ratio 

2009 2010 2011 2012 2013 2014 

Fig. 3: CIC's Combined Ratio v. Industry Aggregate 

2009 2010 2011 2012 2013 2014 

w CIC's Combined Ratio 

mi Industry Aggregate Combined 

Ratio 

In fact, CIC recorded the lowest loss ratio among the top 30 workers' compensation insurance 

carriers in 2013, and the lowest loss ratio among the top 15 workers' compensation carriers in 

19 
2012.72 

From 2008 through 2014, CIC also saw its market share increase. In 2008, prior to the 

inception of the EquityComp program, CIC ranked 37th in total written workers' compensation 

insurance premium with 0.867 percent of the market.73 By 2010, CIC ranked 29th in total written 

premium and its market share increased to 0.963%.74 In 2013, CIC ranked 101

h in total written 

premium as its market share increased to 2.366%75, and by 2014, CIC ranked i 11 in total written 

premium with a market share of2.92%.76 

In 2006, the CDI conducted a financial examination ofCIC's management practices, 

assets and liabilities from 2002 through 2006.77 The financial examination noted that CIC offers 

an EquityComp program to medium-sized businesses.78 The 2006 examination also noted that 

EquityComp' is similfll' to an incurred loss retrospective rating plan. 79 The report does not 

indicate CDI reviewed the RP A or any other EquityComp program documents. The CDI 

conducted a follow-up financjal examination for the period of January 1, 2007 through 

December 31, 2009. 80 The 2009 financial examination also made a passing reference to CIC's 

EquityComp program, again noting the program is similar to a retrospective rating plan.81 In 

2013, CDI issued yet another financial examination for CIC. The 2013 exam mentions the 

EquityComp program and its accompanying "Profit Sharing Plan" sold through CIC's affiliate, 

72 2012 & 2013 California P & C Market Share Report, Workers' Compensation Line. The Market Share Report is 

published by the CDI and available on the CDI's website. The Commissioner takes Official Notice of these Reports. 73 2008 California P & C Market Share Report, Workers' Compensation Line. 

74 2010 California P & C Market Share Report, Workers' Compensation Line. 75 2013 California P & C Market Share Report, Workers' Compensation Line. 76 Ms. Gardiner testified CIC's market share totaled less than 1 %. (Tr. 866:15-20.) This testimony lacks credibility 

given the CDI's published report. In addition, CIC failed to present any documentation contradicting the CDI's 

calculations. 

77 Exh. 233. 

78 Ms. Gardiner testified the EquityComp program began in 2008. (Tr. 867:1-4). Ms. Gardiner's testimony is 

apparently inaccurate given the discussion ofEquityComp in the 2006 report. 79 Exh. 233-11. 

80 Exh. 234. 

BL Exh. 234-7. 

20 
AUCRA.82 The 2013 Exam does not explain the "Profit Sharing Plan's" terms nor does the 

report indicate CDI inspected the RP A. Lastly, in 2014, the CDI issued a Market Conduct 

Report regarding CI C's operating practices. The scope of the confidential examination included 

a review ofCIC's rates, rating plan, forms and underwriting rules, as well as CIC's marketing 

materials and active complaints.83 The Market Conduct Report makes only a passing reference 

to EquityComp. There is no evidence CDI examiners reviewed the RP A or EquityComp 

materials for statutory compliance, nor did either party call witnesses to discuss these 

examinations. 

C. The EquityComp Program 

AU promotes EquityComp as a loss sensitive, profit-sharing plan appropriate for "middle 

market" insureds. AU began marketing this product in 2008 and since that date, the number of 

programs sold has increased.exponentially each year. In California alone, AU writes 

approximately 10 new EquityComp policies per month.84 As noted above, EquityComp 

comprises approximately 80 percent of CIC' s policy premium. 85 

CIC has not filed the terms or rates of the RP A or EquityComp with the WCIRB or the 

Insurance Commissioner. 

1. Trademark and Patent 

On June 24, 2010, AU filed a United States Patent application for a Reinsurance 

Participation Plan.86 Authored by Mr. Silver, CIC's Chief Executive Officer Steve Menzies and 

three other AU employees, the application sought to patent the EquityComp/RP A concept sold to 

82 Exh. 274-9. 83 Exh. 235. 84 Tr. 1331:10-14. 

85 CIC refused to provide the total number ofEquityComp pmticipants for each year frorn 2008 through 2014 

despite being ordered to do so on two separate occasions. 

86 ALJExh. I; Tr. 1181:5-9. 

21 
Shasta Linen, and other California employers. 87 The federal government granted the RP A patent 

on March 15, 2011. The "Reinsurance Participation Plan" patent application explains in detail 

the motivation behind the program and the terms thereof. 

Under the traditional guaranteed cost policy, there is frequently a mismatch between what 

the insurance company feels is a fair premium and what the employer considers a fair premium.88 

This is in part because an insurer considers an employer's average losses to be its expected 

losses, whereas most employers consider the median losses to be their expected losses. This 

dichotomy led to the development of linear retrospective rating plans. 

Pricing a guaranteed cost policy is straightforward. Under a guaranteed cost policy, the 

insured company pays a fixed premium regardless of its subsequent loss experience during the 

policy term. The fixed premium is the sum of the expected average losses and the basic fees. A 

linear retrospective rating plan varie~ the premium an employer will pay based on the employer's 

. actual losses during a coverage period.' The minimum premium covers the basic fixed fees. The 

premium then increases linearly with respect to actual losses until it reaches a maximum plateau. 

The standard equation describing the relationship between premium and actual losses in linear 

retrospective plans is: 

Premium= Basic Fees+ C* Achial Losses, where C is a constant 

Loss Conversion Factor. 

But only large companies with expected losses of over $500,000 can qualify for 

retrospective rating plans in the United States. This rule is meant to protect small and mid-size 

employers who are presumably less sophisticated insurance consumers and who have less of an 

ability to predict their future losses.89 In addition, until the advent ofEquityComp and the RP A, 

87 Tr. 1179:10-15. 

"ALI Exh. I, col. 3, lines 38-44. 

89 Tr. 310:10-23. 

22 
all retrospective plans were linear retrospective rating plans. This was due in part "to 

governmental and other regulatory requirements as well as computational difficulties inherent in 

providing premium quotes for a broad range of companies."90 

With the invention ofEquityComp and the RP A, AU altered this landscape by 

introducing a "non-linear retrospective premium plan for medium sized companies."91 The nonlinear retrospective premium function comprises an initial relatively steep portion, a breakpoint, 

a subsequently shallow portion and a plateau. Like the linear retrospective premium plan, the 

minimum premium covers the basic fixed fees and costs.92 There is a breakpoint early in the 

function and then a shallow increase in the curve until the premium plateaus. Because of the 

early breakpoint in the function, the plateau portion, i.e. the maximum premium due, can be 

significantly lower than the plateau on a linear retrospective plan.93 AU achieves this result with 

the initial steep curve which results in more premium collected at lower loss levels, where most 

insurers will end up. 

94 

AU acknowledges that one of the challenges of a "fundamentally new premium 

shucture" is that "the structure must be approved by the respective insurance deparhnents 

regulating the sale of insurance."95 In addition, many states prohibit the sale ofretrospective 

plans to small and medium size companies. AU's response to this regulatory challenge is "a 

reinsurance based approach to providing non-linear retrospective plans to insureds that may not 

have the option of such a plan directly."96 

90 ALJ Exh. I, column 4, lines 47-55. 

91 ALJ Exh. I, column 4, lines 62-63. 

92 ALJ Exh. I, column 5, lines 42-43. 

93 ALJ Exh. I, column 5, lines 44-4 7. 94 ALJ Exh. I, column 5, lines 47-49. 

95 ALJ Exh. I, column 6, lines 22-26. 

96 ALJ Exh. I, column 6, lines 39-42. 

23 
AU attempts to achieve this compliance by introducing a "reinsurance" company into the 

mix. The so-called reinsurance company enters into a separate Participation Agreement with the 

insured whereby a credit or debit is assessed on the insured as a function of the losses it 

experiences. First, an admitted insurance company seeks approval from a state regulator "by 

using an industry standard Guaranteed Cost policy and filing premium rate requests with the 

insurance department."97 The insurance department, already familiar with such guaranteed cost 

policies, approves the rates. The insurance carrier then sells these policies, along with the 

unregulated participation plan, to a targeted group of employers, in this case small to medium 

sized companies.98 The participation plan requires the employer to fund a segregated cell from 

which all the insured's losses are paid. According to the Patent for the RP A, the result is the 

following: 

. The reinsurance company can now provide funds to implement a 

. non-linear retrospective rating plan as a "participation plan." The 

reinsurance company does this by entering into a separate 

contractual arrangement with the insured. If the insured has lower 

than average losses in the next year, then the reinsurance company 

can provide a premium reduction according to the participation 

plan. If the insurance has higher than average losses in a given 

year, then the reinsurance company will assess additional premium 

accordingly. The insured can now, in effect, have a retrospective 

rating plan because of the arrangement among the insurance 

carrier, the reinsurance company and the insured even though, in 

fact, the insured has Guaranteed Cost insurance coverage with the . . 99 

msurance cainer. 

In essence, CIC sells employers a guaranteed cost workers' compensation policy that is then 

superseded by the tenns of a participation plan. Premium owed under the guaranteed cost 

policies is replaced by premium paid for EquityComp under the RP A. The participation plans 

have a three-year term, in contrast to the one-year term of the guaranteed cost policies. 

91 ALJ Exh. 1, column 6, lines 53-56. 98 ALJ Exh. 1, column 6, lines 60-63. 

99 ALJ Exh. 1, column 7, lines 42-54 (emphasis added). 

24 
Although titled a "Reinsurance Participation Agreement," the RP A is not "reinsurance" 

as defined by Insurance Code section 620, but instead a separate contract entered into as part of 

the EquityComp program. Reinsurance is the process by which an insurance company buys 

insurance on its own risks. Respondent stipulated that the RP A is not a reinsurance contract. 100 

2. Sales and Marketing 

AU employs approximately 40 salespersons dedicated solely to selling EquityComp 

nationwide. 101 . Of those 40, four salespersons specifically service California brokers. 102 Every 

salesperson is a licensed insurance broker and all work out of AU's home office in Omaha, 

Nebraska. 103 Sales professionals receive two and one-half weeks ofEquityComp training. 

Salespersons do not receive any follow-up EquityComp training. 104 AU's training department 

performs all required training. 105 

As part of the sale an<;! marketing ofEquityComp, AU issues a five-page Program 

P;:oposal and Rate Quotation (Program Proposal) to each potential insured. 106 AU's 

underwriting staff generates the Program Proposals and forwards them to the Sales department 

for dissemination. 107 Potential participants do not generally receive a copy of the RP A until they 

have agreed in p1inciple to the EquityComp terms. In fact, AU's Sales division does not 

disseminate the RP As, requests for service or officer exclusion forms. 108 AU's New Business 

100 Tr. 614:24-615:10. 

101 Tr. 1271 :20-21. 102 Tr. 1274:8-9. 103 Tr. 1276:1-17. 104 Tr. 1275:13-22; Tr. 1278:10-18. 

105 Tr. 1277:2-17. 

106 Exh. 201. 107 Tr. 1337:12-21. 

108 Tr. 1299:8-17. 

25 

,· 

,• 
department presents the RP A to potential participants on the day participants sign all 

EquityComp documents. 109 

The Program Proposal introduces potential participants to the "Profit Sharing Plan" 

central to EquityComp. The Program Proposal notes the reinsurance plan is separate from the 

guaranteed cost plan and that an insured's "risk retention is created by your participation in, and 

cessation of allocated premiums and losses to our facultative reinsurance facility, Applied 

Underwriters Captive Risk Assurance Company." The Program Proposal further states that the 

profit sharing plan "is not a filed retrospective rating plan or a dividend plan" and that a 

minimum three-year commitment is required. Taking into account a participant's estimated 

payroll, AU provides the participant with a projected one-year and three-year minimum premium 

and maximum premium. The Program Proposal also notes that AU determines the final net cost 

of the program using the participant's ultimate claims costs, along with the factors and tables set 

forth in the RP A. 110 Those "factors and tables" are not provided within the Proposal. Instead, 

AU informs participants they must maintain capital deposits in their cell accounts equal to: (1) 

the estimated annual loss pick containment amount multiplied by 10% during the first year, 10% 

during the second year, or 10% thereafter; and (2) outstanding reserves limited so not to exceed 

the maximum permissible cost. AU also informs participants that loss development factors, 

outlined in the RP A, will be applied to all claims to estimate their ultimate cost. 

Under EquityComp, an employer is charged rates per $100 of compensable payroll. 111 

These rates do not match those provided in the guaranteed cost policy sold to the employer. 112 A 

participant's "loss pick containment rate" (per $100 of payroll) is multiplied by a "pay-in factor" 

109 Tr. 1297:13-19. 

uo Exh. 201-3. 

Ill Exh. 201-4. 

u2 Tr. 1292: 13-17. 

26 
based on the participant's expected losses. This results in the participant's "net pay-in rate." 

The net pay-in rate is then multiplied by the amount of payroll in that classification to calculate 

the estimated annual pay-in amount. 113 The estimated annual pay-in amount differs from 

amounts quoted in the guaranteed cost policy and supersedes those terms. Experience modifiers 

and other guaranteed cost policy modification factors are not part of the profit sharing plan. Any 

changes to those factors does not impact the rates charged under EquityComp.114 Lastly, the net 

pay-in amounts do not include applicable assessments and taxes. 

AU's Sales department distributes a Program Summary & Scenario to brokers and their 

clients. 115 The Scenarios demonstrate the minimum and maximum three-year program costs and 

estimate the final program costs based on ultimate claims costs. The Scenarios chart the singleyear prorated amounts a participant could expect to pay. For example, if an employer has no 

losses during the fir§t year, the employer can expect to pay $100,000 in program costs for that 

year. But this chart; is misleading. EquityComp is sold as a three-year program and not three 

one-year programs.

116 Accordingly, the single-year table does not represent the one-year cost of 

the program. In fact, it is the employer's three-year loss history that ultimately guides the cost of 

the program. 

The Sales division also distributes a Request to Bind Coverages & Services. The Request 

to Bind must be executed along with the Reinsurance Participation Agreement. Each potential 

client may participate in a conference call with an AU "technical representative" to answer any 

questions about the Proposal and Summary. Lastly, the Request to Bind requires employers to 

arbitrate all claims, disputes or controvei:sies involving EquityComp or the underlying 

113 Exh. 201-4. 114 Ibid. 115 Tr. 1305:14-8. 116 Tr. 1364:8-22. 

27 
policies. 117 The Request to Bind's dispute resolution provision differs from the provision of 

guaranteed cost policy sold to employers and supersedes the guaranteed cost policy.118 

After disseminating all the relevant marketing materials to a broker, AU's salespersons 

initiate a conference call with the broker to further discuss the program.119 But only 10 percent 

of brokers actually participate in a conference call. 120 AU does not initiate a conference call with 

the employer itself; AU offers only the insurance broker a chance to discuss the program 

mechanics. 121 The conference calls last anywhere from 30 minutes to one hour and are not 

recorded by AU. 122 Salespersons do not work off a script and are permitted to answer questions 

about the program themselves. A majority of the questions asked by brokers and potential 

clients pertain to claims handling or the proposed scenarios. 123 If a salesperson cannot answer a 

broker's question, the salesperson seeks a response from a Sales Manager. Salespersons are not 

trained to answe~ questions about the RP A itself, but are able to answer questions about Schedule 

1 of the RPA, which contains the 101

ss development and run-off loss development factors. 124 

Questions regarding the meaning of terms in the RP A are forwarded by the Sales department to 

Mr. Silver for a response. 125 

Potential EquityComp participants interested in enrolling are directed to the New 

Business department. The New Business department distributes the RP A, as well as the Request 

for Service. These documents, along with the Request to Bind Coverages and Setvices, must be 

signed by the participant before any coverage takes effect. Insureds that refuse to sign the RP A 

117 Exh. 205-1. 118 Tr. 1329:9-18. 119 Tr. 1299:24-1300:9. 120 Tr. 1300:22-1301:9. 121 Tr. 1301:10-16. 122 Tr. 1281:6-13. 

123 Tr. 1283:9-23. 

124 Tr. 1314:23-1315:1; Tr. 1316:13-24. 125 Tr. 1315:2-8. 

28 
lose their guaranteed cost insurance policy coverage with CIC. 126 Insurance coverage does not 

revert back to the terms of the guaranteed cost policy and insureds are left without insurance 

coverage from CIC. 127 In addition, nothing in the Program Proposal, Request to Bind or 

Summary and Scenarios names CIC as the insurer. 128 

3. Program Mechanics 

Taking the components and provisions of EquityComp by themselves does not 

necessarily present a working understanding of the program's mechanics. Indeed, the parties 

presented no less than six witnesses in an effort to explain EquityComp 's operation. While most 

rating plans use a straightforward formula to calculate the overall policy costs, EquityComp uses 

only a nanative. 129 

EquityComp pricing involves three separate components. The first is similar to the 

standard premium in a ,guaranteed cost policy. EquityComp calls this the loss pick containment 

rate and like the standard premium)n a guaranteed cost policy, that amount is multiplied by $100 

of payroll to ·generate what is effectively the base policy premium. 130 The second component is a 

loss cost component. The loss cost component, or ultimate cost of claims, is calculated using 

paid claim amounts, reserved amounts and an estimate of future additional costs, multiplied by 

the loss developments factors set forth by AU. 131 The third component of the program is fees. 

Fees under EquityComp are calculated as a percentage of an employer's loss pick containment 

amount. Specifically, an employer's loss pick contaimnent amount is multiplied by an allocation 

factor (or minimum cost factor) and by an exposure group allocation factor. 132 As AU calculates 

126 Tr. 1362:21-25. 127 Tr. 1362:11-25. 128 See Exhs. 201, 203 and 205. 

129 Tr. 352:24-353:4. 

130 Tr. 322:11-19. 131 Tr. 323:5-10. 132 Tr. 342:12-21. 

29 
fees based on the loss pick containment amount, participants will pay significant program 

expenses even when there are no claims filed. 133 For example, using the Scenarios presented to 

Shasta Linen, an employer with no claims during EquityComp's three-year term would pay 

$322,623. 134 The entire amount would constitute EquityComp "fees" since no claims were filed. 

But if during that three-year period, an employer has one claim for $30,000, the program cost 

more than doubles to $672,627; $642,627 of which are program fees received by CIC. 135 

Participants receive a monthly EquityComp bill from ARS. The bill provides an overall 

EquityComp program cost but does not delineate between premium or program costs. 136 In 

addition, AU distributes a quarterly Plan Analysis that outlines the program fees and summarizes 

all claim costs. 137 Each open and closed claim is listed separately as are the amounts paid to 

injured employees. Participants remit their monthly payments to ARS, who then forwards the 

payment to CIC. CIC then allocates the monies to AUCRA in accordance with the agreement 

between AUCRA and CIC. 138 Monies ceded to AUCRA fund the participant's captive cell and 

are held in that cell until called upon by CIC. 

When an employee files a workers' compensation claim, CIC pays the claim and then 

cedes that liability to AUCRA. AUCRA, in turn, cedes the liability to the participant's cell. 139 

In essence, participants pay all of their own claim costs and continue to do so until they reach 93 

percent of the maximum program costs. Participants can expect an increase in their bill in the 

month following any claim payments as the RP A calls for specific cell funding levels. 140 

133 Tr. 344:13-19. 134 Exh. 46-6. 

135 Id. $672,627 - $30,000 ~ $642,627. 

136 Tr. 774:17-22. 

137 See Exh. 216. 138 Tr. 816:9-15; Tr. 893:18-894:23. 139 Tr. 895:16-896:2. 140 Tr. 897:3-8. 

30 
D. Reinsurance Participation Agreement 

The RPA is a 10-page contract between AUCRA and the insured. The RP A's first six 

pages state the participant's monetary obligations, the length of the program, the dispute 

resolution mechanism for the program and a choice oflaw provision. Pages seven through ten, 

subtitled Schedule 1, set forth the calculation and allocation of premium and loss amounts, define 

the required capital deposit amounts and the penalty for early termination of the program, outline 

the applicable loss development and exposure group factors, and set the loss pick containment 

rate for each applicable classification. 

1. Policy Term & Extensions 

The RP A's initial "active term" is three years. During the RP A's active term, a 

participant's guaranteed cost workers' compensation insurance policy must be provided by a 

Berkshire Hatliaway insurance carrier; i.e. California Insurance Company or Continental 

Insurance Company. 141 If the insurer provides workers' compensation coverage outside of the 

RP A's active term, special "extension" terms apply. These extension terms require the 

participant to immediately pay a cash deposit equal to 55% of the premium anticipated, to 

maintain a cash deposit sufficient to cover outstanding losses plus incurred but not reported 

losses, and to pay an early cancellation fee equal to 20% of the premium anticipated, all of which 

are determined exclusively by AUCRA. 142 

In addition to the three-year active term language, RP A paragraph 7 provides that the 

parties' RP A obligations extinguish "only where the Company no longer has any potential or 

actual liability to the issuing insurers with respect to the Policies reinsured by" AUCRA. 

Accordingly, while the RP A is active for tlu·ee years, the parties' obligations continue until the 

141 Exh. 207-2. 

142 Id. 

31 
RP A is terminated in accordance with the terms set forth in Schedule 1, discussed below. 143 

2. Choice of Laws and Dispute Resolution Procedure 

The RP A provides that all disputes be exclusively governed by and construed in 

accordance with the laws ofNebraska. 144 The RP A also contains a two-page dispute resolution 

provision subjecting all disputes to binding arbitration in the British Virgin Islands. 145 All 

arbitration awards must be enforced in Nebraska courts. 146 According to CIC, this dispute 

resolution provision supersedes the language provided in the guaranteed cost policy. 147 In 

addition, nothing in the RP A or other EquityComp documents inform participants of their right 

to negotiate choice oflaw and dispute resolution provisions. 

3. Early Cancellation Provision 

The RP A sets forth its own early cancellation terms and penalties, different from those in 

the guaranteed cost policy. Any par,ticipant who cancels the RP A, or cancels the underlying 

guaranteed cost insurance policy, prior to the end of the active term is subject to the penalties set 

. . 148 forth in Schedule 1 of the RP A. 

In the event of early cancellation either by the participant or AUCRA: 

143 Exh. 207-2. 

(a) the Exposure Group Adjustment Factor will be multiplied by 

1.25; (b) the Cumulative Aggregate Limit will be determined using 

Policy Payroll annualized to reflect the full term of the Agreement; 

and ( c) the following amounts will be immediately due and 

payable to the Company; i) any remaining premium, including 

short rate penalties, due under the Policies; ii) capital deposit equal 

144 Exh. 207-5. In addition, any matter concerning the RP A "that is not subject to the dispute resolution provisions of 

Paragraph 13," shall be resolved exclusively by the courts of Nebraska without reference to its conflict oflaws. 145 Exh. 207-3 to 207-4, paragraph 13(A). Paragraph 13(I) further provides that all arbitrations shall be conducted in 

accordauce with the rules of the American Arbitration Association and shall take place in Tortola, British Virgin 

Islands. 

146 Exh. 207-5, paragraph 14. 147 Tr. 1329:9-18. Mr. Watson testified that once a participant enrolls in EquityComp, "the guarauteed cost policy .. 

. has no effect." Similarly, Ms. Gardiner could not provide an example where the guaranteed cost policy's dispute 

resolution provision would be applicable. (Tr. 887:7-12.) 148 Tr. 1329:9-18. 

32 
to the cell's maximum liability; and iii) a Cancellation Fee equal to 

8% of the Estimated Annual Loss Pick Containment Amount. 149 

The RP A does not explain these cancellation terms in monetary figures nor does AU 

provide the participant with a sample calculation based on early termination figures. But Ms. 

Gardiner provided uncontroverted testimony that had Shasta Linen chosen not to renew its 

guaranteed cost policy at the end of the policy's one year term in December 2011, AUCRA 

would have levied a $1. l million cancellation penalty against Shasta Linen. 150 

4. Premiums, Capital Deposits and Applicable Rates 

AU calculates EquityComp premium based on policy payroll and the loss pick 

containment amount. The loss pick containment amount'is an amount equal to the product of 

policy payroll and the respective Loss Pick Containment Rates listed in Table C of Schedule 1.151 

These rates are per $100 of p91icy payroll and are fixed for the effective period. They do not 

mirror the rates proyided for in the guaranteed cost policy and do not change even if the stated 

rates on the guaranteed cost policy decrease. 152 In addition, changes in experience modifiers and 

other modification factors do not affect these rates. Thus, if an employer's experience 

modification factor decreases during the active term of the RPA, this reduced experience 

modification would have no impact on the EquityComp premium or costs. 153 

The RP A also calculates loss development factors (LDFs) for each loss under the 

policies. These LDFs are generated by AU's underwriting department and are extrapolated from 

valuations provided by the WCIRB. 154 During the active term of the program, AU applies the 

weekly or monthly LDFs to each claim. If, at the end of the three-year active term, a participant 

149 Exh. 207-8. 150 Tr. 885: 1-5. 

151 Exh. 207-7. 

152 Tr. 1291:16-20; Tr. 899:1-9. 

153 Tr. 318:12-21; Tr. 897-898:14-7; Exh. 207-7; Exh. 44-4. 

154 Tr. 795:8-12. 

33 
refuses to renew the EquityComp program or AU refuses to offer renewal, the RP A applies "runoffLDFs" to each open and closed claim. 155 AU coined the term "run-offLDF" for purposes of 

the RP A. It is not a term used in the insurance industry or a valuation method used by other 

carriers. 156 For open claims, the run-off LDFs are 50 percent higher than LDFs applied during 

the active term. 157 In practical terms, a claim reserved at $75,000 one month prior to the end of 

the program's active term could be reserved at $293,000 the next month, resulting in a $218,000 

bill from AU after expiration of the program.

158 Run-offLDFs are also generated by AU's 

underwriting department and are non-negotiable. 159 

All losses under the policies are ultimately paid from the participant's cell account and a 

participant is solely responsible for paying its losses up to 93 percent of its three-year loss pick 

containment amount. 0 Participantls fund their own cell account through the premiums and 

capital deposits. Participants agree to make and maintain a capital deposit equal to the estimated 

annual loss pick containment iu;nount multiplied by 10 percent during the first year, 1 O percent 

the second year and 10% thereafter. 161 In addition, participants must make an additional capital 

deposit equal to the lesser of the ultimate loss or the cumulative aggregate limit. 162 

5. Cell Liquidation 

At the end of the RP A's 3-year active term, AUCRA may, at its sole discretion, liquidate 

the participant's cell and return any excess premium and fees to the participants. That said, 

liquidation of the cell cannot occur unless: 

155 Exh. 207-7; Tr: 886:11-19; Tr. 1318:12-21. 

156 Tr. 891:12-892:3; Tr. 350:2-7. 

157 Tr. 799:1-19. 

158 Tr. 802:4-9. 

159 Tr. 795:8-17; Tr. 1319:15-18. 160 Tr. 1321:5-14. 

161 Exh. 207-7. 

162 Exh. 207-8. 

34 
i) all claims under the Policies are closed and three years have 

elapsed since the expiration of all of the Policies; or 

ii) the Participant's maximum liability has been reached and three 

years have elapsed since the expiration of all of the Policies; or 

iii) the amount of paid losses allocated to the cell under the policies 

has exceeded the Participant's maximum liability; or 

iv) seven years have elapsed since the expiration of all of the 

Policies; or 

v) the Company deems itself insecure with respect to Participant's 

ability or willingness to fulfill its obligations under this 

163 . Agreement. 

In essence, a program participant must wait, at a minimum, an additional three years after 

expiration of the RP A in order to receive a return of excess funds paid to CIC and AU. 164 There 

is no provision to accelerate this process and, indeed, AUCRA may withhold these funds for up 

.to seven years after expiratiqn ofthe policy. 165 To date, AUCRA has not made any profitsharing distributions. 166 

E. Dispute Between Shasta Linen and CIC 

In January 2013, AU billed Shasta Linen for $244,213.31. Shasta Linen challenges this 

bill. Understanding this dispute requires analysis of Shasta Linen's guaranteed cost policies, the 

terms of its RPA and AU's claims processing. 

1. Guaranteed Cost Policy 

CIC issued Shasta Linen three, one-year guaranteed cost policies, the first of which 

incepted on January 1, 2010 and expired on January 1, 2011. Subsequent policies incepted on 

163 Exh. 207-8. 164 Tr. 1325:4-15; Tr. 813:20-814:3. 165 Tr. 441:15-20. 

166 In order to secure-a complete and accurate record, the ALJ twice ordered Respondent to provide the number of 

participants who received a profit-sharing distribution, the date upon which their program ended and the date upon 

which they received a distribution. Respondent refused to comply with the ALJ's Order. Pursuant to Evidence Code 

sections 412 and 413, the Commissioner infers from Respondent's failure to produce this readily available evidence 

that AUCRA has not made any profit-sharing distributions. 

35 
January 1, 2011 and January 1, 2012, and expired on January 1, 2012 and January 1, 2013, 

respectively. Each policy contained the statutory language regarding dispute resolution, 

premium calculation and early termination, outlined in Section B, subdivision (2)(a), infra. 

Each of Shasta Linen's guaranteed cost policies included an information page and an 

extension of infonnation page. The infonnation page estimated Shasta Linen's annual premium, 

while the extension page listed Shasta Linen's rates per $100 of payroll and experience 

modification factor. 167 As is customary under a guaranteed cost policy, CIC multiplied Shasta 

Linen's expected payroll in each classification by the rate quoted, factored in Shasta Linen's 

experience modification and added applicable taxes and fees in order to estimate Shasta Linen's 

annual premium. 

For policy year 2010, CIC quoted the following rates per $100 of payroll: $17.77 for 

clas.sification code 2585; $1.00 for Classification code 8743; and $0.84 for classification code 

8.810. Based on Shasta Linen's estirhated payroll and experience modification factor of 1.68, 

CIC approximated Shasta Linen's annual premium at $339,800. 168 

In policy year 2011, CIC increased Shasta Linen's rates per $100 of payroll as follows: 

$19.59 for classification code 2585; $1.02 for classification code 8742; and $0.83 for 

classification code 8810. The increase in rates, higher payroll amounts and a larger experience 

modification factor of 1.94 resulted in an estimated annual premium of $407,920. 169 

CIC did not alter Shasta Linen's rates per $100 of payroll in 2012. But Shasta Linen's 

experience modification factor dropped from 1.94 to 1.01. As a result, Shasta Linen's estimated 

annual premium for the 2012 policy year equaled $285,368. 170 

167 Exh. 208-1; Exh. 208-3. 

168 Exh. 208-20. 

169 Exh. 209-23. 

170 Exh. 210-26. 

36 
Shasta Linen's estimated premium and rate charges under the guaranteed cost policy are 

summarized as follows: 

2585 (per $100) 8742 (per $100) 8810 (per $100) 

2. EquityComp/RPA Program 

In December 2009, AU quoted Shasta Linen a minimum single-year premium of 

$107,541, a maximum premium of$322,623 and an annual loss pick containment amount of 

$283,450. 171 The EquityComp rates per $100 of payroll differed from those quoted in Shasta 

Linen's guaranteed cost policy ahd constitute the actual rates charged to Shasta Linen: 172 

Loss Pick Containment 

I 

Rate j 

Estimated Annual 

Payroll 

Annual Pay-In Amount 

The EquityComp rates remained the same for the three-year duration of the program and did not 

change when Shasta Linen saw a reduction in its experience modification factor. For example, 

Shasta Linen's 2012 experience modification factor dropped from 1.94 to I.OJ. This decrease 

had no impact on Shasta Linen's costs or premium under EquityComp. 

Shasta Linen paid AU an initial set-up fee of$3,203 and a capital deposit of$28,345.173 

From January 2010 through June 2011, Shasta Linen's monthly payments ranged from $12,903 

171 Exh. 201-3. 172 See also Exh. 207-10. 173 Exh. 202-2; Exh. 211-1. 

37 
to $36,513. 174 In July 2011, AU sent Shasta Linen a bill for $83,612.49. 175 The significant 

increase in charges caused Shasta Linen to take a closer look at the EquityComp program. 176 

The substantial bill also forced Shasta Linen into a promissory note with AU to spread out the 

fi h . d 177 payments over a our mont peno . 

In addition to monthly billing concerns, Shasta Linen became concerned that neither CIC 

nor AU possessed incentive to investigate workers' compensation claims. As evidence of this 

concern, Ms. Richardson recounted the case of employee Mr. M. 178 After failing to turn over 

customer payments, Mr. M went out on disability and indicated he was unable to fulfill his duties 

as a driver. Shortly thereafter, Ms. Richardson witnessed Mr. M driving a truck on the highway. 

Ms. Richardson informed AU of this fact but AU took no action. Mr. M's workers' 

. compbnsation claim ultimately cost Shasta Linen $111,679. 179 

In November 2012, Shasta Linen changed insurance brokers and informed SVIS of this . 

change. 180 On December 19, 2012, Shasta Linen's SVIS broker informed Ms. Richardson that 

AU wished to offer Shasta Linen a one-year extension on the EquityComp program. 181 Ms. 

Richardson declined this offer and reminded SVIS that it no longer represented Shasta Linen. 

By December 2012, Shasta Linen had paid AU program costs totaling $934,466 despite 

suffering three-year cumulative losses of only $268,000. 182 In addition, nearly $200,000 

remained in Shasta Linen's captive cell. Nonetheless, in January 2013, AU requested an 

174 Exh. 212-9; Exh. 211-23. 

175 Exh. 212-11. Ms. Richardson testified "we never knew what we were going to be billed" and this made budgeting 

for workers' compensation insurance extremely difficult. (Tr. 123 :21-124:3) It was ultimately determined that the 

$83,000 bill for July 2011 was due to a calculation error by AU and ARS. (Tr. 127:20-128:4.) 

176 Tr.123:21-124:3. 

177 Exh. 2. 

178 The Commissioner intentionally omits the full name of the employee at issue. 

179 Tr. 134:21-25. 

180 Tr. 149:17-22; Exh. 33. 

181 Tr. 150:23-151:6. Exh. 4-6. 

182 Exh. 218-157. 

38 
additional $244,213.31 in program costs based entirely on the application ofrun-offLDFs to 

Shasta Linen's two remaining open claims. Shasta Linen has refused to pay these additional 

costs. 

3. Subsequent Workers' Compensation Insurance Premiums 

In January 2013, Shasta Linen's secured a guaranteed cost workers' compensation 

insurance policy from Pacific Compensation with an annual premium of $315,283. In January 

2014, Shasta Linen secured a guaranteed cost insurance policy from Insurance Company of the 

West with an annual premium of$261,499. 183 In each of these guaranteed cost policies, Shasta 

Linen benefitted from a reduced experience modification factor, which was the result of their 

more favorable loss history while insured by CIC. 184 

F. Reinsurance Treaty and Addendums 

CIC filed with the Department the reinsurance treaty and addendums. 185 The reinsurance 

treaties and addendums were signed by Steven Menzies for both CIC and AUCRA, first as 

Executive Vice President and Vice Presidents for each company, respectively, and then as 

President for both entities. The Department acknowledged the filings by letter dated June 25, 

2008, and noted its review of the Treaty and Addendums was limited to those provisions related 

. IM 

remsurance agreements. 

The parties stipulated in this proceeding that the RP A is not actually reinsurance. 187 This 

stipulation by CIC is in direct conflict to the representations made to the Commissioner by CIC 

when the reinsurance treaty and addendums were filed and acknowledged by the Commissioner 

183 Exh. 83. 

184 An employer's experience modification factors reflects a three year period, commencing four years and nine 

months prior and terminating one year and nine months prior to the date for which an experience modification is to 

be established. (California Workers' Compensation Experience Rating Plan (ERP), Section III, Rule 3.) 185 Exh. 232 

186 Ibid. 

187 Tr: 614:24 - 615:2 

39 
and the testimony offered at hearing. 

The RP A itself is based upon and results from the reinsurance treaties filed by CIC. As 

noted in the testimony of Jeffrey Silver, General Counsel of CIC, Shasta Linen was a "party" to 

the reinsurance agreement between CIC and AUCRA by virtue of the RP A, and the RP A 

becomes part of and is based upon the reinsurance agreement between CIC and AUCRA. 188 CIC 

was the party initiating and filing the reinsurance with AUCRA. 

VI. Applicable Law 

In California, the Legislature is granted plenary power through our State Constitution to 

create and enforce a complete system of workers' compensation.189 This includes "full provision 

for adequate insurance coverage against liability to pay or furnish compensation; full provision 

for regulating insurance coyeragii in all its aspects .... " 190 Therefore, workers' compensation 

insurance programs are 9losely scrutinized and highly regulated based upon the provisions of the 

California Insurance Code, and the Legislature has created a comprehensive scheme mandating 

employer coverage and regulatory oversight. In order to execute this broad regulatory structure, 

the Legislature charged the Insurance Commissioner with the authority to oversee the fonn and 

substance of all workers' compensation insurance plans; everything from the scope of required 

coverage provided to employees to the amount employers pay insurers for premiums. 

The Insurance Code sets forth both comprehensive workers' compensation policy form 

and rate requirements for all insurers. Article 2 of Chapter 3, which is set forth in Insurance 

Code Sections 11651through11664, and Article 2 of Chapter 3, which is set forth in Insurance 

Code Sections 11730 to 11742, delineate these provisions. For instance, every policy must 

contain a clause providing that the insurer is directly and primarily liable for payment of any 

188 Tr: 1210:12-20; 1212:2-4. 

189 California Constitution, Art. XIV, Section 4. 

190 Ibid. 

40 
compensation for which the employer is liable. 191 Policies must also state that the insurer is not 

relieved from payment "if the employer becomes insolvent or is discharged in bankruptcy'' 

during the policy period. 192 The insurer will "be bound by and subject to the orders, findings, 

decisions, [and] awards rendered against the employer subject to the tenns of the policy."193 

Section 11654 also specifies that the "insurance contract shall govern as between the employer 

and the insurer as to payments by either in discharge of the employer's liability for 

compensation." 

A. Statutory Authority for Pre-Filing of Workers' Compensation Forms 

Under both the Insurance Code and its applicable Regulations, insurers must adhere to a 

two-step process before using any policy or endorsement in California. First the policy fonn or 

endorsement must be filed with a licensed rating organization, and the licensed rating 

' 

organization is to confirm those policy forms and endorsements comply with law. The policy 

forms and endorsements are then filed with the Insurance Commissioner and cannot be used until 

after 30 days or, in some instances, authorized by the Insurance Commissioner. The clearest 

recitation of this requirement is found in Insurance Code section 11658: 

(a) A workers' compensation insmance policy or endorsement 

shall not be issued by an insurer to any person in this state unless 

the insurer files a copy of the fonn or endorsement with the rating 

organization pursuant to subdivision (c) of Section 11760 and 30 

days have expired from the date the foim or endorsement is 

received by the commissioner from the rating organization without 

notice from the commissioner, unless the commissioner gives 

written approval of the fmm or endorsement prior to that time. 

An endorsement may concern matters unrelated to the description of the insurer's indemnity and 

191 Ins. Code§ 11651. 192 Ins. Code§ 11655. 193 Ins. Code § 11654. 

41 
. bl' . . 194 msurance o 1gat10ns. 

Section 11750.3 provides the WCIRB, the only licensed rating organization, with 

authority to examine all policies, endorsements and other forms for the purpose of determining 

whether such policies, endorsements and forms comply with California law. In addition, 

California Code of Regulations, title 10, section 2218 requires "all workers' compensation forms 

be submitted in duplicate" to the WCIRB for inspection and tlien to the Insurance Commissioner 

for final action. 

The Insurance Commissioner has consistently stated these requirements. For example, in 

2011, the CDI reminded the WCIRB to inform its insurer members that agreements that affect 

the obligations of a workers' compensation insurer or insured must be filed witli tlie WCIRB and 

the Insurance Commissioner prior to use. The letter noted that the Insurance Commissioner was 

particularly concerned with' arl)itration: provisions contained in unattached collateral agreements 

and considered such terms unenforceable unless tlie insurer demonstrated that the arbitration 

agreement was expressly agreed to by the insured at the time tlie policy was issued. 195 

In sum, insurers who offer and issue workers' compensation insurance policies, 

endorsements and fonns in California must submit such policies, endorsements and forms, 

however titled by the insurer, for review. Such materials must be filed with the WCIRB, which 

reviews tliem and forwards them to the Insurance Commissioner for final review before use in 

California.196 Rate information is submitted directly to the Insurance Commissioner pursuant to 

section 11735. An insurer may begin offering filed policies, endorsements or other materials 30 

194 See Donahue Constr. Co. v. Transport Indem. Co., 7 Cal.App.3d 291, 303 [insurance policies may include the 

duty to defend an insured]; Genuser v. Ocean Accident & Guarantee Corp., 57 Cal.App.2d 979, 983 [insurance 

policy may limit the time within which a lawsuit may be brought under the policy]. 195 Notice of Hearing and Order to Show Cause, in The Matter of Zurich American Insurance Company, DISP-2011-

00811 at p. 6. The Al.J took Official Notice of this filing. 

196 Ins. Code § 11658 

42 
days after the Insurance Commissioner receives the materials, if the Insurance Commissioner has 

not already advised the insurer that the materials do not comply with California law. 197 If the 

Insurance Commissioner advises the insurer at any time that the filed materials do not comply 

with California law, the insurer may not issue any policy, endorsement or other form that 

. 1 d h 'al 198 

me u es sue maten . 

B. Statutory Authority Prohibiting Unfiled Collateral Agreements 

California Code of Regulations, title 10, section 2268 states that no collateral agreement 

to a workers' compensation insurance policy may be made that modifies the obligation of the 

parties unless the agreement is made part of the policy's terms. Specifically, section 2268 states: 

No collateral agreements modifying the obligation of either the 

insured on the insurer shall be made unless attached to and made a 

part' of the policy, provided, however, that if such agreements are 

attached and in any way restrict or limit the coverage of the policy, 

they shall conform in all respects with these rules. 

This regulation is clear on its face that any obligation of either the insurer or the insured 

concerning the workers' compensation insurance that is not contained in the insurance policy is 

required to be made part of the policy and unendorsed side agreements are prohibited. This 

regulation therefore requires the filing of any agreement that modifies or alters the insured's: (1) 

obligation to reimburse or otherwise pay the insurer for loss adjustment expenses and/or other 

claims or policy related expenses; (2) indenmity or loss obligation; (3) payment or 

reimbursement obligation; (4) allocation ofloss adjustment expenses or other fees and expenses; 

(5) timing of reimbursements or payments to the insurer; (6) collateral; (7) circumstances that 

constitute a default; (8) choice oflaw; (9) arbitration obligation; and (10) other material 

197 Ibid. 198 Ibid. 

43 
obligations under any workers' compensation insurance program, plan or policy. 199 

C. Statutory Authority for Pre-Filing of Workers' Compensation Rates 

The regulatory obligation for insurers to file their workers' compensation rates before use 

in this state is set forth in Insurance Code sections 11735 and 11750.3 and in the California Code 

of Regulations. Section 11735 requires every insurer to file with the Insurance Commissioner 

"all rates and supplementary rate information that are to be used in this state." The rates and 

· supplementary rate information must be filed no later than 30 days prior to use. A filed rate may 

be disapproved by the Insurance Commissioner pursuant to the applicable subdivisions of 

Section 1173 7. 

D. Statutory Appeal Language 

The Insurance Code also·permits policyholders harmed by the application of a rate or 

rating plan to file at) appeal with the: Insurance Commissioner. Specifically, Insurance Code 

section 11737, subdivision (f) states: 

(f) Every insurer or rating organization shall provide within this 

state reasonable means whereby any person aggrieved by the 

application of its filings may be heard, by the insurer or rating 

organization on written request to review the manner in which the 

rating system has been applied in connection with the insurance 

afforded or offered. If the insurer or rating organization fails to 

grant or reject the request within 30 days, the applicant may 

proceed in the same manner as ifthe application had been rejected. 

Any party affected by the insurer or rating organization's response may appeal to the Insurance 

Commissioner within 30 days after written notice of the action. The Commissioner, after 

conducting an evidentiary hearing, may affirm, modify, or reverse that action. 

199 American Zurich Ins. Co. v. Country Villa Serv. Corp. (2015) 80 Cal. Comp. Cases 687, 703-704; Notice of 

Hearing and Order to Show Cause, in The Matter of Zurich American Insurance Company, supra, DISP-2011-

00811 at pp. 4-5. 

44 
The authority to hear grievances of employers for misapplication of rates, noted above, is 

separate from the Commissioner's authority to disapprove rates. Subdivisions (a) through (e) 

and (g) of Section 11737 deal with rate disapproval by the Commissioner. Subdivision (h) of 

Section 11737 deals with the rate that will be in effect ifthere is no applicable rate. 

E. Reinsurance 

Section 620 of the Insurance code defines reinsurance as: "A contract ofreinsurance is 

·one by which an insurer procures a third person to insure him against loss or liability by reason 

of such original insurance." The original insured has no interest in the reinsurance as a matter of 

law.200 Reinsurance is "'a special form of insurance obtained by insurance companies to help 

spread the burden of indemnification. A reinsurance company typically contracts with an 

insurance company to coyer a specified portion of the insurance company's obligation to 

indemnify a policyholder., .. The reinsurance contract is not with the insured/policyholder.' " 

Catholic Mut. Relief Soc,. v. Superior Court (2007) 42 Cal. 4th 358, 368, quoting Ascherman v. 

General Reinsurance Corp. (1986) 183 Cal.App.3d 307, 311, fu. 5. 

A reinsurance policy may not be used to change the underlying insurance policy. "An 

essential feature of reinsurance is that it does not alter the terms, conditions or provisions of the 

contract ofliability insurance between the direct liability insurer and its insured ... " Catholic Mut. 

Relief Soc., supra, 42 Cal. 4th at 369. Thus, by definition, a reinsurance contract may not 

involve the original insured/policyholder's contract of insurance. 

This is not to say reinsurers may not contract with the original insured at all. In fact, the 

Insurance Code clearly indicates that a reinsurer may contract separately with. a policyholder but 

only as to rights of policyholders against the reinsurer: "The original insured or policyholder 

shall not have any rights against the reinsurer which are not specifically set forth in the contract 

200 Ins. Code§ 623. 

45 
of reinsurance, or in a specific agreement between the reinsurer and the original insured or 

policyholder."201 Since the Insurance Code defines reinsurance as only between an insurer and a 

reinsurer, a reinsurer cannot directly insure an insurer's policyholder, including changes in rates, 

premium, claims handling, etc., so as to modify the underlying contract between the insurer and 

it's insured. For a reinsurer to do otherwise effectively results in it becoming an insurer. 

VII. Discussion 

Shasta Linen contends the EquityComp program, with its required RP A, modifies the 

guaranteed cost policy's rates, dispute resolution provision, and cancellation terms, and as such 

must be filed and approved by the Insurance Commissioner prior to use. CIC argues the CDI 

lacks jurisdiction over this appeal, that the RP A does not alter the terms of the guaranteed cost 

policy, and that mention of the EquityComp program in CDI market examinations constitutes 

. approval of the program. '.CIC also argues the CDI may not void the RP A's tenns. 

After examining the facts and 'applicable law, the Insurance Commissioner concludes he 

has jurisdiction over this appeal; EquityComp and its accompanying RP A constitute a collateral 

agreement pursuant to California Code of Regulations, title 10, section 2268, which is void as a 

matter oflaw; CIC was the primary party instituting an illegal program to modify its rates with 

its insureds and ultimately the premium charged to Shasta Linen through the collateral 

agreement; and CIC made misrepresentations to the Commissioner concerning its workers' 

compensation insurance programs and reinsurance. 

A. The Insurance Commissioner's Exclusive Jurisdiction over this Appeal 

CIC initially contended that the Commissioner lacks jurisdiction to consider this case. 

Specifically, CIC argues (1) appeals filed under Insurance Code section 11737, subdivision (f) 

may only determine "whether CIC has properly applied its [rate] filings to determine how much 

201 Ins. Code§ 922.2, subd. (c). 

46 
premium to charge" and may not address the potential illegality of the rate filing;202 (2) the RP A 

is between AUCRA and Shasta Linen and relief in this forum is not possible;203 (3) whether the 

RP A is an unlawful collateral agreement in violation of the Insurance Commissioner's 

Regulations is beyond the scope of the CD I's jurisdiction;204 and ( 4) only the Insurance 

Commissioner may initiate a hearing to disapprove a rate on the ground that it is unfiled.205 Each 

of these arguments lack merit as discussed below. 

1. Section 11737(f) Appeals Address Insurer Filings 

CIC contends this appeal may only consider whether CIC assessed Shasta Linen's 

premium in accordance with its approved rate filings. 206 But CIC misinterprets the statute and 

inserts language that is not included. 

Insurance Code section 1173 7 provides the Insurance Commissioner the authority to take 

various actions regarding rates, iiJ.clμding disapproval of rates that fail to comply with filing 

requirements, result in inadequate or dtscriminatory premiums or threaten an insurer's solvency. 

Subdivision (f) provides employers with a similar right to challenge filed rates as they apply to 

that particular employer and authorizes the Insurance Commissioner to detennine the proper 

application of the filed rate. 

Every insurer or rating organization shall provide within this state 

reasonable means whereby any person aggrieved by the application 

of its filings may be heard by the insurer or rating organization on 

written request to review the manner in which the rating system 

has been applied in connection with the insurance afforded or 

offered.207 

202 Respondent's Post-hearing Opening Brief, 21: 13-22:7. 203 Respondent's Post-hearing Opening Brief, 22:8-18. 204 Respondent's Post-hearing Opening Brief, 23:8-14. 2

°' Respondent's Post-hearing Opening Brief, 23:21-24:6. 206 Respondent's Post-hearing Opening Brief, 22:4-7. 207 Ins. Code§ 11737, subd. (!). 

47 
If the employer disagrees with the carrier's response, it may appeal to the Insurance 

Commissioner. Appeals presented to the Insurance Commissioner are heard by the 

Administrative Hearing Bureau pursuant to California Code of Regulations, title 10, section 

25 09 .40 et seq. 

Nothing in section 11737, subdivision (f) limits review to premiums charged under the 

rating system. Contrary to CIC's argument, an insurer's rating plan and rates are not 

synonymous with "premium." Section 11730, subdivision (g) defines rates as "the cost of 

insurance per exposure base unit, prior to any application of individual risk variations based on 

loss or expenses considerations and does not include minimum premiums." Section 11737, 

subdivision (f) provides an employer aggrieved by an insurer's application of is rates to that 

employer with a forum for such disputes. Shasta Linen complains CIC did not adhere to its filed 

rating plan and rates in assessing workers' compensation premium and costs under EquityComp. 

Certainly'such a dispute falls under section 11737, subdivision (f). 

Even assuming section 11737, subdivision (f) pertains only to premiums charged, the 

underlying complaint satisfies such a requirement. Shasta Linen argues the EquityComp 

premium and rates per $100 of payroll differ from those filed and approved by the 

Commissioner. CIC counters this argument by stating the RPA charges program fees, not 

premiums.208 While CIC is carefol to call EquityComp costs "program costs" and not premiums, 

this is a distinction without a difference. Indeed, Mr. Watson used the terms interchangeably 

during his testimony and the patent application itself calls the costs under the RP A 

"premiums."209 Moreover, money paid by an insured to an insurer for coverage constitutes 

208 Respondent's Post-hearing Opening Brief, 25:1-20. 209 ALJ Exh. 1, col. I, lines 44-48: "The risk sharing participation program is structured such that the insured's net 

premium payment will vary in a non-linear manner with respect to their actual losses. Iu particular, there will be 

accelerated savings in premiums for particularly low losses over a given period of time." See also, Tr. 1292:22-15. 

48 
premium regardless of the name. This, of course, is consistent with the structure of the program. 

Accordingly, even under CIC's limited reading of the statute, the dispute is properly before the 

Commissioner. 

Shasta Linen was aggrieved by the modification of the guaranteed cost rate and resulting 

premium which was inconsistent with that which was supposed to be charged under CIC's rate 

filing and the tenns of the guaranteed cost policy that was actually issued. No other rate is 

applicable except for those filed by CIC, and the RP A cannot be used as either the rate or to 

calculate the premium of Shasta Linen since it had not been filed with the Commissioner.210 

2. AUCRA is Not a Necessary Party to this Appeal 

CIC asserts the RP A is a contract between AUCRA and Shasta Linen and as the appeal 

names only CIC, the Insurance Col)1missioner cannot rule on the agreement's legality. More 

. specifically, CIC argues that AUCRA is not an insurer, and therefore not subject to the appeal 

procedures under section 1173 7. This argument is without merit. 

While it is true that the RP A is a contract between AUCRA and an employer, AUCRA is 

not an independent third party or unrepresented at this hearing. AUCRA is a wholly-owned 

subsidiary of Applied Underwriters, Inc.; the same corporation that owns CIC. The Boards of 

Directors for CIC, AU, and AUCRA are identical in composition and officers and directors of all 

three entities testified during the hearing.211 In addition, AUCRA's sole purpose is to serve as a 

supposed reinsurer to CIC. As such, it is inextricably intertwined with CIC and AU. Indeed, the 

affiliated entities are so enmeshed that each ofCIC's financial examinations discusses 

EquityComp as a CIC product, and there is no evidence CIC sought to distinguish itself from 

210 See Ins. Code§§ 11735and11737. 211 Tr. 1153:2-4; Tr. 863:1-3. 

49 
EquityComp212 

It is also true that the EquityComp program requires CIC or another licensed insurance 

carrier participate in the program. And while CIC may not be a signatory to the RP A, CIC 

represented that the rates filed and approved by the Commissioner would be the rates charged to 

California consumers. That CIC contracted with an affiliated corporation to alter or modify 

those rates does not absolve the carrier from liability in this proceeding, nor does it protect the 

RP A from analysis. This is especially true given that AU structured EquityComp and the RP A to 

circumvent state regulators.213 

It is most important to note that CIC is the party that, through its Executive Vice 

President, and then President, Steven Menzies214 created and entered into the reinsurance treaty 

and addendums that transferred its EquityComp insured policyholders to AUCRA. The treaty 

specifically.notes the ceding of pcjuityComp business to AUCRA by CIC. CIC now stipulates 

that the arrangement between it all,d AUCRA is not actually reinsurance. However, a party 

merely stipulating at hearing does not alter or eliminate the facts in this record that CIC did enter 

into reinsurance treaties with a reinsurer related to it through its corporate parent, with common 

executives facilitating the transaction, and utilized that reinsurance to perpetuate its scheme to 

change its filed rates and insurance contracts with its insureds. CIC, through this stipulation, is 

merely trying to wash its hands of responsibility as the primary party responsible for this 

arrangement. 

Lastly, the Commissioner must determine whether the rates and rating plan sold to Shasta 

Linen adhere to the Insurance Code and the approved rating plan. If Shasta Linen's rates differ 

212 Exh. 233-11. 213 ALJ Exh. I, column 7~ lines 42-54. 214 Steven Menzies was at the time of the signing of the reinsurance treaties the Vice President and then President of 

AUCRA. See Exh. 232. 

50 
from those quoted by CIC and approved by the Commissioner, Shasta Linen may challenge 

those rates under section 11737, subdivision (f), regardless of whether CIC or AUCRA sold 

Shasta Linen the RP A. 

3. Conclusions Regarding RP A are Not Beyond Scope of Appeal 

CIC argues that analysis and conclusions regarding the RP A are beyond the scope of a 

section 11737, subdivision (f) hearing. CIC argues the RP A does not impact the "rating system" 

and thus it is irrelevant whether the RP A is an unlawful collateral agreement under the Insurance 

Code and its Regulations. This argument is also without merit. 

Whether the RP A impacts rates or the rating system is a question of law to be determined 

by the Insurance Commissioner.215 CIC's argument relies upon the legal conclusion that the 

RP A does not impact ,rates and thus is outside the Insurance Commissioner's jurisdiction. This 

appeal requires the Insurance Commissioner to consider the impact of the RP A. As stated in 

CI C's parent company's O'?-'n patent, the RPA, set up through CI C's reinsurance agreement with 

ACURA, was intended to modify the guaranteed cost policy and change it into a retrospective 

rating plan.216 Permitting the RPA to be beyond the scope of this appeal will impose upon 

Shasta Linen improper rates and premium in this state, which harms both this employer and the 

workers' compensation system established by the Legislature. 

4. Section 11737 Hearings May Be Initiated by Insurance Commissioner 

or Insured 

CIC argues that only the Insurance Commissioner may initiate a hearing to disapprove an 

untiled rate. In support of this contention, CIC cites section 11737, subdivision (a) arguing the 

Insurance Commissioner has discretion to approve unfiled rates and Bristol Hotels & Resorts v. 

215 Conestoga Servs. Corp. v. Executive Risk Indem., Inc. (9"' Cir. 2002) 312 F.3d 976, 981; Fragomeno v. Ins. Co. 

of the West, Inc. (1989) 207 Cal.App.3d 822, 827. 216 ALJ Exh. I. 

51 
National Council on Compensation Ins. Inc. (2002) 2002 WL 387266. Neither argument is 

persuasive. 

Pursuant to Insurance Code section 11735 an insurer shall file all rates and 

supplementary rate information that are to be used in this state no later than 30 days prior to their 

effective date. 217 Pursuant to Insurance Code section 11658, an insurer shall not issue a policy 

unless it has been approved in form and substance by the Insurance Commissioner and the 

WCIRB.218 Similarly, California Code of Regulations, title 10, section 2218 requires insurers 

submit all workers' compensation insurance forms to the WCIRB and the Insurance 

Commissioner for approval prior to use. The statute and regulations are clear. An unfiled rate or 

policy form or endorsement is unlawful.219 And as discussed above, under section 11737, 

subdivision. (f) a consumer may challenge the use of an unfiled rate. 

, CIC also cites Bristol Hate ls & Resorts, supra, arguing that an unfiled rate is not an 

unlawful one. Bristol Hotel & Resorts:is an unpublished California case. The California Rules 

of Court however, prohibit citation to an unpublished decision for this purpose.

220 The rules 

authorize reference to unpublished opinions only in a narrow set of circumstances, none of which 

apply here.221 Accordingly, the ALJ disregards the citation to Bristol Hotels & Resorts and 

CIC's argument thereunder.222 

217 Ins. Code§ 11735, subd. (a). 218 Ins. Code§ 11658, subd. (a). 219 See also, American Zurich Ins. Co., supra, 80 Cal. Comp. Cases 687, 709-710. 

229 Cal. Rules of Court, rule 8.115(a). 221 Cal. Rules of Court, rule 8.115(b). 

222 Humane Soc'y of the United States v. Superior Court of Yolo County (2013) 214 Cal.App.41

h 1233, 1266. 

52 
5. Subdivision (t) of Insurance Code Section 11737 Permits the 

Insurance Commissioner to Apply the Applicable Filed Rate to the 

Aggrieved Insured. 

The Insurance Commissioner has authority to hear any dispute concerning a policyholder 

aggrieved by an insurer's application or misapplication of the insurer's filed rates pursuant to 

subdivision (f) oflnsurance Code section 11737. Subdivision (f) has no time limitations for a 

grievance to be filed and only requires that the policyholder be aggrieved by the application of an 

insurer's rate. In this matter, CIC utilized an untiled side agreement through its reinsurer to 

apply an untiled rating plan. Subdivision (f) states nothing in its provisions that requires it to be 

applied prospectively. By the subdivisions own tenns, it may be applied retroactively since the 

provision uses the past-tense term "aggrieved" and requires the Commissioner to review the 

"manner in which the rating system has been applied in connection with the insurance 

ffi d d ,,223 a or e .... 

If one were to apply subdivision ,(f) only prospectively, any insured that obtained a policy 

would have no recourse to an insurer's improper rating. The remedy afforded to the policyholder 

under subdivision (f) is not the discontinuance of an untiled rate, but the Commissioner applying 

the proper filed rate applicable to the policyholder through this administrative process.

224 

B. EquityComp and RP A are Collateral Agreements 

Having rejected CIC's jurisdictional arguments, the analysis turns to the agreed-upon 

issue in this appeal: whether EquityComp and its accompanying RP A modify or alter the te1ms 

and rates of the underlying guaranteed cost policy. CIC initially contends the RP A is not a 

collateral agreement since it does not modify CI C's indemnity obligations. CIC also argues the 

RP A does not alter the rates charged to Shasta Linen or modify any other terms of the guaranteed 

223 Ins. Code§ 11737, subd. (f). 224 Ibid. 

53 
cost policy. But CIC's contentions ignore the statutory language and relevant case law on this 

issue, and disregard witness testimony and the terms of the RP A. 

1. Modifications Not Limited to Indemnity Obligations 

CIC argues the RP A does not constitute a collateral agreement since it does not limit or 

restrict CIC's obligation to pay claims.225 This narrow interpretation is not supported by the 

statute or relevant case law. 

The legislatively-created, comprehensive regulatory scheme requires all workers' 

compensation insurance policies and forms be filed and approved by the Insurance 

Commissioner. Section 11658 clearly states that all policies, as well as endorsements to an 

insurance policy, must be approved prior to use. Similarly, Insurance Code section 11750.3 

instructs the WCIRB to review for legal compliance all "policies, daily reports, endorsements or 

other evidence of insurance." An etidqrsement is an amendment or modification of an existing 

poliqy that alters or varies any term or condition of the policy.226 While some endorsements 

make minor changes to a policy, other endorsements add or delete insureds or substantially 

change the premium charged.227 In light of such a comprehensive regulatory scheme, it is 

unreasonable to limit the filing requirements of section 11658 to endorsements that modify an 

insurer's indemnity obligations for loss or liability. Nothing in the language of section 11658, or 

the language of any other related statute or regulation, requires such a limited interpretation. 

In addition, the Insurance Commissioner and the federal courts have rejected this murnw 

reading of section 11658. In Zurich American Ins., the Insurance Commissioner explained that 

agreements that modify an insurer's choice oflaw, dispute resolution options, cancellation and 

default penalties or payment obligations constitute collateral agreements that must be filed and 

225 Respondent's Post-hearing Opening Brief, pp. 38-39. 

226 Adams v. Explorer Ins. Co., supra, 107 Cal.App.41

h at 450-451; 

227 Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2002) 'IJ 3:188, p. 3-50. 

54 
approved. 228 The Insurance Commissioner's interpretation of section 11658 is clear and entitled 

to great weight.229 Similarly, in American Zurich Insurance Co. v. Country Villa Serv. Corp. 

(Country Villa), a California federal district court rejected the notion that filing requirements 

pertain only to agreements that modify indemnity obligations. Relying on the Insurance 

Commissioner's interpretation and previous case law, the federal court held that it was 

unreasonable to limit section 11658 to "the narrow sliver of an insurance agreement regarding 

only the insurers 'indemnity obligation for loss or liability."230 

Accordingly, CIC's contention is without merit. 

2. RP A Modifies the Terms of the Guaranteed Cost Policy 

Contrary to CI C's assertion, the RP A modifies a number of guaranteed cost policy 

provisions, namely, the rates charged, the choice oflaw and dispute resolution requirements, 

n.on-renewal penalties and J:arly cancellation fees. In fact, where the RP A and the guaranteed 

cost policy differ, thy RP A terms supplant those of the guaranteed cost policy.231 

There is no question that the guaranteed cost policy rates charged per $100 of payroll 

differ from those charged under the EquityComp program. In policy year 2010, the guaranteed 

cost policy quoted $17.77 per $100 of payroll for classification 2585, while the RP A quoted 

$18.68 for that same policy year. This same discrepancy can be seen in policy years 2011 and 

2012. And there is no question that the rates Shasta Linen paid to CIC were not those quoted 

under the guaranteed cost policy and approved by the Commissioner. First, the EquityComp 

Proposal itself notes that the applicable rates are the "loss pick containment rates" charged under 

228 In the Matter of Zurich American Insurance Company, supra, DISP-2011-0081 at pp. 10-12. 

229 Ass'nfor Retarded Citizens v. Dep't of Developmental Serv. (1985) 38 Cal.3d 384, 391. 

230 American Zurich Ins. Co. v. Country Villa Serv. Corp., supra, 80 Cal. Comp. Cases 687, 703. 

231 Tr. 1329:9-18. 

55 
the RP A and not those quoted in the guaranteed cost policy.232 Second, all witnesses agree that 

the RP A terms governed Shasta Linen's payments under the policy and plan. Both Dr. Levine 

and Ms. Gardiner detailed Shasta Linen's costs under EquityCornp. Those calculations 

incorporated the RP A's loss pick containment rates and not the rates quoted under the guaranteed 

cost policy.233 In addition, the EquityComp Sales Manager testified that the terms of 

EquityComp and the RP A supplant those of the guaranteed cost policy.234 In fact, the policy 

tenns are irrelevant in determining the premium and fees under the RP A. 235 Third, while the 

guaranteed cost policy applies an employer's experience modification factor in calculating 

premium, EquityComp specifically excludes this mandatory factor. 236 The effect is yet another 

change in an employer's rate and overall premium. Although CIC asserts RP A costs and fees do 

not .constitute "rates" or "premium," this argument is simply erroneous. 

The RP A also presents a: dispute resolution and choice of law provision intended to 

supersede those of the guaranfot;d cost policy. Disputes under the guaranteed cost policy are 

exclusively governed by section 11735, subdivision(:!), which provide for an evidentiary hearing 

by the CDI. Language outlining this right is mandated by the Insurance Code and must be 

included in each workers' compensation policy. No provision is made for binding arbitration, 

and disputes are governed by California law. But the RP A modifies these rights. The RP A and 

the Request to Bind provide for binding arbitration of disputes. And such disputes are 

exclusively heard in the British Virgin Islands using Nebraska law. This modification is 

extremely disconcerting since the Insurance Code prohibits the use of arbitration provisions 

232 Exh. 201-4. 

233 Exh. 75; Exh. 279. 234 Tr. 1350:2-12. 235 Tr. 318:23-25. 

236 The Commissioner notes for the record that a failure to apply an employer's experience rating factor in 

calculating premium constitutes a violation oflnsurance Code section 11734, subdivision (c). 

56 
without written notice to the policyholder that such a provision is negotiable.237 In addition, it is 

clear the RP A's dispute resolution and choice of law provisions are meant to replace those of the 

guaranteed cost policy. In fact, CIC's witnesses could not conceive of a dispute that would fall 

under the guaranteed cost policy. 238 

Enrollment in EquityComp also significantly alters the guaranteed cost policy's early 

cancellation terms. While the guaranteed cost policy must include statutory early cancellation 

provisions, the RP A specifies its own, unapproved, early cancellation penalty. The difference 

between these two contractual provisions can be illustrated monetarily. An employer with 

$300,000 in premium, who cancels their guaranteed cost policy after 100 days, is liable for 

$114,000. That same employer, if enrolled in EquityComp, would be liable for more than $1.1 

million if they chose to cancel their EquityComp enrollment or the underlying CIC guaranteed 

cost policy after only 100 days. 

Lastly, the RP A applies a non-renewal penalty disfavored by the Insurance Code. After a 

guaranteed cost policy expires, an employer is free to select a new insurer without penalty or 

restriction. That is not the case for those who enroll in EquityComp. The RP A's terms and 

obligations continue long after the end of the three-year program term. After EquityComp 

expires, all of a participant's open and closed claims are subjected to run-offLDFs which 

237 Ins. Code § 11658.5 states as follows: 

(a)(l) An insurer that intends to use a dispute resolution or arbitration agreement to resolve disputes arising in 

California o;ut of a workers' compensation insurance policy or endorsement issued to a California employer shall 

disclose to the employer, contemporaneously with any written quote that offers to provide insurance coverage, that 

choice of law and choice of venue or forum may be a jurisdiction other than California and that these terms are 

negotiable between the insurer and the employer. The disclosure shall be signed by the employer as evidence of 

receipt where the employer accepts the offer of coverage from that insurer. 

(2) After compliance with paragraph (1), a dispute resolution or arbitration agreement may be negotiated by the 

insm·er and the employer before any dispute arises. 

(b) Nothing in this section is intended to interfere with any authority granted to the Insurance Commissioner under 

current law. 

(c) Failure by the insurer to observe the requirements of subdivision (a) shall result in a default to California as the 

choice oflaw and forum for resolution of disputes arising in California. 238 Tr. 875:7-11; Tr. 1329:9-18. 

57 
significantly increase a participant's financial obligations. After the expiration of a guaranteed 

cost policy, a participant owes nothing to the carrier. For Shasta Linen, this difference was 

significant. At the expiration of the EquityComp program, Shasta Linen received a bill for 

nearly $250,000. If only the terms of the guaranteed cost policy applied, Shasta Linen would 

owe nothing. This provision also serves to penalize California employers who choose to switch 

insurance carriers. Run-offLDFs apply only to those employers who choose not to renew their 

EquityComp enrollment. Essentially, CIC penalizes those employers who are dissatisfied for 

whatever reason. Such a penalty is also contrary to public policy. As an analogy, the ALJ 

considers the rules regarding dividend distribution. Under California Code of Regulations, title 

10, section 2507.2, an insurer may not restrict the payment of a policyholder's dividend due to 

the policyholder's failure to accept renewal of the policy or subsequent policies offered by the 

same insurer. Such a practice is boercive and illegal and constitutes an unfair practice.239 

In sum, the RP A alters the underlying rates, costs and fees of an insurance policy, as well 

as the choice oflaw, dispute resolution and cancellation terms. As such, it is by definition a 

collateral agreement pursuant to California Code of Regulations, title 10, section 2268. 

3. Case Law Requires Filing of the RP A 

Case law also supports a finding that the RP A constitutes a collateral agreement under the 

Insurance Code. 

A California federal court reiterated the Insurance Commissioner's directive regarding 

collateral agreements. In Country Villa, Zurich and Country Villa were parties to seven 

consecutive workers' compensation insurance policies. Each of the policies contained a 

standard-form provision that stated: "The terms of this policy may not be changed or waived 

239 Ibid. 

58 
. ' ~ 

except by endorsement issued by us to be part of the policy."240 Zurich and Country Villa then 

entered into a 20-page Incurred Deductible Agreement (IDA) which by its own terms 

"supersedes any Deductible endorsements to the Policy(ies), prior communications, negotiations, 

participating plans or letters of election." The IDA defined policy terms related to Country 

Villa's cost obligations, created a new aggregate deductible and further stated that policy and "all 

endorsements, extensions, renewals and/or rewrites" are subject to the terms of the IDA.241 

Zurich did not file the IDA with the WCIRB nor did it seek approval from the Insurance 

Commissioner. Country Villa sought a judicial declaration that the IDA was void and 

unenforceable under California law as it was not filed pursuant to Insurance Code section 11658 

and Regulation 2268. Zurich argued the ID As were mere financial agreements with the "primary 

purpose" of securing Country Villa's deductible obligations under the Large Deductible 

h d th . l" 242 agreements attac e to e msurance po ic1es. 

The federal court helc,l that the ID As could not be understood as a financial agreement 

separate from the underlying insurance policy but instead as an agreement that changes the 

policy's terms. 243 The court further noted that the policy language and the IDAs establish that 

the ID As are part of the insurance program created by the policies. Specifically, the policies 

state that a later issued endorsement may change or waive the terms of the policy, and the ID As 

state that the "Policy(ies) ... including all endorsements, extensions, renewals and/or rewrites" 

are "subject to" the IDA.244 Accordingly, Zurich's failure to file the IDA constituted a violation 

of the Insurance Code. 

The facts herein are similar to those in Country Villa. CIC initially sold Shasta Linen a 

240 American Zurich Ins. Co. v. Country Villa Service Corp., supra, 80 Cal. Comp. Cases 687, 689. 

241 Id. at 690. 

242 Id. at 700. 

243 Id. at 708. 

244 Ibid. 

59 
guaranteed cost policy approved by the Insurance Conunissioner. Inunediately after entering 

into this insurance contract, CIC required that Shasta Linen execute the 10-page RP A - a 

separate side agreement that modified the payment obligations, dispute resolution mechanism, 

choice oflaw and underlying rates. CIC did not file this separate agreement with the WCIRB or 

seek approval from the Insurance Conunissioner. Instead, CIC argues the RP A merely outlines 

the profit-sharing mechanism and does not affect policy rates. But like the unlawful side 

agreements in Country Villa, the terms of the side agreement supersede those of the policy and as 

such must be, but were not, approved by the Commissioner. 

4. CI C's Policy Terms Required the RPA to be Endorsed 

By the terms ofCIC's own policy with Shasta Linen, CIC was required to endorse the 

RP A to the policy. CIC engagedAUCRA through the reinsurance treaty to provide to CI C's 

policyholders the EquityCeill).p prograni and ceded these policyholders to AUCRA by means of 

the treaty.245 However, CIC stated)n both its policy and in the attached Policy Amendatory 

Endorsement-California, that the insurance policy with Shasta Linen was the sole insurance 

agreement, the terms could not be changed or waived except by endorsement issued by CIC, and 

that no other agreement not set forth in the policy or by endorsement shall affect the insurance 

contract or any rights, duties, or privileges arising from it.246 

CIC participated in setting up an arrangement by reinsurance treaty, filed with the 

Department, to move its EquityComp policyholders to the arrangements handled by AUCRA, 

which circumvented the insurance rates and policy terms without abiding by its own insurance 

contract. By CIC's own policy terms, such an arrangement, despite initially characterizing it as 

reinsurance to the Department and then characterizing it as profit-sharing, should have been 

245 Exh. 232 

246 Exhs 208, 209, and 210 

60 
endorsed to its policies. Based upon the patent filed for the EquityComp program, by Applied 

Underwriter, Inc., the parent company of both CIC and AUCRA, CIC had no intention of 

endorsing the arrangement to its policies, since the sole purpose of its EquityComp program and 

arrangements with AUCRA was to circumvent the necessary regulatory checks-and-balances 

needed in a comprehensive state workers' compensation system to protect insurers, employers, 

and injured workers and assure financial accountability, fairness, and non-discriminatory 

treatment of insureds. 247 

C. EquityComp and the RPA Create a Non-Linear Retrospective Rating Plan 

Any lingering questions regarding the operation of EquityComp and the RP A are 

answered by AU's patent application and witness testimony. 

1. AU's Patent Calls the RPA a Non-Linear Retrospective Rating Plan 

AU' s patent application puts to rest any remaining doubt about the nature of the 

EquityComp program. Although CIC di:;tinguishes the RP A from other loss-sensitive programs, 

AU' s patent application clearly states, on more than one occasion, that EquityComp and the RP A 

create a non-linear, retrospective rating plan.248 For example, AU states the RP A is "a 

reinsurance based approach to providing non-linear retrospective plans to insureds that may not 

have the option of such a plan directly."249 Under the RP A, "the insured can now, in effect, have 

a retrospective rating plan because of the arrangement among the insurance carrier, the 

reinsurance company and the insured even though, in fact, the insured has Guaranteed Cost 

insurance coverage with the insurance carrier."250 AU's own admissions lead to only one 

conclusion; EquityComp and the RP A create a non-linear, retrospective rating plan. 

247 ALI Exh. I 

2

4

' ALI Exh. I, column 4, lines 62-63: 

249 ALI Exh. I, column 6, lines 39-42. 

250 ALI Exh. I, column 7, lines 42-54. 

61 
In addition, AU clearly states its objective in creating the RP A was to circumvent 

governmental regulators who restrict the sale of retrospective rating plans and who scrutinize 

carefully any new rating plans. But, to the extent that any participation plan modifies the terms 

of a guaranteed cost policy, it must be filed with WCIRB and approved by the Insurance 

Commissioner. And since AU defines the RP A as a retrospective rating plan, it follows that it 

must be filed with WCIRB and approved by the Insurance Commissioner. 

CIC acknowledges that loss sensitive plans, including retrospective rating plans, must be 

filed with the WCIRB, approved by the Insurance Commissioner and attached as endorsements 

to a guaranteed cost policy. 251 Failure to do so renders the plans unlawful. The Insurance 

Commissioner finds no reason to ignore AU's own description of the RP A. As the RP A creates 

a non-linear rytrospective rating pian, it must be filed and approved by the Commissioner 

pursuant to 1173 5 before use in this State. 

': 2. EquityComp is Not a Fronting Arrangement 

Contrary to the statements made in the patent application, CIC now argues EquityComp 

is merely a captive fronting agreement and as such, need not be filed and approved by the two 

regulatory agencies. 252 This argument both ignores the patent and mischaracterizes witness 

testimony. 

A "fronting" policy is a policy which does not indemnify or defend the insured but which 

is issued to satisfy financial responsibility laws of various jurisdictions "by guaranteeing to third 

persons who are injured that their claims against" the insured will be paid.253 For example, in the 

area of reinsurance, an admitted insurer may agree to issue a primary policy with the 

251 Tr. 875:2-4. 252 Respondent's Post-hearing Opening Brief, 28:7-30:11. 253 Aerojet-Gen. Corp. v. Transp. Indem. Co. (1997) 17 Cal. 4th 38, 50; Columbia Casualty Co. v. Northwestern Nat. 

Ins. Co. (1991) 231Cal.App.3d457, 471. 

62 
understanding that a non-admitted insurer will reinsure the entire risk. The admitted insurer 

typically receives a fee or a small percentage of the premium for serving as a "front" for the nonadmitted insurer. 

Nothing in the facts presented indicates EquityComp is a captive fronting arrangement. 

While CIC points to the testimony of Dr. Levine and Mr. Avagliano as evidence of a fronting 

arrangement, it is telling that neither Ms. Gardiner, AU's Chief Actuary, Mr. Watson, the 

EquityComp Sales Manager, or Mr. Silver, CI C's General Counsel described EquityComp as a 

fronting arrangement. In making this argument, CIC also mischaracterizes Dr. Levine's 

testimony. First, Dr. Levine indicated that participants to a fronting arrangement are attempting 

to functionally create self-insurance in situations where the employer would not qualify as a 

licensed self-insurer.254 Rather than portraying EquityComp as a fronting arrangement, Dr. 

Levine testified that EquityComp and the RP A substantially alter the terms of the guaranteed 

cost policy such that the CIC policy is meaningless. Dr. Levine further testified that in his 

opinion the RP A constituted a collateral agreement and as such must be filed and approved by 

the Insurance Commissioner. 255 

In addition, the EquityComp program does not merely cede the risk under the guaranteed 

cost policy to a captive reinsurer, as is typical in a fronting arrangement. Instead, the RP A 

modifies the rates charged and premium paid, reallocates risk to the insured, alters the 

cancellation terms, forces binding arbitration of disputes and implements non-renewal penalties. 

These modifications do not desc1ibe a fronting arrangement, but rather a collateral agreement 

that modifies the guaranteed cost insurance policy. 

254 Tr. 457:7-23. Tr. 459:13-14. 255 Tr. 450:15-452:4. 

63 
D. CDl's Financial Audits Do Not Constitute Approval ofUnftled Agreement 

CIC also contends that prior CDI financial examinations reviewed the EquityComp 

program and the RP A, and constitute approval under the Insurance Code.256 CI C's argument can 

be summarized as follows; since the examinations were silent with regard to EquityComp and 

the RP A, the CDI tacitly approved the RP A and EquityComp. This argument again ignores the 

clear mandate oflnsurance Code section 11658 and mischaracterizes CD I's financial and market 

conduct reports. 

Insurance Code section 11658 sets a clear mandate for insurers. All policy, forms and 

endorsements must be filed with the WCIRB and approved by the Insurance Commissioner prior 

to use. The Insurance Code does not permit insurers to sell unfiled and unapproved policies nor 

is the regulatory scheme furthered by implicit approval. Unapproved policies and forms do not 

become lawful over tiine, regardless of the number of examinations conducted. 

In addition, CIC mischaracterizes the CDI's reports. All three financial examinations 

reviewed CIC's assets and liabilities, and evaluated CIC's prospective risks. Financial 

examiners did not review the RPA or confirm compliance with section 11658. The financial 

examinations make only passing references to EquityComp, and evaluation ofEquityComp was 

well beyond the exam's scope. The Market Conduct report's silence is equally unpersuasive. 

The purpose of a market conduct audit is to evaluate an insurance carrier's general operating 

procedures.257 The audit does not require the review and approval of side agreements, such as 

the RPA. Indeed, CIC's legal conclusions are based entirely on conjecture and silence. CIC 

provided no evidence to support its contention that the CDI reviewed the RPA and found that it 

complied with the Insurance Code. CDI examiners did not testify during the evidentiary heming 

256 Respondent's Post-hearing Opening Brief, 30:12-37:18. 257 Cal. Code of Regs., tit. 10, § 2591. 

64 
nor did CIC make an evidentiary showing regarding the examination process. Accordingly, this 

argument is unsupported and without merit. 

E. The RPA is an Illegal Contract and Void as a Matter of Law 

Having determined the RP A to be an unfiled collateral agreement, CIC lastly contends 

the Insurance Commissioner lacks authority to void the RP A's application to Shasta Linen. CIC 

contends the Commissioner may only issue a prospective order to stop the use of an unfiled rate 

after a separate hearing on the merits of the RP A. This argument ignores the fact that the RP A is 

void as a matter oflaw, as indicated by the legislature's comprehensive regulatory scheme and 

relevant case law. 

1. Statutory Scheme Supports RPA is Void as a Matter of Law 

As detailed above, the RP A:. modifies the rates and rating plan sold to Shasta Linen by 

CIC. Nothing in section 11737, subdjvision (f) limits the Insurance Commissioner's authority to 

remedy such violation where a poljc'yholder is aggrieved or to make conclusions regarding items 

that are as a matter oflaw. Insurance Code section 11658 states that a workers' compensation 

insurance policy or endorsement "shall not be issued by an insurer" unless it is filed with the 

WCIRB and in one way or another approved by the Insurance Commissioner, and subsection (b) 

states that issuing an unapproved policy or endorsement "is unlawful." Section 11658 is clear: 

the unfiled and unapproved RP A is illegal under section 11658 and therefore void as a matter of 

law.2ss 

Subdivision (a) of Insurance Code section 11735 requires all rates and supplementary 

rating information to be filed in this state before use and 30 days transpire before their effective 

date. The modifications of the Shasta Linen's rates or rating plan as a result of the RP A's re258 Kremer v. Earl (1891) 91Cal.112 (stating that "[i]t is not necessary that the act itself ... declare in express 

words" that a contract in violation of the act is "void"); see also American Zurich Ins. Co. v. Country Villa Serv. 

Corp., supra, 80 Cal. Comp. Cases 687, 709. 

65 
rating process also support the conclusion that the RP A is void as a matter oflaw.259 

In addition, if upon a review of the legislative scheme, a contract appears to contravene 

the design and policy of the laws, a court of equity will not enforce it."260 By its own admission, 

AU designed EquityComp and the RP A to circumvent workers' compensation policy. It would 

defeat the statutory purpose to allow CIC to bypass the governmental review process by simply 

waiting until after the insurance policy has gone into effect to introduce additional or modified 

terms to its insurance program. Workers' compensation insurance is mandatory and California 

employers expect the statute's protection. CIC knew of the review and pre-approval process and 

deliberately ignored that process with regard to the RP A. It cannot now argue that the Insurance 

Commissioner should permit the use of an unapproved rate. 

As noted above, the legal requirement for modifying any workers' compensation 

insurance obligation is to endorse the ligqJement to the insurance policy.261 This is done by filing 

the agreement with the WCIRB, which in turn will file it with the Insurance Co1mnissioner, and 

endorse it to the insurance policy after the requisite time or approval.262 Unfiled side agreements 

are prohibited and shall not be used without complying with these requirements; otherwise, they 

are not permitted in this state and are void as a matter oflaw.263 

2. Case Law Supports RP A is Void as a Matter of Law 

CIC' s argument is also devoid of case law support and ignores case law directly on point. 

In Country Villa, discussed ante, the federal court using California law, determined that 

Zurich's failure to file the IDA with the WCIRB and the Insurance Commissioner violated 

Insurance Code section 11658. The court held the proper remedy for such a violation was to find 

259 Ibid. 26° Kremer v. Earl, supra, 91 Cal. 112. 261 Title 10 CCR § 2268. 262 See Ins. Code§ 11658. 263 Ins. Code§ 11658; American Zurich Ins. Co. v. Country Villa Serv. Corp, supra, 80 Cal. Comp. Cases 687, 695. 

66 
the ID As void and unenforceable. 264 In so holding, the district court stated that unfiled and 

unapproved side agreements are illegal and void as a matter oflaw. As such, the 

Commissioner's determination that the RP A is void as a matter oflaw, is amply supported by 

analogous case law. 

3. No Compelling Reason Exists to Enforce RP A 

In compelling cases, California courts will enforce illegal contracts "in order to avoid 

unjust enrichment and a disproportionately harsh penalty upon the plaintiff."265. The extent of 

enforceability and the remedy granted depend upon a variety of factors, including the policy of 

the transgressed law, the type of illegality, and the particular facts. Application of these factors to 

the RP A supports the conclusion that the RP A should not be enforced. 

First, the. Insurance Code requires full disclosure, review, and approval for workers' 

compensation policies in order, to safeguard California consumers from discriminatory, 

unsupported, or exploitative rates aJ:\d to prevent monopolies. Shasta Linen is exactly the type of 

California employer the statutory scheme is meant to protect. It would defeat the statute's 

purpose to pennit CIC and its affiliated companies to sell EquityComp and the RP A without 

regulatory approval and oversight. Indeed, it would be directly contrary to sections 11658 and 

11735 to allow an insurance company to bypass the regulatory review process by waiting until 

after the policy has gone into effect to introduce additional or modified terms to its insurance 

pro gram. 266 

Second, there is no risk of unjust enrichment by Shasta Linen. An insurer's issuance of an 

illegal contract, even if itresults in enrichment to the insured, does not result in unjust 

264 American Zurich Ins. Co. v. Country Villa Serv. Corp., supra, 80 Cal. Comp. Cases 687, 695. 

265 Malekv. Blue Cross of Cal. (2004) 121 Cal.App.4th 44, 70; Asdourian v. Ara} (1985) 38 Cal.3d 276, 291. 

266 American Zurich Ins. Co. v. Country Villa Serv. Corp, supra, 80 Cal. Comp. Cases 687, 710. 

67 
enrichment, since the insured did nothing wrong. 

267 And if the RP A is void, Shasta Linen 

remains liable to CIC under the guaranteed cost policies for the agreed-upon premium and fees 

based upon the applicable filed rates. 

Third, denying enforcement of the void RP A is not unduly harsh. CIC knew California's 

filing requirements for policies and endorsement and chose not to seek the required regulatory 

approval. Permitting CIC to enforce the illegal RP A would encourage illegal activity by it and 

other insurers, run contrary to the workers' compensation insurance system, and would be an 

abdication of the Commissioner's regulatory oversight. 

Finally, CIC is not blameless since it created a product to circumvent California's 

statutory and regulatory requirement; a product that ultimately enriched CIC at the expense of 

California employers. It would not be equitable to allow the party who created the illegality to 

enforce the illegal contact. 268 

Shasta Linen ~gues it should be liable only for the claims paid during the duration of the 

three-year pro gram. Shasta Linen provides no support for this contention, nor does Shasta Linen 

explain why the Insurance Commissioner should bar enforcement of the guaranteed cost policy. 

Shasta Linen is not legally self-insured, it has a guaranteed cost policy with CIC, and it should 

pay the appropriate insurance premium based upon the filed rates applicable to Shasta Linen. 

Any additional remedies to which Shasta Linen is entitled based upon CIC' s conduct are outside 

the scope of this proceeding. 

267 Id. at 709. 

268 American Zurich Ins. Co. v. Country Villa Serv. Corp, supra, Id. At 710. 

68 
VIII. Conclusion 

Pursuant to California Code of Regulations, title 10, section 2509.61, subdivision (a), a 

"party has the burden of proof as to each fact the existence or nonexistence of which is essential 

to the claim for relief or defense that he or she is asserting." 

Based on the foregoing findings of facts and conclusions oflaw, the Insurance 

Commissioner finds by a preponderance of the evidence that Shasta Linen met its burden of 

proof in demonstrating that it is aggrieved by CIC's misapplication of its filed rates as a result of 

an unfiled and unapproved collateral agreement that modified the terms and conditions of the 

guaranteed cost policy, in violation of Insurance Code sections 1173 7 and 11658 and California 

Code of Regulations, title 10, section 2268. 

Further, CIC's EquityComp program's Reinsurance Participation Agreement constitutes 

a collateral agreement modifying the rates and obligations of the insured and the insurer, and is 

void as a matter of law ~ince it was required to be filed with the Workers' Compensation 

Insurance Rating Bureau and filed with the Department of Insurance before its use in the State of 

California, pursuant to Insurance Code section 11658 and California Code of Regulations, title 

10, sections 2268 and 2218. 

ORDER 

1. Shasta Linen is responsible only for the premium and costs associated with the 

three guaranteed cost policies issued on January 1, 2010, January 1, 2011 and January 1, 2012 

and the rates applicable to those policies. To the extent that Shasta Linen has remitted to CIC 

funds in excess of the amounts under the guaranteed cost policy, CIC shall refund that amount, 

including all amounts held in Shasta Linen's captive cell, within 30 days of the date of this 

decision; 

69 
2. The entirety of this Decision and Order is designated precedential pursuant to 

Government Code section 11425 .60, subdivision (b ), and; 

3. Pursuant to Government Code section 11519, this Decision shall be effective 

immediately. 

IT IS SO ORDERED. 

DATED: June 20, 2016 

70 
EXAMINATION REPORT OF

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC.

CEDAR RAPIDS, IOWA

AS OF DECEMBER 31, 2013

INDEX NO. UNASSIGNED

NYSCEF DOC. NO. 8 RECEIVED NYSCEF: 09/09/2016
Omaha, Nebraska

March 23, 2014

Honorable Dave Jones

Insurance Commissioner

California Department of Insurance

300 Capitol Mall Suite 1700

Sacramento, California 95814

Honorable Nick Gerhart

Commissioner of Insurance

Iowa Insurance Division

601 Locust St., 4th Floor

Des Moines, Iowa 50309

Commissioners:

In accordance with your respective authorizations and pursuant to Iowa 

statutory provisions, an Association Examination has been made of the records, 

business affairs and financial condition of 

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC.

CEDAR RAPIDS, IOWA

AS OF DECEMBER 31, 2013

at the Company’s administrative office, 10805 Old Mill Road, Omaha, NE.

INTRODUCTION

Applied Underwriters Captive Risk Assurance Company, Inc., hereinafter 

referred to as the “Company”, does not have a prior examination. The Company 

commenced business on October 21, 2011. 

SCOPE OF EXAMINATION

This is the regular comprehensive financial examination of the Company 

covering the intervening period from October 21, 2011 to the close of business on 

December 31, 2013, including any material transactions and/or events occurring and 

noted subsequent to the examination period.

The examination was conducted in accordance with the NAIC Financial Condition 

Examiners Handbook. The Handbook requires that we plan and perform the examination 

to evaluate the financial condition and identify prospective risks of the Company by 

obtaining information about the Company, including corporate governance, identifying 

and assessing inherent risks within the organization, and evaluating system controls 

and procedures used to mitigate those risks. An examination also includes assessing 

the principles used and significant estimates made by management, as well as 

evaluating the overall financial statement presentation, management’s compliance 

with Statutory Accounting Principles and annual statement instructions, when 

applicable to domestic state regulations.

1
All accounts and activities of the organization were considered in accordance 

with the risk-focused examination process. The Company’s assets were verified and 

evaluated and the liabilities determined to reflect herein a statement of its 

financial condition as of December 31, 2013.

HISTORY

Applied Underwriters Captive Risk Assurance Company, Inc. was incorporated in 

Iowa on August 29, 2011 and is authorized to write workers' compensation. The Company 

merged with Applied Underwriters Captive Risk Assurance Company, Inc., a British 

Virgin Islands company, which ceased to exist after the merger. The Company is wholly 

owned by North American Casualty Co. an indirect subsidiary of Berkshire Hathaway Inc. 

The Company assumes workers' compensation premiums and losses through a reinsurance 

agreement with affiliate California Insurance Company. The Company is licensed in 

California and Iowa.

CAPITAL STOCK

The Amended Articles of Incorporation provide that the authorized capital of 

the Company is $10,000,000 consisting of 10,000,000 shares of common stock at $1 par 

value each. At December 31, 2013, the Company had 5,700,000 shares of common stock 

issued and outstanding with a total par value of $5,700,000 and $17,650,000 of gross 

paid in and contributed surplus. All shares were owned by North American Casualty 

Co.

The Company did not pay any stock dividends during the examination period.

INSURANCE HOLDING COMPANY SYSTEM

The Company is a member of an insurance holding company system as defined by 

Chapter 521A, Code of Iowa. A simplified organizational chart as of December 31, 

2013, reflecting the ultimate parent and holding company system, is shown below. 

2
 

MANAGEMENT AND CONTROL

STOCKHOLDERS

The Bylaws and Regulations of the Company state that the annual meeting of the 

shareholders for the election of directors, for the consideration of reports to be 

laid before such meeting and for the transaction of such other business as may 

properly come before such meeting, shall be held each year at a location to be 

determined on the first Monday in September. 

Meetings of the shareholders may be called only by the Chairman of the Board, 

the President, or in the case of the President’s absence, death, or disability, the 

Vice President authorized to exercise the authority of the President; the Secretary; 

the directors by action at a meeting, or a majority of the directors acting without 

a meeting; or the holders of at least 50% of all shares outstanding and entitled to 

vote thereat.

All meetings of shareholders shall be held at the principal office of the 

corporation, unless otherwise provided by action of the directors. Meetings of 

shareholders may be held at any place within or without the State of Iowa.

At any meeting of shareholders, the holders of a majority in amount of the 

voting shares of the corporation then outstanding and entitled to vote thereat, 

present in person or by proxy, shall constitute a quorum for such meeting.

Berkshire 

Hathaway Inc.

(81% ownership)

AU Holding 

Company,Inc.

Applied 

Underwriters,

Inc.

North American 

Casualty Co.

California 

Insurance 

Company

Continental 

Indemnity 

Company

Pennsylvania 

Insurance 

Company

Illinois 

Insurance 

Company

Applied 

Underwriters 

Captive Risk 

Assurance 

Company, Inc.

3
BOARD OF DIRECTORS

In accordance with the Articles of Incorporation, the business and affairs of 

the Company shall be managed by a Board of Directors consisting of not less than 

five nor more than 21 as may be fixed by the shareholders at each annual meeting or, 

if no number is so fixed, of five directors, and each of whom shall be elected 

annually by the shareholders at each annual meeting to serve for a term of one year 

or until a successor has been elected and qualified.

The annual meeting of the Board of Directors shall be held immediately 

following the annual shareholders meeting. Special meetings of the Board of 

Directors may be held as directed by the Chairman or a majority of the Board of 

Directors.

Qualified directors serving on the Board as of December 31, 2013 were:

Name Principal Occupation Term Expires

Sidney R. Ferenc Chief Executive Officer 2014

Highland Beach, Florida Applied Underwriters, Inc. Affiliates

Steven M. Menzies Chief Operating Officer 2014

Omaha, Nebraska Applied Underwriters, Inc. 

Jeffrey A. Silver Executive Vice President 2014

Omaha, Nebraska Applied Underwriters, Inc.

Jon M. McCright Attorney 2014

Cedar Rapids, Iowa Lynch Dallas P.C.

Marc M. Tract Attorney 2014

Nassau, New York Katten Muchin Rosenmann LLP

COMMITTEES

The Board of Directors may designate from their own number an executive 

committee, an investment committee and one or more other committees. Committees 

designated were as follows:

Audit Committee

Jeffrey A. Silver

Marc M. Tract

Jon M. McCright

Investment Committee

Sidney R. Ferenc

Steven M. Menzies

Jeffrey A. Silver

The full Board of Directors reviews and approves investments at least quarterly.

OFFICERS

The Bylaws and Regulations prescribe that the officers of the corporation to 

be elected by the directors shall be a President, one or more Vice Presidents, a 

Secretary, a Treasurer, and may, but shall not be required to include, one or more 

4
Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers, none of 

whom shall be required to be shareholders or directors. Any two or more offices may 

be held by the same person, but no officer shall execute, acknowledge, or verify any 

instrument in more than one capacity if such instrument is required by law, the 

Articles, the Bylaws and Regulations or the Bylaws to be executed, acknowledged or 

verified by two or more officers. Each officer shall be elected annually by the 

Board of Directors at each annual meeting to serve a term of office of one year or 

until a successor has been elected and qualified.

Officers elected and serving as of December 31, 2013 were as follows:

Name Office

Sidney R. Ferenc Chairman and Chief Executive 

Officer

Steven M. Menzies President, Treasurer and Chief 

Operating Officer

Robert L. Stafford Vice President of Finance

Ellen M. Gardiner Vice President and Chief Actuary

Jeffrey A. Silver Secretary

The Company does not have any salaried officers or employees. Services and 

costs are shared under an inter-company service agreement.

CONFLICT OF INTEREST

The Company has a Conflict of Interest policy that states, “If an officer or 

director has an interest in or contemplates entering into a transaction that 

presents an actual or potential conflict of interest, the same must be disclosed in 

writing to the Company’s Board of Directors and, if necessary, to the stockholder of 

the Company.”

The annual Conflict of Interest questionnaires were reviewed, and it was noted 

that each of the officers and directors had completed and signed a questionnaire. A 

copy of the Conflict of Interest policy was attached to each of the signed 

questionnaires.

CORPORATE RECORDS

The minutes of the stockholders and Board of Directors meetings were read and 

noted. The minutes appeared to be complete and were properly attested.

INTER-COMPANY SERVICE AGREEMENT

The indirect parent, Applied Underwriters, Inc., has agreed to provide certain 

management, claims processing, premium processing, and data processing services for 

the Company at actual cost. The Company entered into a Cost Sharing Arrangement 

with this affiliate for rent, salaries, and general administrative expense, which 

has been approved by the Iowa Division of Insurance. All payments due for 2012 and 

2013 were waived by the affiliate. 

FIDELITY BONDS AND OTHER INSURANCE

The Company’s indirect parent, Applied Underwriters, Inc. maintains fidelity 

bond coverage up to $2,000,000, which adequately covers the suggested minimum amount 

5
of coverage for the Company as recommended by the NAIC. The Company is identified 

as a named insured on the fidelity bond.

The Company also maintains Property, Crime, General Liability, and Automobile 

coverages, along with an overall umbrella policy with a limit of $10,000,000.

EMPLOYEE WELFARE

The Company does not have any salaried employees and is provided services from 

an inter-company service agreement.

REINSURANCE

The Company’s current reinsurance program consists of the following:

The Company only assumes from the intercompany agreement with California 

Insurance Company. The premium assumed is for profit sharing policies written by 

California Insurance Company and Continental Indemnity Company. The Company cedes 

Profit Sharing plans ceded premium and losses paid to client cells per contract 

rates. This is accounted for pursuant to a prescribed practice approved by the Iowa 

Division of Insurance. The Company also maintains an excess loss agreement with 

affiliate Commercial General Indemnity, Inc. This agreement covers the policies 

with losses that exceed the maximum losses covered in the profit sharing contract 

rates. 

STATUTORY DEPOSIT

As of December 31, 2013, the book/adjusted carrying value of securities held 

in a custodial account and vested in the Insurance Commissioner of California for 

all other special deposits totaled $36,369,404. 

TERRITORY AND PLAN OF OPERATION

The Company is licensed in Iowa and California. The Company does not write any 

direct business.

GROWTH OF COMPANY

The following significant data, taken from the Company’s filed annual 

statements for the years indicated reflects the growth of the Company:

2013 2012 2011

Premiums Earned 0 0 0

Net Underwriting 

Gain/(Loss) (502,052) 1,361,689 (8,862,983)

Net Income (1,739,493) (424,602) 484,446

Total Assets 372,919,928 347,098,936 186,927,352

Total Liabilities 347,422,269 322,084,096 172,331,746

Surplus As Regards 

Policyholders 25,497,659 25,014,840 14,595,606

6
ACCOUNTS AND RECORDS

The Company maintains its principal operational offices in Omaha, Nebraska, 

where this examination was conducted.

McGladrey & Pullen, an independent CPA audited the Company’s statutory basis 

financial statements annually for the years 2011, 2012 and 2013.

The Company’s accounting records were maintained on a computerized system. 

The Company’s balance sheet accounts were verified with the line items of the annual 

statement submitted to the Division of Insurance.

An evaluation of the information technology and computer systems of the 

Company was completed during the examination. 

During the course of the examination, no material statutory compliance issues 

were noted, nor aggregate surplus differences identified, from the amount reflected 

in the financial statements, as presented in the annual statement at December 31, 

2013.

7
F I N A N C I A L S T A T E M E N T S

A N D C O M M E N T S T H E R E O N

NOTE: Except as otherwise stated, the financial 

statements immediately following reflect only 

the transactions for the period ending December 

31, 2013 and the assets and liabilities as of 

this date. Schedules may not add or tie 

precisely due to rounding.

8
STATEMENT OF ASSETS AND LIABILITIES

ASSETS

Not

Ledger Admitted Admitted

Bonds $ 39,266,917 $ $ 39,266,917

Cash & Short term investments 224,092,009 224,092,009

Investment income due and accrued 74,435 74,435

Premiums and considerations:

 Deferred premium 116,709,679 9,607,145 107,102,534

Reinsurance

 Amounts recoverable (14,468,033) (14,468,033)

Net deferred tax asset 13,208,916 4,845,209 8,363,707

Receivables from parent and affiliate 8,488,358 8,488,358

Aggregate write-ins 

 Prepaid Expenses 80 80 0

 Total assets $ 387,372,361 $ 14,452,434 $ 372,919,927

9
Liabilities, Surplus and Other Funds

Losses $ 6,197,795

Reinsurance payable on paid losses and loss adjustment expenses (27,425,703)

Loss adjustment expenses $ 68,388

Other expenses 43,868

Taxes, licenses and fees 72,000

Current federal and foreign income taxes 1,420,926

Ceded reinsurance premium payable 128,680,998

Funds held by company under reinsurance treaties 237,841,918

Payable to parent and affiliates 522,079

 Total liabilities $ 347,422,269

Common capital stock $ 5,700,000

Gross paid in and contributed surplus 17,650,000

Unassigned funds (surplus) 2,147,659

Surplus as regards policyholders $ 25,497,659

 Total liabilities, surplus and other funds $ 372,919,928

10
STATEMENT OF INCOME

PERIOD ENDING DECEMBER 31, 2013

Underwriting income

Premium earned

Deductions

Losses incurred $ 119,059

Loss adjustment expenses incurred 158,057

Other underwriting expenses incurred 224,936

 Total underwriting deductions 502,052

 Net underwriting gain (loss) $ (502,052)

Investment Income

Net investment income earned $ 315,468

 Net investment gain (loss) 315,468

Other Income

Administrative fee $ 2,910,386

 Total other income 2,910,386

 Net income before Federal income tax $ 2,723,802

Federal & foreign income taxes 4,463,295

 Net income $ (1,739,493)

Surplus as regards policyholders, December 31, 2012 $ 25,014,840

Gains and (Losses) in Surplus

Net Income $ (1,739,493)

Change in net deferred income tax 3,547,308

Change in non-admitted assets (1,324,997)

Change in surplus as regards policyholders for the year 482,818

Surplus as regards policyholders, December 31, 2013

$ 25,014,840

Capital and Surplus Account

11
CASH FLOW

Premium collected net of reinsurance $ 13,784,418

Net investment income 260,727

Miscellaneous income 2,910,386

Total $ 16,955,531

Benefit and loss related payments $ 13,768,775

Net transfers to separate, segregated & protected cell accounts

Commissions, expenses paid and aggregate write-in for deductions 216,108

Dividends paid to policyholders

Federal and foreign income taxes paid (25,649,155)

Total $ (11,664,272)

Net cash from operations $ 28,619,803

Cost of investments aquired (long-term only):

 Bonds $ 36,525,000

 Total investment acquired $ 36,525,000

Net increase (decrease) in contract loans and premium notes

Net cash from investments $ (36,525,000)

Cash provided (applied):

 Other cash provided (applied) 32,249,454

Net cash from financing and miscellaneous sources $ 32,249,454

Net change in cash, cash equivalent & short term investments $ 24,344,257

Cash, cash equivalent & short term investments:

 Beginning of year 199,747,751

 End of year $ 224,092,008

12
CONCLUSION

The insurance examination practices and procedures as promulgated by the NAIC

have been followed in ascertaining the financial condition of Applied Underwriters 

Captive Risk Assurance Company, Inc. as of December 31, 2013, consistent with the 

insurance laws of the State of Iowa.

In addition to the undersigned, the following participated in the examination:

Ryan Havick, CFE, Senior Manager, Eide Bailly LLP; Emilie Brady, CFE, AIE, Manager, 

Eide Bailly LLP; James Burch, Associate, Eide Bailly LLP.

Respectfully submitted,

 _/s/ Emilie Brady_______________

Emilie Brady, CFE

Examiner in Charge

Eide Bailly LLP on behalf of the

Iowa Insurance Division

13
FILED: NEW YORK COUNTY CLERK 09/30/2016 05:29 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 54 RECEIVED NYSCEF: 09/30/2016

1. 

CONTINENTAL • INDEMNITY COMPANY 

NAICNo.28258 

10825 Old Mill Road, Omaha, NE 68154 

877-2344420 

WORKERS' COMPENSATION AND EMPLOYER'S LIABILITY INSURANCE POLICY 

INFORMATION PAGE 

Policy No. 55-816280-01-02 

Insured Breakaway Courier Corporation Producer Ellf orae Coverage Group 

and DBA Breakaway Courier Systems and 425 New York Ave Ste 203 

Mailing PO Box 780 Mailing Huntington, NY 11743-3436 

Address New York, NY 10013-0676 Address 

Agent No. 

Entity: iiiiill Corporation Billing: DIRECT BILL 

FEIN: 

State No. Renewal of Policy No. 55-816280-01-01 

See Additional Named Insured Endorsement and Locations Endorsement if attached. 

2 The policy period is from 07 /01/10 to 07 /01/1112:01 A.M. Standard TIIDe at the insured's mailing address. 

3. A Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here: 

NY 

R Employers Liability Insurance: Part Two of the policy applies to work in each state listed in item 3.A. The limits of our 

liability under Part Two are: 

Bodily Injury by Accident $ 1, O O O, o O O each accident 

Bodily lnjwy by Disease $ 1, 0 0 0 , 0 0 0 policy limit 

Bodily Injury by Disease $1, o o o , o o o each employee 

C. Other States Insurance: Part Three of the policy applies to all states except the states listed in item 3 .A and the states of 

North Dakota, Ohio, Washington, and Wyoming. 

D. See attached list for endorsements and schedules. 

4. The premium for this policy will be determined by our Manuals of Rules, Classifications, Rates and Rating Plans. 

All information listed on the Extension of Information page is subject to verification and change by audit. 

See Extension of Information Page for premium rating schedule. 

MinimumPremimn $ 8 7 5 

Total EstimatedAnnual Premium 

Estimated Taxes and Assessments 

Issuing Office: OMAEA, NE 

CNIC-WC-IP-7 /08 

$ 

$ 

100,136 

17,622 

Countersigned by: 

WC-00-00-0IA 
• Continental Indemnity Compae 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

LIST OF ENDORSEMENTS AND SCHEDULES 

WC990401 

Form Number 

WCOOOOOlA_CNJ:C 

WC99040l_CNJ:C 

WC000174 

A J:/L_CNJ:C 

WC310308 

WC000419 

WC310319E 

WC000422A 

WC000421C 

WC000406 

WCOOOOOOA_CNJ:C 

PNOOOOOl 

Endorsements on Policy: 55-816280-01-02 

Endorsement Number 

1 

2 

3 

4 

5 

6 

7 

100 

Name 

J:nformation Page 

List of Endorsements And Schedules 

Extension of J:nformation Page 

Additional Named J:nsured and/or 

Locations 

New York Limit Of Liability 

Endorsement 

Premium Due Endorsement 

New York Construction 

Classification Premium Adjustment 

Program 

Terrorism Risk J:nsurance Program 

Reauthorization Act Disclosure 

Catastrophe 

Premium Discount 

Workers Compensation and Employers 

Liability - Quick Reference 

Short Rate Cancelation Policyholder 

Notice 
• WC174 

(Ed. 4-84) 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

EXTENSION OF INFORMATION PAGE 

Policy Number 55-816280-01-02 

4. Premium 

Classifications 

Trucking: Mail, Parcel Or Package 

Delivery- All Employees & Drivers 

Bicycle Delivery of Envelopes, 

Parcels or Packages 

Salespersons, Collectors Or 

Messengers-outside 

Clerical Office Employees NOC. 

Experience Modification 

Premium Discount 

Terrorism 

Catastrophe 

Estimated Annual Premium - New York 

State Assessment 

New York Workers Compensation 

Security Fund 

NY 

Code 

No. 

7231 

7242 

8742 

8810 

0063 

9740 

9741 

0932 

9749 

Premium Basis 

Total Estimated 

Annual Remuneration 

259,786 

965,106 

582,893 

698,451 

Rate Per 

$100 of 

Remuneration 

8.1000 

9.7300 

0.3700 

0.2400 

0.9300 

10.6000 

0.0450 

0.0100 

14.2000 

1.5000 

Total Estimated Annual Premium $ 

Estimated Annual 

Premium 

21,043.00 

93,905.00 

2,157.00 

1,676.00 

110,466.00 

98,757.00 

1,128.00 

251.00 

100,136.00 

15,881.99 

1,740.27 

117,758.26 
Policy Number: 55-816280-0l-02 

CONTINENTAL INDEMNITY COMPANY 

Addltlonal Named Insured and/or Locations 

Item (1) Insured of the Information page Is amended to Include the following: 

Breakaway Courier Corporation 

DBA Breakaway Courier Systems 

335 W 35th St 

New York NY 10001-1726 

From1 07/01/10 TOI 07/01/11 

FEXN1-

ENTITY: Subchapter Corp. 

This endorsement is part of your policy and takes effect on the effective date of your policy, unless another effective date is 

shown below. 

Endorsement Effective PoHcyNo. ss-816280-01-02 

Insured Breakaway Courier Byetems 

lnsuranceCompany continental Indemnity Company 

All other terms and conditions of this policy remain unchanged. 

A Ill 5/90 

Countersigned by 

Endorsement No. 

PreniJm 
• • 

WC310308 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

NEW YORK LIMIT OF LIABILITY ENDORSEMENT 

This endorsement applies only to the insurance provided by Part Two (Employers Liability Insurance) because 

New York Is shown In Item 3.A. of the Information Page .. 

We may not limit our liability to pay damages for which we become legally liable to pay because of bodily injury 

to your employees if the bodily injury arises out of and In the course of employment that is subject to and is 

compensable under the Workers' Compensation Law of New York. 

This endorsement changes the policy to which It Is attached and Is effective on the date Issued unless otherwise stated. 

Endorsement Effective 07 /0l/10 

Insured Breakaway Courier Systems 

Insurance Company 

Continental 7ndemnity Company 

(Ed. 1-00) 

Polley No. 55-816280-01-02 Endorsement No. l 

Prerrlum 0 • 00 

Counterslgnedby ------------------
• • 

WC 00 0419 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

PREMIUM DUE DATE ENDORSEMENT 

This endorsement is used to amend: 

Section D. of Part Five of the policy is replaced by this provision 

D. Premium is amended to read: 

PART FIVE 

PREMIUM 

You will pay all premium when due. You will pay the premium even if part or all of a workers compensation law is 

not valid. The due date for audit and retrospective premiums Is the date of the billing. 

This endorsement changes the policy to which It Is attached and Is effective on the date Issued unless otherwise stated. 

Endorsement Effective 07 /01/10 

Insured Breakaway Courier Systems 

Insurance Company 

Continental rndemnity Company 

(Ed. 1-01) 

Polley No. 55-816280-01-02 Endorsement No. 2 

Premium o.oo 

Countersigned by------------
• • 

WC310319E 

WORKERS COMPENSATION AND EMPLOYERS LIABILl1Y INSURANCE POLICY 

NEW YORK CONSTRUCTION CLASSIFICATION PREMIUM ADJUSTMENT PROGRAM 

EXPLANATORY ENDORSEMENT 

The New York Construction Classification Premium Adjustment Program (NYCCPAP) allows premium credits for some employers In the construction Industry. These credits exist to recognize the difference In wage rates between employers within the same construction Industries In 

New York. 

The declarations section of this policy will show a credit of 0.00% If you are not eligible for this credit, or If you are eligible for this credit and 

have not yet applied for a credit Credits are earned for average wages In excess of $15.50 per hour for each eligible class. If your policy 

shows one of the following classlflcatlon codes, and you are experience rated, you are eligible to apply for an NYCCPAP credit 

0042 5057 5193 5429 5491 5606 6003 6229 6325 9526 

3365 5059 5213 5443 5506 5610 6005 6233 6400 9527 

3724 5069 5221 5445 5507 5645 6017 6235 6701 9534 

3726 5102 5222 5462 5508 5648 6018 6251 7536 9539 

3737 5160 5223 5473 5536 5851 6045 6252 7538 9545 

5000 5183 5348 5474 5536 5701 6204 6260 7601 9549 

5022 5184 5402 5479 5545 5703 6216 6306 7855 9553 

5037 5188 5403 5480 5547 5709 6217 6319 8227 

5040 5190 5428 

The basis for determining the credit Is the limited payroll of each employee forthe number of hours worked {excluding overtime premium pay) 

for each construction classification {other than employees engaged In the construction of one- or two-family residential housing) for the third 

quarter, as reported to taxing authorities, for the year preceding the policy date. Total payroll ls to continue to be reported for employees 

engaged In the construction of one- or two-family residential housing. For example: 

POUCYEFfECTIVEDATE THIRD QUARTER PAYROLL 

4/1/06 thru 3131/07 2005 

4/1/07 thru 3131/08 2006 

4/1/08 thru 3131/09 2007 

4/1/09thru3131/10 2008 

4/1/10thru3131/11 2009 

4/1/11thru3/31/12 2010 

4/1/12 thru 3131/13 2011 

If you have any eligible classes on your policy, you should have been notified by your Insurance carrier or the New York Compensation 

Insurance Rating Board approximately nine months prior to the Inception date of this policy. If you believe you may be eligible for a credit 

and have not received an application, you should Immediately contact your agent. Insurance carrier, or the New York Compensation 

Insurance Rating Board. 

Credits are calculated by the New York Compensation Insurance Rating Board. You must submit a completed appHcation to: Attention: Field 

Services Department, New York Compensation Insurance Rating Board, 200 East Forty-5econd Street, New York, New York 10017. 

Applications must be received by the Rating Board six (6) months prior to the po Dey renewal effective date. The Rating Board will accept and 

process an application If It Is received between the policy effective date and expiration date, however, It must be accompanied by a letter 

stating the reason for the delay. Under no circumstances will an application be accepted for any policy If It Is received after the expiration date 

of the policy. For short-term policies the application must be received prior to the expiration date of the short-term policy. If It Is received after 

the policy expiration, no credit will be calculated. 

The New York Workers Compensation and Employers Liability Insurance Manual, and not this endorsement, govern the Implementation and use 

of the NYCCPAP. 

This endorsement changes the policy to which It is attached and Is effective on the date Issued unlass otherwise stated. 

Endorsement Effective 07 /0l/lO 

Insured Breakaway Courier Systems 

Insurance Company Continental Indemnity Company 

(Ed.10-08) 

Polley No. 55-816280-01-02 Endorsement No. 3 

Premium 0. 00 

Countersigned by------------
• • 

WC000422A 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT DISCLOSURE ENDORSEMENT 

This endorsement addresses the requirements of the Terrorism Risk Insurance Act of 2002 as amended and extended by 

the Terrorism Risk Insurance Program Reauthorization Act of 2007. It serves to notify you of certain limitations under the 

Act, and that your Insurance carrier is charging premium for losses that may occur in the event of an Act of Terrorism. 

Your policy provides coverage for workers compensation losses caused by Acts of Terrorism, including workers compensation benefit obligations dictated by state law. Coverage for such losses is still subject to all terms, definitions, exclusions, 

and conditions in your policy, and any applicable federal and/or state laws, rules, or regulations. 

Definitions 

The definitions provided in this endorsement are based on and have the same meaning as the definitions In the Act. if 

words or phrases not defined in this endorsement are defined in the Act, the definitions in the Act will apply. 

"Acf' means the Terrorism Risk Insurance Act of 2002, which took effect on November 26, 2002, and any amendments 

thereto resulting from the Terrorism Risk Insurance Program Reauthorization Act of 2007. 

•Act of Terrorism" means any act that Is certified by the Secretary of the Treasury, in concurrence with the Secretary of 

State, and the Attorney General of the United States as meeting all of the following requirements: 

a. The act is an act of terrorism. 

b. The act is violent or dangerous to human life, property or infrastructure. 

c. The act resulted in damage within the United States, or outside of the United States in the case of the 

premises of United States missions or certain air carriers or vessels. 

d. The act has been committed by an individual or individuals as part of an effort to coerce the civilian population 

of the United States or to influence the policy or affect the conduct of the United States Government by 

coercion. 

"Insured Loss" means any loss resulting from an act of terrorism (and, except for Pennsylvania, including an act of war, in 

the case of workers compensation) that is covered by primary or excess property and casualty insurance issued by an 

insurer if the loss occurs in the United States or at the premises of United States missions or to certain air carriers or 

vessels. 

"Insurer Deductible" means for the period beginning on January 1, 2008, and ending on December 31, 2014, an amount 

equal to 20% of our direct earned premiums, over the calendar year immediately preceding the applicable Program Year. 

"Program Year" refers to each calendar year between January 1, 2008 and December 31, 2014, as applicable. 

Limitation of Liability 

The Act limits our liability to you under this policy. If aggregate Insured Losses exceed $100,000,000,000 in a Program 

Year and if we have met our Insurer Deductible, we are notliable for the payment of any portion of the amount of Insured 

Losses that exceeds $100,000,000,000; and for aggregate Insured Losses up to $100,000,000,000, we will pay only a pro 

rata share of such Insured Losses as determined by the Secretary of the Treasury. 

(Ed.09-08) Page 1 of2 
• • 

WC000422A 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

Policyholder Disclosure Notice 

1. Insured Losses would be partially reimbursed by the United States Government If the aggregate industry 

Insured Losses exceeds $100,000,000 in a Program Year, the United Slates Government would pay 85% of 

our Insured Losses that exceed our Insurer Deductible. 

2. Notwithstanding item 1 above, the United States Government will not make any payment under the Act for 

any portion of Insured Losses that exceeds $100,000,000,000. 

3. The premium charge for the coverage your policy provides for Insured Losses is included in the amount shown 

in Item 4 of the Information Page or in the Schedule below. 

State 

NY 

Rate 

0.050 

Schedule 

Premium 

1,128.00 

This endorsement changes the policy to which It Is attached and Is effective on the date Issued unless otherwise s!eted. 

Endorsement07 /01/10 Effective Polley No.55-816280-01-02 EndorsementNo.4 

Insured Breakaway Courier Systems Premium $ 0. 00 

Insurance CompanyContinental :Indemnity Companyeounterslgned by ______________ _ 

(Ed.09-08) Page2of2 
• • 

WC000421 C 

WORKERS COMPENSATION AND EMPLOYERS UABILllYISURANCE POLICY 

CATASTROPHE {OTHER THAN CERTIFIED ACTS OF TERRORISM) 

PREMIUM ENDORSEMENT 

This endorsement is notification that your insurance carrier is charging premium to cover the losses that may occur in the 

event of a Catastrophe (other than Certified Acts of Terrorism) as that term is defined below. Your policy provides coverage 

for workers compensation losses caused by a Catastrophe (other than Certified Acts ofTerrorism). This premium charge 

does not provide funding for Certified Acts ofTerrorism contemplated under the Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement (WC 00 04 22 A), attached to this policy. 

For purposes of this endorsement, the following definitions apply: 

Catastrophe (other than Certified Acts of Terrorism): Any single event, resulting from an Earthquake, NoncertifiedAct 

of Terrorism, or Catastrophic Industrial Accident, which results in aggregate workers compensation losses in excess 

of $50 million. 

Earthquake: The shaking and vibration at the surface of the earth resulting from underground movement along a fault 

plane or from volcanic activity. 

Noncertmed Act ofTerrorism: An event that is not certified as an Act of Terrorism by the Secretary ofTreasury 

pursuantto the Terrorism Risk Insurance Act of2002 (as amended) but that meets all of the following criteria: 

a. It is an act that is violent or dangerous to human life, property, or infrastructure; 

b. The act results in damage within the United States, or outside of the United States in the case of the premises 

of United States missions or air carriers or vessels as those terms are defined in the Terrorism Risk Insurance Act 

of 2002 (as amended); and 

c. It is an act that has been committed by an individual or indMduals as part of an effort to coerce the cMlian 

population of the United States or to influence the policy or affect the conduct of the United States Government by 

coercion. 

Catastrophic Industrial Accident: A chemical release, large explosion, or small blast that is localized in nature and 

affects workers in a small perimeter the size of a building. 

The premium charge for the coverage your policy provides for workers compensation losses caused by a Catastrophe 

(other than Certified Acts ofTerrorism) is shown in Item 4 of the Information Page or in the Schedule below. 

State 

NY 

Schedule 

Rate 

0.01 

Premium 

251.00 

This endorsement changes the policy to which It Is attached and Is effecllva on the date Issued unless otherwise stated. 

Endorsement 07 /0l/10 Effecllve Polley No. 55-816280-01-02 Endorsement No. 5 

Insured Breakaway Courier Systems Prernlum $ O. 00 

Insurance Company Continental rndemnity CompanYCounterslgned bY---------------

(Ed. 09-08) 
WORKERS COMPENSATION - EMPLOYERS LIABILITY INSURANCE il1cv 

WC 00 0406 

PREMIUM DISCOUNT ENDORSEMENT 

This endorsement changes the policy to which it is attached effective on the inception date of the policy unless a 

different date is indicated below. 

(The following "attaching clause" need be completed only when this endorsement Is Issued subsequent to preparation of the policy.) 

This endorsement, effective on 07 /01/10 

Policy No. 55-816280-01-02 

of the 

issued toBreakaway Courier Systems 

Premium (if any) $ o. oo 

(DATE) 

at 12:01 A.M. standard time, forms a part of 

Endorsement No. 6 

Continental rndemnity Company 

(NAME OF INSURANCE COMPANY) 

Authorized Representative 

The premium for this policy and the policies, if any, listed in Item 3. of the Schedule may be eligible for a 

discount. This endorsement shows your estimated discount in Items 1. or 2. of the Schedule. The final 

calculation of premium discount will be determined by our manuals and your premium basis as determined by 

audit. Premium subject to retrospective rating is not subject to premium discount. 

1. State 

First 

$10,000 

2. Average percentage discount: % 

3. Other policies: 

Schedule 

Estimated Eligible Premium 

Next 

$190,000 

Next 

$1,550,000 Balance 

4. If there are no entries in Items 1., 2. and 3., of the Schedule, see the Premium Discount Endorsement 

attached to your policy number: 

55-816280-01-02 

WC576 

(8-95) 
Continental Indemnity Company 

10825 Old Mill Road 

Omaha, Nebraska 68154 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

QUICK REFERENCE 

BEGINNING ON 

Page 

Information Page ........................•..........•.....................................•.•.............•.•...............•..............••••.........•• I 

General Section ........................................................................................................................................... 1 

A. The Policy ...............................................•.•..............•...••...........................................•..............••.•..... 1 

B. Who Is Insured ...••...•...•.••.............•................•.•.............................................••.............•..•..•..•.......... 1 

C. Workers Compensation Law •.........................•................•.......•..•.....•••..••.•.........••.•.......................... 1 

D. State .••.•..•....•.................•........••••....•...•....•..............•.•..•.•..............................................•...........•....... 1 

E. Locations .•..............•..........•...•.......•..•.•••..•...........................•.........•.............................................•.... 1 

PART ONE • WORKERS COMPENSATION INSURANCE ........................................................................... 1 

A How This Insurance Applies ..•.•.....•....•.••.•.............................•...•••......•...•............••••................•........ 1 

B. We Will Pay .•••.••.....•..••••.......••..•.......•..................•.•..•..................•.........••••.•...........••..•............•.•...... 1 

C. We Will Defend ......................................•.••...............................••.•.........•....•........•.•.•........................ 1 

D. We Will Also Pay ....•..............•.....•.••.•.••....................................•.......•................................•.•............ 1 

E. Other Insurance .•.•...........•...........•..............•.•.........•.••.•••...•........................................•.•..•.......•••.•..... 1 

F. Payments You Must Make .•......•....•.................................••.•...........••.•............••.•............................•. 2 

G Recovery From Others ...........•.•............•.•.•..................•.............•...........................•...................•.....• 2 

H. StaMory Provisions .....•........................................................•.•..•.......•...••.•............•.•........................ 2 

PART TWO • EMPLOYERS LIABILITY INSURANCE .................................................................................. 2 

A. How This Insurance Applies .....•...............••....................•............................•.........•.......................... 2 

B. We Will Pay ...........................................................................••...........••...•............•......................•...• 2 

C. Exclusions ...•...........••...........•........•..•.............•..•.•............................•..............•...........•.•.................. 3 

D. We Will Defend ..•..•.•..•...........•.•.....•.•••..•...........•.•.•............................................•...........••.•........••..... 3 

E. We Will Also Pay ........•........................................••••................•.••..................................................... 3 

F Other Insurance .........................................•.............................•••..........•...........•..•..........................•.. 3 

G. Limits of Liability •..........•.••.....................................•.•............................••............•..................•.......... 3 

H. Recovery From Others .......•.•..........................•...•.............••......•...••.........•............•................•.•........ 4 

I Actions Against Us ..................................••••.................•........•....•.........................•............................ 4 

CNIC.WC-07/01/08 

WCOOOOOOA 
• QUICK REFERENCE - CONTINUED • 

BEGINNING ON 

~ 

PART THREE - OTHER STATES INSURANCE ............................................................................................ 4 

A. How This Insurance Applies ......................•.•.••.•.•...........•..•.•..•.........•..•••.•••.....•..•.•.•.•.........••.••••.•..... 4 

B. Notice .................•.••.•...............•.....•••••...••............•••••••••.•........................•...................•••••••••.•........... 4 

PART FOUR • YOUR DUTIES IF INJURY OCCURS .................................................................................... 4 

PART FIVE • PREMIUM ................................................................................................................................ 4 

A. Our Manuals .•............•.............................................•......•...........••••.................•••................•............. 4 

B. Classifications ........•.•.............••..............•..................••••.•................................•..•.•..•........•.•...•.•........ 4 

C. Remuneration ................•..••.•.................................•................•••.••........•.••.•.•••...............•..•................ 4 

D. Premium Payments ..•..........•.•........................................••.............••.•............•••.....•.........................• 5 

E. Final Premium ......•............•..•................•................•.................••..•.•.........•..•.•..........•.....................•.. 5 

F. Records .......•...........................•...............•....................•..•..••...••................................•............•••.•..... 5 

G Audit ..........•....................•.••.•................•.............•.•..............•...••..........••.••.••.•.•...........••.••.•............... 5 

PART SIX - CONDmONS ............................................................................................................................. 5 

A. Inspection ......................................................................................................................................... 5 

B. Long Term policy .............................................................................................................................. 5 

C. Transfer of Your Rights and Duties ..................................................................................................... 5 

D. Cancellation ...................................................................................................................................... 5 

E. Sole Representative .......................................................................................................................... 5 

IMPORTANT: This Quick Reference is not part of the Workers Compensation and Employers Liability 

Policy and does not provide coverage. Refer to the Workers Compensation and Employers 

Liability poilcy itself for actual contractual provisions. 

PLEASE READ THE WORKERS COMPENSATION AND EMPLOYERS LIABILITY POLICY CAREFULLY. 
WORKERS e • COMPENSATION AND 

EMPLOYERS LIABILITY INSURANCE POLICY 

In return for the payment of the premium and subject to all terms of this policy, we agree with you as follow: 

GENERAL SECTION 

A. The Policy 

This policy includes at Its effective date the Information Page and all endorsements and schedules listed there. It Is a contract of Insurance between you 

(the employer named in Item 1 of the Information 

Page) and us (the Insurer named on the Information 

Page). The only agreements relating to this insurance 

are stated In this policy. The terms of this poficy may 

not be changed or waived except by endorsement 

issued by us to be part of this policy. 

B. Viholslnsured 

You are insured if you are an employer named In Item 

1 of the Information Page. If that employer Is a partnership, and if you are one of Its partners, you are 

insured, but only in your capacity as an employer of 

the partnership's employees. 

C. Workers Compensation Law 

Workers Compensation Law means the workers or 

workmen's compensation law and occupational disease law of each state or territory named In Item 

3.A. of the Information Page. It Includes any amendments to that law which are In effect during the policy 

period. It does not Include any federal walkers orworkmen's compensation law, any federal occupational 

disease law or the provisions of any law that provide 

nonoccupational disability benefits. 

D. State 

State means any state of the United States of America, and the District of Columbia. 

E. Locations 

This policy covers all of your workplaces listed in 

Items 1 or 4 of the Information Page; and It covers 

all other workplaces In Item 3.A. states unless you 

have other insurance or are self-insured for such 

workplaces. 

PART ONE - WORKERS COMPENSATION INSURANCE 

A. How This Insurance Applies 

This workers compensation insurance applies to 

bodily Injury by accident or bodily injury by disease. 

Bodily Injury includes resulting death. 

1. Bodily injury by accident must occur during the 

policy period. 

2. Bodily injury by disease must be caused or aggravated by the conditions of your employment 

The employee's last day of last exposure to the 

conditions causing or aggravating such bodily Injury by disease must occur during the policy 

period. 

B. We Wiii Pay 

We will pay promptly when due the benefits required 

of you by the workers compensation law. 

C. We Wiii Defend 

We have the right and duty to defend at our expense 

any claim, proceeding or suit against you for benefits 

payable by this Insurance. We have the right to Investigate and settle these claims, proceedings or 

suits. 

We have no duty to defend a claim, proceeding or 

suit that is not covered by this Insurance. 

Page1 

D. We Wiii Also Pay 

We will also pay these costs, in addition to other 

amounts payable under this Insurance, as part of any 

claim, proceeding or suit we defend: 

1. reasonable expenses Incurred at our request, but 

not loss of earnings; 

2. premiums for bonds to release attachments and 

for appeal bonds In bond amounts up to the 

amount payable under this Insurance; 

3. litigation costs taxed against you; 

4. interest on a judgement as required by law until 

we offer the amount due under this Insurance; 

and 

5. expenses we incur. 

E. Other Insurance 

We will not pay more than our share of benefits and 

costs covered by this Insurance and other Insurance 

or self-insurance. Subject to any limits of liability that 

may apply, all shares will be equal until the loss Is 

paid. If any Insurance or self-insurance Is exhausted, the shares of all remaining insurance will be equal 

until the loss Is paid. 
F. Payments You Must Make • notice of the • injury when you have notice. 

You are responsible for any payments in excess of 2. Your default or the bankruptcy or insolvency of 

the benefits regularly provided by the workers com- you or your estate wlll not relieve us of our duties 

pensation law Including those required because: under this Insurance after an Injury occurs. 

1. of your serious and willful misconduct; 3. We are directly and primarily liable to any per2. you knowlngly employ an employee in violation son entitled to the benefits payable by this insurof law; ance. Those persons may enforce our duties; so 

3. you fail to comply with a health or safety law or may an agency authorized by law. Enforcement 

regulation; or may be against us or against you and us. 

4. you discharge, coerce or otherwise discriminate 4. Jurisdiction over you is jurisdiction over us for 

against any employee in violation of the workers purposes of the workers compensation law. We 

compensation law. are bound by decisions against you under that 

If we make any payments In excess of the benefits law, subject to the provisions of this policy that 

regularly provided by the workers compensation law are not in conflict with that law. 

on your behalf, you wlll reimburse us promptly. 5. This Insurance conforms to the parts of the workG. Recovery From Others ers compensation law that apply to: 

We have your rights, and the rights of persons enti- a. benefits payable by this insurance; 

tied to the benefits of this insurance, to recover our b. special taxes, payments into security or other 

payments from anyone liable for the injury. You wm special funds, and assessments payable by 

do everything necessary to protect those rights for us under that law. 

us and to help us enforce them. 6. Terms of this insurance that conflict with the 

H. Statutory Provisions workers compensation law are changed by this 

These statements apply where they are required by statement to conform to that law. 

law. Nothing in these paragraphs relieves you of your 1. As between an injured worker and us, we have duties under this policy. 

PART TWO· EMPLOYERS LIABILITY INSURANCE 

A. How This Insurance Applles 

This employers liability insurance applies to 

bodily Injury by accident or bodily injury by 

disease. Bodily Injury Includes resulting death. 

1. The bodily injury must arise out of and In the 

course of the Injured employee's employment by 

you. 

2. The employment must be necessary or Incidental to yourwork in a state or territory listed in Item 

3.A. of the Information Page. 

3. Bodily injury by accident must occur during the 

policy period. 

4. Bodily injury by disease must be caused or aggravated by the conditions of your employment. 

The employee's last day of last exposure to the 

com:fJtions causing or aggravating such bodily injury by disease must occur during the policy 

period. 

5. If you are sued, the origlnal suit and any related 

legal actions fordamages for bodily injury by accident or by disease must be brought in the United States of America, its territories or possesions, or Canada. 

Page2 

B. We Wiii Pay 

We will pay all sums you legally must pay as damages 

because of bodily Injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance. 

The damages we wlil pay, where recovery Is permitted by law, include damages: 

1. for which you are liable to a third party by reason of a claim or suit against you by that third 

party to recover the damages claimed against 

such third party as a result of injury to your employee; 

2. for care and loss of services; and 

3. for consequential bodily injury to a spouse, 

child, parent, brother or sister of the injured 

employee; 

provided that these damages are the direct 

consequence of bodily injury that arises out of and 

in the course of the injured employee's employment by you; and 

4. because of bodily Injury to your employee that 

arises out of and In the course of employment, 

claimed against you in a capacity other than as 

employer. 
c. Excluslons • 12. damages payable • under the Migrant and Seasonal Agricultural Workers Protection Act (29 USC 

This Insurance does not cover. Sections 1801-1872) and under any other fed· 

1. liability assumed under a contract This exclu- era! law awarding damages for the violatfon of those 

laws or regulations Issued thereunder, and any sion does not apply to a warranty that your work amendments to those laws. will be done in a workmanfike manner; 

2. punitive or exemplary damages beca• ISe of bodily D. We Wiii Defend 

injury to an employee employed in violation of We have the rightand duty to defend, at our expense, law; anyclalm, proceeding or suit against you for damages 

3. bodily injury to an employee while employed in payable by this insurance. We have the right to investigate and seWe these claims, proceedings and violation of law with your actual knowledge or the suits. actual knowledge of any of your executive 

officers; We have no duty to defend a claim, proceeding or 

suit that Is not covered by this insurance. We have 4. any obligation imposed by a workers compensa- no duty to defend or continue defending after we tion, occupational disease, unemployment com- have paid our applicable limit of liability under this pensation, or disability benefits law, or any Insurance. similar law; 

5. bodily injury intentionally caused or aggravated E. We Wiii Also Pay 

by you; We will also pay these costs, in addition to other 

amounts payable under this insurance, as part of any 6. bodily injury occurring outside the United States claim, proceeding, or suit we defend: 

of America, its territories or possessions, and 

Canada This exclusion does not apply 1. reasonable expenses incurred at our request, but to bodily 

injury to a citizen or resident of the United States not loss of earnings; 

of America or Canada who is temporarily outside 2. premiums for bonds to release attachments and these countries; for appeal bonds In bond amounts up to the lim7. damages arising out of coercion, criticism, de- it of our liability under this insurance; 

motion, evaluation, reassignment, discipline, 3. litigation costs taxed against you; defamation, harassment, humiliation, dlscrimination against or termination of any employee, 4. interest on a judgement as required by law until 

or any personnel practices, policies, acts or we offer the amount due under this insurance; omissions; and 

8. bodily injury to any person in work subject to the 5. expenses we incur. 

Longshore and Harbor Workers' Compensation 

Act F. Other Insurance (33 USC Sections 901-950), the Nonappropriated Fund Instrumentalities Act (5 USC We will not pay more than our share of damages and Sectlons8171-8173), the Outer Continental Shelf costs covered by this insurance and other insurance LandsAct(43 USC Sections 1331-1356), the De- or self-insurance. Subject to any Omits of liability that fense Base Act (42 USC Sections 1651-1654), apply, all shares will be equal until the loss is paid. the Federal Coal Mine Health and Safety Act of If any insurance or self-insurance is exhausted, the 1969 (30 use Sections 901-942), any other fed- shares of all remaining insurance and self-insurance era! workers or workmen's compensation law or will be equal until the loss is paid. other federal occupational disease law, or any 

amendments to these laws; G. Limits of Llablllty 

9. bodily injury to any person in work subject to the Our liability to pay for damages is limited. Our limits 

Federal Employers' UabifJty Act (45 USC Sections of liability are shown in Item 3.B. of the Information 

51-60), any other federal laws obligating an em- Page. They apply as explained below. 

player to pay damages to an employee due to 

bodily 1. Bodily Injury by Accident The limit shown for injury arising out of or in the course of employment, or any amendments to those laws; "bodily injury by accident - each accidenr Is the 

most we will pay for all damages covered by this 

1 O. bodily Injury to a master or member of the crew insurance because of bodily Injury to one or more 

of any vessel; employees in any one accident 

11. fines or penalties imposed for violation offeder- A disease is not bodily Injury by accident unless 

al or state law; and it results directly from bodily injury by accident 

Page3 
2. Bodily Injury by Disease. • The limit shown for 

"bodily Injury by disease - policy limlf Is the 

most we will pay for all damages covered by this 

insurance and arising out of bodily Injury by disease, regardless of the number of employees 

who sustain bodily Injury by disease. The limit 

shown for "bodily Injury by disease - each employee" is the most we will pay for all damages 

because of bodily Injury by disease to any one 

employee. 

Bodily injury by disease does not include disease 

that results directly form a bodily injury by accident 

one liable for an • Injury covered by this insurance. You 

will do everything necessary to protect those rights 

for us and to help us enforce them. 

I. Actions Against Us 

There will be no right of action against us under this 

insurance unless: 

1. You have complied with all the terms of this policy; and 

2. The amount you owe has been determined with 

our consent or by actual trial and final judgement 

3. We will not pay any claims for damages after we This Insurance does not give anyone the right to add 

have paid the applicable limit of our liability un- us as a defendant Jn an action against you to deterder this insurance. mine your liability. The bankruptcy or insolvency of 

H. Recovery From Others you or your estate will not relieve us of our obligations 

We have your rights to recover our payment from any- under this Part. 

PART THREE· OTHER STATES INSURANCE 

A. How This Insurance Applies 

1. This other states Insurance applies only if one 

or more states are shown In Item 3.C. of the Inby the workers compensation law of that state 

if we are not permitted to pay the benefits directly 

to persons entiUed to them. 

formation Page. 4. If you have work on the effective date of this poll2. If you begin work in any one of those states after cy In any state not listed in Item 3.A. of the Inthe effective date of this policy and are not Jn- formation Page, coverage will not be afforded for 

sured or are not self-Insured for such work, all that state unless we are notified within thirty 

provisions of the policy will apply as though that days. 

state were listed In Item 3.A. of the Information B. Notice 

Page. Tell us at once If you begin work In any state listed 

3. We will reimburse you for the benefits required In Item 3.C. of the Information Page. 

PART FOUR • YOUR DUTIES IF INJURY OCCURS 

Tell us at once if Injury occurs that may be covered by 

this policy. Your other duties are listed here. 

1. Provide for Immediate medical and other services required by the workers compensation law. 

2. Give us or our agent the names and addresses of the 

injured persons and of witnesses, and other informa· 

tlon we may need. 

3. Promptly give us all notices, demands and legal pa· 

pers related to the Injury, claim, proceeding or suit. 

4. Cooperate with us and assist us, as we may request, 

in the investigation, settlement or defense of any 

claim, proceeding or suit. 

5. Do nothing after an injury occurs that would Interfere with our right to recover from others. 

6. Do not voluntarily make payments, assume obligations or incur expenses, except at your own cost. 

PART FIVE • PREMIUM 

A. Our Manuals 

All premiums for this policy will be determined by our 

manuals of rules, rates, rating plans and classifications. We may change our manuals and apply the 

changes to this policy if authorized by law or a governmental agency regulating this insurance. 

B. Classlflcatlons 

Item 4 of the Information Page shows the rate and 

premium basis for certain business or work classifications. These classifications were assigned based 

on an estimate of the exposures you would have durPage4 

Ing the policy period. If your actual exposures are not 

properly descnbed by those classifications, we will 

assign proper classifications, rates and premium basis by endorsement to this policy. 

c. Remuneration 

Premium for each work classification Is determined 

by multiplying a rate times a premium basis. 

Remuneration Is the most common premium basis. 

This premium basis Includes payroll and all other 

remuneration paid or payable during the policy period for the services of: 
1. all your officers and employees • engaged in work 

covered by this policy; and 

2. all other persons engaged in work that could 

make us liable under Part One (Workers Compensation Insurance) of this policy. If you do not 

have payroll records for these persons, the contract price for their services and materials may 

be used as the premium basis. This paragraph 

will not apply if you give us proof that the employers of these persons lawfully secured their 

workers compensation obligations. 

D. Premium Payments 

You will pay all premium when due. You will pay the 

premium even if part or all of a workers compensation law is not valid. 

E. Anal Premium 

The premium shown on the Information page, schedules, and endorsements Is an estimate. The final 

premium will be determined after this policy ends by 

using the actual, not the estimated, premium basis 

and the proper classifications and rates that lawfully 

apply to the business and work covered by this policy. If the final premium Is more that the premium 

you paid to us, you must pay us the balance. If It is 

less, we will refund the balance to you. The final 

premium will not be less than the highest minimum 

premium for the classifications covered by this policy. 

If this policy is • canceled, final premium will be determined In the following way unless our manuals 

provide otherwise: 

1. If we cancel, final premium will be calculated pro 

rata based on the time this policy was In force. 

Final premium will not be less than the pro rata 

share of the minimum premium. 

2. If you cancel, final premium will be more than 

pro rata; It will be based on the time this policy 

was in force, and increased by our short rate 

cancelation table and procedure. Final premium 

will not be less than the minimum premium. 

F. Records 

You will keep records of information needed to compute premium. You will provide us with copies of 

those records when we ask for them. 

G. Audit 

You will let us examine and audit all your records that 

relate to this policy. These records Include ledgers, 

journals, registers, vouchers, contracts, tax reports, 

payroll and disbursement records, and programs for 

storing and retrieving data. We may conduct the audits during regular business hours during the policy 

period and within three years after the policy period 

ends. Information developed by audit will be used 

to determine final premium. Insurance rate service 

organizations have the same rights we have under 

this provision. 

PART SIX - CONDmONS 

A. Inspection 

We have the right, but are not obliged to Inspect your 

workplaces at any time. Our inspections are not safety 

inspections. They relate only to the lnsurabilUy of the 

workplaces and the premiums to be charged. We 

may give you reports on the conditions we find. We 

may also recommend changes. While they may help 

reduce losses, we do not undertake to perform the 

duty of any person to provide for the health or safety 

of your employees or the public. We do not warrant 

that your workplaces are safe or healthful or that they 

comply with laws, regulations, codes or standards. 

Insurance rate service organizations have the same 

rights we have under this provision. 

B. Long Term Polley 

If the policy period Is longer than one year and sixteen days, all provisions of this policy will apply as 

though a new policy were Issued on each annual anniversary that this policy is in force. 

C. Transfer Of Your Rights And Duties 

Your rights or duties under this policy may not be 

transferred without our written consent. 

If you die and we receive notice within thirty days after 

Pages 

your death, we will cover your legal representative 

as insured. 

D. cancelatlon 

1. You may cancel this poDcy. You must man or deliver advance written notice to us stating when 

the cancelatlon Is to take effect. 

2. We may cancel this policy. We must mall or deliver to you not less than ten days advance written notice stating when the cancelation is to take 

effect. Mailing that notice to you at your malling 

address shown in Item 1 of the Information Page 

will be sufficient to prove notice. 

3. The policy period will end on the day and hour 

stated in the cancelation notice. 

4. Any of these provisions that conflict with a law 

that controls the cancelation of the insurance in 

this policy is changed by this statement to comply with the law. 

E. Sole Representative 

The insured first named in Item 1 of the Information 

Page will act on behalf of all insureds to change this 

policy, receive return premium, and give or receive 

notice of cancelatlon. 
• • 

In Witness Whereof, Continental Indemnity Company has caused this policy to be executed and attested, and 

if required by state law, this policy shall not be valid unless countersigned by our authorized representative. 

President 

~41~ Secretary 
• • 

PN000001 

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

SHORTRATECANCELATIONPOLICYHOLDERNOTICE 

Subject to individual State Regulations, the cancelation condition in the Standard Policy WC 00 00 00 A-Part Five 

Premium, E. Final Premium, states that if this policy Is canceled by you, the final premium will be more than pro rata; it 

will be based on the time this policy was In force, and Increased by our short rate cancelatlon table and procedure. 

Final premium will not be less than the minimum premium. 

In applicable States, the final premium will be calculated as follows based on the standard Short Rate Cancelation Table 

attached to this policyholder notice: 

(Ed. 5-10) 

The premium for the canceled policy will be calculated using the Short Rate Cancelatlon 

Table. We will use the short-rate percentage as follows: 

1. Determine the payroll developed during the period the policy was In 

effect 

2. Determine the full policy payroll by using the following formula: 

number of days for which the policy was written 

number of days the policy was In effect 

3. Apply authorized rates to such payroll 

xActual 

Payroll 

4. Calculate the extended number of days by using the following 

formula. If the policy was written for a one-year period, the extended 

number of days is the number of days the policy was in effect: 

number of days the policy was In effect 

x365 

number of days for which the policy was written 

5. Based on the extended number of days, apply the short rate percentage shown In the Short Rate Cancelatlon Table to the full policy premium calculated In step 3. This result Is the short-rate portion of the 

premium. 

6. If applicable: 

• Apply any pricing programs 

• Apply any experience rating modification 

• Apply any premium discount based on the final earned total 

standard premium 

• Add the short rate portion of the expense constant but not 

less than $15 

• Apply catastrophe provisions based on the earned manual 

premium 

7. The total earned premium for the short-rate canceled policy will not be 

less than the annual minimum premium applicable to the policy. 

Page 1 of3 
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY • 

Days In Polley Short Rate 

Period Percentages 

1 5% 

2 6 

3 7 

4 7 

5 8 

6 8 

7 9 

8 9 

9 10 

10 10 

11 11 

12 11 

13 12 

14 12 

15 13 

16 13 

17 14 

18 14 

19 15 

20 15 

21 16 

22 16 

23 17 

24 17 

25 17 

26 18 

27 18 

28 18 

29 18 

30 19 

31 19 

32 19 

33 20 

34 20 

35 20 

36 20 

37 21 

38 21 

39 21 

40 21 

41 22 

42 22 

43 22 

44 23 

45 23 

(Ed. 5-10) 

SHORTRATECANCELATIONPOLICYHOLDERNOTICE 

SHORTRATECANCELATIONTABLE 

Days In Polley Short Rate Days In Polley Short Rate Days In Polley Short Rate 

Period Percentages Period Percentages Period Percentages 

46 23% 91 35% 136 48% 

47 23 92 36 137 48 

48 24 93 36 138 48 

49 24 94 36 139 49 

50 24 95 37 140 49 

51 24 96 37 141 49 

52 25 97 37 142 49 

53 25 98 37 143 50 

54 25 99 38 144 50 

55 26 100 38 145 50 

56 26 101 38 146 50 

57 26 102 38 147 51 

58 26 103 39 148 51 

59 27 104 39 149 51 

60 27 105 39 150 52 

61 27 106 40 151 52 

62 27 107 40 152 52 

63 28 108 40 153 52 

64 28 109 40 154 53 

65 28 110 41 155 53 

66 29 111 41 156 53 

67 29 112 41 157 54 

68 29 113 41 158 54 

69 29 114 42 159 54 

70 30 115 42 160 54 

71 30 116 42 161 55 

72 30 117 43 162 55 

73 30 118 43 163 55 

74 31 119 43 164 55 

75 31 120 43 165 56 

76 31 121 44 166 56 

77 32 122 44 167 56 

78 32 123 44 168 57 

79 32 124 44 169 57 

80 32 125 45 170 57 

81 33 126 45 171 57 

82 33 127 45 172 58 

83 33 128 46 173 58 

84 34 129 46 174 58 

85 34 130 46 175 58 

86 34 131 46 176 59 

87 34 132 47 177 59 

88 35 133 47 178 59 

89 35 134 47 179 60 

90 35 135 47 180 60 

Page 2of3 

PN000001 

Days In Poficy Short Rate 

Period Percentages 

181 60% 

182 60 

183 61 

184 61 

185 61 

186 61 

187 61 

188 62 

189 62 

190 62 

191 62 

192 63 

193 63 

194 63 

195 63 

196 63 

197 64 

198 64 

199 64 

200 64 

201 65 

202 65 

203 65 

204 65 

205 65 

206 66 

207 66 

208 66 

209 66 

210 67 

211 67 

212 67 

213 67 

214 67 

215 68 

216 68 

217 68 

218 68 

219 69 

220 69 

221 69 

222 69 

223 69 

224 70 

225 70 
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY 

SHORTRATECANCELATIONPOUCYHOLDERNOTICE 

SHORTRATECANCELATIONTABLE 

Days In Polley Short Rate Days In Polley Short Rate 

Period Percentages Period Percentages 

226 70% 254 76% 

227 70 255 76 

228 70 256 77 

229 71 2S7 77 

230 71 258 77 

231 71 259 77 

232 71 260 77 

233 72 261 78 

234 72 262 78 

235 72 263 78 

236 72 264 78 

237 72 265 79 

238 73 266 79 

239 73 267 79 

240 73 268 79 

241 73 269 79 

242 74 270 80 

243 74 271 80 

244 74 272 80 

245 74 273 80 

246 74 274 81 

247 75 275 81 

248 75 276 81 

249 75 277 81 

250 75 278 81 

251 76 279 82 

252 76 280 82 

253 76 281 82 

Insured Breakaway Courier Systems 

PoDeyNo. 55-816280-01-02 

Days In Polley Short Rate 

Period Percentages 

282 82"/o 

283 83 

284 83 

285 83 

286 83 

287 83 

288 84 

289 84 

290 84 

291 84 

292 85 

293 85 

294 85 

295 85 

296 85 

297 86 

298 86 

299 86 

300 86 

301 86 

302 87 

303 87 

304 87 

305 87 

306 88 

307 88 

308 88 

309 88 

lnsuranceCompany Continental Indemnity Company 

(Ed. 5-10) Page3of3 

Days In Polley Short Rate 

Period Percentages 

310 88% 

311 89 

312 89 

313 89 

314 89 

315 90 

316 90 

317 90 

318 90 

319 90 

320 91 

321 91 

322 91 

323 91 

324 92 

325 92 

326 92 

327 92 

328 92 

329 93 

330 93 

331 93 

332 93 

333 94 

334 94 

335 94 

336 94 

337 94 

PN000001 

Days In Polley Short Rate 

Period Percentages 

338 95% 

339 95 

340 95 

341 95 

342 95 

343 96 

344 96 

345 96 

346 96 

347 97 

348 97 

349 97 

350 97 

351 97 

352 98 

353 98 

354 98 

355 98 

356 99 

357 99 

358 99 

359 99 

360 99 

361 100 

362 100 

363 100 

364 100 

365 100 
CONTINENTAL INDEMNITY COMPANY

WC-00-00-01A

NAIC No. 28258

10825 Old Mill Road, Omaha, NE 68154

877-234-4420

WORKERS’ COMPENSATION AND EMPLOYER’S LIABILITY INSURANCE POLICY

INFORMATION PAGE

Producer

and

Mailing

Address

Agent No.

Billing:

Renewal of Policy No.

See Additional Named Insured Endorsement and Locations Endorsement if attached.

2. The policy period is from to 12:01 A.M. Standard Time at the insured’s mailing address.

3. A. Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here:

B. Employers Liability Insurance: Part Two of the policy applies to work in each state listed in item 3.A. The limits of our

liability under Part Two are:

Bodily Injury by Accident $ each accident

Bodily Injury by Disease $ policy limit

Bodily Injury by Disease $ each employee

C. Other States Insurance: Part Three of the policy applies to all states except the states listed in item 3.A and the states of

North Dakota, Ohio, Washington, and Wyoming.

D. See attached list for endorsements and schedules.

4. The premium for this policy will be determined by our Manuals of Rules, Classifications, Rates and Rating Plans.

All information listed on the Extension of Information page is subject to verification and change by audit.

See Extension of Information Page for premium rating schedule.

Minimum Premium $

Total Estimated Annual Premium $

Estimated Taxes and Assessments $

Issuing Office: Countersigned by:

CNIC-WC-IP-7/08

Entity:

FEIN:

State No.

1. Insured

and

Mailing

Address

Policy No.

Breakaway Courier Corporation

DBA Breakaway Courier Systems

PO Box 780

New York, NY 10013-0676

Subchapter Corporation

55-816280-01-03

55-816280-01-02

Enforce Coverage Group

425 New York Ave Ste 203

Huntington, NY 11743-3436

DIRECT BILL

07/01/11 07/01/12

NY

1,000,000

1,000,000

1,000,000

 172,676

 31,254

 875

OMAHA, NE

FILED: NEW YORK COUNTY CLERK 09/30/2016 05:29 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 55 RECEIVED NYSCEF: 09/30/2016
Continental Indemnity Company

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

LIST OF ENDORSEMENTS AND SCHEDULES

Endorsements on Policy:

Form Number Endorsement Number Name

WC000001A_CNIC

WC990401_CNIC

WC000174

A I/L_CNIC

WC000414

WC310308

WC000419

WC310319F

WC000422A

WC000421C

WC000000A_CNIC

PN000001

1

2

3

4

5

6

7

100

Information Page

List of Endorsements And Schedules

Extension of Information Page

Additional Named Insured and/or

Locations

Notification Of Change In Ownership

Endorsement

New York Limit Of Liability

Endorsement

Premium Due Endorsement

New York Construction

Classification Premium Adjustment

Program

Terrorism Risk Insurance Program

Reauthorization Act Disclosure

Catastrophe

Workers Compensation and Employers

Liability - Quick Reference

Short Rate Cancelation Policyholder

Notice

55-816280-01-03

WC990401
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

EXTENSION OF INFORMATION PAGE

WC 174

(Ed. 4-84)

Policy Number

4. Premium

Classifications Code

No.

Premium Basis

Total Estimated

Annual Remuneration

Rate Per

$100 of

Remuneration

Estimated Annual

Premium

Total Estimated Annual Premium $

55-816280-01-03

Trucking: Mail, Parcel Or Package 7231 9.4300 23,802.00

Delivery- All Employees & Drivers

Bicycle Delivery of Envelopes,

Parcels or Packages

Salespersons, Collectors Or

Messengers-Outside

Clerical Office Employees NOC.

Experience Modification

Terrorism

Catastrophe

7242

8742

8810

9740

9741

 13.9100

 0.4600

 0.2200

 0.9000

 0.0490

 0.0100

 162,619.00

 1,998.00

 1,715.00

 171,121.00

 1,291.00

 264.00

 203,930.36

 252,405

 1,169,078

 434,319

 779,456

Estimated Annual Premium - New York

State Assessment

New York Workers Compensation

Security Fund

NY

0932

9749

 18.1000

 0.0000

 172,676.00

 31,254.36

 0.00
Policy Number:

CONTINENTAL INDEMNITY COMPANY

Additional Named Insured and/or Locations

Item (1) Insured of the Information page is amended to include the following:

All other terms and conditions of this policy remain unchanged.

A I/L 5/90

55-816280-01-03

Breakaway Courier Systems

55-816280-01-03 Endorsement No.

Premium

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

This endorsement is part of your policy and takes effect on the effective date of your policy, unless another effective date is

shown below.

Continental Indemnity Company

New York NY 10001-1726

Breakaway Courier Corporation

DBA Breakaway Courier Systems

335 W 35th St

From: 07/01/11 To: 07/01/12

ENTITY: Subchapter Corp.

 FEIN: 
Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 14

NOTIFICATION OF CHANGE IN OWNERSHIP ENDORSEMENT

(Ed. 7-90)

Experience rating is mandatory for all eligible insureds. The experience rating modification factor, if any, applicable to this

policy, may change if there is a change in your ownership or in that of one or more of the entities eligible to be combined

with you for experience rating purposes. Change in ownership includes sales, purchases, other transfers, mergers, consolidations, dissolutions, formations of a new entity and other changes provided for in the applicable experience rating plan

manual.

You must report any change in ownership to us in writing within 90 days of such change. Failure to report such changes

within this period may result in revision of the experience rating modification factor used to determine your premium.

07/01/11 55-816280-01-03

Continental Indemnity Company

0.00

1

Breakaway Courier Systems
Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 31 03 08

NEW YORK LIMIT OF LIABILITY ENDORSEMENT

(Ed. 1-00)

This endorsement applies only to the insurance provided by Part Two (Employers Liability Insurance) because

New York is shown in Item 3.A. of the Information Page..

We may not limit our liability to pay damages for which we become legally liable to pay because of bodily injury

to your employees if the bodily injury arises out of and in the course of employment that is subject to and is

compensable under the Workers’ Compensation Law of New York.

Continental Indemnity Company

07/01/11

Breakaway Courier Systems

55-816280-01-03 2

0.00
WC 00 04 19

(Ed. 1-01)

PREMIUM DUE DATE ENDORSEMENT

You will pay all premium when due. You will pay the premium even if part or all of a workers compensation law is

not valid. The due date for audit and retrospective premiums is the date of the billing.

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

This endorsement is used to amend:

Section D. of Part Five of the policy is replaced by this provision

PART FIVE

PREMIUM

D. Premium is amended to read:

07/01/11 55-816280-01-03 3

Breakaway Courier Systems

Continental Indemnity Company

0.00
WC 31 03 19 F

NEW YORK CONSTRUCTION CLASSIFICATION PREMIUM ADJUSTMENT PROGRAM

EXPLANATORY ENDORSEMENT

The New York Construction Classification Premium Adjustment Program (NYCCPAP) allows premium credits for some employers in the construction industry. These credits exist to recognize the difference in wage rates between employers within the same construction industries in

New York.

The declarations section of this policy will show a credit of 0.00% if you are not eligible for this credit, or if you are eligible for this credit and

have not yet applied for a credit. Credits are earned for average wages in excess of $15.50 per hour for each eligible class. If your policy

shows one of the following classification codes, and you are experience rated, you are eligible to apply for an NYCCPAP credit:

0042 5057 5193 5429 5491 5606 6003 6229 6325 9526

3365 5059 5213 5443 5506 5610 6005 6233 6400 9527

3724 5069 5221 5445 5507 5645 6017 6235 6701 9534

3726 5102 5222 5462 5508 5648 6018 6251 7536 9539

3737 5160 5223 5473 5536 5651 6045 6252 7538 9545

5000 5183 5348 5474 5538 5701 6204 6260 7601 9549

5022 5184 5402 5479 5545 5703 6216 6306 7855 9553

5037 5188 5403 5480 5547 5709 6217 6319 8227

5040 5190 5428

If you have any eligible classes on your policy, you should have been notified by your insurance carrier or the New York Compensation

Insurance Rating Board approximately nine months prior to the inception date of this policy. If you believe you may be eligible for a credit

and have not received an application, you should immediately contact your agent, insurance carrier, or the New York Compensation

Insurance Rating Board.

Credits are calculated by the New York Compensation Insurance Rating Board. You must submit a completed application to: Attention: Field

Services Department, New York Compensation Insurance Rating Board, 733 Third Avenue, New York, New York 10017.

Applications must be received by the Rating Board three (3) months prior to the policy renewal effective date. The Rating Board will accept

and process an application if it is received between the policy effective date and expiration date, however, it must be accompanied by a letter

stating the reason for the delay. Under no circumstances will an application be accepted for any policy if it is received after the expiration date

of the policy. For short-term policies the application must be received prior to the expiration date of the short-term policy. If it is received after

the policy expiration, no credit will be calculated.

The New York Workers Compensation and Employers Liability Insurance Manual, and not this endorsement, govern the implementation and use

of the NYCCPAP.

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

The basis for determining the credit is the limited payroll of each employee for the number of hours worked (excluding overtime premium pay)

for each construction classification (other than employees engaged in the construction of one- or two-family residential housing) for the third

quarter, as reported to taxing authorities, for the year preceding the policy date. Total payroll is to continue to be reported for employees

engaged in the construction of one- or two-family residential housing. For example:

POLICY EFFECTIVE DATE THIRD QUARTER PAYROLL

4/1/09 thru 3/31/10 2008

4/1/10 thru 3/31/11 2009

4/1/11 thru 3/31/12 2010

4/1/12 thru 3/31/13 2011

4/1/13 thru 3/31/14 2012

4/1/14 thru 3/31/15 2013

(Ed. 2-11)

Continental Indemnity Company

Breakaway Courier Systems

07/01/11 55-816280-01-03 4

0.00
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 22 A

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT DISCLOSURE ENDORSEMENT

This endorsement addresses the requirements of the Terrorism Risk Insurance Act of 2002 as amended and extended by

the Terrorism Risk Insurance Program Reauthorization Act of 2007. It serves to notify you of certain limitations under the

Act, and that your insurance carrier is charging premium for losses that may occur in the event of an Act of Terrorism.

Your policy provides coverage for workers compensation losses caused by Acts of Terrorism, including workers compensation benefit obligations dictated by state law. Coverage for such losses is still subject to all terms, definitions, exclusions,

and conditions in your policy, and any applicable federal and/or state laws, rules, or regulations.

Definitions

The definitions provided in this endorsement are based on and have the same meaning as the definitions in the Act. If

words or phrases not defined in this endorsement are defined in the Act, the definitions in the Act will apply.

“Act” means the Terrorism Risk Insurance Act of 2002, which took effect on November 26, 2002, and any amendments

thereto resulting from the Terrorism Risk Insurance Program Reauthorization Act of 2007.

“Act of Terrorism” means any act that is certified by the Secretary of the Treasury, in concurrence with the Secretary of

State, and the Attorney General of the United States as meeting all of the following requirements:

(Ed. 09-08) Page 1 of 2

“Insured Loss” means any loss resulting from an act of terrorism (and, except for Pennsylvania, including an act of war, in

the case of workers compensation) that is covered by primary or excess property and casualty insurance issued by an

insurer if the loss occurs in the United States or at the premises of United States missions or to certain air carriers or

vessels.

“Insurer Deductible” means for the period beginning on January 1, 2008, and ending on December 31, 2014, an amount

equal to 20% of our direct earned premiums, over the calendar year immediately preceding the applicable Program Year.

“Program Year” refers to each calendar year between January 1, 2008 and December 31, 2014, as applicable.

Limitation of Liability

The Act limits our liability to you under this policy. If aggregate Insured Losses exceed $100,000,000,000 in a Program

Year and if we have met our Insurer Deductible, we are not liable for the payment of any portion of the amount of Insured

Losses that exceeds $100,000,000,000; and for aggregate Insured Losses up to $100,000,000,000, we will pay only a pro

rata share of such Insured Losses as determined by the Secretary of the Treasury.

The act is an act of terrorism.

The act is violent or dangerous to human life, property or infrastructure.

The act resulted in damage within the United States, or outside of the United States in the case of the

premises of United States missions or certain air carriers or vessels.

The act has been committed by an individual or individuals as part of an effort to coerce the civilian population

of the United States or to influence the policy or affect the conduct of the United States Government by

coercion.

a.

b.

c.

d.
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 22 A

(Ed. 09-08) Page 2 of 2

Insured Losses would be partially reimbursed by the United States Government. If the aggregate industry

Insured Losses exceeds $100,000,000 in a Program Year, the United States Government would pay 85% of

our Insured Losses that exceed our Insurer Deductible.

Notwithstanding item 1 above, the United States Government will not make any payment under the Act for

any portion of Insured Losses that exceeds $100,000,000,000.

The premium charge for the coverage your policy provides for Insured Losses is included in the amount shown

in Item 4 of the Information Page or in the Schedule below.

Schedule

State Rate Premium

Countersigned by

 This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective Policy No. Endorsement No.

Insured Premium $

Insurance Company

Policyholder Disclosure Notice

1.

2.

3.

07/01/11 55-816280-01-03

Continental Indemnity Company

Breakaway Courier Systems

5

0.00

NY 0.050 1,291.00
WC 00 04 21 C

CATASTROPHE (OTHER THAN CERTIFIED ACTS OF TERRORISM)

PREMIUM ENDORSEMENT

This endorsement is notification that your insurance carrier is charging premium to cover the losses that may occur in the

event of a Catastrophe (other than Certified Acts of Terrorism) as that term is defined below. Your policy provides coverage

for workers compensation losses caused by a Catastrophe (other than Certified Acts of Terrorism). This premium charge

does not provide funding for Certified Acts of Terrorism contemplated under the Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement (WC 00 04 22 A), attached to this policy.

For purposes of this endorsement, the following definitions apply:

Catastrophe (other than Certified Acts of Terrorism): Any single event, resulting from an Earthquake, Noncertified Act

of Terrorism, or Catastrophic Industrial Accident, which results in aggregate workers compensation losses in excess

of $50 million.

Earthquake: The shaking and vibration at the surface of the earth resulting from underground movement along a fault

plane or from volcanic activity.

Noncertified Act of Terrorism: An event that is not certified as an Act of Terrorism by the Secretary of Treasury

pursuant to the Terrorism Risk Insurance Act of 2002 (as amended) but that meets all of the following criteria:

 It is an act that is violent or dangerous to human life, property, or infrastructure;

 The act results in damage within the United States, or outside of the United States in the case of the premises

 of United States missions or air carriers or vessels as those terms are defined in the Terrorism Risk Insurance Act

 of 2002 (as amended); and

 It is an act that has been committed by an individual or individuals as part of an effort to coerce the civilian

 population of the United States or to influence the policy or affect the conduct of the United States Government by

 coercion.

Catastrophic Industrial Accident: A chemical release, large explosion, or small blast that is localized in nature and

affects workers in a small perimeter the size of a building.

The premium charge for the coverage your policy provides for workers compensation losses caused by a Catastrophe

(other than Certified Acts of Terrorism) is shown in Item 4 of the Information Page or in the Schedule below.

Schedule

State Rate Premium

WORKERS COMPENSATION AND EMPLOYERS LIABILITY ISURANCE POLICY

(Ed. 09-08)

Countersigned by

 This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective Policy No. Endorsement No.

Insured Premium $

Insurance Company

a.

b.

c.

07/01/11 55-816280-01-03

Continental Indemnity Company

Breakaway Courier Systems

6

0.00

NY 0.01 264.00
Continental Indemnity Company

10825 Old Mill Road

Omaha, Nebraska 68154

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

QUICK REFERENCE

BEGINNING ON

Page

Information Page ......................................................................................................................................... i

General Section ........................................................................................................................................... 1

A. The Policy ......................................................................................................................................... 1

B. Who is Insured ................................................................................................................................. 1

C. Workers Compensation Law ............................................................................................................ 1

D. State ................................................................................................................................................. 1

E. Locations .......................................................................................................................................... 1

PART ONE - WORKERS COMPENSATION INSURANCE........................................................................... 1

A. How This Insurance Applies ............................................................................................................. 1

B. We Will Pay ...................................................................................................................................... 1

C. We Will Defend................................................................................................................................. 1

D. We Will Also Pay .............................................................................................................................. 1

E. Other Insurance ................................................................................................................................. 1

F. Payments You Must Make ................................................................................................................ 2

G Recovery From Others ...................................................................................................................... 2

H. Statutory Provisions .......................................................................................................................... 2

PART TWO - EMPLOYERS LIABILITY INSURANCE .................................................................................. 2

A. How This Insurance Applies ............................................................................................................. 2

B. We Will Pay ...................................................................................................................................... 2

C. Exclusions ........................................................................................................................................ 3

D. We Will Defend ................................................................................................................................. 3

E. We Will Also Pay .............................................................................................................................. 3

F Other Insurance ................................................................................................................................. 3

G. Limits of Liability ............................................................................................................................... 3

H. Recovery From Others ...................................................................................................................... 4

I Actions Against Us............................................................................................................................ 4

CNIC-WC-07/01/08

WC 00 00 00 A
QUICK REFERENCE - CONTINUED

BEGINNING ON

Page

PART THREE - OTHER STATES INSURANCE............................................................................................ 4

A. How This Insurance Applies ............................................................................................................. 4

B. Notice ............................................................................................................................................... 4

PART FOUR - YOUR DUTIES IF INJURY OCCURS.................................................................................... 4

PART FIVE - PREMIUM ................................................................................................................................ 4

A. Our Manuals ..................................................................................................................................... 4

B. Classifications................................................................................................................................... 4

C. Remuneration .................................................................................................................................... 4

D. Premium Payments .......................................................................................................................... 5

E. Final Premium ................................................................................................................................... 5

F. Records ............................................................................................................................................ 5

G Audit ................................................................................................................................................. 5

PART SIX - CONDITIONS............................................................................................................................. 5

A. Inspection ......................................................................................................................................... 5

B. Long Term policy .............................................................................................................................. 5

C. Transfer of Your Rights and Duties..................................................................................................... 5

D. Cancellation ...................................................................................................................................... 5

E. Sole Representative .......................................................................................................................... 5

IMPORTANT: This Quick Reference is not part of the Workers Compensation and Employers Liability

Policy and does not provide coverage. Refer to the Workers Compensation and Employers

Liability policy itself for actual contractual provisions.

PLEASE READ THE WORKERS COMPENSATION AND EMPLOYERS LIABILITY POLICY CAREFULLY.
WORKERS COMPENSATION AND

EMPLOYERS LIABILITY INSURANCE POLICY

In return for the payment of the premium and subject to all terms of this policy, we agree with you as follow:

GENERAL SECTION

B. Who Is Insured

This policy includes at its effective date the Information Page and all endorsements and schedules listed there. It is a contract of insurance between you

(the employer named in Item 1 of the Information

Page) and us (the insurer named on the Information

Page). The only agreements relating to this insurance

are stated in this policy. The terms of this policy may

not be changed or waived except by endorsement

issued by us to be part of this policy.

A. The Policy

You are insured if you are an employer named in Item

1 of the Information Page. If that employer is a partnership, and if you are one of its partners, you are

insured, but only in your capacity as an employer of

the partnership’s employees.

C. Workers Compensation Law

Workers Compensation Law means the workers or

workmen’s compensation law and occupational disease law of each state or territory named in Item

3.A. of the Information Page. It includes any amendments to that law which are in effect during the policy

period. It does not include any federal workers or workmen’s compensation law, any federal occupational

disease law or the provisions of any law that provide

nonoccupational disability benefits.

D. State

State means any state of the United States of America, and the District of Columbia.

E. Locations

This policy covers all of your workplaces listed in

Items 1 or 4 of the Information Page; and it covers

all other workplaces in Item 3.A. states unless you

have other insurance or are self-insured for such

workplaces.

Page 1

A. How This Insurance Applies

This workers compensation insurance applies to

bodily injury by accident or bodily injury by disease.

Bodily injury includes resulting death.

1. Bodily injury by accident must occur during the

policy period.

2. Bodily injury by disease must be caused or aggravated by the conditions of your employment.

The employee’s last day of last exposure to the

conditions causing or aggravating such bodily injury by disease must occur during the policy

period.

B. We Will Pay

We will pay promptly when due the benefits required

of you by the workers compensation law.

C. We Will Defend

We have the right and duty to defend at our expense

any claim, proceeding or suit against you for benefits

payable by this insurance. We have the right to investigate and settle these claims, proceedings or

suits.

D. We Will Also Pay

We will also pay these costs, in addition to other

amounts payable under this insurance, as part of any

claim, proceeding or suit we defend:

1. reasonable expenses incurred at our request, but

not loss of earnings;

2. premiums for bonds to release attachments and

for appeal bonds in bond amounts up to the

amount payable under this insurance;

3. litigation costs taxed against you;

4. interest on a judgement as required by law until

we offer the amount due under this insurance;

and

5. expenses we incur.

E. Other Insurance

We will not pay more than our share of benefits and

costs covered by this insurance and other insurance

or self-insurance. Subject to any limits of liability that

may apply, all shares will be equal until the loss is

paid. If any insurance or self-insurance is exhausted, the shares of all remaining insurance will be equal

until the loss is paid.

PART ONE - WORKERS COMPENSATION INSURANCE

We have no duty to defend a claim, proceeding or

suit that is not covered by this insurance.
G. Recovery From Others

You are responsible for any payments in excess of

the benefits regularly provided by the workers compensation law including those required because:

F. Payments You Must Make

We have your rights, and the rights of persons entitled to the benefits of this insurance, to recover our

payments from anyone liable for the injury. You will

do everything necessary to protect those rights for

us and to help us enforce them.

H. Statutory Provisions

These statements apply where they are required by

law.

Page 2

A. How This Insurance Applies

1. of your serious and willful misconduct;

2. you knowingly employ an employee in violation

of law;

1. The bodily injury must arise out of and in the

course of the injured employee’s employment by

you.

2. for care and loss of services; and

3. Bodily injury by accident must occur during the

policy period.

1. for which you are liable to a third party by reason of a claim or suit against you by that third

party to recover the damages claimed against

such third party as a result of injury to your employee;

5. If you are sued, the original suit and any related

legal actions for damages for bodily injury by accident or by disease must be brought in the United States of America, its territories or possesions, or Canada.

B. We Will Pay

We will pay all sums you legally must pay as damages

because of bodily injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance.

PART TWO - EMPLOYERS LIABILITY INSURANCE

3. you fail to comply with a health or safety law or

regulation; or

4. you discharge, coerce or otherwise discriminate

against any employee in violation of the workers

compensation law.

If we make any payments in excess of the benefits

regularly provided by the workers compensation law

on your behalf, you will reimburse us promptly.

1. As between an injured worker and us, we have

notice of the injury when you have notice.

2. Your default or the bankruptcy or insolvency of

you or your estate will not relieve us of our duties

under this insurance after an injury occurs.

3. We are directly and primarily liable to any person entitled to the benefits payable by this insurance. Those persons may enforce our duties; so

may an agency authorized by law. Enforcement

may be against us or against you and us.

4. Jurisdiction over you is jurisdiction over us for

purposes of the workers compensation law. We

are bound by decisions against you under that

law, subject to the provisions of this policy that

are not in conflict with that law.

5. This insurance conforms to the parts of the workers compensation law that apply to:

a. benefits payable by this insurance;

b. special taxes, payments into security or other

special funds, and assessments payable by

us under that law.

6. Terms of this insurance that conflict with the

workers compensation law are changed by this

statement to conform to that law.

Nothing in these paragraphs relieves you of your

duties under this policy.

2. The employment must be necessary or incidental to your work in a state or territory listed in Item

3.A. of the Information Page.

4. Bodily injury by disease must be caused or aggravated by the conditions of your employment.

The employee’s last day of last exposure to the

conditions causing or aggravating such bodily injury by disease must occur during the policy

period.

The damages we will pay, where recovery is permitted by law, include damages:

4. because of bodily injury to your employee that

arises out of and in the course of employment,

claimed against you in a capacity other than as

employer.

This employers liability insurance applies to

bodily injury by accident or bodily injury by

disease. Bodily injury includes resulting death.

3. for consequential bodily injury to a spouse,

child, parent, brother or sister of the injured

employee;

provided that these damages are the direct

consequence of bodily injury that arises out of and

in the course of the injured employee’s employment by you; and
This insurance does not cover:

C. Exclusions

Page 3

1. liability assumed under a contract. This exclusion does not apply to a warranty that your work

will be done in a workmanlike manner;

2. punitive or exemplary damages because of bodily

injury to an employee employed in violation of

law;

7. damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline,

defamation, harassment, humiliation, discrimination against or termination of any employee,

or any personnel practices, policies, acts or

omissions;

9. bodily injury to any person in work subject to the

Federal Employers’ Liability Act (45 USC Sections

51-60), any other federal laws obligating an employer to pay damages to an employee due to

bodily injury arising out of or in the course of employment, or any amendments to those laws;

3. bodily injury to an employee while employed in

violation of law with your actual knowledge or the

actual knowledge of any of your executive

officers;

4. any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any

similar law;

12. damages payable under the Migrant and Seasonal Agricultural Workers Protection Act (29 USC

Sections 1801-1872) and under any other federal law awarding damages for the violation of those

laws or regulations issued thereunder, and any

amendments to those laws.

5. bodily injury intentionally caused or aggravated

by you;

6. bodily injury occurring outside the United States

of America, its territories or possessions, and

Canada. This exclusion does not apply to bodily

injury to a citizen or resident of the United States

of America or Canada who is temporarily outside

these countries;

We will also pay these costs, in addition to other

amounts payable under this insurance, as part of any

claim, proceeding, or suit we defend:

8. bodily injury to any person in work subject to the

Longshore and Harbor Workers’ Compensation

Act (33 USC Sections 901-950), the Nonappropriated Fund Instrumentalities Act (5 USC

Sections 8171-8173), the Outer Continental Shelf

Lands Act (43 USC Sections 1331-1356), the Defense Base Act (42 USC Sections 1651-1654),

the Federal Coal Mine Health and Safety Act of

1969 (30 USC Sections 901-942), any other federal workers or workmen’s compensation law or

other federal occupational disease law, or any

amendments to these laws;

10. bodily injury to a master or member of the crew

of any vessel;

11. fines or penalties imposed for violation of federal or state law; and

D. We Will Defend

We have the right and duty to defend, at our expense,

any claim, proceeding or suit against you for damages

payable by this insurance. We have the right to investigate and settle these claims, proceedings and

suits.

We have no duty to defend a claim, proceeding or

suit that is not covered by this insurance. We have

no duty to defend or continue defending after we

have paid our applicable limit of liability under this

insurance.

E. We Will Also Pay

1. reasonable expenses incurred at our request, but

not loss of earnings;

2. premiums for bonds to release attachments and

for appeal bonds in bond amounts up to the limit of our liability under this insurance;

3. litigation costs taxed against you;

4. interest on a judgement as required by law until

we offer the amount due under this insurance;

and

5. expenses we incur.

F. Other Insurance

We will not pay more than our share of damages and

costs covered by this insurance and other insurance

or self-insurance. Subject to any limits of liability that

apply, all shares will be equal until the loss is paid.

If any insurance or self-insurance is exhausted, the

shares of all remaining insurance and self-insurance

will be equal until the loss is paid.

G. Limits of Liability

Our liability to pay for damages is limited. Our limits

of liability are shown in Item 3.B. of the Information

Page. They apply as explained below.

1. Bodily Injury by Accident. The limit shown for

“bodily injury by accident - each accident” is the

most we will pay for all damages covered by this

insurance because of bodily injury to one or more

employees in any one accident.

A disease is not bodily injury by accident unless

it results directly from bodily injury by accident.
H. Recovery From Others

We have your rights to recover our payment from anyPage 4

I. Actions Against Us

2. Bodily Injury by Disease. The limit shown for

“bodily injury by disease - policy limit” is the

most we will pay for all damages covered by this

insurance and arising out of bodily injury by disease, regardless of the number of employees

who sustain bodily injury by disease. The limit

shown for “bodily injury by disease - each employee” is the most we will pay for all damages

because of bodily injury by disease to any one

employee.

Bodily injury by disease does not include disease

that results directly form a bodily injury by accident.

3. We will reimburse you for the benefits required

by the workers compensation law of that state

if we are not permitted to pay the benefits directly

to persons entitled to them.

B. Notice

Tell us at once if you begin work in any state listed

in Item 3.C. of the Information Page.

PART FOUR - YOUR DUTIES IF INJURY OCCURS

1. This other states insurance applies only if one

or more states are shown in Item 3.C. of the Information Page.

1. You have complied with all the terms of this policy; and

2. If you begin work in any one of those states after

the effective date of this policy and are not insured or are not self-insured for such work, all

provisions of the policy will apply as though that

state were listed in Item 3.A. of the Information

Page.

4. If you have work on the effective date of this policy in any state not listed in item 3.A. of the Information Page, coverage will not be afforded for

that state unless we are notified within thirty

days.

ing the policy period. If your actual exposures are not

properly described by those classifications, we will

assign proper classifications, rates and premium basis by endorsement to this policy.

3. We will not pay any claims for damages after we

have paid the applicable limit of our liability under this insurance.

one liable for an injury covered by this insurance. You

will do everything necessary to protect those rights

for us and to help us enforce them.

There will be no right of action against us under this

insurance unless:

2. The amount you owe has been determined with

our consent or by actual trial and final judgement.

This insurance does not give anyone the right to add

us as a defendant in an action against you to determine your liability. The bankruptcy or insolvency of

you or your estate will not relieve us of our obligations

under this Part.

A. How This Insurance Applies

PART THREE - OTHER STATES INSURANCE

Tell us at once if injury occurs that may be covered by

this policy. Your other duties are listed here.

1. Provide for immediate medical and other services required by the workers compensation law.

2. Give us or our agent the names and addresses of the

injured persons and of witnesses, and other information we may need.

3. Promptly give us all notices, demands and legal papers related to the injury, claim, proceeding or suit.

4. Cooperate with us and assist us, as we may request,

in the investigation, settlement or defense of any

claim, proceeding or suit.

5. Do nothing after an injury occurs that would interfere with our right to recover from others.

6. Do not voluntarily make payments, assume obligations or incur expenses, except at your own cost.

PART FIVE - PREMIUM

A. Our Manuals

All premiums for this policy will be determined by our

manuals of rules, rates, rating plans and classifications. We may change our manuals and apply the

changes to this policy if authorized by law or a governmental agency regulating this insurance.

B. Classifications

Item 4 of the Information Page shows the rate and

premium basis for certain business or work classifications. These classifications were assigned based

on an estimate of the exposures you would have durC. Remuneration

Premium for each work classification is determined

by multiplying a rate times a premium basis.

Remuneration is the most common premium basis.

This premium basis includes payroll and all other

remuneration paid or payable during the policy period for the services of:
D. Premium Payments

You will pay all premium when due. You will pay the

premium even if part or all of a workers compensation law is not valid.

Page 5

1. all your officers and employees engaged in work

covered by this policy; and

PART SIX - CONDITIONS

1. If we cancel, final premium will be calculated pro

rata based on the time this policy was in force.

Final premium will not be less than the pro rata

share of the minimum premium.

2. all other persons engaged in work that could

make us liable under Part One (Workers Compensation Insurance) of this policy. If you do not

have payroll records for these persons, the contract price for their services and materials may

be used as the premium basis. This paragraph

will not apply if you give us proof that the employers of these persons lawfully secured their

workers compensation obligations.

If this policy is canceled, final premium will be determined in the following way unless our manuals

provide otherwise:

2. If you cancel, final premium will be more than

pro rata; it will be based on the time this policy

was in force, and increased by our short rate

cancelation table and procedure. Final premium

will not be less than the minimum premium.

You will keep records of information needed to compute premium. You will provide us with copies of

those records when we ask for them.

your death, we will cover your legal representative

as insured.

1. You may cancel this policy. You must mail or deliver advance written notice to us stating when

the cancelation is to take effect.

2. We may cancel this policy. We must mail or deliver to you not less than ten days advance written notice stating when the cancelation is to take

effect. Mailing that notice to you at your mailing

address shown in Item 1 of the Information Page

will be sufficient to prove notice.

3. The policy period will end on the day and hour

stated in the cancelation notice.

A. Inspection

C. Transfer Of Your Rights And Duties

E. Final Premium

The premium shown on the Information page, schedules, and endorsements is an estimate. The final

premium will be determined after this policy ends by

using the actual, not the estimated, premium basis

and the proper classifications and rates that lawfully

apply to the business and work covered by this policy. If the final premium is more that the premium

you paid to us, you must pay us the balance. If it is

less, we will refund the balance to you. The final

premium will not be less than the highest minimum

premium for the classifications covered by this policy.

F. Records

G. Audit

You will let us examine and audit all your records that

relate to this policy. These records include ledgers,

journals, registers, vouchers, contracts, tax reports,

payroll and disbursement records, and programs for

storing and retrieving data. We may conduct the audits during regular business hours during the policy

period and within three years after the policy period

ends. Information developed by audit will be used

to determine final premium. Insurance rate service

organizations have the same rights we have under

this provision.

We have the right, but are not obliged to inspect your

workplaces at any time. Our inspections are not safety

inspections. They relate only to the insurability of the

workplaces and the premiums to be charged. We

may give you reports on the conditions we find. We

may also recommend changes. While they may help

reduce losses, we do not undertake to perform the

duty of any person to provide for the health or safety

of your employees or the public. We do not warrant

that your workplaces are safe or healthful or that they

comply with laws, regulations, codes or standards.

Insurance rate service organizations have the same

rights we have under this provision.

B. Long Term Policy

If the policy period is longer than one year and sixteen days, all provisions of this policy will apply as

though a new policy were issued on each annual anniversary that this policy is in force.

Your rights or duties under this policy may not be

transferred without our written consent.

If you die and we receive notice within thirty days after

D. Cancelation

4. Any of these provisions that conflict with a law

that controls the cancelation of the insurance in

this policy is changed by this statement to comply with the law.

E. Sole Representative

The insured first named in Item 1 of the Information

Page will act on behalf of all insureds to change this

policy, receive return premium, and give or receive

notice of cancelation.
In Witness Whereof, Continental Indemnity Company has caused this policy to be executed and attested, and

if required by state law, this policy shall not be valid unless countersigned by our authorized representative.

President Secretary
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

PN 00 00 01

SHORT RATE CANCELATION POLICYHOLDER NOTICE

(Ed. 5-10)

Subject to individual State Regulations, the cancelation condition in the Standard Policy WC 00 00 00 A-Part Five

Premium, E. Final Premium, states that if this policy is canceled by you, the final premium will be more than pro rata; it

will be based on the time this policy was in force, and increased by our short rate cancelation table and procedure.

Final premium will not be less than the minimum premium.

In applicable States, the final premium will be calculated as follows based on the standard Short Rate Cancelation Table

attached to this policyholder notice:

The premium for the canceled policy will be calculated using the Short Rate Cancelation

Table. We will use the short-rate percentage as follows:

Page 1 of 3

Determine the payroll developed during the period the policy was in

effect.

Determine the full policy payroll by using the following formula:

Calculate the extended number of days by using the following

formula. If the policy was written for a one-year period, the extended

number of days is the number of days the policy was in effect:

 number of days the policy was in effect

 x365

 number of days for which the policy was written

Based on the extended number of days, apply the short rate percentage shown in the Short Rate Cancelation Table to the full policy premium calculated in step 3. This result is the short-rate portion of the

premium.

If applicable:

Apply any pricing programs

Apply any experience rating modification

Apply any premium discount based on the final earned total

 standard premium

Add the short rate portion of the expense constant but not

 less than $15

Apply catastrophe provisions based on the earned manual

 premium

1.

2.

4.

5.

6.

*

*

*

*

*

 number of days for which the policy was written

 x Actual

 number of days the policy was in effect Payroll

3. Apply authorized rates to such payroll

The total earned premium for the short-rate canceled policy will not be

less than the annual minimum premium applicable to the policy.

7.
% % %%%60

60

61

61

61

61

61

62

62

62

62

63

63

63

63

63

64

64

64

64

65

65

65

65

65

66

66

66

66

67

67

67

67

67

68

68

68

68

69

69

69

69

69

70

70

Days in Policy

Period

Short Rate

Percentages

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

SHORT RATE CANCELATION POLICYHOLDER NOTICE

SHORT RATE CANCELATION TABLE

PN 00 00 01

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196

197

198

199

200

201

202

203

204

205

206

207

208

209

210

211

212

213

214

215

216

217

218

219

220

221

222

223

224

225

(Ed. 5-10) Page 2 of 3

5

6

7

7

8

8

9

9

10

10

11

11

12

12

13

13

14

14

15

15

16

16

17

17

17

18

18

18

18

19

19

19

20

20

20

20

21

21

21

21

22

22

22

23

23

Days in Policy

Period

Short Rate

Percentages

Days in Policy

Period

Short Rate

Percentages

Days in Policy

Period

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

Short Rate

Percentages

23

23

24

24

24

24

25

25

25

26

26

26

26

27

27

27

27

28

28

28

29

29

29

29

30

30

30

30

31

31

31

32

32

32

32

33

33

33

34

34

34

34

35

35

35

Short Rate

Percentages

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

35

36

36

36

37

37

37

37

38

38

38

38

39

39

39

40

40

40

40

41

41

41

41

42

42

42

43

43

43

43

44

44

44

44

45

45

45

46

46

46

46

47

47

47

47

48

48

48

49

49

49

49

50

50

50

50

51

51

51

52

52

52

52

53

53

53

54

54

54

54

55

55

55

55

56

56

56

57

57

57

57

58

58

58

58

59

59

59

60

60

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

Days in Policy

Period
226 %%%%%

227

228

229

230

231

232

233

234

235

236

237

238

239

240

241

242

243

244

245

246

247

248

249

250

251

252

253

70

70

70

71

71

71

71

72

72

72

72

72

73

73

73

73

74

74

74

74

74

75

75

75

75

76

76

76

82

83

83

83

83

83

84

84

84

84

85

85

85

85

85

86

86

86

86

86

87

87

87

87

88

88

88

88

310

311

312

313

314

315

316

317

318

319

320

321

322

323

324

325

326

327

328

329

330

331

332

333

334

335

336

337

88

89

89

89

89

90

90

90

90

90

91

91

91

91

92

92

92

92

92

93

93

93

93

94

94

94

94

94

338

339

340

341

342

343

344

345

346

347

348

349

350

351

352

353

354

355

356

357

358

359

360

361

362

363

364

365

95

95

95

95

95

96

96

96

96

97

97

97

97

97

98

98

98

98

99

99

99

99

99

100

100

100

100

100

282

283

284

285

286

287

288

289

290

291

292

293

294

295

296

297

298

299

300

301

302

303

304

305

306

307

308

309

76

76

77

77

77

77

77

78

78

78

78

79

79

79

79

79

80

80

80

80

81

81

81

81

81

82

82

82

Short Rate

Percentages

Days in Policy

Period

Short Rate

Percentages

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

(Ed. 5-10) Page 3 of 3

PN 00 00 01

SHORT RATE CANCELATION POLICYHOLDER NOTICE

SHORT RATE CANCELATION TABLE

Days in Policy

Period

Short Rate

Percentages

Days in Policy

Period

Short Rate

Percentages

Days in Policy

Period

Days in Policy

Period

Short Rate

Percentages

254

255

256

257

258

259

260

261

262

263

264

265

266

267

268

269

270

271

272

273

274

275

276

277

278

279

280

281

Breakaway Courier Systems

55-816280-01-03

Continental Indemnity Company

Insured

Policy No.

Insurance Company
CONTINENTAL INDEMNITY COMPANY

WC-00-00-01A

NAIC No. 28258

10825 Old Mill Road, Omaha, NE 68154

877-234-4420

WORKERS’ COMPENSATION AND EMPLOYER’S LIABILITY INSURANCE POLICY

INFORMATION PAGE

Producer

and

Mailing

Address

Agent No.

Billing:

Renewal of Policy No.

See Additional Named Insured Endorsement and Locations Endorsement if attached.

2. The policy period is from to 12:01 A.M. Standard Time at the insured’s mailing address.

3. A. Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here:

B. Employers Liability Insurance: Part Two of the policy applies to work in each state listed in item 3.A. The limits of our

liability under Part Two are:

Bodily Injury by Accident $ each accident

Bodily Injury by Disease $ policy limit

Bodily Injury by Disease $ each employee

C. Other States Insurance: Part Three of the policy applies to all states except the states listed in item 3.A and the states of

North Dakota, Ohio, Washington, and Wyoming.

D. See attached list for endorsements and schedules.

4. The premium for this policy will be determined by our Manuals of Rules, Classifications, Rates and Rating Plans.

All information listed on the Extension of Information page is subject to verification and change by audit.

See Extension of Information Page for premium rating schedule.

Minimum Premium $

Total Estimated Annual Premium $

Estimated Taxes and Assessments $

Issuing Office: Countersigned by:

CNIC-WC-IP-7/08

Entity:

FEIN:

State No.

1. Insured

and

Mailing

Address

Policy No.

Breakaway Courier Corporation

DBA Breakaway Courier Systems

PO Box 780

New York, NY 10013-0676

Subchapter Corporation

46-816280-01-04

55-816280-01-03

Enforce Coverage Group

1 Penn Plz Fl 36

New York, NY 10119-3699

DIRECT BILL

07/01/12 07/01/13

NY

1,000,000

1,000,000

1,000,000

 227,909

 46,038

 875

OMAHA, NE

FILED: NEW YORK COUNTY CLERK 09/30/2016 05:29 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 56 RECEIVED NYSCEF: 09/30/2016
Continental Indemnity Company

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

LIST OF ENDORSEMENTS AND SCHEDULES

Endorsements on Policy:

Form Number Endorsement Number Name

WC000001A_CNIC

WC990401_CNIC

WC000174

A I/L_CNIC

WC000414

WC310308

WC000419

WC310319F

WC000422A

WC000421C

PN000001

WC000000B

1

2

3

4

5

6

100

Information Page

List of Endorsements And Schedules

Extension of Information Page

Additional Named Insured and/or

Locations

Notification Of Change In Ownership

Endorsement

New York Limit Of Liability

Endorsement

Premium Due Endorsement

New York Construction

Classification Premium Adjustment

Program

Terrorism Risk Insurance Program

Reauthorization Act Disclosure

Catastrophe

Short Rate Cancelation Policyholder

Notice

Workers Compensation and Employers

Liability Insurance Policy

46-816280-01-04

WC990401
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

EXTENSION OF INFORMATION PAGE

WC 174

(Ed. 4-84)

Policy Number

4. Premium

Classifications Code

No.

Premium Basis

Total Estimated

Annual Remuneration

Rate Per

$100 of

Remuneration

Estimated Annual

Premium

Total Estimated Annual Premium $

46-816280-01-04

Trucking: Mail, Parcel Or Package 7231 12.8500 31,467.00

Delivery- All Employees & Drivers

Bicycle Delivery of Envelopes,

Parcels or Packages

Salespersons, Collectors Or

Messengers-Outside

Clerical Office Employees NOC.

Experience Modification

Terrorism

Catastrophe

7242

8742

8810

9740

9741

 18.9400

 0.5000

 0.2300

 0.8400

 0.0490

 0.0100

 234,040.00

 2,056.00

 1,861.00

 226,316.00

 1,323.00

 270.00

 273,946.62

 244,881

 1,235,694

 411,282

 808,974

Estimated Annual Premium - New York

State Assessment

New York Workers Compensation

Security Fund

NY

0932

9749

 20.2000

 0.0000

 227,909.00

 46,037.62

 0.00
Policy Number:

CONTINENTAL INDEMNITY COMPANY

Additional Named Insured and/or Locations

Item (1) Insured of the Information page is amended to include the following:

All other terms and conditions of this policy remain unchanged.

A I/L 5/90

46-816280-01-04

Breakaway Courier Systems

46-816280-01-04 Endorsement No.

Premium

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

This endorsement is part of your policy and takes effect on the effective date of your policy, unless another effective date is

shown below.

Continental Indemnity Company

New York NY 10001-1726

Breakaway Courier Corporation

DBA Breakaway Courier Systems

335 W 35th St

From: 07/01/12 To: 07/01/13

ENTITY: Subchapter Corp.

 FEIN:
Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 14

NOTIFICATION OF CHANGE IN OWNERSHIP ENDORSEMENT

(Ed. 7-90)

Experience rating is mandatory for all eligible insureds. The experience rating modification factor, if any, applicable to this

policy, may change if there is a change in your ownership or in that of one or more of the entities eligible to be combined

with you for experience rating purposes. Change in ownership includes sales, purchases, other transfers, mergers, consolidations, dissolutions, formations of a new entity and other changes provided for in the applicable experience rating plan

manual.

You must report any change in ownership to us in writing within 90 days of such change. Failure to report such changes

within this period may result in revision of the experience rating modification factor used to determine your premium.

07/01/12 46-816280-01-04

Continental Indemnity Company

1

Breakaway Courier Systems
Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 31 03 08

NEW YORK LIMIT OF LIABILITY ENDORSEMENT

(Ed. 1-00)

This endorsement applies only to the insurance provided by Part Two (Employers Liability Insurance) because

New York is shown in Item 3.A. of the Information Page..

We may not limit our liability to pay damages for which we become legally liable to pay because of bodily injury

to your employees if the bodily injury arises out of and in the course of employment that is subject to and is

compensable under the Workers’ Compensation Law of New York.

Continental Indemnity Company

07/01/12

Breakaway Courier Systems

46-816280-01-04 2
WC 00 04 19

(Ed. 1-01)

PREMIUM DUE DATE ENDORSEMENT

You will pay all premium when due. You will pay the premium even if part or all of a workers compensation law is

not valid. The due date for audit and retrospective premiums is the date of the billing.

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

This endorsement is used to amend:

Section D. of Part Five of the policy is replaced by this provision

PART FIVE

PREMIUM

D. Premium is amended to read:

07/01/12 46-816280-01-04 3

Breakaway Courier Systems

Continental Indemnity Company
WC 31 03 19 F

NEW YORK CONSTRUCTION CLASSIFICATION PREMIUM ADJUSTMENT PROGRAM

EXPLANATORY ENDORSEMENT

The New York Construction Classification Premium Adjustment Program (NYCCPAP) allows premium credits for some employers in the construction industry. These credits exist to recognize the difference in wage rates between employers within the same construction industries in

New York.

The declarations section of this policy will show a credit of 0.00% if you are not eligible for this credit, or if you are eligible for this credit and

have not yet applied for a credit. Credits are earned for average wages in excess of $15.50 per hour for each eligible class. If your policy

shows one of the following classification codes, and you are experience rated, you are eligible to apply for an NYCCPAP credit:

0042 5057 5193 5429 5491 5606 6003 6229 6325 9526

3365 5059 5213 5443 5506 5610 6005 6233 6400 9527

3724 5069 5221 5445 5507 5645 6017 6235 6701 9534

3726 5102 5222 5462 5508 5648 6018 6251 7536 9539

3737 5160 5223 5473 5536 5651 6045 6252 7538 9545

5000 5183 5348 5474 5538 5701 6204 6260 7601 9549

5022 5184 5402 5479 5545 5703 6216 6306 7855 9553

5037 5188 5403 5480 5547 5709 6217 6319 8227

5040 5190 5428

If you have any eligible classes on your policy, you should have been notified by your insurance carrier or the New York Compensation

Insurance Rating Board approximately nine months prior to the inception date of this policy. If you believe you may be eligible for a credit

and have not received an application, you should immediately contact your agent, insurance carrier, or the New York Compensation

Insurance Rating Board.

Credits are calculated by the New York Compensation Insurance Rating Board. You must submit a completed application to: Attention: Field

Services Department, New York Compensation Insurance Rating Board, 733 Third Avenue, New York, New York 10017.

Applications must be received by the Rating Board three (3) months prior to the policy renewal effective date. The Rating Board will accept

and process an application if it is received between the policy effective date and expiration date, however, it must be accompanied by a letter

stating the reason for the delay. Under no circumstances will an application be accepted for any policy if it is received after the expiration date

of the policy. For short-term policies the application must be received prior to the expiration date of the short-term policy. If it is received after

the policy expiration, no credit will be calculated.

The New York Workers Compensation and Employers Liability Insurance Manual, and not this endorsement, govern the implementation and use

of the NYCCPAP.

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

The basis for determining the credit is the limited payroll of each employee for the number of hours worked (excluding overtime premium pay)

for each construction classification (other than employees engaged in the construction of one- or two-family residential housing) for the third

quarter, as reported to taxing authorities, for the year preceding the policy date. Total payroll is to continue to be reported for employees

engaged in the construction of one- or two-family residential housing. For example:

POLICY EFFECTIVE DATE THIRD QUARTER PAYROLL

4/1/09 thru 3/31/10 2008

4/1/10 thru 3/31/11 2009

4/1/11 thru 3/31/12 2010

4/1/12 thru 3/31/13 2011

4/1/13 thru 3/31/14 2012

4/1/14 thru 3/31/15 2013

(Ed. 2-11)

Continental Indemnity Company

Breakaway Courier Systems

07/01/12 46-816280-01-04 4
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 22 A

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT DISCLOSURE ENDORSEMENT

This endorsement addresses the requirements of the Terrorism Risk Insurance Act of 2002 as amended and extended by

the Terrorism Risk Insurance Program Reauthorization Act of 2007. It serves to notify you of certain limitations under the

Act, and that your insurance carrier is charging premium for losses that may occur in the event of an Act of Terrorism.

Your policy provides coverage for workers compensation losses caused by Acts of Terrorism, including workers compensation benefit obligations dictated by state law. Coverage for such losses is still subject to all terms, definitions, exclusions,

and conditions in your policy, and any applicable federal and/or state laws, rules, or regulations.

Definitions

The definitions provided in this endorsement are based on and have the same meaning as the definitions in the Act. If

words or phrases not defined in this endorsement are defined in the Act, the definitions in the Act will apply.

“Act” means the Terrorism Risk Insurance Act of 2002, which took effect on November 26, 2002, and any amendments

thereto resulting from the Terrorism Risk Insurance Program Reauthorization Act of 2007.

“Act of Terrorism” means any act that is certified by the Secretary of the Treasury, in concurrence with the Secretary of

State, and the Attorney General of the United States as meeting all of the following requirements:

(Ed. 09-08) Page 1 of 2

“Insured Loss” means any loss resulting from an act of terrorism (and, except for Pennsylvania, including an act of war, in

the case of workers compensation) that is covered by primary or excess property and casualty insurance issued by an

insurer if the loss occurs in the United States or at the premises of United States missions or to certain air carriers or

vessels.

“Insurer Deductible” means for the period beginning on January 1, 2008, and ending on December 31, 2014, an amount

equal to 20% of our direct earned premiums, over the calendar year immediately preceding the applicable Program Year.

“Program Year” refers to each calendar year between January 1, 2008 and December 31, 2014, as applicable.

Limitation of Liability

The Act limits our liability to you under this policy. If aggregate Insured Losses exceed $100,000,000,000 in a Program

Year and if we have met our Insurer Deductible, we are not liable for the payment of any portion of the amount of Insured

Losses that exceeds $100,000,000,000; and for aggregate Insured Losses up to $100,000,000,000, we will pay only a pro

rata share of such Insured Losses as determined by the Secretary of the Treasury.

The act is an act of terrorism.

The act is violent or dangerous to human life, property or infrastructure.

The act resulted in damage within the United States, or outside of the United States in the case of the

premises of United States missions or certain air carriers or vessels.

The act has been committed by an individual or individuals as part of an effort to coerce the civilian population

of the United States or to influence the policy or affect the conduct of the United States Government by

coercion.

a.

b.

c.

d.
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 22 A

(Ed. 09-08) Page 2 of 2

Insured Losses would be partially reimbursed by the United States Government. If the aggregate industry

Insured Losses exceeds $100,000,000 in a Program Year, the United States Government would pay 85% of

our Insured Losses that exceed our Insurer Deductible.

Notwithstanding item 1 above, the United States Government will not make any payment under the Act for

any portion of Insured Losses that exceeds $100,000,000,000.

The premium charge for the coverage your policy provides for Insured Losses is included in the amount shown

in Item 4 of the Information Page or in the Schedule below.

Schedule

State Rate Premium

Countersigned by

 This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective Policy No. Endorsement No.

Insured Premium $

Insurance Company

Policyholder Disclosure Notice

1.

2.

3.

07/01/12 46-816280-01-04

Continental Indemnity Company

Breakaway Courier Systems

5

NY 0.050 1,323.00
WC 00 04 21 C

CATASTROPHE (OTHER THAN CERTIFIED ACTS OF TERRORISM)

PREMIUM ENDORSEMENT

This endorsement is notification that your insurance carrier is charging premium to cover the losses that may occur in the

event of a Catastrophe (other than Certified Acts of Terrorism) as that term is defined below. Your policy provides coverage

for workers compensation losses caused by a Catastrophe (other than Certified Acts of Terrorism). This premium charge

does not provide funding for Certified Acts of Terrorism contemplated under the Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement (WC 00 04 22 A), attached to this policy.

For purposes of this endorsement, the following definitions apply:

Catastrophe (other than Certified Acts of Terrorism): Any single event, resulting from an Earthquake, Noncertified Act

of Terrorism, or Catastrophic Industrial Accident, which results in aggregate workers compensation losses in excess

of $50 million.

Earthquake: The shaking and vibration at the surface of the earth resulting from underground movement along a fault

plane or from volcanic activity.

Noncertified Act of Terrorism: An event that is not certified as an Act of Terrorism by the Secretary of Treasury

pursuant to the Terrorism Risk Insurance Act of 2002 (as amended) but that meets all of the following criteria:

 It is an act that is violent or dangerous to human life, property, or infrastructure;

 The act results in damage within the United States, or outside of the United States in the case of the premises

 of United States missions or air carriers or vessels as those terms are defined in the Terrorism Risk Insurance Act

 of 2002 (as amended); and

 It is an act that has been committed by an individual or individuals as part of an effort to coerce the civilian

 population of the United States or to influence the policy or affect the conduct of the United States Government by

 coercion.

Catastrophic Industrial Accident: A chemical release, large explosion, or small blast that is localized in nature and

affects workers in a small perimeter the size of a building.

The premium charge for the coverage your policy provides for workers compensation losses caused by a Catastrophe

(other than Certified Acts of Terrorism) is shown in Item 4 of the Information Page or in the Schedule below.

Schedule

State Rate Premium

WORKERS COMPENSATION AND EMPLOYERS LIABILITY ISURANCE POLICY

(Ed. 09-08)

Countersigned by

 This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective Policy No. Endorsement No.

Insured Premium $

Insurance Company

a.

b.

c.

07/01/12 46-816280-01-04

Continental Indemnity Company

Breakaway Courier Systems

6

NY 0.01 270.00
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

PN 00 00 01

SHORT RATE CANCELATION POLICYHOLDER NOTICE

(Ed. 5-10)

Subject to individual State Regulations, the cancelation condition in the Standard Policy WC 00 00 00 A-Part Five

Premium, E. Final Premium, states that if this policy is canceled by you, the final premium will be more than pro rata; it

will be based on the time this policy was in force, and increased by our short rate cancelation table and procedure.

Final premium will not be less than the minimum premium.

In applicable States, the final premium will be calculated as follows based on the standard Short Rate Cancelation Table

attached to this policyholder notice:

The premium for the canceled policy will be calculated using the Short Rate Cancelation

Table. We will use the short-rate percentage as follows:

Page 1 of 3

Determine the payroll developed during the period the policy was in

effect.

Determine the full policy payroll by using the following formula:

Calculate the extended number of days by using the following

formula. If the policy was written for a one-year period, the extended

number of days is the number of days the policy was in effect:

 number of days the policy was in effect

 x365

 number of days for which the policy was written

Based on the extended number of days, apply the short rate percentage shown in the Short Rate Cancelation Table to the full policy premium calculated in step 3. This result is the short-rate portion of the

premium.

If applicable:

Apply any pricing programs

Apply any experience rating modification

Apply any premium discount based on the final earned total

 standard premium

Add the short rate portion of the expense constant but not

 less than $15

Apply catastrophe provisions based on the earned manual

 premium

1.

2.

4.

5.

6.

*

*

*

*

*

 number of days for which the policy was written

 x Actual

 number of days the policy was in effect Payroll

3. Apply authorized rates to such payroll

The total earned premium for the short-rate canceled policy will not be

less than the annual minimum premium applicable to the policy.

7.
% % %%%60

60

61

61

61

61

61

62

62

62

62

63

63

63

63

63

64

64

64

64

65

65

65

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67

67

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69

69

69

70

70

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WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

SHORT RATE CANCELATION POLICYHOLDER NOTICE

SHORT RATE CANCELATION TABLE

PN 00 00 01

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(Ed. 5-10) Page 2 of 3

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165

166

167

168

169

170

171

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173

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176

177

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179

180

Days in Policy

Period
226 %%%%%

227

228

229

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234

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338

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282

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76

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WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

(Ed. 5-10) Page 3 of 3

PN 00 00 01

SHORT RATE CANCELATION POLICYHOLDER NOTICE

SHORT RATE CANCELATION TABLE

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254

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Breakaway Courier Systems

46-816280-01-04

Continental Indemnity Company

Insured

Policy No.

Insurance Company
Continental Indemnity Company

10825 Old Mill Road

Omaha, Nebraska 68154

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

QUICK REFERENCE

BEGINNING ON

Page

Information Page ......................................................................................................................................... i

General Section ........................................................................................................................................... 1

A. The Policy ......................................................................................................................................... 1

B. Who is Insured ................................................................................................................................. 1

C. Workers Compensation Law ............................................................................................................ 1

D. State ................................................................................................................................................. 1

E. Locations .......................................................................................................................................... 1

PART ONE - WORKERS COMPENSATION INSURANCE........................................................................... 1

A. How This Insurance Applies ............................................................................................................. 1

B. We Will Pay ...................................................................................................................................... 1

C. We Will Defend................................................................................................................................. 1

D. We Will Also Pay .............................................................................................................................. 1

E. Other Insurance ................................................................................................................................. 1

F. Payments You Must Make ................................................................................................................ 2

G Recovery From Others ...................................................................................................................... 2

H. Statutory Provisions .......................................................................................................................... 2

PART TWO - EMPLOYERS LIABILITY INSURANCE .................................................................................. 2

A. How This Insurance Applies ............................................................................................................. 2

B. We Will Pay ...................................................................................................................................... 2

C. Exclusions ........................................................................................................................................ 3

D. We Will Defend ................................................................................................................................. 3

E. We Will Also Pay .............................................................................................................................. 3

F Other Insurance ................................................................................................................................. 3

G. Limits of Liability ............................................................................................................................... 3

H. Recovery From Others ...................................................................................................................... 4

I Actions Against Us............................................................................................................................ 4

CNIC-WC-07/01/11
QUICK REFERENCE - CONTINUED

BEGINNING ON

Page

PART THREE - OTHER STATES INSURANCE .............................................................................................. 4

A. How This Insurance Applies ............................................................................................................... 4

B. Notice ............................................................................................................................................... 4

PART FOUR - YOUR DUTIES IF INJURY OCCURS.................................................................................... 4

PART FIVE - PREMIUM ................................................................................................................................ 4

A. Our Manuals ..................................................................................................................................... 4

B. Classifications................................................................................................................................... 4

C. Remuneration .................................................................................................................................... 4

D. Premium Payments .......................................................................................................................... 5

E. Final Premium ................................................................................................................................... 5

F. Records ............................................................................................................................................ 5

G Audit ................................................................................................................................................. 5

PART SIX - CONDITIONS............................................................................................................................. 5

A. Inspection ......................................................................................................................................... 5

B. Long Term policy .............................................................................................................................. 5

C. Transfer of Your Rights and Duties..................................................................................................... 5

D. Cancelation ....................................................................................................................................... 5

E. Sole Representative .......................................................................................................................... 5

IMPORTANT: This Quick Reference is not part of the Workers Compensation and Employers Liability

Policy and does not provide coverage. Refer to the Workers Compensation and Employers

Liability policy itself for actual contractual provisions.

Policyholders seeking information regarding coverage, or for assistance in resolving complaints

can contact the Company by phone at 877-234-4420.

PLEASE READ THE WORKERS COMPENSATION AND EMPLOYERS LIABILITY POLICY CAREFULLY.

CNIC-WC-07/01/11
WORKERS COMPENSATION AND

EMPLOYERS LIABILITY INSURANCE POLICY

In return for the payment of the premium and subject to all terms of this policy, we agree with you as follows:

GENERAL SECTION

B. Who is Insured

This policy includes at its effective date the Information Page and all endorsements and schedules listed there. It is a contract of insurance between you

(the employer named in Item 1 of the Information Page)

and us (the insurer named on the Information Page).

The only agreements relating to this insurance are stated

in this policy. The terms of this policy may not be

changed or waived except by endorsement issued by

us to be part of this policy.

A. The Policy

You are insured if you are an employer named in Item

1 of the Information Page. If that employer is a partnership, and if you are one of its partners, you are

insured, but only in your capacity as an employer of

the partnership’s employees.

C. Workers Compensation Law

Workers Compensation Law means the workers or

workmen’s compensation law and occupational disease law of each state or territory named in Item

3.A. of the Information Page. It includes any amendments to that law which are in effect during the policy

period. It does not include any federal workers or workmen’s compensation law, any federal occupational

disease law or the provisions of any law that provide

nonoccupational disability benefits.

D. State

State means any state of the United States of America, and the District of Columbia.

E. Locations

This policy covers all of your workplaces listed in

Items 1 or 4 of the Information Page; and it covers

all other workplaces in Item 3.A. states unless you

have other insurance or are self-insured for such

workplaces.

Page 1

A. How This Insurance Applies

This workers compensation insurance applies to

bodily injury by accident or bodily injury by disease.

Bodily injury includes resulting death.

1. Bodily injury by accident must occur during the

policy period.

2. Bodily injury by disease must be caused or aggravated by the conditions of your employment.

The employee’s last day of last exposure to the

conditions causing or aggravating such bodily injury by disease must occur during the policy

period.

B. We Will Pay

We will pay promptly when due the benefits required

of you by the workers compensation law.

C. We Will Defend

We have the right and duty to defend at our expense

any claim, proceeding or suit against you for benefits

payable by this insurance. We have the right to investigate and settle these claims, proceedings or

suits.

D. We Will Also Pay

We will also pay these costs, in addition to other

amounts payable under this insurance, as part of any

claim, proceeding or suit we defend:

1. reasonable expenses incurred at our request, but

not loss of earnings;

2. premiums for bonds to release attachments and

for appeal bonds in bond amounts up to the

amount payable under this insurance;

3. litigation costs taxed against you;

4. interest on a judgement as required by law until

we offer the amount due under this insurance;

and

5. expenses we incur.

E. Other Insurance

We will not pay more than our share of benefits and

costs covered by this insurance and other insurance

or self-insurance. Subject to any limits of liability that

may apply, all shares will be equal until the loss is

paid. If any insurance or self-insurance is exhausted, the shares of all remaining insurance will be equal

until the loss is paid.

PART ONE - WORKERS COMPENSATION INSURANCE

We have no duty to defend a claim, proceeding or

suit that is not covered by this insurance.

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
G. Recovery From Others

You are responsible for any payments in excess of

the benefits regularly provided by the workers compensation law including those required because:

F. Payments You Must Make

We have your rights, and the rights of persons entitled to the benefits of this insurance, to recover our

payments from anyone liable for the injury. You will

do everything necessary to protect those rights for

us and to help us enforce them.

H. Statutory Provisions

These statements apply where they are required by

law.

Page 2

A. How This Insurance Applies

1. of your serious and willful misconduct;

2. you knowingly employ an employee in violation

of law;

1. The bodily injury must arise out of and in the

course of the injured employee’s employment by

you.

2. For care and loss of services; and

3. Bodily injury by accident must occur during the

policy period.

1. For which you are liable to a third party by reason of a claim or suit against you by that third

party to recover the damages claimed against

such third party as a result of injury to your employee;

5. If you are sued, the original suit and any related

legal actions for damages for bodily injury by accident or by disease must be brought in the United States of America, its territories or possesions, or Canada.

B. We Will Pay

We will pay all sums that you legally must pay as damages because of bodily injury to your employees,

provided the bodily injury is covered by this Employers Liability Insurance.

PART TWO - EMPLOYERS LIABILITY INSURANCE

3. you fail to comply with a health or safety law or

regulation; or

4. you discharge, coerce or otherwise discriminate

against any employee in violation of the workers

compensation law.

If we make any payments in excess of the benefits

regularly provided by the workers compensation law

on your behalf, you will reimburse us promptly.

1. As between an injured worker and us, we have

notice of the injury when you have notice.

2. Your default or the bankruptcy or insolvency of

you or your estate will not relieve us of our duties

under this insurance after an injury occurs.

3. We are directly and primarily liable to any person entitled to the benefits payable by this insurance. Those persons may enforce our duties; so

may an agency authorized by law. Enforcement

may be against us or against you and us.

4. Jurisdiction over you is jurisdiction over us for

purposes of the workers compensation law. We

are bound by decisions against you under that

law, subject to the provisions of this policy that

are not in conflict with that law.

5. This insurance conforms to the parts of the workers compensation law that apply to:

a. benefits payable by this insurance;

b. special taxes, payments into security or other

special funds, and assessments payable by

us under that law.

6. Terms of this insurance that conflict with the

workers compensation law are changed by this

statement to conform to that law.

Nothing in these paragraphs relieves you of your

duties under this policy.

2. The employment must be necessary or incidental to your work in a state or territory listed in Item

3.A. of the Information Page.

4. Bodily injury by disease must be caused or aggravated by the conditions of your employment.

The employee’s last day of last exposure to the

conditions causing or aggravating such bodily injury by disease must occur during the policy

period.

The damages we will pay, where recovery is permitted by law, include damages:

4. Because of bodily injury to your employee that

arises out of and in the course of employment,

claimed against you in a capacity other than as

employer.

This employers liability insurance applies to

bodily injury by accident or bodily injury by

disease. Bodily injury includes resulting death.

3. For consequential bodily injury to a spouse,

child, parent, brother or sister of the injured

employee; provided that these damages are

the direct consequence of bodily injury that

arises out of and in the course of the injured

employee’s employment by you; and

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
This insurance does not cover:

C. Exclusions

Page 3

1. Liability assumed under a contract. This exclusion does not apply to a warranty that your work

will be done in a workmanlike manner;

2. Punitive or exemplary damages because of bodily

injury to an employee employed in violation of

law;

7. Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline,

defamation, harassment, humiliation, discrimination against or termination of any employee,

or any personnel practices, policies, acts or

omissions;

9. Bodily injury to any person in work subject to the

Federal Employers’ Liability Act (45 USC Sections

51-60), any other federal laws obligating an employer to pay damages to an employee due to

bodily injury arising out of or in the course of employment, or any amendments to those laws;

3. Bodily injury to an employee while employed in

violation of law with your actual knowledge or the

actual knowledge of any of your executive

officers;

4. Any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any

similar law;

12. Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act (29 USC Sections 1801-1872) and under any other federal law

awarding damages for violation of those laws or regulations issued there under, and any amendments

to those laws.

5. Bodily injury intentionally caused or aggravated

by you;

6. Bodily injury occurring outside the United States

of America, its territories or possessions, and

Canada. This exclusion does not apply to bodily

injury to a citizen or resident of the United States

of America or Canada who is temporarily outside

these countries;

We will also pay these costs, in addition to other

amounts payable under this insurance, as part of any

claim, proceeding, or suit we defend:

8. Bodily injury to any person in work subject to the

Longshore and Harbor Workers’ Compensation Act

(33 USC Sections 901-950), the Nonappropriated

Fund Instrumentalities Act (5 USC Sections 8171-

8173), the Outer Continental Shelf Lands Act (43

USC Sections 1331-1356a.), the Defense Base Act

(42 USC Sections 1651-1654), the Federal Coal

Mine Safety and Health Act (30 USC Sections 801-

945), any other federal workers or workmen’s compensation law or other federal occupational disease

law, or any amendments to these laws;

10. Bodily injury to a master or member of the crew

of any vessel;

11. Fines or penalties imposed for violation of federal or state law; and

D. We Will Defend

We have the right and duty to defend, at our expense,

any claim, proceeding or suit against you for damages

payable by this insurance. We have the right to investigate and settle these claims, proceedings and

suits.

We have no duty to defend a claim, proceeding or

suit that is not covered by this insurance. We have

no duty to defend or continue defending after we

have paid our applicable limit of liability under this

insurance.

E. We Will Also Pay

1. Reasonable expenses incurred at our request, but

not loss of earnings;

2. Premiums for bonds to release attachments and

for appeal bonds in bond amounts up to the limit of our liability under this insurance;

3. Litigation costs taxed against you;

4. Interest on a judgement as required by law until we offer the amount due under this insurance; and

5. Expenses we incur.

F. Other Insurance

We will not pay more than our share of damages and

costs covered by this insurance and other insurance

or self-insurance. Subject to any limits of liability that

apply, all shares will be equal until the loss is paid.

If any insurance or self-insurance is exhausted, the

shares of all remaining insurance and self-insurance

will be equal until the loss is paid.

G. Limits of Liability

Our liability to pay for damages is limited. Our limits

of liability are shown in Item 3.B. of the Information

Page. They apply as explained below.

1. Bodily Injury by Accident. The limit shown for

“bodily injury by accident - each accident” is the

most we will pay for all damages covered by this

insurance because of bodily injury to one or more

employees in any one accident.

A disease is not bodily injury by accident unless

it results directly from bodily injury by accident.

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
H. Recovery From Others

We have your rights to recover our payment from anyPage 4

I. Actions Against Us

2. Bodily Injury by Disease. The limit shown for

“bodily injury by disease - policy limit” is the

most we will pay for all damages covered by this

insurance and arising out of bodily injury by disease, regardless of the number of employees

who sustain bodily injury by disease. The limit

shown for “bodily injury by disease - each employee” is the most we will pay for all damages

because of bodily injury by disease to any one

employee.

Bodily injury by disease does not include disease

that results directly from a bodily injury by accident.

3. We will reimburse you for the benefits required

by the workers compensation law of that state

if we are not permitted to pay the benefits directly

to persons entitled to them.

B. Notice

Tell us at once if you begin work in any state listed

in Item 3.C. of the Information Page.

PART FOUR - YOUR DUTIES IF INJURY OCCURS

1. This other states insurance applies only if one

or more states are shown in Item 3.C. of the Information Page.

1. You have complied with all the terms of this policy; and

2. If you begin work in any one of those states after

the effective date of this policy and are not insured or are not self-insured for such work, all

provisions of the policy will apply as though that

state were listed in Item 3.A. of the Information

Page.

4. If you have work on the effective date of this policy in any state not listed in item 3.A. of the Information Page, coverage will not be afforded for

that state unless we are notified within thirty

days.

ing the policy period. If your actual exposures are not

properly described by those classifications, we will

assign proper classifications, rates and premium basis by endorsement to this policy.

3. We will not pay any claims for damages after we

have paid the applicable limit of our liability under this insurance.

one liable for an injury covered by this insurance. You

will do everything necessary to protect those rights

for us and to help us enforce them.

There will be no right of action against us under this

insurance unless:

2. The amount you owe has been determined with

our consent or by actual trial and final judgement.

This insurance does not give anyone the right to add

us as a defendant in an action against you to determine your liability. The bankruptcy or insolvency of

you or your estate will not relieve us of our obligations

under this Part.

A. How This Insurance Applies

PART THREE - OTHER STATES INSURANCE

Tell us at once if injury occurs that may be covered by

this policy. Your other duties are listed here.

1. Provide for immediate medical and other services required by the workers compensation law.

2. Give us or our agent the names and addresses of the

injured persons and of witnesses, and other information we may need.

3. Promptly give us all notices, demands and legal papers related to the injury, claim, proceeding or suit.

4. Cooperate with us and assist us, as we may request,

in the investigation, settlement or defense of any

claim, proceeding or suit.

5. Do nothing after an injury occurs that would interfere with our right to recover from others.

6. Do not voluntarily make payments, assume obligations or incur expenses, except at your own cost.

PART FIVE - PREMIUM

A. Our Manuals

All premium for this policy will be determined by our

manuals of rules, rates, rating plans and classifications. We may change our manuals and apply the

changes to this policy if authorized by law or a governmental agency regulating this insurance.

B. Classifications

Item 4 of the Information Page shows the rate and

premium basis for certain business or work classifications. These classifications were assigned based

on an estimate of the exposures you would have durC. Remuneration

Premium for each work classification is determined

by multiplying a rate times a premium basis.

Remuneration is the most common premium basis.

This premium basis includes payroll and all other

remuneration paid or payable during the policy period for the services of:

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
D. Premium Payments

You will pay all premium when due. You will pay the

premium even if part or all of a workers compensation law is not valid.

Page 5

1. all your officers and employees engaged in work

covered by this policy; and

PART SIX - CONDITIONS

1. If we cancel, final premium will be calculated pro

rata based on the time this policy was in force.

Final premium will not be less than the pro rata

share of the minimum premium.

2. all other persons engaged in work that could

make us liable under Part One (Workers Compensation Insurance) of this policy. If you do not

have payroll records for these persons, the contract price for their services and materials may

be used as the premium basis. This paragraph 2

will not apply if you give us proof that the employers of these persons lawfully secured their

workers compensation obligations.

If this policy is canceled, final premium will be determined in the following way unless our manuals

provide otherwise:

2. If you cancel, final premium will be more than

pro rata; it will be based on the time this policy

was in force, and increased by our short-rate

cancelation table and procedure. Final premium

will not be less than the minimum premium.

You will keep records of information needed to compute premium. You will provide us with copies of

those records when we ask for them.

your death, we will cover your legal representative

as insured.

1. You may cancel this policy. You must mail or deliver advance written notice to us stating when

the cancelation is to take effect.

2. We may cancel this policy. We must mail or deliver to you not less than ten days advance written notice stating when the cancelation is to take

effect. Mailing that notice to you at your mailing

address shown in Item 1 of the Information Page

will be sufficient to prove notice.

3. The policy period will end on the day and hour

stated in the cancelation notice.

A. Inspection

C. Transfer of Your Rights and Duties

E. Final Premium

The premium shown on the Information Page, schedules, and endorsements is an estimate. The final

premium will be determined after this policy ends by

using the actual, not the estimated, premium basis

and the proper classifications and rates that lawfully

apply to the business and work covered by this policy. If the final premium is more than the premium

you paid to us, you must pay us the balance. If it is

less, we will refund the balance to you. The final

premium will not be less than the highest minimum

premium for the classifications covered by this policy.

F. Records

G. Audit

You will let us examine and audit all your records that

relate to this policy. These records include ledgers,

journals, registers, vouchers, contracts, tax reports,

payroll and disbursement records, and programs for

storing and retrieving data. We may conduct the audits during regular business hours during the policy

period and within three years after the policy period

ends. Information developed by audit will be used

to determine final premium. Insurance rate service

organizations have the same rights we have under

this provision.

We have the right, but are not obliged to inspect your

workplaces at any time. Our inspections are not safety

inspections. They relate only to the insurability of the

workplaces and the premiums to be charged. We

may give you reports on the conditions we find. We

may also recommend changes. While they may help

reduce losses, we do not undertake to perform the

duty of any person to provide for the health or safety

of your employees or the public. We do not warrant

that your workplaces are safe or healthful or that they

comply with laws, regulations, codes or standards.

Insurance rate service organizations have the same

rights we have under this provision.

B. Long Term Policy

If the policy period is longer than one year and sixteen days, all provisions of this policy will apply as

though a new policy were issued on each annual anniversary that this policy is in force.

Your rights or duties under this policy may not be

transferred without our written consent.

If you die and we receive notice within thirty days after

D. Cancelation

4. Any of these provisions that conflict with a law

that controls the cancelation of the insurance in

this policy is changed by this statement to comply with the law.

E. Sole Representative

The insured first named in Item 1 of the Information

Page will act on behalf of all insureds to change this

policy, receive return premium, and give or receive

notice of cancelation.

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
In Witness Whereof, Continental Indemnity Company has caused this policy to be executed and attested, and

if required by state law, this policy shall not be valid unless countersigned by our authorized representative.

President Secretary

CNIC-WC-07/01/11
CONTINENTAL INDEMNITY COMPANY

WC-00-00-01A

NAIC No. 28258

10825 Old Mill Road, Omaha, NE 68154

877-234-4420

WORKERS’ COMPENSATION AND EMPLOYER’S LIABILITY INSURANCE POLICY

INFORMATION PAGE

Producer

and

Mailing

Address

Agent No.

Billing:

Renewal of Policy No.

See Additional Named Insured Endorsement and Locations Endorsement if attached.

2. The policy period is from to 12:01 A.M. Standard Time at the insured’s mailing address.

3. A. Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here:

B. Employers Liability Insurance: Part Two of the policy applies to work in each state listed in item 3.A. The limits of our

liability under Part Two are:

Bodily Injury by Accident $ each accident

Bodily Injury by Disease $ policy limit

Bodily Injury by Disease $ each employee

C. Other States Insurance: Part Three of the policy applies to all states except the states listed in item 3.A and the states of

North Dakota, Ohio, Washington, and Wyoming.

D. See attached list for endorsements and schedules.

4. The premium for this policy will be determined by our Manuals of Rules, Classifications, Rates and Rating Plans.

All information listed on the Extension of Information page is subject to verification and change by audit.

See Extension of Information Page for premium rating schedule.

Minimum Premium $

Total Estimated Annual Premium $

Estimated Taxes and Assessments $

Issuing Office: Countersigned by:

CNIC-WC-IP-7/08

Entity:

FEIN:

State No.

1. Insured

and

Mailing

Address

Policy No.

Breakaway Courier Corporation

DBA Breakaway Courier Systems

PO Box 780

New York, NY 10013-0676

Subchapter Corporation

46-816280-01-05

46-816280-01-04

Enforce Coverage Group

1 Penn Plz Fl 36

New York, NY 10119-3699

DIRECT BILL

07/01/13 07/01/14

NY

1,000,000

1,000,000

1,000,000

 239,919

 45,105

 875

OMAHA, NE

FILED: NEW YORK COUNTY CLERK 09/30/2016 05:29 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 57 RECEIVED NYSCEF: 09/30/2016
Continental Indemnity Company

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

LIST OF ENDORSEMENTS AND SCHEDULES

Endorsements on Policy:

Form Number Endorsement Number Name

WC000001A_CNIC

WC990401_CNIC

WC000174

A I/L_CNIC

WC000414

WC310308

WC000419

WC310319F

WC000422A

WC000421C

WC310305B

PN000001

WC000000B

1

2

3

4

5

6

7

100

Information Page

List of Endorsements And Schedules

Extension of Information Page

Additional Named Insured and/or

Locations

Notification Of Change In Ownership

Endorsement

New York Limit Of Liability

Endorsement

Premium Due Endorsement

New York Construction

Classification Premium Adjustment

Program

Terrorism Risk Insurance Program

Reauthorization Act Disclosure

Catastrophe

New York Executive Officers

Exclusion Endorsement

Short Rate Cancelation Policyholder

Notice

Workers Compensation and Employers

Liability Insurance Policy

46-816280-01-05

WC990401
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

EXTENSION OF INFORMATION PAGE

WC 174

(Ed. 4-84)

Policy Number

4. Premium

Classifications Code

No.

Premium Basis

Total Estimated

Annual Remuneration

Rate Per

$100 of

Remuneration

Estimated Annual

Premium

Total Estimated Annual Premium $

46-816280-01-05

Trucking: Mail, Parcel Or Package 7231 12.8500 33,271.00

Delivery- All Employees & Drivers

Bicycle Delivery of Envelopes,

Parcels or Packages

Salespersons, Collectors Or

Messengers-Outside

Clerical Office Employees NOC.

Experience Modification

Terrorism

Catastrophe

7242

8742

8810

9740

9741

 18.9400

 0.5000

 0.2300

 0.8900

 0.0490

 0.0100

 230,541.00

 2,105.00

 1,861.00

 238,322.00

 1,326.00

 271.00

 285,023.77

 258,922

 1,217,215

 421,078

 808,974

Estimated Annual Premium - New York

State Assessment

New York Workers Compensation

Security Fund

NY

0932

9749

 18.8000

 0.0000

 239,919.00

 45,104.77

 0.00
Policy Number:

CONTINENTAL INDEMNITY COMPANY

Additional Named Insured and/or Locations

Item (1) Insured of the Information page is amended to include the following:

All other terms and conditions of this policy remain unchanged.

A I/L 5/90

46-816280-01-05

Breakaway Courier Systems

46-816280-01-05 Endorsement No.

Premium

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

This endorsement is part of your policy and takes effect on the effective date of your policy, unless another effective date is

shown below.

Continental Indemnity Company

New York NY 10018-6344

Breakaway Courier Corporation

DBA Breakaway Courier Systems

444 W 36th St

From: 07/01/13 To: 07/01/14

ENTITY: Subchapter Corp.

 FEIN: 
Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 14

NOTIFICATION OF CHANGE IN OWNERSHIP ENDORSEMENT

(Ed. 7-90)

Experience rating is mandatory for all eligible insureds. The experience rating modification factor, if any, applicable to this

policy, may change if there is a change in your ownership or in that of one or more of the entities eligible to be combined

with you for experience rating purposes. Change in ownership includes sales, purchases, other transfers, mergers, consolidations, dissolutions, formations of a new entity and other changes provided for in the applicable experience rating plan

manual.

You must report any change in ownership to us in writing within 90 days of such change. Failure to report such changes

within this period may result in revision of the experience rating modification factor used to determine your premium.

07/01/13 46-816280-01-05

Continental Indemnity Company

1

Breakaway Courier Systems
Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 31 03 08

NEW YORK LIMIT OF LIABILITY ENDORSEMENT

(Ed. 1-00)

This endorsement applies only to the insurance provided by Part Two (Employers Liability Insurance) because

New York is shown in Item 3.A. of the Information Page..

We may not limit our liability to pay damages for which we become legally liable to pay because of bodily injury

to your employees if the bodily injury arises out of and in the course of employment that is subject to and is

compensable under the Workers’ Compensation Law of New York.

Continental Indemnity Company

07/01/13

Breakaway Courier Systems

46-816280-01-05 2
WC 00 04 19

(Ed. 1-01)

PREMIUM DUE DATE ENDORSEMENT

You will pay all premium when due. You will pay the premium even if part or all of a workers compensation law is

not valid. The due date for audit and retrospective premiums is the date of the billing.

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

This endorsement is used to amend:

Section D. of Part Five of the policy is replaced by this provision

PART FIVE

PREMIUM

D. Premium is amended to read:

07/01/13 46-816280-01-05 3

Breakaway Courier Systems

Continental Indemnity Company
WC 31 03 19 F

NEW YORK CONSTRUCTION CLASSIFICATION PREMIUM ADJUSTMENT PROGRAM

EXPLANATORY ENDORSEMENT

The New York Construction Classification Premium Adjustment Program (NYCCPAP) allows premium credits for some employers in the construction industry. These credits exist to recognize the difference in wage rates between employers within the same construction industries in

New York.

The declarations section of this policy will show a credit of 0.00% if you are not eligible for this credit, or if you are eligible for this credit and

have not yet applied for a credit. Credits are earned for average wages in excess of $15.50 per hour for each eligible class. If your policy

shows one of the following classification codes, and you are experience rated, you are eligible to apply for an NYCCPAP credit:

0042 5057 5193 5429 5491 5606 6003 6229 6325 9526

3365 5059 5213 5443 5506 5610 6005 6233 6400 9527

3724 5069 5221 5445 5507 5645 6017 6235 6701 9534

3726 5102 5222 5462 5508 5648 6018 6251 7536 9539

3737 5160 5223 5473 5536 5651 6045 6252 7538 9545

5000 5183 5348 5474 5538 5701 6204 6260 7601 9549

5022 5184 5402 5479 5545 5703 6216 6306 7855 9553

5037 5188 5403 5480 5547 5709 6217 6319 8227

5040 5190 5428

If you have any eligible classes on your policy, you should have been notified by your insurance carrier or the New York Compensation

Insurance Rating Board approximately nine months prior to the inception date of this policy. If you believe you may be eligible for a credit

and have not received an application, you should immediately contact your agent, insurance carrier, or the New York Compensation

Insurance Rating Board.

Credits are calculated by the New York Compensation Insurance Rating Board. You must submit a completed application to: Attention: Field

Services Department, New York Compensation Insurance Rating Board, 733 Third Avenue, New York, New York 10017.

Applications must be received by the Rating Board three (3) months prior to the policy renewal effective date. The Rating Board will accept

and process an application if it is received between the policy effective date and expiration date, however, it must be accompanied by a letter

stating the reason for the delay. Under no circumstances will an application be accepted for any policy if it is received after the expiration date

of the policy. For short-term policies the application must be received prior to the expiration date of the short-term policy. If it is received after

the policy expiration, no credit will be calculated.

The New York Workers Compensation and Employers Liability Insurance Manual, and not this endorsement, govern the implementation and use

of the NYCCPAP.

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

Endorsement No.

Premium

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective

Insured

Policy No.

 Insurance Company Countersigned by

The basis for determining the credit is the limited payroll of each employee for the number of hours worked (excluding overtime premium pay)

for each construction classification (other than employees engaged in the construction of one- or two-family residential housing) for the third

quarter, as reported to taxing authorities, for the year preceding the policy date. Total payroll is to continue to be reported for employees

engaged in the construction of one- or two-family residential housing. For example:

POLICY EFFECTIVE DATE THIRD QUARTER PAYROLL

4/1/09 thru 3/31/10 2008

4/1/10 thru 3/31/11 2009

4/1/11 thru 3/31/12 2010

4/1/12 thru 3/31/13 2011

4/1/13 thru 3/31/14 2012

4/1/14 thru 3/31/15 2013

(Ed. 2-11)

Continental Indemnity Company

Breakaway Courier Systems

07/01/13 46-816280-01-05 4
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 22 A

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT DISCLOSURE ENDORSEMENT

This endorsement addresses the requirements of the Terrorism Risk Insurance Act of 2002 as amended and extended by

the Terrorism Risk Insurance Program Reauthorization Act of 2007. It serves to notify you of certain limitations under the

Act, and that your insurance carrier is charging premium for losses that may occur in the event of an Act of Terrorism.

Your policy provides coverage for workers compensation losses caused by Acts of Terrorism, including workers compensation benefit obligations dictated by state law. Coverage for such losses is still subject to all terms, definitions, exclusions,

and conditions in your policy, and any applicable federal and/or state laws, rules, or regulations.

Definitions

The definitions provided in this endorsement are based on and have the same meaning as the definitions in the Act. If

words or phrases not defined in this endorsement are defined in the Act, the definitions in the Act will apply.

“Act” means the Terrorism Risk Insurance Act of 2002, which took effect on November 26, 2002, and any amendments

thereto resulting from the Terrorism Risk Insurance Program Reauthorization Act of 2007.

“Act of Terrorism” means any act that is certified by the Secretary of the Treasury, in concurrence with the Secretary of

State, and the Attorney General of the United States as meeting all of the following requirements:

(Ed. 09-08) Page 1 of 2

“Insured Loss” means any loss resulting from an act of terrorism (and, except for Pennsylvania, including an act of war, in

the case of workers compensation) that is covered by primary or excess property and casualty insurance issued by an

insurer if the loss occurs in the United States or at the premises of United States missions or to certain air carriers or

vessels.

“Insurer Deductible” means for the period beginning on January 1, 2008, and ending on December 31, 2014, an amount

equal to 20% of our direct earned premiums, over the calendar year immediately preceding the applicable Program Year.

“Program Year” refers to each calendar year between January 1, 2008 and December 31, 2014, as applicable.

Limitation of Liability

The Act limits our liability to you under this policy. If aggregate Insured Losses exceed $100,000,000,000 in a Program

Year and if we have met our Insurer Deductible, we are not liable for the payment of any portion of the amount of Insured

Losses that exceeds $100,000,000,000; and for aggregate Insured Losses up to $100,000,000,000, we will pay only a pro

rata share of such Insured Losses as determined by the Secretary of the Treasury.

The act is an act of terrorism.

The act is violent or dangerous to human life, property or infrastructure.

The act resulted in damage within the United States, or outside of the United States in the case of the

premises of United States missions or certain air carriers or vessels.

The act has been committed by an individual or individuals as part of an effort to coerce the civilian population

of the United States or to influence the policy or affect the conduct of the United States Government by

coercion.

a.

b.

c.

d.
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WC 00 04 22 A

(Ed. 09-08) Page 2 of 2

Insured Losses would be partially reimbursed by the United States Government. If the aggregate industry

Insured Losses exceeds $100,000,000 in a Program Year, the United States Government would pay 85% of

our Insured Losses that exceed our Insurer Deductible.

Notwithstanding item 1 above, the United States Government will not make any payment under the Act for

any portion of Insured Losses that exceeds $100,000,000,000.

The premium charge for the coverage your policy provides for Insured Losses is included in the amount shown

in Item 4 of the Information Page or in the Schedule below.

Schedule

State Rate Premium

Countersigned by

 This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective Policy No. Endorsement No.

Insured Premium $

Insurance Company

Policyholder Disclosure Notice

1.

2.

3.

07/01/13 46-816280-01-05

Continental Indemnity Company

Breakaway Courier Systems

5

NY 0.050 1,326.00
WC 00 04 21 C

CATASTROPHE (OTHER THAN CERTIFIED ACTS OF TERRORISM)

PREMIUM ENDORSEMENT

This endorsement is notification that your insurance carrier is charging premium to cover the losses that may occur in the

event of a Catastrophe (other than Certified Acts of Terrorism) as that term is defined below. Your policy provides coverage

for workers compensation losses caused by a Catastrophe (other than Certified Acts of Terrorism). This premium charge

does not provide funding for Certified Acts of Terrorism contemplated under the Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement (WC 00 04 22 A), attached to this policy.

For purposes of this endorsement, the following definitions apply:

Catastrophe (other than Certified Acts of Terrorism): Any single event, resulting from an Earthquake, Noncertified Act

of Terrorism, or Catastrophic Industrial Accident, which results in aggregate workers compensation losses in excess

of $50 million.

Earthquake: The shaking and vibration at the surface of the earth resulting from underground movement along a fault

plane or from volcanic activity.

Noncertified Act of Terrorism: An event that is not certified as an Act of Terrorism by the Secretary of Treasury

pursuant to the Terrorism Risk Insurance Act of 2002 (as amended) but that meets all of the following criteria:

 It is an act that is violent or dangerous to human life, property, or infrastructure;

 The act results in damage within the United States, or outside of the United States in the case of the premises

 of United States missions or air carriers or vessels as those terms are defined in the Terrorism Risk Insurance Act

 of 2002 (as amended); and

 It is an act that has been committed by an individual or individuals as part of an effort to coerce the civilian

 population of the United States or to influence the policy or affect the conduct of the United States Government by

 coercion.

Catastrophic Industrial Accident: A chemical release, large explosion, or small blast that is localized in nature and

affects workers in a small perimeter the size of a building.

The premium charge for the coverage your policy provides for workers compensation losses caused by a Catastrophe

(other than Certified Acts of Terrorism) is shown in Item 4 of the Information Page or in the Schedule below.

Schedule

State Rate Premium

WORKERS COMPENSATION AND EMPLOYERS LIABILITY ISURANCE POLICY

(Ed. 09-08)

Countersigned by

 This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective Policy No. Endorsement No.

Insured Premium $

Insurance Company

a.

b.

c.

07/01/13 46-816280-01-05

Continental Indemnity Company

Breakaway Courier Systems

6

NY 0.01 271.00
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY WC 31 03 05B

NEW YORK EXCLUSION OF EXECUTIVE OFFICER ENDORSEMENT

The policy does not cover bodily injury to the sole executive officer and only stockholder of the insured

corporation, or one or two executive officers who together are the only stockholders of the insured

corporation with each officer holding at least one share of stock in the corporation, when such corporation has

other employees who are required to be covered by law, and the corporation has elected to exclude from

coverage the sole officer or one or both officers of a two-person corporation described in the Schedule.

The premium basis for the policy does not include the remuneration of the excluded executive officer or

officers.

You will reimburse us for any payment we must make because of bodily injury to such person.

Schedule

Name of Officer(s) Title

Robert Kotch President - 100%

07/01/13 46-816280-01-05 7

Breakaway Courier Systems

Continental Indemnity Company

0.00

This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated.

Endorsement Effective Endorsement No.

Insured

Insurance Company Countersigned By

Policy No.

Premium
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

PN 00 00 01

SHORT RATE CANCELATION POLICYHOLDER NOTICE

(Ed. 5-10)

Subject to individual State Regulations, the cancelation condition in the Standard Policy WC 00 00 00 A-Part Five

Premium, E. Final Premium, states that if this policy is canceled by you, the final premium will be more than pro rata; it

will be based on the time this policy was in force, and increased by our short rate cancelation table and procedure.

Final premium will not be less than the minimum premium.

In applicable States, the final premium will be calculated as follows based on the standard Short Rate Cancelation Table

attached to this policyholder notice:

The premium for the canceled policy will be calculated using the Short Rate Cancelation

Table. We will use the short-rate percentage as follows:

Page 1 of 3

Determine the payroll developed during the period the policy was in

effect.

Determine the full policy payroll by using the following formula:

Calculate the extended number of days by using the following

formula. If the policy was written for a one-year period, the extended

number of days is the number of days the policy was in effect:

 number of days the policy was in effect

 x365

 number of days for which the policy was written

Based on the extended number of days, apply the short rate percentage shown in the Short Rate Cancelation Table to the full policy premium calculated in step 3. This result is the short-rate portion of the

premium.

If applicable:

Apply any pricing programs

Apply any experience rating modification

Apply any premium discount based on the final earned total

 standard premium

Add the short rate portion of the expense constant but not

 less than $15

Apply catastrophe provisions based on the earned manual

 premium

1.

2.

4.

5.

6.

*

*

*

*

*

 number of days for which the policy was written

 x Actual

 number of days the policy was in effect Payroll

3. Apply authorized rates to such payroll

The total earned premium for the short-rate canceled policy will not be

less than the annual minimum premium applicable to the policy.

7.
% % %%%60

60

61

61

61

61

61

62

62

62

62

63

63

63

63

63

64

64

64

64

65

65

65

65

65

66

66

66

66

67

67

67

67

67

68

68

68

68

69

69

69

69

69

70

70

Days in Policy

Period

Short Rate

Percentages

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

SHORT RATE CANCELATION POLICYHOLDER NOTICE

SHORT RATE CANCELATION TABLE

PN 00 00 01

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196

197

198

199

200

201

202

203

204

205

206

207

208

209

210

211

212

213

214

215

216

217

218

219

220

221

222

223

224

225

(Ed. 5-10) Page 2 of 3

5

6

7

7

8

8

9

9

10

10

11

11

12

12

13

13

14

14

15

15

16

16

17

17

17

18

18

18

18

19

19

19

20

20

20

20

21

21

21

21

22

22

22

23

23

Days in Policy

Period

Short Rate

Percentages

Days in Policy

Period

Short Rate

Percentages

Days in Policy

Period

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

Short Rate

Percentages

23

23

24

24

24

24

25

25

25

26

26

26

26

27

27

27

27

28

28

28

29

29

29

29

30

30

30

30

31

31

31

32

32

32

32

33

33

33

34

34

34

34

35

35

35

Short Rate

Percentages

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

35

36

36

36

37

37

37

37

38

38

38

38

39

39

39

40

40

40

40

41

41

41

41

42

42

42

43

43

43

43

44

44

44

44

45

45

45

46

46

46

46

47

47

47

47

48

48

48

49

49

49

49

50

50

50

50

51

51

51

52

52

52

52

53

53

53

54

54

54

54

55

55

55

55

56

56

56

57

57

57

57

58

58

58

58

59

59

59

60

60

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

Days in Policy

Period
226 %%%%%

227

228

229

230

231

232

233

234

235

236

237

238

239

240

241

242

243

244

245

246

247

248

249

250

251

252

253

70

70

70

71

71

71

71

72

72

72

72

72

73

73

73

73

74

74

74

74

74

75

75

75

75

76

76

76

82

83

83

83

83

83

84

84

84

84

85

85

85

85

85

86

86

86

86

86

87

87

87

87

88

88

88

88

310

311

312

313

314

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WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

(Ed. 5-10) Page 3 of 3

PN 00 00 01

SHORT RATE CANCELATION POLICYHOLDER NOTICE

SHORT RATE CANCELATION TABLE

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Breakaway Courier Systems

46-816280-01-05

Continental Indemnity Company

Insured

Policy No.

Insurance Company
Continental Indemnity Company

10825 Old Mill Road

Omaha, Nebraska 68154

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY

QUICK REFERENCE

BEGINNING ON

Page

Information Page ......................................................................................................................................... i

General Section ........................................................................................................................................... 1

A. The Policy ......................................................................................................................................... 1

B. Who is Insured ................................................................................................................................. 1

C. Workers Compensation Law ............................................................................................................ 1

D. State ................................................................................................................................................. 1

E. Locations .......................................................................................................................................... 1

PART ONE - WORKERS COMPENSATION INSURANCE........................................................................... 1

A. How This Insurance Applies ............................................................................................................. 1

B. We Will Pay ...................................................................................................................................... 1

C. We Will Defend................................................................................................................................. 1

D. We Will Also Pay .............................................................................................................................. 1

E. Other Insurance ................................................................................................................................. 1

F. Payments You Must Make ................................................................................................................ 2

G Recovery From Others ...................................................................................................................... 2

H. Statutory Provisions .......................................................................................................................... 2

PART TWO - EMPLOYERS LIABILITY INSURANCE .................................................................................. 2

A. How This Insurance Applies ............................................................................................................. 2

B. We Will Pay ...................................................................................................................................... 2

C. Exclusions ........................................................................................................................................ 3

D. We Will Defend ................................................................................................................................. 3

E. We Will Also Pay .............................................................................................................................. 3

F Other Insurance ................................................................................................................................. 3

G. Limits of Liability ............................................................................................................................... 3

H. Recovery From Others ...................................................................................................................... 4

I Actions Against Us............................................................................................................................ 4

CNIC-WC-07/01/11
QUICK REFERENCE - CONTINUED

BEGINNING ON

Page

PART THREE - OTHER STATES INSURANCE .............................................................................................. 4

A. How This Insurance Applies ............................................................................................................... 4

B. Notice ............................................................................................................................................... 4

PART FOUR - YOUR DUTIES IF INJURY OCCURS.................................................................................... 4

PART FIVE - PREMIUM ................................................................................................................................ 4

A. Our Manuals ..................................................................................................................................... 4

B. Classifications................................................................................................................................... 4

C. Remuneration .................................................................................................................................... 4

D. Premium Payments .......................................................................................................................... 5

E. Final Premium ................................................................................................................................... 5

F. Records ............................................................................................................................................ 5

G Audit ................................................................................................................................................. 5

PART SIX - CONDITIONS............................................................................................................................. 5

A. Inspection ......................................................................................................................................... 5

B. Long Term policy .............................................................................................................................. 5

C. Transfer of Your Rights and Duties..................................................................................................... 5

D. Cancelation ....................................................................................................................................... 5

E. Sole Representative .......................................................................................................................... 5

IMPORTANT: This Quick Reference is not part of the Workers Compensation and Employers Liability

Policy and does not provide coverage. Refer to the Workers Compensation and Employers

Liability policy itself for actual contractual provisions.

Policyholders seeking information regarding coverage, or for assistance in resolving complaints

can contact the Company by phone at 877-234-4420.

PLEASE READ THE WORKERS COMPENSATION AND EMPLOYERS LIABILITY POLICY CAREFULLY.

CNIC-WC-07/01/11
WORKERS COMPENSATION AND

EMPLOYERS LIABILITY INSURANCE POLICY

In return for the payment of the premium and subject to all terms of this policy, we agree with you as follows:

GENERAL SECTION

B. Who is Insured

This policy includes at its effective date the Information Page and all endorsements and schedules listed there. It is a contract of insurance between you

(the employer named in Item 1 of the Information Page)

and us (the insurer named on the Information Page).

The only agreements relating to this insurance are stated

in this policy. The terms of this policy may not be

changed or waived except by endorsement issued by

us to be part of this policy.

A. The Policy

You are insured if you are an employer named in Item

1 of the Information Page. If that employer is a partnership, and if you are one of its partners, you are

insured, but only in your capacity as an employer of

the partnership’s employees.

C. Workers Compensation Law

Workers Compensation Law means the workers or

workmen’s compensation law and occupational disease law of each state or territory named in Item

3.A. of the Information Page. It includes any amendments to that law which are in effect during the policy

period. It does not include any federal workers or workmen’s compensation law, any federal occupational

disease law or the provisions of any law that provide

nonoccupational disability benefits.

D. State

State means any state of the United States of America, and the District of Columbia.

E. Locations

This policy covers all of your workplaces listed in

Items 1 or 4 of the Information Page; and it covers

all other workplaces in Item 3.A. states unless you

have other insurance or are self-insured for such

workplaces.

Page 1

A. How This Insurance Applies

This workers compensation insurance applies to

bodily injury by accident or bodily injury by disease.

Bodily injury includes resulting death.

1. Bodily injury by accident must occur during the

policy period.

2. Bodily injury by disease must be caused or aggravated by the conditions of your employment.

The employee’s last day of last exposure to the

conditions causing or aggravating such bodily injury by disease must occur during the policy

period.

B. We Will Pay

We will pay promptly when due the benefits required

of you by the workers compensation law.

C. We Will Defend

We have the right and duty to defend at our expense

any claim, proceeding or suit against you for benefits

payable by this insurance. We have the right to investigate and settle these claims, proceedings or

suits.

D. We Will Also Pay

We will also pay these costs, in addition to other

amounts payable under this insurance, as part of any

claim, proceeding or suit we defend:

1. reasonable expenses incurred at our request, but

not loss of earnings;

2. premiums for bonds to release attachments and

for appeal bonds in bond amounts up to the

amount payable under this insurance;

3. litigation costs taxed against you;

4. interest on a judgement as required by law until

we offer the amount due under this insurance;

and

5. expenses we incur.

E. Other Insurance

We will not pay more than our share of benefits and

costs covered by this insurance and other insurance

or self-insurance. Subject to any limits of liability that

may apply, all shares will be equal until the loss is

paid. If any insurance or self-insurance is exhausted, the shares of all remaining insurance will be equal

until the loss is paid.

PART ONE - WORKERS COMPENSATION INSURANCE

We have no duty to defend a claim, proceeding or

suit that is not covered by this insurance.

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
G. Recovery From Others

You are responsible for any payments in excess of

the benefits regularly provided by the workers compensation law including those required because:

F. Payments You Must Make

We have your rights, and the rights of persons entitled to the benefits of this insurance, to recover our

payments from anyone liable for the injury. You will

do everything necessary to protect those rights for

us and to help us enforce them.

H. Statutory Provisions

These statements apply where they are required by

law.

Page 2

A. How This Insurance Applies

1. of your serious and willful misconduct;

2. you knowingly employ an employee in violation

of law;

1. The bodily injury must arise out of and in the

course of the injured employee’s employment by

you.

2. For care and loss of services; and

3. Bodily injury by accident must occur during the

policy period.

1. For which you are liable to a third party by reason of a claim or suit against you by that third

party to recover the damages claimed against

such third party as a result of injury to your employee;

5. If you are sued, the original suit and any related

legal actions for damages for bodily injury by accident or by disease must be brought in the United States of America, its territories or possesions, or Canada.

B. We Will Pay

We will pay all sums that you legally must pay as damages because of bodily injury to your employees,

provided the bodily injury is covered by this Employers Liability Insurance.

PART TWO - EMPLOYERS LIABILITY INSURANCE

3. you fail to comply with a health or safety law or

regulation; or

4. you discharge, coerce or otherwise discriminate

against any employee in violation of the workers

compensation law.

If we make any payments in excess of the benefits

regularly provided by the workers compensation law

on your behalf, you will reimburse us promptly.

1. As between an injured worker and us, we have

notice of the injury when you have notice.

2. Your default or the bankruptcy or insolvency of

you or your estate will not relieve us of our duties

under this insurance after an injury occurs.

3. We are directly and primarily liable to any person entitled to the benefits payable by this insurance. Those persons may enforce our duties; so

may an agency authorized by law. Enforcement

may be against us or against you and us.

4. Jurisdiction over you is jurisdiction over us for

purposes of the workers compensation law. We

are bound by decisions against you under that

law, subject to the provisions of this policy that

are not in conflict with that law.

5. This insurance conforms to the parts of the workers compensation law that apply to:

a. benefits payable by this insurance;

b. special taxes, payments into security or other

special funds, and assessments payable by

us under that law.

6. Terms of this insurance that conflict with the

workers compensation law are changed by this

statement to conform to that law.

Nothing in these paragraphs relieves you of your

duties under this policy.

2. The employment must be necessary or incidental to your work in a state or territory listed in Item

3.A. of the Information Page.

4. Bodily injury by disease must be caused or aggravated by the conditions of your employment.

The employee’s last day of last exposure to the

conditions causing or aggravating such bodily injury by disease must occur during the policy

period.

The damages we will pay, where recovery is permitted by law, include damages:

4. Because of bodily injury to your employee that

arises out of and in the course of employment,

claimed against you in a capacity other than as

employer.

This employers liability insurance applies to

bodily injury by accident or bodily injury by

disease. Bodily injury includes resulting death.

3. For consequential bodily injury to a spouse,

child, parent, brother or sister of the injured

employee; provided that these damages are

the direct consequence of bodily injury that

arises out of and in the course of the injured

employee’s employment by you; and

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
This insurance does not cover:

C. Exclusions

Page 3

1. Liability assumed under a contract. This exclusion does not apply to a warranty that your work

will be done in a workmanlike manner;

2. Punitive or exemplary damages because of bodily

injury to an employee employed in violation of

law;

7. Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline,

defamation, harassment, humiliation, discrimination against or termination of any employee,

or any personnel practices, policies, acts or

omissions;

9. Bodily injury to any person in work subject to the

Federal Employers’ Liability Act (45 USC Sections

51-60), any other federal laws obligating an employer to pay damages to an employee due to

bodily injury arising out of or in the course of employment, or any amendments to those laws;

3. Bodily injury to an employee while employed in

violation of law with your actual knowledge or the

actual knowledge of any of your executive

officers;

4. Any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any

similar law;

12. Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act (29 USC Sections 1801-1872) and under any other federal law

awarding damages for violation of those laws or regulations issued there under, and any amendments

to those laws.

5. Bodily injury intentionally caused or aggravated

by you;

6. Bodily injury occurring outside the United States

of America, its territories or possessions, and

Canada. This exclusion does not apply to bodily

injury to a citizen or resident of the United States

of America or Canada who is temporarily outside

these countries;

We will also pay these costs, in addition to other

amounts payable under this insurance, as part of any

claim, proceeding, or suit we defend:

8. Bodily injury to any person in work subject to the

Longshore and Harbor Workers’ Compensation Act

(33 USC Sections 901-950), the Nonappropriated

Fund Instrumentalities Act (5 USC Sections 8171-

8173), the Outer Continental Shelf Lands Act (43

USC Sections 1331-1356a.), the Defense Base Act

(42 USC Sections 1651-1654), the Federal Coal

Mine Safety and Health Act (30 USC Sections 801-

945), any other federal workers or workmen’s compensation law or other federal occupational disease

law, or any amendments to these laws;

10. Bodily injury to a master or member of the crew

of any vessel;

11. Fines or penalties imposed for violation of federal or state law; and

D. We Will Defend

We have the right and duty to defend, at our expense,

any claim, proceeding or suit against you for damages

payable by this insurance. We have the right to investigate and settle these claims, proceedings and

suits.

We have no duty to defend a claim, proceeding or

suit that is not covered by this insurance. We have

no duty to defend or continue defending after we

have paid our applicable limit of liability under this

insurance.

E. We Will Also Pay

1. Reasonable expenses incurred at our request, but

not loss of earnings;

2. Premiums for bonds to release attachments and

for appeal bonds in bond amounts up to the limit of our liability under this insurance;

3. Litigation costs taxed against you;

4. Interest on a judgement as required by law until we offer the amount due under this insurance; and

5. Expenses we incur.

F. Other Insurance

We will not pay more than our share of damages and

costs covered by this insurance and other insurance

or self-insurance. Subject to any limits of liability that

apply, all shares will be equal until the loss is paid.

If any insurance or self-insurance is exhausted, the

shares of all remaining insurance and self-insurance

will be equal until the loss is paid.

G. Limits of Liability

Our liability to pay for damages is limited. Our limits

of liability are shown in Item 3.B. of the Information

Page. They apply as explained below.

1. Bodily Injury by Accident. The limit shown for

“bodily injury by accident - each accident” is the

most we will pay for all damages covered by this

insurance because of bodily injury to one or more

employees in any one accident.

A disease is not bodily injury by accident unless

it results directly from bodily injury by accident.

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
H. Recovery From Others

We have your rights to recover our payment from anyPage 4

I. Actions Against Us

2. Bodily Injury by Disease. The limit shown for

“bodily injury by disease - policy limit” is the

most we will pay for all damages covered by this

insurance and arising out of bodily injury by disease, regardless of the number of employees

who sustain bodily injury by disease. The limit

shown for “bodily injury by disease - each employee” is the most we will pay for all damages

because of bodily injury by disease to any one

employee.

Bodily injury by disease does not include disease

that results directly from a bodily injury by accident.

3. We will reimburse you for the benefits required

by the workers compensation law of that state

if we are not permitted to pay the benefits directly

to persons entitled to them.

B. Notice

Tell us at once if you begin work in any state listed

in Item 3.C. of the Information Page.

PART FOUR - YOUR DUTIES IF INJURY OCCURS

1. This other states insurance applies only if one

or more states are shown in Item 3.C. of the Information Page.

1. You have complied with all the terms of this policy; and

2. If you begin work in any one of those states after

the effective date of this policy and are not insured or are not self-insured for such work, all

provisions of the policy will apply as though that

state were listed in Item 3.A. of the Information

Page.

4. If you have work on the effective date of this policy in any state not listed in item 3.A. of the Information Page, coverage will not be afforded for

that state unless we are notified within thirty

days.

ing the policy period. If your actual exposures are not

properly described by those classifications, we will

assign proper classifications, rates and premium basis by endorsement to this policy.

3. We will not pay any claims for damages after we

have paid the applicable limit of our liability under this insurance.

one liable for an injury covered by this insurance. You

will do everything necessary to protect those rights

for us and to help us enforce them.

There will be no right of action against us under this

insurance unless:

2. The amount you owe has been determined with

our consent or by actual trial and final judgement.

This insurance does not give anyone the right to add

us as a defendant in an action against you to determine your liability. The bankruptcy or insolvency of

you or your estate will not relieve us of our obligations

under this Part.

A. How This Insurance Applies

PART THREE - OTHER STATES INSURANCE

Tell us at once if injury occurs that may be covered by

this policy. Your other duties are listed here.

1. Provide for immediate medical and other services required by the workers compensation law.

2. Give us or our agent the names and addresses of the

injured persons and of witnesses, and other information we may need.

3. Promptly give us all notices, demands and legal papers related to the injury, claim, proceeding or suit.

4. Cooperate with us and assist us, as we may request,

in the investigation, settlement or defense of any

claim, proceeding or suit.

5. Do nothing after an injury occurs that would interfere with our right to recover from others.

6. Do not voluntarily make payments, assume obligations or incur expenses, except at your own cost.

PART FIVE - PREMIUM

A. Our Manuals

All premium for this policy will be determined by our

manuals of rules, rates, rating plans and classifications. We may change our manuals and apply the

changes to this policy if authorized by law or a governmental agency regulating this insurance.

B. Classifications

Item 4 of the Information Page shows the rate and

premium basis for certain business or work classifications. These classifications were assigned based

on an estimate of the exposures you would have durC. Remuneration

Premium for each work classification is determined

by multiplying a rate times a premium basis.

Remuneration is the most common premium basis.

This premium basis includes payroll and all other

remuneration paid or payable during the policy period for the services of:

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
D. Premium Payments

You will pay all premium when due. You will pay the

premium even if part or all of a workers compensation law is not valid.

Page 5

1. all your officers and employees engaged in work

covered by this policy; and

PART SIX - CONDITIONS

1. If we cancel, final premium will be calculated pro

rata based on the time this policy was in force.

Final premium will not be less than the pro rata

share of the minimum premium.

2. all other persons engaged in work that could

make us liable under Part One (Workers Compensation Insurance) of this policy. If you do not

have payroll records for these persons, the contract price for their services and materials may

be used as the premium basis. This paragraph 2

will not apply if you give us proof that the employers of these persons lawfully secured their

workers compensation obligations.

If this policy is canceled, final premium will be determined in the following way unless our manuals

provide otherwise:

2. If you cancel, final premium will be more than

pro rata; it will be based on the time this policy

was in force, and increased by our short-rate

cancelation table and procedure. Final premium

will not be less than the minimum premium.

You will keep records of information needed to compute premium. You will provide us with copies of

those records when we ask for them.

your death, we will cover your legal representative

as insured.

1. You may cancel this policy. You must mail or deliver advance written notice to us stating when

the cancelation is to take effect.

2. We may cancel this policy. We must mail or deliver to you not less than ten days advance written notice stating when the cancelation is to take

effect. Mailing that notice to you at your mailing

address shown in Item 1 of the Information Page

will be sufficient to prove notice.

3. The policy period will end on the day and hour

stated in the cancelation notice.

A. Inspection

C. Transfer of Your Rights and Duties

E. Final Premium

The premium shown on the Information Page, schedules, and endorsements is an estimate. The final

premium will be determined after this policy ends by

using the actual, not the estimated, premium basis

and the proper classifications and rates that lawfully

apply to the business and work covered by this policy. If the final premium is more than the premium

you paid to us, you must pay us the balance. If it is

less, we will refund the balance to you. The final

premium will not be less than the highest minimum

premium for the classifications covered by this policy.

F. Records

G. Audit

You will let us examine and audit all your records that

relate to this policy. These records include ledgers,

journals, registers, vouchers, contracts, tax reports,

payroll and disbursement records, and programs for

storing and retrieving data. We may conduct the audits during regular business hours during the policy

period and within three years after the policy period

ends. Information developed by audit will be used

to determine final premium. Insurance rate service

organizations have the same rights we have under

this provision.

We have the right, but are not obliged to inspect your

workplaces at any time. Our inspections are not safety

inspections. They relate only to the insurability of the

workplaces and the premiums to be charged. We

may give you reports on the conditions we find. We

may also recommend changes. While they may help

reduce losses, we do not undertake to perform the

duty of any person to provide for the health or safety

of your employees or the public. We do not warrant

that your workplaces are safe or healthful or that they

comply with laws, regulations, codes or standards.

Insurance rate service organizations have the same

rights we have under this provision.

B. Long Term Policy

If the policy period is longer than one year and sixteen days, all provisions of this policy will apply as

though a new policy were issued on each annual anniversary that this policy is in force.

Your rights or duties under this policy may not be

transferred without our written consent.

If you die and we receive notice within thirty days after

D. Cancelation

4. Any of these provisions that conflict with a law

that controls the cancelation of the insurance in

this policy is changed by this statement to comply with the law.

E. Sole Representative

The insured first named in Item 1 of the Information

Page will act on behalf of all insureds to change this

policy, receive return premium, and give or receive

notice of cancelation.

 Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

CNIC-WC-07/01/11

WC 00 00 00 B
In Witness Whereof, Continental Indemnity Company has caused this policy to be executed and attested, and

if required by state law, this policy shall not be valid unless countersigned by our authorized representative.

President Secretary

CNIC-WC-07/01/11
FILED: NEW YORK COUNTY CLERK 09/30/2016 05:29 PM INDEX NO. 654806/2016

--------------~===~:r------- NYSCEF DOC. NO. 58 RECEIVED NYSCEF: 09/30/2016

PROMISSORY NOTE 

$110,348.40 New York, NY 

April 16, 2012 

FOR VALUE RECEIVED, the undersigned Breakaway Courier Corporation, (the 

"Maker") with its address at 335 W 35th St, New York, NY 10001, acknowledging its 

indebtedness (including workers' compensation premiums) to Applied Underwriters, Inc. and its 

affiliates and subsidiaries (collectively the '·Holder") and promises to pay to Holder at such office 

or at such other place as the Holder shall designate to the Maker in writing, the principal sum of 

one hundred ten thousand three hundred forty eight and .40 dollars ($110,348.40) together with 

interest on the unpaid principal amount from time to time outstanding from and including the 

date hereof until such principal is paid in full in accordance with the provisions of this 

Promissory Note (the "Note"). The principal of and interest on this Note shall be due and payable 

at such time as set forth in Section I . 

I. Principal. The principal herein shall be payable in 12 monthly installments of 

$7,250.00 beginning on May 15, 2012 and on the 15th day of each succeeding month until paid 

with an initial payment of $23,348.40 due on April 16, 2012. 

2. Interest. Interest shall be paid on the outstanding principal amount of this Note at 

the monthly rate of 0.0000% (the "Interest Rate"). Interest on this Note shall accrue from the date 

of issuance until repayment of the principal and payment of all accrued interest in full and shall 

be computed on the basis of a 360-day year of twelve 30-day months. 

3. Application of Payments. All payments or prepayments under this Note shall be 

applied first to any costs, fees and expenses (including legal fees) incurred by the Holder in the 

exercise of the Holder's rights hereunder, if any, then to payment of default interest, if any, then 

to payment of accrued interest and then to payment of principal. Allocation of such payment to 

specific amounts owed by Maker shall be at Holder's sole discretion. 

4. Defaults and Remedies. 

(a) Events of Default. An '·Event of Default" shall occur if: 

(i) the Maker shall default in the payment of an installment payment 

of this Note, when and as the same shall become due and payable, and such default shall continue 

for a period often (10) days following notice thereof from the Holder; or 

(ii) the Maker shall default in the payment of the principal of this Note, 

816280 
when and as the same shall become due and payable, whether at maturity or by acceleration or 

otherwise; or 

(iii) the Maker shall default in the due observance or performance of 

any covenant, condition, or agreement on the part of Maker to be observed or pursuant to the 

terms hereof; or 

(iv) the Maker commences any case, proceeding or other action under 

any ex1stmg or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, 

insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with 

respect to the Maker, or seeking to adjudicate the Maker bankrupt or insolvent, or seeking 

reorganization, composition, extension or other such relief with respect to the Maker or the 

Maker's debts, or seeking appointment of a receiver, trustee, custodian or other similar official 

for all or any substantial part of the Maker's assets (a "Bankruptcy Action"); or 

(v) the Maker becomes the debtor named in any Bankruptcy Action 

which results in the entry of an order for relief or any such adjudication or appointment remains 

undismissed or undischarged for a period of sixty ( 60) days; or 

(vi) the Maker makes a general assignment for the benefit of his 

creditors; or 

(vii) the Maker generally fails to, or shall admit in writing his inability 

to, pay his or her debts as they become due; or 

(viii) the Maker fails to pay Holder any runow1ts due and owing other 

than that set fotth in this Note. 

(b) Acceleration. If an Event of Default occurs under clause (a)(i), (ii), (iii), 

(iv), (v), (vi), (vii) or (viii) of this Section 4, then the outstanding principal of and all accrued 

interest on this Note shall automatically become immediately due and payable, without 

presentment, demand, protest or notice of any kind, all of which are expressly waived by the 

Maker. If any other Event of Default occurs and is continuing, then the Holder, by written notice 

to the Maker, may declare the principal of and accrued interest on this Note to be due and 

payable immediately. Upon such declaration, such principal and interest shal1 become 

immediately due and payable without presentment, demand, protest or other notice of any kind, 

all of which the Maker expressly waives hereby. 

(c) Notices. The Maker shall give written notice to the Holder of the 

occurrence of any Event of Default or any event that, after notice or lapse of time or both, would 

become an Event of Default. 

5. Suits for Enforcement. 

2 816280 
(a) Upon the occurrence of any one or more Events of Default, the Holder 

may proceed to protect and enforce its rights hereunder in equity, at Jaw or by other appropriate 

proceeding, whether for the specific performance of any covenant or agreement contained in this 

Note or in aid of the exercise of any power granted in this Note, or the Holder may proceed to 

enforce the payment of this Note, or to enforce any other legal or equitable right of the Holder. 

(b) In case of any default under this Note, the Maker will pay to the Holder 

such amounts as shall be sufficient to cover the reasonable costs and expenses of such Holder 

due to such default. 

6. Maker's Right to Prepav. Maker has the right to make prepayments of principal at 

any time before they are due. A payment of principal only is known as a "prepayment". When 

Maker makes a prepayment, Maker will notify the Holder in writing that Maker is doing so. 

Maker may make a full prepayment or partial prepayment without paying any prepayment charge. 

The Holder will use all of Maker's prepayments to reduce the amount of principal that Maker 

owes under this Note. If Maker makes a partial prepayment, there will be no changes in the due 

date or in the amount of Maker's monthly payment unless the Holder agrees in writing to the 

changes. 

7. Cancellation of Workers' Compensation Policy. Maker acknowledges that the 

amount due under this Note represents unpaid workers' compensation premium. As a result, in 

the Event of a Default under Paragraph 4(a), Holder may cause any workers' compensation 

policy issued to Maker to be cancelled in accordance with the insurance Jaws of the state in 

which the Maker's principal place of business is located. 

8. Remedies Cumulative. No remedy herein conferred upon the Holder is intended to 

be exclusive of any other remedy and each and every such remedy shall be cumulative and shall 

be in addition to every other remedy given hereunder or now or hereafter existing at law or in 

equity or by statute or otherwise. 

9. Remedies Not Waived. No course of dealing between the Maker and the Holder or 

any delay on the part of the Holder in exercising any rights hereunder shall operate as a waiver of 

any right. 

10. Payments. All payments and prepayments of principal and interest on this Note 

shall be made in lawful money of the United States of America. 

11. Notices. All notices and other communications hereunder shall be in writing and 

shall be deemed to have been given if delivered personally or sent by facsimile transmission, 

overnight courier, or certified, registered or express mail, postage prepaid. Any such notice shall 

be deemed given when so delivered personally or sent by facsimile transmission (provided that a 

confirmation copy is sent by overnight courier), one day after deposit with an overnight courier, 

~L 3 816280 
or if mailed, five (5) days after the date of deposit in the United States mails, to the Maker or to 

the Holder at such respective addresses, or as may be furnished in writing to the other party 

hereto. 

Ifto Maker: 

If to Holder: 

Breakaway Courier Corporation 

335 W 35th St 

New York, NY 10001-1726 

facsimile: (212)94 7-3335 

Applied Under\.\-Titers, Inc. 

10805 Old Mill Road 

Omaha, NE 681 54 

Facsimile: (402)393-8558 

Attn: Legal Department 

12. Covenants Bind Successors and Assigns. All the covenants, stipulations, promises 

and agreements in this Note made by or on behalf of the I !older or the Maker shall bind their 

respective successors and assigns, whether so expressed or not. 

13. Severability. Any te1m or provision of this Note which is invalid or unenforceable 

in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or 

unenforceability without rendering invalid or unenforceable the remaining terms and provisions 

of this Note or affecting the validity or enforceability of any of the terms and provisions of this 

Note in any other jurisdiction. 

14. Lost Documents; Further Assurances. 

(a) Upon receipt by the Maker of evidence satisfactory to him of the loss, 

theft, destruction or mutilation of this Note or any Note exchanged for it, and (in the case of loss, 

theft or destruction) of indemnity satisfactory to him, and upon surrender and cancellation of 

such Note, if mutilated, the Maker will make and deliver in lieu of such Note a new Note of like 

tenor and unpaid principal amount and dated as of the original date of this Note. 

(b) The Maker agrees to execute such further instruments and to take such 

further action as may reasonably be necessary to carry out the intent of this Note. 

15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND 

CONSTRUED IN ACCORDANCE WITfl THE LAWS OF THE STATE OF NEBRASKA 

WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW Tl IEREOF. 

16. Headings. The headings in this Note are for convenience of reference only and 

shall not limit or otherwise affect the meaning hereof. 

17. Waiver of Trial by Jurv and Consent to Jurisdiction. MAKER IRREVOCABLY 

4 816280 
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING 

ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS 

CONTEMPLATED BY THIS NOTE. MAKER HEREBY CONSENTS TO THE EXCLUSIVE 

JURISDICTION OF ANY STATE OR f-EDERAL COURT SITUATED IN DOUGLAS 

COUNTY, NEBRASKA, AND WAIVES ANY OBJECTION BASED ON FORUM NON 

CONVENIENS WITH REGARD TO ANY ACTION, CLAIM, DISPUTE OR PROCEEDING 

RELATING TO THIS NOTE. 

18. Payment Authorization and Approval. Maker represents and warrants that the 

individual executing this Note has the requisite express authority and is duly authorized to do so. 

Holder is provided this supplemental authorization to initiate debit entries for payments due 

under this Note to the bank account provided to the below named depository ("Depository"). 

This authority will remain in full force and effect until Holder and Depository have received a 

written notification of its revocation in such time and in such manner as to afford Holder a 

reasonable opportunity to collect all amounts due and owing. 

Banking Institution 

Bank Routing Number ___ 

Bank Account Number _ _ 

5 816280 
INDEX NO. UNASSIGNED

NYSCEF DOC. NO. 14 RECEIVED NYSCEF: 09/09/2016

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. 

PARTICIPANT NO. 816280 

REINSURANCE PARTICIPATION AGREEMENT 

This reinsurance participation agreement (this "Agreement") is made and entered into by and between 

Applied Underwriters Captive Risk Assurance Company, Inc., a company organized and existing under the 

laws of the British Virgin Islands ("Company") as of July 1, 2012 and 

Breakaway Courier Corporation (collectively, "Participant"). 

Whereas, Participant is desirous of participating in the Company's segregated protected cell reinsurance program designated Segregated Account No. 816280 ("Participation"); and 

Whereas, the Company has entered into a Reinsurance Treaty (hereinafter referred to as the "Treaty") 

with California Insurance Company (NAIC No. 0031-38865) and, through its pooling arrangement, with other 

affiliates of Applied Underwriters, Inc., including, but not limited to Continental Indemnity Company (NAIC No. 

0031-28258) (collectively the "Issuing Insurers"); and 

Whereas, the Participant desires the Company to establish a segregated protected cell whereby the 

Participant may share in the underwriting results of the Workers' Compensation policies of insurance issued 

for the benefit of the Participant by the Issuing Insurers (the "Policies"); and 

Whereas the Company will allocate a portion of the premium and losses under this Agreement to the 

Participant's segregated protected cell, 

Now, therefore, in consideration of the mutual promises and undertakings set forth herein the parties 

do hereby agree as follows: 

1. Participant agrees to participate in the Company's segregated protected cell reinsurance program in accordance with Schedule 1 attached hereto and incorporated herein by reference and additional Schedules 

as may be executed from time to time on a prospective basis only by the parties ("Additional Schedules"). 

2. Participant's interest in the Company is solely as a segregated protected "cell" with segregation 

of the Company's assets and liabilities among the segregated accounts (known as "cells") established by the 

Company. There is no "joint and several" liability. The cells of the Company are not liable for the debts and 

obligations and are not bound with respect to contracts entered into by another cell. Participant further 

acknowledges and agrees that Participant: ( 1) will look solely to the assets of Participant's cell for satisfaction 

of the Company's liabilities hereunder; (2) has consulted with legal counsel and other insurance advisers as to 

the applicability and effect of this Agreement; (3) irrevocably waives any right, substantive or procedural, 

which Participant may have to challenge the effectiveness and the Company's ability and right to segregate 

assets among the cells; and (4) covenants not to sue, attach, pursue or make any claim against or with 

respect to any asset, property or right of the Company which is not an asset, property or right of Participant's 

segregated protected cell. 

3. Participant is participating in this Agreement for purposes of investment only. The Participation 

has not been registered under the United States Securities Act of 1933, as amended or any state securities 

laws. The Participation shall not be sold, transferred, hypothecated, pledged or otherwise assigned or encumbered and Participant acknowledges the following: 

Ver. aco _ 5100 _ 3a 

"This Participation has not been registered under the Securities Act of 1933, as amended or 

qualified under any state securities law. This Participation has been acquired for investment 

and may not be sold, transferred, hypothecated, pledged or otherwise assigned or encumbered in the absence of registration or an exemption therefrom under such act and such laws." 

Page 1 of 10 © 2008, Applied Underwriters, Inc. 
4. This Agreement and any Schedules hereto may not be modified, amended or supplemented in any 

manner except in writing signed by the parties hereto and represents the entire understanding and agreement 

between the parties with respect to the subject matter hereof and supersedes all prior negotiations, proposals, 

letters of intent, correspondence and understandings relating to the subject matter hereof. The initial term of this 

Agreement (the "Active Term") is for three (3) years and may be extended from time to time by the parties. All 

existing obligations from each party to the other or to third parties shall remain in force as of the expiration of the 

Active Term until this Agreement is terminated (the "Run-Off Term") as set forth in Schedule 1 or any Additional 

Schedules. 

During the Active Term of this Agreement, Workers' Compensation Insurance coverage will be provided to 

Participant by one or more of the Issuing Insurers. If Participant elects to cancel this Agreement, or if any of 

the Policies are cancelled or non-renewed prior to the end of the Active Term ("Early Cancellation"), the 

Participant shall abide by the Early Cancellation terms set forth in Schedule 1 or any Additional Schedules. 

If the Issuing Insurer is required to provide Workers' Compensation Insurance coverage on behalf of the 

Participant outside of the Active Term (the "Extension Period"), special extension terms ("Extension Terms") 

will apply during the Extension Period. The Extension Terms are: (1) Participant through their cell will be liable 

for all losses occurring during the Extension Period without limitation on any Policies issued by the Issuing 

Insurers on behalf of Participant; (2) the Company will allocate to Participant's cell an amount equal to 45% 

of premium earned during the Extension Period under any Policies issued by the Issuing Insurers on behalf of 

Participant; (3) Participant will immediately pay to the Company a cash deposit equal to 55% of the premium 

anticipated, as determined exclusively by the Company, during the Extension Period under any Policies issued 

by the Issuing Insurers on behalf of Participant; (4) Participant will maintain at all times a cash deposit with the 

Company sufficient to cover outstanding losses occurring during the Extension Period plus incurred but not 

reserved and/or reported losses (IBNR) as determined exclusively by the Company; and (5) Participant will 

immediately pay to the Company an Early Cancellation fee equal to 20% of the premium anticipated, as 

determined exclusively by the Company, during the Extension Period under Policies issued by the Issuing 

Insurers on behalf of Participant. 

5. Participant acknowledges that under the laws of some states, Participant may have the option 

to choose from various deductible amounts as a part of its Policies, but that opting for a deductible would 

preclude Participant from entering into this Agreement. Applicant, being fully advised, knowingly waives and 

relinquishes its right to choose a deductible on the Policies under applicable law as further consideration for 

this Agreement. 

6. Participant may not assign or transfer its rights under this Agreement to any third party without 

the written consent of the Company which consent may be withheld in the Company's absolute discretion. 

7. The parties' obligations under this Agreement shall survive the Active Term of this Agreement, 

and shall be extinguished only when the Company no longer has any potential or actual liability to the Issuing 

Insurers with respect to the Policies re insured by the Company under the Treaty. 

8. Applied Risk Services, Inc. (Applied Risk Services of New York, Inc. in New York State) has 

been appointed the billing agent for the Company and the Issuing Insurers and is authorized by the Company, 

Issuing Insurers, and Participant to account for offset and true up any and all amounts due each of the parties. 

Participant will allow the Company to audit Participant's records on reasonable notice and during normal 

business hours that relate to the Policies. These records include, but are not limited to ledgers, journals, 

registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and 

retrieving data. Information developed by audit will be used to assign worker classifications, determine the 

compensability of payroll and claims, and determine final premium and cession amounts. 

9. In the event the Participant is in default of any obligations to the Company under this Agreement 

or under any other agreement with any affiliate of the Company (Affiliated Agreements), the Company may 

take all reasonable steps to protect its and its affiliates' interests. The parties hereto shall have the right to the 

fullest extent provided by law to offset or recoup any balances due from one to the other under this Agreement or any Affiliated Agreements. 

Ver. aco _ 5100 _ 3a Page 2 of 10 
10. In consideration of the mutual benefits arising under this Agreement, Participant hereby grants to 

Company, effective from and after the date hereof, a lien and security interest in all assets of Participant's cell to 

secure payment of any amounts owed by Participant under this Agreement. The provisions of this section shall 

create a security agreement under the Uniform Commercial Code (the "Code") in the state of Participant's domiciliary jurisdiction so that Company shall have and may enforce a security interest on all of Participant's assets in 

Participant's cell. Participant agrees to execute as debtor any financing statement Company may reasonably request in order that Company's security interest be protected pursuant to the Code, or Company is authorized to file 

a copy of this Agreement for such purpose. 

11. Participant hereby represents and warrants to the Company as follows: 

(A) Participant (i) is duly organized, validly existing and in good standing under the laws of its 

domiciliary jurisdiction, (if a corporation, partnership, or limited liability company), and (ii) has adequate power 

and authority and full legal right to carry on the businesses in which it is presently engaged and presently 

proposes to engage. 

(8) Participant has adequate power and authority and has full legal right (i) to enter into this Agreement and (ii) to perform all of its agreements and obligations under this Agreement. 

(C) The execution and delivery by Participant of this Agreement and the performance by Participant 

of all of its undertakings and obligations under this Agreement, including any payments required to be made 

by Participant to the Company under this Agreement, have been duly and properly authorized by all necessary 

action on the part of Participant, and do not and will not (a) contravene any provision of the charter or by-laws 

of Participant (if a corporation, partnership or limited liability company) or other constitutional or governing 

documentation of Participant (each as in effect on the date hereof), (b) conflict with, or result in a breach of, 

the terms, conditions or provisions of, or constitute a default under, or (except as otherwise contemplated 

and required or permitted by this Agreement) result in the creation of any mortgage, lien, pledge, charge, 

security interest or other encumbrance upon any of the property of Participant under any agreement, trust 

deed, indenture, mortgage or other instrument to which Participant is a party or by which Participant or its 

respective property is bound or affected on the date hereof, (c) violate or contravene any provision of any law 

or published regulation or any published order, ruling or interpretation thereunder or any decree, order or 

judgment of any court or governmental or regulatory authority, bureau, agency or official (all as in effect on 

the date hereof and applicable to Participant), (d) require any waivers, consents or approvals by any of the 

creditors or trustees for creditors of record of Participant, or (e) require any consents or approvals by any 

Participant (except such as have been duly obtained and are in full force and effect on the date hereof). 

{D) This Agreement, when executed and delivered, shall have been duly and properly executed and 

delivered by Participant. 

(E) The agreements and obligations of Participant contained in this Agreement constitute legal, 

valid and binding obligations of Participant, enforceable against Participant in accordance with their terms. 

(F) The information that has been and/or will be supplied to the Company by Participant or on 

Participant's behalf with respect to this Agreement is accurate and complete, and with respect to financial 

information, comports with generally accepted accounting principles. 

12. Participant acknowledges that the Company has not made, and does not make, any oral, written 

or other representations, whether explicit, implied or otherwise, upon which Participant may rely concerning 

any possible tax benefits that may be derived from this Agreement. Participant further acknowledges that any 

tax liability resulting from this Agreement, including but not limited to any tax assessments or related examinations conducted by the Internal Revenue Service or other taxing authority, will be the sole responsibility of 

Participant. 

13. Nothing in this section shall be deemed to amend or alter the due date of any obligation under 

this Agreement. Rather, this section is only intended to provide a mechanism for resolving accounting 

disputes in good faith. 

(A) It is the express intention of the parties to resolve any disputes arising under this Agreement 

without resort to litigation in order to protect the confidentiality of their relationship and their respective 

Ver. aco _ 5100 _ 3a Page 3 of 10 
businesses and affairs. Any dispute or controversy that is not resolved informally pursuant to sub-paragraph 

(B) of Paragraph 13 arising out of or related to this Agreement shall be fully determined in the British Virgin 

Islands under the provisions of the American Arbitration Association. 

(B) All disputes between the parties relating in any way to (1) the execution and delivery, construction or enforceability of this Agreement, (2) the management or operations of the Company, or (3) any other 

breach or claimed breach of this Agreement or the transactions contemplated herein shall be settled amicably 

by good faith discussion among all of the parties hereto, and, failing such amicable settlement, finally determined exclusively by binding arbitration in accordance with the procedures provided herein. The reference to 

this arbitration clause in any specific provision of this Agreement is for emphasis only, and is not intended to 

limit the scope, extent or intent of this arbitration clause, or to mean that any other provision of this Agreement shall not be fully subject to the terms of this arbitration clause. All disputes arising with respect to any 

provision of this Agreement shall be fully subject to the terms of this arbitration clause. 

(C) Either party may initiate arbitration by serving written demand upon the other party or parties. 

The demand shall state in summary form the issues in dispute in a manner that reasonably may be expected 

to apprise the other party of the nature of the controversy and the particular damage or injury claimed. The 

party receiving the demand shall answer in writing within 30 days and include in such answer a summary of 

any additional issues known or believed to be in dispute by such party described in a manner that reasonably 

may be expected to apprise the other party of the nature of the controversy and the particular damage or 

injury claimed. Failure to answer will be construed as a denial of the issues in demand. 

(0) The parties shall select a mutually acceptable arbitrator within 30 days of the demand for 

arbitration. If the parties are unable to agree on an arbitrator within the 30 days, then each party shall appoint 

an arbitrator within 30 days thereof. If a party fails to appoint its arbitrator within such 30 day period, the 

party shall thereby waive its right to do so, and the other party's selected arbitrator shall act as the sole 

arbitrator. All arbitrators shall be active or retired, disinterested officials of insurance or reinsurance companies not under the control or management of either party to this Agreement and will not have personal or 

financial interests in the result of the arbitration. 

(E) If two party-appointed arbitrators have been selected, the selected arbitrators shall then choose 

an umpire within 30 days from the date thereof. If the two arbitrators are unable to agree upon an umpire 

within 30 days after the appointment of the party-appointed arbitrators, the two party-appointed arbitrators 

shall each exchange a list of three (3) umpire candidates. Within ten (10) days thereafter, each partyappointed arbitrator shall strike two names from the other's list. The umpire shall be selected from the 

remaining two names by the drawing of lots no later than ten ( 10) days thereafter. 

(F) If more than one arbitrator shall be appointed, the arbitrators shall cooperate to avoid unnecessary expense and to accomplish the speedy, effective and fair disposition of the disputes at issue. The 

arbitrator or arbitrators shall have the authority to conduct conferences and hearings, hear arguments of the 

parties and take the testimony of witnesses. All witnesses will be made available for cross-examination by 

the parties. The arbitrators may order the parties to exchange information or make witnesses available to the 

opposing party prior to any arbitration hearing. 

(G) The arbitrator or arbitrators shall render a written decision (by majority determination if more 

than one arbitrator) and award within 30 days of the close of the arbitration proceeding. Judgment upon the 

award rendered by the arbitrator or arbitrators may be entered by any court of competent jurisdiction in 

Nebraska or application may be made in such court for judicial acceptance of the award and an order of 

enforcement as the law of Nebraska may require or allow. 

(H) The award of the arbitrator or arbitrators shall be binding and conclusive on the parties, and shall 

be kept confidential by the parties to the greatest extent possible. No disclosure of the award shall be made 

except as required by the law or as necessary or appropriate to effect the enforcement thereof. 

(I) All arbitration proceedings shall be conducted in the English language in accordance with the 

rules of the American Arbitration Association and shall take place in Tortola, British Virgin Islands or at some 

other location agreed to by the parties. 

Ver. aco_5100_3a Page 4 of 10 
(J) The arbitrator or arbitrators shall be advised of all the provisions of this arbitration clause. 

(K) This arbitration clause shall survive the termination of this Agreement and be deemed to be an 

obligation of the parties which is independent of, and without regard to, the validity of this Agreement. 

(l) Punitive damages will not be awarded. The arbitrator(s) may, however, in their discretion award 

such other costs and expenses as they deem appropriate, including, but not limited to, attorneys' fees, the 

costs of arbitration and arbitrators' fees. 

(M) Participant acknowledges and agrees that it will benefit from this Agreement and that a breach 

of the covenants herein would cause Company irreparable damage that could not adequately be compensated 

by monetary compensation. Accordingly, it is understood and agreed that in the event of any such breach or 

threatened breach, Company may apply to a court of competent jurisdiction for, and shall be entitled to, 

injunctive relief from such court, without the requirement of posting a bond or proof of damages, designed to 

cure existing breaches and to prevent a future occurrence or threatened future occurrence of like breaches on 

the part of Participant. It is further understood and agreed that the remedies and recourses herein provided 

shall be in addition to, and not in lieu of any other remedy or recourse which is available to Company either at 

law or in equity in the absence of this Paragraph including without limitation the right to damages. 

14. Participant hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the 

Courts of Nebraska for the purpose of enforcing any arbitration award rendered hereunder and all other 

purposes related to this Agreement, and agrees to accept service of process in any case instituted in Nebraska 

related to this Agreement and further agrees not to challenge venue in Nebraska provided such process is 

delivered in accordance with the applicable rules for service of process then in effect in Nebraska. To the 

extent necessary, this consent shall be construed as a limited waiver of sovereign immunity only with respect 

to this Agreement. 

15. All notices, requests, demands or other communications to the Company provided for herein 

shall be in writing, shall be delivered by hand, by first-class mail, postage prepaid, or by any form of commercial overnight courier, and shall be addressed to the parties hereto at their respective addresses listed below 

or to such other persons or addresses as the relevant party shall designate as to itself from time to time in a 

writing delivered in like manner to Applied Underwriters Captive Risk Assurance Company, P.O. Box 3646, 

Omaha, NE 68103-0646 and to Participant at: 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013-0676 

Either party may designate a new address for notices by providing written notice to the other party as 

provided in this paragraph, or in the absence of such notification from Participant, at the address to which 

Participant's last billing statement was sent. 

16. This Agreement shall be exclusively governed by and construed in accordance with the laws of 

Nebraska and any matter concerning this Agreement that is not subject to the dispute resolution provisions of 

Paragraph 13 hereof shall be resolved exclusively by the courts of Nebraska without reference to its conflict 

of laws. 

17. All amounts referred to herein are expressed in United States Dollars and all payments shall be 

made in such dollars. 

18. Waiver. No delay or failure to require performance of any provision of this Agreement shall 

constitute a waiver of the performance of such provision on any other instance. No waiver of any of the 

provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof 

(whether or not similar) nor shall such waiver constitute a continuing waiver unless expressed in writing and 

signed by all parties. 

Ver. aco_5100_3a Page 5 of 10 
19. Participation by Participant in this Agreement is subject to the prior written consent of the Company. 

Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto 

and their affiliates, successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this 

Agreement, except as expressly provided herein. 

IN WITNESS WHEREOF, the parties have set their hand. 

PARTICIPANT ~ ~/1!!!_ 

Name: 

By: 

ROfX'tr 

~ 

k:fiTCtt 

Title: 

Date: wur 

Ver. aco _ 5100 _ 3a 

APPLIED UNDERWRITERS CAPTIVE RISK 

ASSURANCE COMPANY, INC., SOLELY FOR AND 

ON BEHALF OF PROTECTED CELL NO. 816280 

Robert Stafford 

Page 6 of 10 
flt;,<,. \:Ji.L.:1!q• I' 

t~t,~)G4 2~ . ~~~ 
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. 

PARTICIPANT NO. 816280 

REINSURANCE PARTICIPATION AGREEMENT 

SCHEDULE 1 

EFFECTIVE DATE: JULY 1, 2012 

This Schedule 1 applies as of the Effective Date to all payroll, premium, and losses occurring under the 

Policies notwithstanding any Extension Terms which may apply ("Effective Period"). For purposes of this 

Schedule 1, unless otherwise noted, capitalized terms shall have the meaning set forth in the Agreement. 

1. Calculation of Premium and Loss Amounts. 

(a) Policy Payroll is defined as compensable payroll occurring during the Effective Period under the Policies 

subject to all customary limitations and caps. The Loss Pick Containment Amount is defined as the amount 

equal to the product of Policy Payroll and the respective Loss Pick Containment Rates listed in Table C. These 

rates are per $100 of Policy Payroll and are fixed for the Effective Period. Changes in experience modifiers 

and other modification or differential factors of the Policies will not affect these rates. If Policy Payroll occurs 

under a classification not listed herein, the Company shall, in its sole discretion, determine a rate for that 

classification commensurate with the rates otherwise listed and with the filed and approved rates of the 

Issuing Insurers. 

(b) The Company will calculate loss development factors ("LDF's") for each loss under the Policies directly 

from the loss development factors published by the government rating bureau in the state where the exposure 

occurred. LDF's are subject to change without notice. The LDF's in effect as of the date of this Schedule 1 

are listed in Table A (a composite using Policy Payroll by state is shown). If during the Active Term the 

Participant: i) is processing payroll with an affiliate of the Company, the LDF's titled "Weekly" will be used; or 

ii) is not processing payroll with an affiliate of the Company, the LDF's titled "Monthly" will be used. Unless 

an agreement for renewal is offered by an affiliate of the Company and then accepted by the Participant 

within six (6) months of the end of the Active Term, the LDF's titled "Run-Off" will be used. In determining 

the age of a claim, the Company in its sole discretion will use either the date of occurrence or the date the 

claim was reported. For so long as the Participant provides a claimant with modified duty employment that 

accommodates medical work restrictions, at a wage sufficient to make the claimant ineligible for workers' 

compensation disability benefits, the amount of the LDF for that claim in excess of one (1) shall be reduced by 

the Modified Duty Reduction Factor shown below Table A. 

(c) Ultimate Loss is defined as aggregate incurred losses under the Policies multiplied by the applicable LDF. 

The Loss Ratio equals Ultimate Loss divided by the Loss Pick Containment Amount. 

(d) The Exposure Group Adjustment Factor is determined from Table B using the Loss Ratio with intermediate 

values to be interpolated. The Exposure Group Adjustment Factor has been determined using NCCI Expected 

Unlimited Loss Group 52 and is subject to change without notice if Policy Payroll varies from estimates made 

in preparing this Schedule 1 or if NCCI Table M is revised. 

2. Allocation of Premium and Losses. 

An amount, equal to the premium earned under the Policies in excess of the Loss Pick Containment Amount 

multiplied by the applicable Exposure Group Adjustment Factor multiplied by the Allocation Factor listed in 

Table B, will be allocated to the Participant's cell. Fees for services charged by any affiliate of the Company 

are not considered premium under the Policies. 

The Participant, through its cell account, will be responsible for an amount equal to all losses under the 

Policies in aggregate up to the Cumulative Aggregate Limit which equals 1.5600 multiplied by the Loss Pick 

Containment Amount. During the Active Term, Participant's liability limits will be estimated quarterly in 

advance. 

3. Capital Deposits. Participant agrees to make and maintain a capital deposit in its cell equal to the Estimated 

Annual Loss Pick Containment Amount shown in Table C multiplied by 10% during year 1; 10% during year 

2; or 10% thereafter. The Estimated Annual Loss Pick Containment Amount and the resulting capital deposit 

are subject to change in the Company's sole discretion if Policy Payroll varies from estimates made as of the 

Ver. aco_5110_2a Page 7 of 10 
Effective Date of this Schedule 1 . 

4. Additional Capital Deposits. Participant further agrees to make and maintain in its cell account an additional 

capital deposit equal to the lesser of Ultimate Loss or the Cumulative Aggregate Limit. For the purposes of 

calculating the additional capital deposit, a Loss Ratio of no less than 65 % will be used in year 1 , 40% in year 

2, and 30% thereafter. During the Run-Off Term, capital deposits will be calculated using the LDF's titled 

"Run-Off" at a schedule determined by the Company but no less frequently than annually beginning nine 

months after the expiration of all Policies. 

5. Notwithstanding anything to the contrary in the Agreement, the Company may terminate the Agreement 

and liquidate the cell in its sole discretion if i) all claims under the Policies are closed and three years have 

elapsed since the expiration of all of the Policies; or ii) the Participant's maximum liability has been reached 

and three years have elapsed since the expiration of all of the Policies; or iii) the amount of paid losses 

allocated to the cell under the Policies has exceeded the Participant's maximum liability; or iv) seven years 

have elapsed since the expiration of all of the Policies; or v) the Company deems itself insecure with respect 

to Participant's ability or willingness to fulfill its obligations under this Agreement. 

6. In the event of Early Cancellation whether by the Participant or by the Company (limited to non-pay or a 

material change in risk): (a) the Exposure Group Adjustment Factor will be multiplied by 1.25; (b) the Cumulative Aggregate Limit will be determined using Policy Payroll annualized to reflect the full term of the Agreement; and (c) the following amounts will be immediately due and payable to the Company: i) any remaining 

premium, including short rate penalties, due under the Policies; ii) a capital deposit equal to the cell's maximum liability; and iii) a Cancellation Fee equal to 8% of the Estimated Annual Loss Pick Containment Amount. 

7. In the event of any conflict between the Agreement and this Schedule 1, this Schedule 1 shall control. 

Ver. aco_5110_2a 

PARTICIPA~ 

By: 

~f~raf 

Title: ~l~~ Date: 

APPLIED UNDERWRITERS CAPTIVE RISK 

ASSURANCE COMPANY, INC., SOLELY FOR 

AND ON BEHALF OF PROTECTED CELL NO. 816280 

Robert Stafford 

Page 8 of 10 

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. 

Claim Age 

Month Month 

From _IQ_ 

00 06 

07 09 

10 12 

13 15 

16 18 

19 21 

22 24 

25 27 

28 30 

31 33 

34 36 

Loss 

fig1iQ 

0.00 

0.10 

0.20 

0.30 

0.40 

0.50 

0.60 

0.70 

0.80 

0.90 

Ver. aco_5120_2a 

PARTICIPANT NO. 816280 

REINSURANCE PARTICIPATION AGREEMENT 

SCHEDULE 1 TABLES 

EFFECTIVE DATE: JULY 1, 2012 

TABLE A 

Loss Development Factors 

Weekly Monthly Run-Off 

Open Closed Open Closed Open Closed 

.c.J..a..i.cm .c.J..a..i.cm ~ .c.tfilIM ~ .c.tfilIM 

3.306 1.232 3.372 1.257 5.527 1.201 

3.280 1.151 3.346 1.175 5.527 1.201 

3.264 1.101 3.329 1.123 5.527 1.201 

3.247 1.084 3.312 1.106 4.904 1.111 

3.231 1.078 3.295 1.099 4.904 1.111 

3.112 1.069 3.174 1.090 4.904 1.111 

2.952 1.055 3.011 1.076 4.904 1.111 

2.804 1.046 2.860 1.067 4.033 1.064 

2.667 1.044 2.721 1.065 4.033 1.064 

2.580 1.040 2.632 1.060 4.033 1.064 

2.517 1.032 2.567 1.053 4.033 1.064 

The Modified Duty Reduction Factor is 25%. 

TABLE B 

Exposure Group Adjustment Factors 

Adjustment Loss Adjustment 

Eai;;tQr B.aliQ Fai;;tQr 

1.0000 1.00 2.5154 

1.3992 1.10 2.2347 

1.5737 1.20 1.9540 

1.5983 1.30 1.6733 

1.5424 1.40 1.3925 

1.7112 1.50 1.1118 

2.3784 1.60 0.9441 

2.8461 1.70 0.9441 

3.0395 1.80 0.9441 

2.7775 1.90 0.9441 

The Allocation Factor is 0.35. 

Page 9 of 10 
1 • ' r 

Ver. aco _ 5122 _ 2a 

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. 

PARTICIPANT NO. 816280 

REINSURANCE PARTICIPATION AGREEMENT 

SCHEDULE 1 TABLES 

EFFECTIVE DATE: JULY 1, 2012 

TABLE C 

Loss Pick Containment Rates and Estimated Annual Amounts 

Class 

Code 

NY7242 

NY 8810 

NY8742 

NY 7231 

Loss Pick 

Containment Rate 

9.15 

0.11 

0.24 

6.21 

Estimated Annual 

Payroll 

1,235,694 

808,974 

411,282 

244,881 

The Total Estimated Annual Loss Pick Containment Amount is $130, 152. 

Page 10 of 10 
0 

Investigation; Multiple lawsuits Pending.,. 

APPLIED: Filed Rates Have No Impact On What Client Pays 

In what can only be called a shinning admission in a case questioning 

the legality of the rates and plans used 

in an Applied Underwriter's workers' 

comp program, an Omaha-based executive of the company testified that the 

workers' comp rates in the client's actual California policy have "no impact 

on the charges the client pays." The 

rates in the underlying guaranteed cost 

policy issued by the admitted California Insurance Company (CIC) arc the 

only filed rah..-s related to the Applied 

Undenvriters' Equity.Comp program. 

The shocking revelation astonished 

those in the hearing room. It came in 

a case pitting Shasta Linen Supply, a 

California employer, against Applied 

Underwriters Captive Risk Assurance 

Company (AUCRA), California Insurance Company and their parent Berkshire Hathaway (NYSE: BRK). 

The stakes are high for the Berkshire 

unit as the employer is seeking the 

"return of all consideration paid" under 

the program, which has reportedly been 

Fraud Case Filed Against Applied 

Underwriters EquityComp 

A California employer, Randazzo 

Enterprizes, Inc., has sued Applied 

Underwriters' for fraud in connection with Applied's EquityComp program. 

It is a unit of Berkshire Hathaway 

(NYSE: BRK). 

The complaint alleges inaccurate 

representations were made by Applied Underwriters to encourage the 

transaction. At issue are claims of 

fraud for allegedly misrepresenting 

the facts about the program and for 

allegedly increasing premiums more 

than it was allowed to based on an undisclosed formula. The formula is not 

filed with the California Department of 

Insurance. The employer says the unpredictable nature of the workers' comp 

premiums billed under Applied Underwriters' EquityComp program made it 

impossible to manage its business and 

bid on projects. 

After nearly two years in the pro-

" Fraud Case" continued on page 10 

a popular product for the company 

in California and elsewhere (for prior 

coverage see Berkshire ..• ). 

The legal question in dispute is 

whether or not the Reinsurance Participation Agreement (RPA) that Shasta 

Linen was required to sign to take 

part in the EquityComp Program and 

the related documents are an unfiled 

workers' comp rate plan and, therefore, 

illegal. Also in question is the validity 

of the arbitration clauses in the RPA that 

Shasta is fighting before the Department and before the Nebraska Supreme 

Court. 

It was Patrick 

Watson, an Applied 

Underwriters manager who, 

under questioning by Department of 

Insurance Administrative Law Judge 

Kristin L. 

Rosi, made the admission 

that OC's filed rates arc immaterial as to what the employer pays. Watson 

testified that he heads one of two teams 

that deal with California brokers and, 

by telephone, who work directly with 

California employers. 

Workers' Comp Executive could find 

no insurance license record for Watson 

in the COi database. 

"Applied" continued on page 9 

It is 5, 182 days since our 

last lost-time accident. Workers' Comp Bills: Does It Really Matter? 

.:. .... ....... I 

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lf.1Jijjbfflti:i!l-ii'i. , j ........ 

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«Previous 

A proposed bill to create a workers' 

comp prescription drug formulary 

cleared the Assembly on all ayes. It is 

not as if the formulary will save Califor· 

nia's employers all that much, but it will 

provide certain ganders with something 

to tell their geese. A disproportionate 

effort was made in the backrooms and 

crevices of the Building until its author accepted modest amendments delaying the effective date and expanding 

the panel of experts that will create 

the formulary. Influence, ahh glorious 

influence. As currently drafted, the 

bill, AB 1124 by Assemblyman Henry 

Perea CD-Fresno), requires the Division 

of Workers' Compensation to have a 

formuJary adopted and operational 

by July 1, 2017. We'll all just see about 

that since DIR is so busy appeasing a 

lengthy list ofspecial interests. It isn't 

known for making the legislature's 

[artificial] deadlines. 

Under the rules of the Legislature, 

bills had to clear their house of origin 

by June 5 to continue being viable. Two 

measures that were strongly opposed 

by employers - SB 563 by Sen. Richard 

Pan (D-Sacramento) to limit utilization 

review, and AB 511 by Assemblyman 

Mike Gipson (D-Compton) to extend 

"Bills" continued on page 8 
EmalledLinks Page 130 of 237 

0 "Appliedn 

continued from page 1 

The admission is of particular impor- multiple suits and challenges to the a lower loss development factor, but 

tance because the Applied Underwriters EquityComp program in several states closed claims are still surcharged, and 

deal uses a RPA that written through including California, New York. Michi- the client is biJled accordingly. That can 

the Bermuda-based Applied Underwrit- gan, Maine, and TeMessee. mean the maximum amount is due if it 

ers Captive Risk Assurance Company, Applied's documents specifically say hasn't already been paid. 

(AUCRA). AUCRA is an admitted that the program isn't an unfiled retro. There's also the question of the actual 

carrier in California, but no rate filings In California, the "paper" - the actual profit sharing and the return of unused 

have been made. Still it was the terms insurance policy - is provided by Cali- capital. Workers' Comp Executive has 

of its RPA that allegedly determined fomia Insurance Company, which does reviewed multiple RPAs issued under 

Shasta's charges. have filed rates. Those are the rates the EquityComp program and - perIn case documents, Applied asserts Watson says are irrelevant. In other haps we missed it-but we have not 

that the agreement doesn't need to be states, Applied uses different carriers in found any dates, timeframes or prinfiled in California. The RPA provides the Berkshire Hathaway Group. ciples upon which capital or "profit 

the "formula and methodology for how The Applied deal is different from sharing" will be returned to the client. 

the profit sharing/ risk sharing retention more conventional captive arrange- Watson, the Applied sales manager, 

component of the EquityComp program ments. Conventional captives, in also testified under oath that he has 

worked," according to the documents general, have sections or levels in which never participated in and has never 

it filed. "Since the RPA is a reinsurance employers pay the first [some level] heard of anyone else who has been 

contract, it does not have to be filed of claims in the "A" section, and then involved in the re turn of premium or 

and approved by the COi and unlike participate with others in the captive up deposits to a client. Watson has worked 

the guaranteed cost policy issued by to [some level] in the "B" section, after at Applied for over a decade. 

ac, does in fact contain a robust broad which the fronting carrier who is at risk 1he company's attorneys were less 

arbitration agreement." pays. The employer makes a capital than forthcoming. They refused to 

Applied maintained in a statement contribution up front and claims are comply with a direct and written order 

to Workers' Comp Executive previously paid up to certain levels at which excess from the Judge to produce documents 

that "all necessary filings and approv- or reinsurance take over. as follows: 

als have been made with the California In the case of Applied's EquityComp • The number of EquityComp 

0 Department of Insurance. In the unlike- program, smaller employer who might participants from 2008 and 2009 

ly event the reinsurance participation not otherwise qualify for a loss sensitive that had received a profit sharing 

agreement needs to be adjusted and I or plan, and who may be naive about such distribution as of Jan. 1, 2015. 

filed, such a finding, by statute, would plans, are shown a minimum charge • How many "grievances, comapply only going forward and would and a maximum charge over a three- plaints or appeals" were filed 

have no bearing on the current client year period. by EquityComp participants 

dispute. If required, we will make any According to one "scenario" pre- between 2010 and 2014, 

necessary adjustment and I or filing sented by Applied claims totaling • How many arbitration demands 

promptly." $30,000 would [did] cost the employer had been filed by OC, Applied 

The ALJ's decision will be one deter- some $161,000 in additional deposits. Underwriters, ACURA or the 

minant of this. In another scenario for another client EquityComp participants. 

Other cases filed against Applied and $30,000 in claims would [did] cost Watson also confirmed in his testhe EquityComp program allege that some $150,000. Jn still another the same timony that the California Insurance 

the RPA and its attachments do not pro- $30,000 in claims would [did] require Company policy caMot be purchased 

vide enough information for an insured, the employer to pay an additional separately from the Applied "reinor broker, to calculate the unusual com- $350,000. surance" deal and that it does not go 

bination of premiums, fees, and other Workers' Comp Executive has seen into effect without the "reinsurance" 

charges the program assesses. and reviewed multiple requests from contract with Applied. 

insureds concerning an explanation of Watson also stated that Applied uses 

Reinsurance? Captive? Retro? charges. In each case the insured says it California Insurance Company's rates 

AppJied Underwriters, Inc., AUCRA, has not been able to get a clear answer. after schedule credits to determine what 

and its counterparts, California Insur- taxes and fees are to be paid to the state 

ance Company, and Continental Indem- No Profit Payouts In Memory of California even though he testified 

nity Company are owned by Berkshire The EquityComp program is mar- that they have no impact on what the 

Hathaway and are part of its insurance keted as a profit-sharing program, but client pays. Similarly, these would be 

group. All of the reinsurance we could to many it appears that equation is the same rates used as the basis for 

And remains within the group, which not only tilted but bent in Applied's determining the amount of assessments 

has the possibility of raising a question favor. For example, at the end of the to be remitted to the Department of 

as to the transfer of risk. a requirement three years, if the employer does not Industrial Relations and the CaJifomia I 

in a reinsurance contract. renew, a surcharge of 418 ;, is charged Insurance Guarantee Association . .& 

o Applied and or its affiliates are facing to the open claims. Closed claims have 

02015 Workers' Comp Executive 916-774-4000 • www.wcexec.com June 10, 2015 ii 

« preyjcus ~ 
0 

0 

0 

Emailed links 

"Fraud Casa" 

continued from page 1 

gram, Randazzo had one closed daim 

totaling approximately $30,000. There 

was a second claim for a broken arm 

that happened on the last day of the 

second year and which Applied was 

not yet aware of for premium calculation purposes. Applied more 

than tripled the monthly charges to 

some $94,000. At this point Randazzo 

canceled. Applied filed for cancelation 

rees, which provoked the fraud suit. 

The employer is seeking a rescission 

or the policy- a move that would entitle it to "a return of all premiums paid 

less any amounts paid for claims." 

Applied Underwriters Captive Risk 

Assurance Company (AUCRA) fought 

back. So far, the employer has principally prevailed. 

Randazzo filed the complaint in 

the Northern District of the United 

States District Court. Applied fought 

back filing motions for dismissal and 

to have the case go to Arbitration. The 

federal court ruled for Randazzo in 

two key areas: Applied was rebuffed 

in its effort to have the case dismissed 

outright; The court, while granting 

Applied's Motion for arbitration, ruled 

for Randazzo in holding that a portion 

of the arbitration clause in Applied's 

Reinsurance Participation Agreement 

(RPA) is both procedurally and substantively unconscionable. 

The arbitration provisions used in 

the AUCRA contract allowed AUCRA 

to seek injunctive relief in the event of 

a breach or threatened breach of the 

agreement while the employer could 

only access the courts after prevailing 

in arbitration. 

In requiring the case to go to 

Arbitration, it gave a major point to 

Randazzo: Randazzo succeeded in 

having the arbitration held in California. Applied's agreement required that 

arbitration was to take place in Tortola, 

the British Virgin Islands. 

The Arbitration decision clause is 

relevant because it is Applied's standard deal and contained in principally 

all of the RPA agreements Applied has 

in California. It is not, however, a precedent. These arbitration clauses are 

being challenged around the country. 

The case is separate and distinct 

from the dispute currently pending 

before a California Department of 

F~m: .Jell81hw!llll~~~llll .. lll Subfect; Re: Rmnduzo IEnaltptlMe, ~ 

Dato' M9y 1'1iill'i201ii4liliari~i PM To: laWVel• 

Page 131of237 

Insurance administrative law judge, 

(see the Shasta Linen case on page 1). 

It alleges a similar pattern of abuse, 

nondisclosure, and use of non-filed 

rate plans. 

The Fraud 

At the root of Randazzo's complaint 

is how charges and deposits in the 

event of claims were to be calculated 

and collected. That leads to what it 

says is the unpredictability of what it 

was being charged in any given month 

for its workers' comp policy. 

Randazzo's position is that that the 

RPA 'cannot be read sufficiently to follow the pricing formuJas.' The charge 

is consistent with statements and testimony in the Shasta Linen case. 

The company maintains that it 

made numerous requests, but Applied 

has refused to provide a formula that 

could be used to recreate the charges 

it received (see the image of Randazzo's exhibit below). Additionally, it 

maintains that Applied used a different formula than it was told would be 

used at the outset of the program to 

"Fraud Case" continued on page 11 

I am not on the wttness stand and do not accept your unilateral llmltatfon In respond Ins to your e-mail. 

Moreover your Inquiry reflects the same fundamental misunderstanding that had 

with respect to the EqultyComp program, that ls the bulk of the amount owed results from the 

Reinsurance Partfclpatfon Agreement In addition to a short rate cancellatfon penalty from Randazzo 

Enterprises early cancellatfon of Its workers' compensation poltcy despite being warned prior to doing 

so. 

In fact you have. the requested lnformatfon since that was provided to Randazzo Enterprises on a 

monthly basis and also to I SUBSest you get the requested lnfcrmatfon from him. 

The written word remains. 

See you In arbltratfon and be governed accordingly. 

Mr. Blwf 

lh9ftanlY-~. 

Wllyou p!OVlde.,. famwla tor --1llO premlama )111111-ar• due lr:lr eed1monl'l11Mt poldea-•ln decl-- nurntle19 URd 

In a-flDfmulM. 

Tha requires a~ 0t no - - And don't IDI me I ... .._,,...,. .. al don'l. 

I.any .J. LJchlenoQaef 

8 June 10, 2015 www.wcexec.com • 916-774-4000 02015 Workers' Comp Executive 

« preyjous 
0 

0 

0 

EmalledUnks 

"Fraud case" 

continued from page 10 

calculate charges. 

Randazzo claims that it was understood at the beginning that, for the 

first year of the three-year program, 

its premiums would be tied to the 

number of employees and wages 

paid multiplied by the rate for each 

class and by a "pay-in factor" of 70%. 

Additionally, for the first year its 

monthly premiums were supposed 

to be fixed using these rates and this 

pay-in factor and Randazzo's estimated payroll, but it says that changed 

early in the game. 

Four month's into the program a 

Randazzo employee suffered a broken 

arm and the claim ultimately cost just 

over $30,000. In the first month after 

the accident it says Applied began using a higher pay-in factor than agreed 

that resulted in an average increase 

in its monthly bill of over $8,000 or 

roughly a 43% increase. 

Randazzo cried foul noting that 

the pay-in factor was supposed to 

be locked in for the first year of the 

agreement and that Applied was 

using a higher factor just five months 

into the program. The parties resolved 

this disagreement before the first-anni versary date and Randazzo contin· 

ued for another year, although there 

continued to be a dispute over how 

much of a credit Randazzo was due. 

During its second year in the program it says it continued pressing for 

a formula that would allow it to esti· 

mate its premiums accurately but nev· 

er received an adequate response. The 

company also incurred a second claim 

- another broken arm - that it says 

eventually amounted to $40,997.16. 

During its time 26 months before it 

canceled the program Randazzo paid 

$551,528.51 into what Applied called a 

protected cell account established by 

the policy. The company by this time 

had two [closed] claims totaling just 

over $80,000. 

At the inception of Randazzo's 

third year in the program, according 

to the complaint, Applied raised the 

premium to more than three times the 

previous monthly premium to approximately $94,000.00. Attorney Larry 

Lichtenegger says the increase was 

without "any justification or representation as to its validity." Randazzo reC2015 Workers' Comp Executive 

«Previous 

fused to pay the increase and canceled 

the policy and the program. 

"Based on the information provided 

and in spite of Applied Underwriters 

contention to the contrary, Randazzo 

has been unable to duplicate the premium calculations made by Applied 

Underwriters," says the complainl 

"It appears that Applied Underwriters, in violation of the initial representations, calculates premium obliga· 

tions based on estimates of future 

payroll and future claims, but without 

any justification for such estimates." 

Unflled Polley or Rates 

Randazzo also challenges Applied's 

assertion that the program was a 

reinsurance agreement and maintains 

that it is more akin to a retro policy 

albeit with its own unique wrinkles. 

It maintains that this alleged misrepresentation alone is justification for a 

recession of the policy and the return 

of premiums totaling nearly $500,000. 

"Applied Underwriters, by and 

through its agents and representatives, intentionally and I or fraudulently misrepresented to Randazzo 

material facts," says Lichtenegger in 

the original complaint. "It failed to 

advise Randazzo that Applied was 

not registered [at the time) with the 

California Secretary of State," and that 

"the policy of insurance it was selling 

was not approved by the California 

Deparbnent of Insurance as required 

by Cal. Ins. Code§ 11658; the true 

nature of the Agreement, the excessive 

fees, surcharges, penalties, and premiums contained in the Agreement, 

and that, after first representing that 

this was a standard 'retro' policy with 

a built-in profit sharing provision. 

It failed to advise Randazzo that it 

intended to calculate premiums based 

on its own estimates of future payroll 

and claims ... " 

Following Randazzo's cancelation 

of the policy because of the tripling of 

its monthly premiums, Applied filed 

an arbitration demand for additional 

payments of $430,451.01, which include an early cancelation penalty. 

It was that demand that prompted 

Randazzo's complaint, which in addition to rescission of the policy and a 

return of all premiums is seeking pu91S.774-4000 • www.wcexec.com 

Page 132 of 237 

nitive damages as well. "There is dear 

and convincing evidence that Applied 

Underwriters' actions were intentional, fraudulent, malicious, or reckless," 

Lichtenegger maintains. 

Randazzo wm also be alleging that 

Applied misrepresented the facts 

about the program to get it to join and 

breached the RPA by increasing its 

premiums. 

Workers' Comp Executive attempted to include Applied's side of the 

story. It tried to obtain comments from 

both Applied and Berkshire Hathaway, but both companies declined to 

comment. WCE did receive an email 

from Attorney Spencer Y. Kook, of 

Hinshaw &: Culbertson, LLP, the Jaw 

firm representing Applied. It read, 

"The client has no comment and will 

not discuss ongoing litigation. Thank 

you.".& 

Classifieds 

LCIS Claims Consultant 

The ClahM Consultant positioo is an inll.'gral 

pilrt o( the Si1bi and service learns at L'llldsc;ipc 

Contradtnlnsurana:Scrvia.5. ThcOaims 

anultant is an adYOG111! hrouraSllmclsand 

cmins !hat~ are nmvingefkdivc 

d.1lms Sl!!Via:s provSiod by canicss and ll'As. 

The ainsultant facilitall:s aimmunicatian5 betwccn aistomcis and claims~ provides 

cduation and niunsclil1g lo customm; ilSliisls 

CUS1m1crS wilh daim ll.'pOlting. MPN impleml.'nliltion. RTW progr.unsi monitors lccy claims; 

and an:luds claim reviews wilh custDmcr.i. 

Candidates must have the ability lo build rcloitionships and amll! per.iONl bonds with dienlsand 

pra;pcdivc clients.. 

The positiln rcquins proven cxpcr1i'lc in 

dealing with CA~ Coolpcnsatlmdlims 

and Cus1Dmcr&!lvim Expcril!na: with Property 

& Casualty claim.1 is bcncficial. 

~location of thcsucx:isWI candidate 

is in the Fresno area. but c:andidoitcs from other 

areas an: also wclcomcd. 

June 10, 2015111 
FILED: NEW YORK COUNTY CLERK 09/13/2016 09:39 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 09/13/2016

1 of 57

Prepared for: 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013 

( 

Presented by: 

Pat Ryder 

Enforce Coverage Group 

Workers' Compensation 

Program Proposal & Rate Quotation 

This proposal expires on 08/07 /09 at 12:01 AM local time. 

This proposal supersedes and voids any and all written or 

oral proposals previously Issued. 

This quotation does not authorize any busine11 services or bind any insurance coverage Marketing representatives, agents, and brokers do not have 

the euthoritv to bind insurance coverage or enter into contracts oo our behalf 

or on behalf ol our affihates. lrvt1at1on of business services and insurance 

coverages Is subject to our final review and formal acceptance. Insurance 

coverage will be bound only after: 11 we i11ue a wnnen quotation; 2) all 

conditions precedent hive been 11ti1fied; 3) we grant the proposal fine! 

approval; 4) we have received payment of the deposit and llll1lal ehasges; 

and 5) we issue wntten notice that Insurance coverage is bound. 

Premier EKcluslve• 11 a registered trademark of Applied Underwriter1, Inc 

02007 Applied Underwrttara, Inc 

Th11 proposal was prepared by Applied Risk Services. 

New York: ARS Insurance Agency, Uc. I PC937411 

Quote #217289-1 issued 07/07/09. Proposed Effective Date 07/01 /09 at 12:01AM local time. Page 1 of 5 

N 

. 

g' 

0 

N 

o' a. 

a. 

~ 

> 
2 of 57

Prepared for: 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013 

Presented by: 

Pat Ryder 

Enforce Coverage Group 

Premier ExclusiveTM is a workers' compensation product available solely through select agents of our 

Company. Premier Exclusive gives agents and insureds direct access to our insurance companies which 

have excellent financial standing and deliver the highest quality service. Only insureds that are best m 

class qualify for this elite product. 

APPLIEn t·~ UND

A 

E

Berkshire 

RWRITERS 

Hathaway Company 

~ 

Applied Underwriters is a premier financial services group of companies with leading expertise in the 

casualty insurance, reinsurance, and business services disciplines. We were founded in 1994 with the 

mission to provide creative insurance and business services solutions for employers countrywide. Applied 

Underwriters' business philosophy bas always been rooted in the needs of the business owner. We think 

like an owner and deliver solutions to the business owner accordingly. 

As a member of Berkshire Hathaway Inc. we have the resources and experience that make us the industry 

leader in our field. Our insurance companies, The North American Casualty Group, maintain an excellent 

financial standing as recognized by industry rating organizations. This excellent financial standing is 

based on delivering best practices in underwriting and claims, including medical management operations, 

in every geographic trading area. 

Our service commitment is built on the concept of high customer touch leading to superior service in all 

aspects of our business. We achieve one of the highest customer satisfaction and retention rates in both 

the insurance and business service industries. Applied Underwriters' employees are simply the best in the 

business. We maintain the highest competency level in every discipline, and these standards make us the 

best, providing competitive products and unparalleled service to those we serve. 

TN Nonh American Cesualty Group•, California Insurance Compan~. 

Con11nen1al Indemnity Compeny•, and Promesa Health9 ere registered 

trademarks of Applied Underwnters. Inc. 

Quote #217289-1 Issued 07/07/09. Proposed Effective Date 07/01 /09 at 12:01AM local time. Page2 of 5 
3 of 57

Prepared for: 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013 

Policy Rating Information 

Presented by: 

Pat Ryder 

Enforce Coverage Group 

Guaranteed cost workers' compensation insurance policies will be issued by admitted companies in conjunction with this program, 

and the rating factors for these policies are listed below. All issuing companies are part of the North American Casualty Group, 

rated A by A.M. Best, and are affiliates of Applied Underwriters Inc. a member of Berkshire Hathaway Inc. A Profit Sharing Plan, 

effected through a reinsurance transaction that is separate from the guaranteed cost policies and independently rated, also applies. 

Exp Freq 

.s.WJt .c.mW: ...M2.d..._ ..M2d.. 

NY A 1.190 

Sched 

Roting 

1.00 

Prem Exp Terrorism 

~ ...c.smn. foreign oom 

10.60 $ 0 .045 .010 

A "" Continental Indemnity Company 

E.L. Limits $500K/$500K/ $500K 

Profit Sharing Plan 

Net 

.QlhW. QUw.Z ~ ~ lli12r 

1.080 

Est. Taxes and Assessments $17, 155 

This Profit Sharing Plan is a reinsurance transaction separate from the guaranteed cost policies. Your risk retention is created by 

your participation in, and cession of allocated premiums and losses to our facultative reinsurance facility, Applied Underwriters 

Captive Risk Assurance Company (AUCRA) under a subscription to the Program identified below. AUCRA is a subsidiary of 

Applied Underwriters Inc., a member of Berkshire Hathaway Inc. Your retention is held in a segregated, protected cell which is not 

liable for the debts and liabilities of any other AUCRA cell. This Profit Sharing Plan is not a filed retrospective rating plan or 

dividend plan, and nothing contained herein Is to be so construed. This Profit Sharing Plan requires a minimum three year contrac· 

tual commitment from you with significant penalties for early cancellation. 

Based upon the annual payroll by class code information you provided, and depending upon the claims experience of the Program 

while you are subscribed, your net three-year cost will vary between a minimum possible cost of $104,626 and a maximum possible 

cost of $400,699. 

Program No. 565 - Enforce Coverage Group Preferred Program 

Estimated Net Cost 

Minimum Maxjmum 

Single Year $34,842 $133,533 

Three Years $104,626 $400,699 

Your actual, final net cost will be determined using the ultimate pooled cost of claims under the Program along with the factors 

and tables set forth in your Reinsurance Participation Agreement (final Agreement) which specifies how a portion of the premi· 

urns end losses occurring under the guaranteed cost policies are ceded to AUCRA for further credit to your cell account. 

You are required to maintain capital deposits in your cell account equal to the sum of 1) the estimated annual loss pick contain-

~I 

"' N 

N 

ment amount multiplied by 10% during the first year, 10% during the second year, or 10% thereafter; and 2) outstanding reserves ~ 

limited so to not exceed the maximum permissible cost. The estimated annual loss pick containment amount is $102, 718, 

determined using estimated annual payroll and the rates listed under Billing Terms, and is subject to revision if actual payroll 

varies from estimates made as of the date of this proposal. Since the ultimate cost of claims can not be known in advance with 

certainty, loss development factors as set forth in the Final Agreement will be applied to all claims to estimate their ultimate 

cost. Your capital deposits will be calculated and billed each month. At the end of the active term of the Profit Sharing Plan, 

calculations will continue to be performed annually thereafter in accordance with the final Agreement. 

::r 

w 

~ 

Quote #217289-1 issued 07/07/09. Proposed Effective Date 07/01 /09 at 12:01AM local time. Page 3 of 5 
4 of 57

Prepared for: 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013 

Billing Terms 

Presented b y: 

Pat Ryder 

Enforce Coverage Group 

The rates below are per $100 of compensable payroll subject to ell customary limitations and caps. The Pay-In Factor listed is based 

on your expected loss experience and will vary as actual losses occur. A Net Pay-In Amount will be billed with each payroll cycle and 

will include workers' compensation premium, fees for services, and capital deposits due to your cell account (where applicable, all 

under a premium finance agreement with Applied Premium Finance, Inc.) Applied Risk Services, Inc. (see attached proposal for the 

license number in your state) will act as billing agent on behalf of all of the companies involved in this program. You will be provided 

with a quarterly reconciliation of all amounts collected and disbursed. Experience modifiers and other guaranteed cost policy modification or differential factors are not components of the Profit Sharing Plan, and any subsequent change in such factors will not affect the 

rates stated. Premium taxes, assessments, certain account fees. waivers of subrogation, and certain surcharges are not included in 

these composite rates, and will be billed separately. These charges are due as billed subject to adjustment at final audit and include, 

but are not limited to: NY Security Fund Surcharge 0.0150, NY State Assessment 0.1340 

Est. Est. Net 

Loss Pick x Pay-In Pay-In x t;;m12l12llH k lrmltls.1111120 Csui11 kl2!l1i!IDmllDI 81111 fW.o! 811111 

Bicycle Delivery NY 7242 8.07 0.90 7.27 

Clerical NY 8810 0.26 0.90 0.24 

Outside Salesperson NY 8742 0.44 0.90 0.40 

Trucking-Mail/Package NY 7231 6.72 0.90 6.05 

TOTAL 3.37 

Quote #217289-1 Issued 07/07/09. Proposed Effective Date 07/01 /09 at 12:01AM local tlme. 

Estimated 

elllC!211 

$ 986,000 

790,000 

700,000 

270,000 

$ 2,745,000 

Est . Annual 

e11ll·lo Ami. $ 

$ 

71,610 

1,896 

2,800 

16,335 

92,641 

:r 

w 

~ 

Page 4 of 5 
5 of 57

Prepared for: 

Breakaway Courier Corporation 

PO Box 780 

New York, NY 10013 

Coverages 

Presented by: 

Pat Ryder 

Enforce Coverage Group 

The North American Casualty Group is rated A (Excellent) VIII by A. M. Best. 

Workers' Compensation and 

Employer' s Liability Insurance 

Services 

APPLIED f•~ UNDERWRITERS &t:f 

Your coverage is fully integrated into the package: all premium is paid 

in full each billing cycle, and risk management products are provided to 

further mitigate risk. Stop Gap coverage is not provided in monopolistic states unless explicitly quoted. See the Policy Rating Information 

section for terms and carriers affording coverage. 

PR<m~ All services are provided exclusively by Applied Underwriters and its affl'liates. 

Integrated Billing System 

Occupational Medical Care 

Cell Captive Facility 

We make it easy: each month, you will receive one convenient, integrated statement for all charges for all coverages and services. Even 

your Profit Sharing Plan will be calculated each month. 

We will provide access to exclusive medical care facilities and a network of physicians dedicated to occupational medicine. Where available, you will be automatically enrolled in our closed medical network; 

participation Is mandatory. 

We will establish an account for you In our segregated, protected cell 

captive which was designed specifically for our small and mid-sized 

insureds. You are responsible solely for your own risk retention. Cell 

accounts are segregated and protected with additional solvency and 

liability warranties underwritten by Continental Indemnity Company. 

Quote #217289-1 Issued 07107109. Proposed Effective Date 07/01 109 at 12:01AM local time. Page 5 of 5 
FILED: NEW YORK COUNTY CLERK 10/27/2016 09:51 PM INDEX NO. 654806/2016

NYSCEF DOC. NO. 125 RECEIVED NYSCEF: 10/27/2016

United States Patent· 79081 57 Page 1 of 18 

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United States Patent 

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Reinsurance participation plan 

Abstract 

( 1 of 2 ) 

7,908,157 

March 15, 2011 

A reinsurance participation plan allows an insurance carrier to provide novel loss participation plans to 

insureds. The insurance carrier cedes a portion of the risk to a reinsurance company, such as a captive 

reinsurance company. The captive reinsurance carrier then enters into a contractual agreement with the 

insured for the participation plan, subject to the appropriate regulations for the primary line of insurance in 

question. The participation plan may be a non-linear participation plan, such as a curvilinear participation 

plan, where the non-linearities allow the plan to be offered to smaller companies than would otherwise 

qualify for more traditional retrospective participation plans, and to provide more advantageous plans to 

larger companies than they would otherwise be offered. The plans may be offered on a multi-year basis with 

particular diligence in informed consent for the prospective insured. Plans may be offered to small companies 

whose loss experience is aggregated and then divided according to relative premium amounts among the 

small companies such that the aggregate losses have a distribution with skewness comparable to that of a 

medium sized company. 

Inventors: Menzies; Steven M. (Omaha, NE), Silver; Jeffrey A. (Omaha, NE), Ferenc; Sidney R. 

(Omaha, NE), Smith; Justin N. (Woodside, CA), Hughes; Sean (Belmont, CA) 

Assignee: Applied Underwriters, Inc. (Omaha, NE) 

Family ID: 43708197 

Appl. No.: 12/822,371 

Filed: June 24, 2010 

Application Number 

12696256 

61148560 

Current U.S. Class: 

Current CPC Class: 

Related U.S. Patent Documents 

Filing Date 

Jan 29, 2010 

Jan 30, 2009 

Patent Number Issue Date 

705/4 

G06Q 40108 (20130101) 

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United States Patent: 7908157 Page 2of18 

Current International Class: 

Field of Search: 

G06Q 40100 (20060101) 

;705/1-45 

5590037 

5712984 

5752236 

6226625 

6604080 

7359863 

75 16079 

7565302 

769373 1 

76982 13 

2003/0074277 

2008/0027762 

2008/0052 135 

2008/0306779 

200910012840 

200910192829 

2010/0010837 

20 10/0036684 

References Cited [Referenced By] 

U.S. Patent Documents 

December 1996 

January 1998 

May 1998 

May 2001 

August 2003 

April 2008 

April 2009 

July 2009 

April 2010 

April 2010 

April 2003 

January 2008 

February 2008 

December 2008 

January 2009 

July 2009 

January 2010 

February 2010 

Other References 

Ryan et al. 

Hammond et al. 

Sexton et al. 

Levenstein 

Kern 

Evenshaug et al. 

Harrison et al. 

Best-Devereux 

Weber et al. 

Lancaster 

Foutz 

Herzfeld et al. 

Ziade et al. 

Thomas et al. 

Gaubatz et al. 

Long et al. 

Lang et al. 

McN arnee et al. 

Crouse, Charles,W. "On Non-Linear Retrospective Rating" , Proceedings of the Casualty of 

Actuarial Society, Nov. 18, 1949 pp. 35-62. cited by other. 

Lee, Yoong-Sin, "The Mathematics of Excess of Loss Coverages and Retrospective Rating--A 

Graphical Approach", Proceedings of the Casualty of Actuarial Society, vol. LXXV, No. 143 & 

144, 1988 pp. 49-77. cited by other. 

Brosius, Eric, J. "Table M Construction", Casualty Actuarial Society (study note) 2002. cited by 

other. 

Cai, Jyn, Tan, Ken Seng, Weng, Changguo, and Zhang, Yi., "Optimal Reinsurance Under VaR 

and CTE Risk Measures", Article, Insurance:Mathematic and Economics, Elsevier B.V. Mar. 

2007. cited by other . 

Carlson, Thomas, 0. "An Actuarial Analysis of Retrospective Rating" , Proceedigs of the 

Casualty Actuarial Society vol. XXVIII, Nov. 14, 1941. cited by other. 

Gillam, W.R.; and Snader, R.H., "Fundamentals oflndividual Risk Rating," National Council on 

Compensation Insurance (Study Note), 1992, Part I. Revised Oct. 1, 2002. cited by other . 

Gillam, W.R.; and Snader, R.H., "Fundamentals oflndividual Risk Rating," National Council on 

Compensation Insurance (Study Note), 1992, Part II. cited by other. 

Gillam, W.R.; and Snader, R.H., "Fundamentals of Individual Risk Rating," National Council on 

Compensation Insurance (Study Note), 1992Part III. cited by other . 

Hewitt, C.C. Jr, 'Loss Ratio Distribution, A Model', Proceedigs of the Casualty Actuarial 

http://patft.uspto.gov/netacgi/nph-Parser?Sectl =PT02&Sect2=HITOFF &p=l &u=%2Fnetahtml... 10/26/2016 
umted :states Patent: /'1U8!Y/ 

Society vol. LIV, 1967, Year Book 1968. cited by other. 

"Large Risk Alternative Rating Opiton", Filing Memorandum, The Workers' Compensation 

Rating and Inspection Bureau of Massachusetts, Jan. 7, 1993. cited by other. 

"Retrospective Rating Plan", Web page, The Workers' Compensation Rating and Inspection 

Bureau of Massachusetts, Jun. 30, 2009. cited by other. 

Mahler, Howard, C., "The Interaction of Maximum Premiums, Minimum Premiums and Accident 

Limits in Retrospective Rating", Proceedings of the Casualty Actuarial Society vol. LXIII. 1976. 

cited by other . 

"Comp Vision System, rating plans", P&C Insurance Systems, Inc. Mar. 15, 2005. cited by other. 

Perryman, F.S. "Written Disccusion On Non-Linear Retrospective Rating, Charles W. Crouse" 

Proceedigs of the Casualty Actuarial Society, Nov. 17, 1950. cited by other. 

Perryman, F.S. "Possible Values for Retrospective Rating Plans", Proceedings of the Casualty 

Actuarial Society vol. XXXI, Nov. 1, 1944. cited by other . 

"Retrospective Rating Plan Manual, State special Rules", Manual, Massachusetts, Apr. 1, 1995, 

copyright material of the National Council on compensation Insurance 1994. cited by other . 

Simon, Leroy, J. "The 1965 Table M", Proceeedings, of the Casualty Actuarial Society May 1965 

vol. LII part I. cited by other . 

Teng, Michael and Perkins, Miriam, "Estimating the Premium Asset on Retrospectively Rated 

Policies", Apr. 8, 2004. cited by other . 

Vandewalle, B. & Beirlant, J. "On Univariate Extreme Value Statistics and the Estimation of 

Reinsurance Premiums" Article, Insurance:Mathematic and Economics, Elsevier B.V. Jul. 2005. 

cited by other. 

Primary Examiner: Khattar; Rajesh 

Attorney, Agent or Firm: Nowotarski; Mark 

Parent Case Text 

CROSS-REFERENCE TO RELATED APPLICATION 

Page 3of18 

This application is a continuation of U.S. nonprovisional patent application "Reinsurance Participation 

Plan", Ser. No. 12/696,256, filed Jan. 29, 2010. Said application is incorporated in its entirety herein by 

reference. 

Said nonprovisional patent application Ser. No. 12/696,256, in turn, claims the benefit of U.S. provisional 

patent application "Reinsurance Participation Plan", Ser. No. 61/148,560, filed Jan. 30, 2009. Said 

application is incorporated in its entirety herein by reference. 

Said continuation application hereby claims priority from said nonprovisional patent application Ser. No. 

12/696,256 and said provisional patent application Ser. No. 61/148,560. 

Claims 

The invention claimed is: 

1. A computer based system for providing to a prospective insured a set of premium versus loss data for a 

reinsurance participation plan for workers compensation insurance coverage, said system comprising: a. an 

input device for receiving data about said prospective insured, said data being sufficient to categorize said 

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prospective insured into an Expected Ultimate Loss Group, EULG; b. a first computer configured to calculate 

said set of premium versus loss data for said EULG, said premium versus loss data being described by the 

equation: premium=basic+VC(actual_Iosses)*actual_Iosses where: i. premium is a premium in said set of 

premium versus loss data; ii. basic is a Basic; iii. actual losses is an actual loss in said set of premium versus 

loss data; and iv. VC(actual_losses) is a Variable Loss Conversion Factor Function that increases with 

increasing actual losses for an inte1mediate range of said actual losses so that the maximum value of said 

premiums in said set of premium versus loss data is less than the maximum premium of a linear retrospective 

premium plan with the same Basic and EULG; and c. an output device for presenting said set of premium 

versus loss data to said prospective insured; and wherein said computer based system further comprises a 

second computer configured to calculate said set of premium versus loss data using the equation: premium=p 

(CDF)*GuaranteedCostpremium or its equivalent, where: p(CDF) is a premium ratio function which is 

defined as the ratio of premium to GuaranteedCostpremium for a given CDP; CDP is a value of the 

Cumulative Distribution Function of losses for insureds with said EULG; and GuaranteedCostpremium is a 

Guaranteed Cost premium for said EULG; and wherein said premium ratio function is approximately 

described over a first CDP range by the equation: p(CDF)=A *CDF+p.sub.o where: CDP is greater than zero 

and less than one; A is a non-zero slope of said premium ratio function in said first CDP range; and p.sub.o is 

the intercept of said premium ratio function in said first CDP range. 

2. The computer based system of claim 1 wherein said intermediate range begins at about 1/2 of the expected 

annual losses that correspond to said EULG. 

3. The computer based system of claim 1 wherein: said first CDP range is from about 0.0 to about 0.6; A is 

about 0.4; and P.sub.o is about 0.8. 

4. A computer based system for providing to a prospective insured a set of premium versus loss data for a 

reinsurance participation plan for workers compensation insurance coverage, said system comprising: a. an 

input device for receiving data about said prospective insured, said data being sufficient to categorize said 

prospective insured into an Expected Ultimate Loss Group, EULG; b. a first computer configured to calculate 

said set of premium versus loss data for said EULG, said premium versus loss data being described by the 

equation: premium=basic+VC(actual_losses)*actual_losses where: i. premium is a premium in said set of 

premium versus loss data; ii. basic is a Basic; iii. actual losses is an actual loss in said set of premium versus 

loss data; and iv. VC(actual losses) is a Variable Loss Conversion Factor Function that increases with 

increasing actual losses for an intermediate range of said actual losses so that the maximum value of said 

premiums in said set of premium versus loss data is less than the maximum premium of a linear retrospective 

premium plan with the same Basic and EULG; and c. an output device for presenting said set of premium 

versus loss data to said prospective insured; and wherein said computer based system further comprises a 

second computer configured to calculate said set of premium versus loss data using the equation: premium=p 

(CDF)*GuaranteedCostpremium or its equivalent, where: p(CDF) is a premium ratio function which is 

defined as the ratio of premium to GuaranteedCostpremium for a given CDP; CDP is a value of the 

Cumulative Distribution Function oflosses for insureds with said EULG; and GuaranteedCostpremium is a 

Guaranteed Cost premium for said EULG: and wherein said premium ratio function is approximately 

described over a first CDP range by the equation: p(CDF)=(P.sub.l-P.sub.2)*(1-exp(-(CDFCDF.sub.o)/CDF.sub. *))+P.sub.1 where: P.sub. l is the value of the premium ratio function at the start of said 

first CDP range; P.sub.2 is the value of the premium ratio function at the end of said first CDP range; 

CDF.sub.o is the CDP at the start of said first CDP range; and CDP* is a curvature parameter indicating how 

quickly the premium ratio function changes from P.sub.l to P.sub.2 in said first CDP range. 

5. The computer based system of claim 4 wherein: said first CDP range is from about 0.6 to about 0.8; 

P.sub. l is about 1.0; P.sub.2 is about 1.3; and CDP* is about 0.05. 

6. The computer based system of claim 1 wherein said first computer and said second computer are the same 

computer. 

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7. The computer based system of claim 4 wherein said first computer and said second computer are the same 

computer. 

8. The computer based system of claim 4 wherein said intermediate range begins at about 1/2 of the expected 

annual losses that correspond to said EULG. 

Description 

FIELD OF INVENTION 

This disclosure is generally in the field of insurance. 

BACKGROUND 

There is long felt need for an insurance product that more closely matches an insured's perception of the risk 

of suffering various levels of aggregate loss and preferences regarding different final cost outcomes. 

SUMMARY OF THE INVENTION 

The Summary of the Invention is provided as a guide to understanding the invention. It does not necessarily 

describe the most generic embodiment of the invention or all species of the invention disclosed herein. 

A small to medium sized company's perceived risk of incurring a given level of insurance loss can be more 

closely matched to an insurance carrier's needs to collect enough premium to cover all expected losses from 

all insureds and comply with state insurance regulations ifthe insurance carrier cedes a portion of the total 

risk to a reinsurance company and if the reinsurance company, in turn, provides a risk sharing participation 

program to the insured. 

The risk sharing participation program is structured such that the insured's net premium payment will vary in 

a non-linear manner with respect to their actual losses. In particular, there will be accelerated savings in 

premiums for particularly low losses over a given period of time. 

The risk sharing participation program is suitable for workers' compensation insurance as well as insurance 

coverage for other risks, such as general liability and health risks. Coverage may be provided separately or in 

combination. 

BRIEF DESCRIPTION OF DRAWINGS 

FIG. 1 is an illustration of a workers' compensation loss distribution for large companies. 

FIG. 2 is an illustration of a conventional linear retrospective premium plan for workers' compensation 

insurance for large companies. 

FIG. 3 is an illustration of a workers' compensation loss distribution for medium sized companies. 

FIG. 4 illustrates the difficulties inherent in offering conventional linear retrospective premium plans to 

medium sized companies. 

FIG. 5 illustrates the ability of an exemplary non-linear participation plan to overcome the limitations of a 

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United States Patent: 7908157 Page 6of18 

linear plan. 

FIG. 6 illustrates an exemplary curvilinear participation plan. 

FIG. 7 illustrates an exemplary system for providing a reinsurance participation plan that is in compliance 

with insurance regulations. 

FIG. 8 is a Lee diagram which illustrates the relationship between loss ratio and cumulative distribution 

function for medium sized companies. 

FIGS. 9A and 9B compare the Lee diagrams for the loss distributions of medium sized companies and large 

sized companies. 

FIG. 10 is a Smith diagram which illustrates the relationship between premium ratio and cumulative 

distribution function for a non-linear retrospective premium plan. 

FIGS. I IA and 1 IB compare the combined Smith diagrams and Lee diagrams for medium sized and large 

sized companies. 

FIGS. 12A and 12B compare the Smith diagrams for a fixed premium plan and a non-linear premium plan. 

FIGS. 13A and 13B compare Smith diagrams for non-linear premium plans with an adjustable maximum 

premium and minimum premium. 

FIGS. 14A and 14B compare Smith diagrams for non-linear premium plans that allow independent 

adjustment of maximum premium, Basic, Guaranteed Cost premium and minimum premium. 

FIG. ISA illustrates how the loss conversion factor varies with actual losses for an exemplary embodiment of 

the invention. 

FIGS. 15B and 15C illustrate a non-linear premium plan graphed on a Smith diagram and graphed relative to 

loss ratio. 

DETAILED DESCRIPTION OF INVENTION 

The following detailed description discloses various embodiments and features of the invention. These 

embodiments and features are meant to be exemplary and not limiting. 

Loss Distributions and Linear Retrospective Premium Plans 

FIG. I illustrates a distribution of actual workers' compensation insurance losses (loss distribution) 

experienced by large companies. Curve 100 shows the relative number of companies that experience a loss of 

a given size over a given period of time, such as one year. This is known as a frequency distribution oflosses. 

By "loss" it is meant the amount that a given insurance carrier pays to settle claims by injured workers 

employed by a single company covered by the insurance carrier in a given year. This graph takes into account 

the fact that an injured worker may make claims, such as for medical care reimbursement or lost wages, over 

a period of many years after an accident occurs. 

The curve is based on data collected by various agencies, such as the National Council of Compensation 

Insurers. These agencies report out loss experience data in table form. "Table M" produced by the National 

Council of Compensation Insurers is an example of such a table. The current Table Mas of the filing date is 

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incorporated herein by reference. 

Table M categorizes companies by their average expected worker's compensation losses. The categories are 

defined as "Expected Ultimate Loss Groups" or EULGs. 

Each group covers a range of losses. As used herein, when a group of companies is described as having 

expected losses of a particular value, it is meant that their values fall in the range of the corresponding 

EULG. A company that has expected losses of$160,000, for example would fall in EULG 55. EULG 55 

covers companies with expected losses in the range of$159,002.01 to $171,340.00. 

Data points 110 illustrate underlying data which the frequency distribution is based on. Data points are only 

shown for the tail of the curve for clarity purposes. Full data sets would show points along the entire length of 

the curve. There is a certain amount of scatter in the data due to random fluctuations, as well as systematic 

differences between the types of workers represented. The circle data points 112 represent relatively low risk 

occupations, such as office workers. These data points tend not to extend out to the higher losses. The 

triangle data points 114 represent relatively high risk occupations, such as construction workers. These data 

points tend to extend out to the higher losses due in part to the higher probability of a worker suffering a long 

term disabling injury. 

The frequency distribution curve illustrates that for companies seeking to purchase workers' compensation 

insurance, there can be a difference in perception between what the company feels its "expected losses" are 

and what the insurance company feels its "expected losses" are. This difference can lead to a difference in 

opinion as to what the appropriate insurance premium should be and can make the sales process difficult. 

The curve presented in FIG. I is for companies that, on average, experience $4,000,000 in workers' 

compensation losses. These are large companies with several thousand employees. Insurance for these 

companies is often bought by a professional risk manager who is very familiar with the nature of their losses. 

An important part of the nature of workers' compensation losses, is that the loss distribution has a long tail 

I 02. This means that the losses experienced by most companies are fairly low, but on relatively rare 

occasions, a catastrophic event can lead to very large losses. These large losses increase the high-end tail of 

the distribution and pull the overall average I 06 up above the median I 04. 

An insurance company considers the average losses to be the expected losses, since on average, this is what 

they expect to pay per insured. An insured company, however, may consider the median to be its expected 

losses, since that is what they normally expect to suffer. Hence there can be a mismatch in what the insurance 

company feels is a fair premium and what the company feels is a fair premium. 

This dichotomy has lead to the development ofretrospective premium plans. FIG. 2 illustrates a comparison 

between a standard Guaranteed Cost insurance plan 210, and a participating linear retrospective premium 

insurance plan 220. Both of these types of plans are approved by the individual state insurance departments in 

the U.S. and therefore can be offered by admitted carriers to companies that meet certain criteria. The 

corresponding frequency distribution ofloss 202 is also shown for reference purposes. 

Guaranteed Cost plans are quite simple. The insured company pays a fixed premium no matter what its 

subsequent loss experience is for the term of its insurance coverage. This fixed premium is illustrated by the 

horizontal line 210. 

The fixed premium can be thought of as equaling a Basic 212 plus the average losses 214. The Basic is the 

estimated cost of providing the insurance, not including claims. It includes sales, underwriting, profit and 

other fixed costs. The average losses is the expected average claims that will have to be paid. FIG. 2 

illustrates that a company with expected average losses of $4 million per year might be charged a premium of 

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$6 million per year. $4 million is to cover payment of the losses. $2 million is to cover the other costs of 

providing the insurance. 

A participating linear retrospective premium insurance plan 220 varies the premium that a company will pay 

based on its actual losses during a coverage period. In the illustrated example, the minimum is set at the 

Basic. The insurance premium then increases linearly along region 222 with respect to actual losses until it 

reaches a maximum at plateau region 226. Thereafter, the premium is fixed. The maximum is set by the 

crossover point 224 and the shape of the underlying frequency distribution 202. 

The standard equation describing the relationship between premium and actual losses over the linear region 

222 is: Premium=Basic+C* Actual Losses where C is known as the Loss Conversion Factor. 

An exemplary relationship between premiums and actual losses is illustrated in Table 1. 

T ABLE-US-00001 TABLE 1 Conventional Retrospective Premium Plan with Constant Loss Conversion 

Factor Variable C Loss Actual Basic Loss Conversion Losses Expense Expense Taxes Premium Factor $0 

$199,806 $0 $7,193 $206,999 $256,868 $199,806 $64,217 $18,752 $539,643 1.295000 $513,736 $199,806 

$128,434 $30,311$872,2871.295000 $770,603 $199,806 $192,651 $41,870 $1,204,930 1.295000 

$1,027,471 $199,806 $256,868 $53,429 $1,537,574 1.295000 $1,284,339 $199,806 $321,085 $64,988 

$1,870,218 1.295000 $1,541,207 $199,806 $385,302 $75,547 $2,202,862 1.295000 $1,798,075 $199,806 

$449,519 $88,106 $2,535,506 1.295000 $2,054,943 $199,806 $513,736 $99,665 $2,868,150 1.295000 

$2,311,811 $199,806 $577,953 $111,225 $3,200,795 1.295000 $2,568,327 $199,806 $642,082 $122,768 

$3,532,983 1.295000 >$2,568,327 $199,806 $3,532,983 NA 

The Loss Conversion Factor is constant, or at least constant to within the numerical accuracy of the system 

calculating the premiums. This, in part, is due to the fact that there has been no motivation to modify a Loss 

Conversion Factor and it is therefore easiest to keep it the same over the linear portion of the retrospective 

rating plan. 

For losses higher than $2,568,327 (last row of table 1), the premium is capped at the maximum, $3,532,983. 

The loss conversion factor is not applicable in this range (NA). 

Only large companies, such as those with expected losses of at least $500,000 per year, can qualify for 

retrospective plans in the US. Small and medium sized companies are usually limited to Guaranteed Cost 

insurance. Also, the only retrospective plans that are available are linear ones. This is due in part to 

govermnental and other regulatory requirements as well as the computational difficulties inherent in 

providing premium quotes for a broad range of companies that vary in a non-linear manner. The 

computational and practical challenges of providing non-linear plans and the reasons why they have not been 

available prior to the disclosures provided herein, are described in more detail in Crouse, Charles, "On NonLinear Retrospective Rating", Proceedings of the Casualty Actuarial Society, Nov. 18, 1949. Said publication 

is incorporated herein by reference. 

Non-Linear Retrospective Premium Plans for Medium Sized Companies 

FIG. 3 illustrates the frequency distribution 300 of actual losses for medium sized companies. It is 

dramatically different than the frequency distribution of actual losses for large companies shown in FIG. 1. 

The frequency distribution presented is for companies that have average losses of$160,000 per year. These 

companies might have several hundred employees. 

The peak of the frequency distribution has shifted to zero. This means that it is fairly likely that some 

companies will experience no losses at all in a given year. In this case, the probability that a company will 

experience no loss is about 10%. On the other hand, the tail 3 02 has become much longer. This means that 

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companies that do experience losses are much more likely to experience losses that are much higher than the 

average. The net effect is that average losses 306 are much higher than median losses 304. The size of the 

difference between average losses 306 and median losses 304 dramatically reduces the viability oflinear 

retrospective plans for these companies and hence tonly Guaranteed Cost plans are available to them. 

FIG. 4 further illustrates why a linear plan 420 is not viable for medium and small sized companies. The 

corresponding Guaranteed Cost plan 410 and frequency distribution of losses 400 are shown for comparison. 

If the minimum is set to the Basic 412, and the crossover 424 with the Guaranteed Cost plan 410 is pegged at 

the average losses, then the linear portion of the curve must extend to a relatively much higher level 426 than 

a large company in order for there to be enough premium collected to cover the overall cost of claims. The 

very high maximum means that the policy is no longer effectively insurance for companies that suffer large 

losses. This is because the cost of the premiums and the amount of the losses themselves are of the same 

magnitude. Also, there is little or no risk-sharing between the companies that suffer large losses with those 

companies that do not suffer any losses. 

FIG. 5 illustrates a class of non-linear premium functions which address many of the above limitations and 

allow participating insurance plans to be effectively offered to medium and even small companies. 

The non-linear premium function 530 illustrated in FIG. 5 comprises an initial relatively steep portion 532, a 

breakpoint 538, a subsequent relatively shallow portion 534, and a plateau portion 536. A corresponding 

linear plan 520, Guaranteed Cost plan 510 and frequency distribution of losses 500, are shown for 

companson. 

The non-linear plan is set at the Basic 512 for zero actual losses. It is pegged 524 at the level of the 

Guaranteed Cost plan at the average. Because there is a breakpoint 538 in the function, the plateau portion 

536 of the non-linear plan 530 can be much lower than the plateau 526 of the corresponding linear plan 520. 

The reason is that more premium is collected at lower loss levels where most insured companies will wind 

up. This extra premium is available to compensate for the higher losses that the smaller fraction of insured 

companies will experience. 

From a customer standpoint, this non-linear plan has an advantage over a linear plan of still providing 

meaningful savings in premiums for companies with losses somewhat below the average, the possibility of 

very large savings in premiums for companies with exceptionally low losses, and a much lower cap on 

maximum premiums for companies with large losses. 

From an insurance carrier standpoint the non-linear approach provides an additional parameter (e.g. the 

breakpoint 538) which can be adjusted during the sales process to better meet the perceived needs of the 

customer. 

Curvilinear Premium Function 

FIG. 6 illustrates a non-linear premium function 610 with curvilinear properties. A corresponding linear plan 

620 and frequency distribution oflosses 600 are shown for comparison. 

The curvilinear function 610 comprises an initial feathered portion 612, a dimple 624, and a subsequent 

feathered portion 614. A plateau (not shown) may also be present at very high actual loss levels. 

Similar to the corresponding linear plan 620, the curvilinear function intersects the Y axis at the Basic 622 

and has a premium equal to the corresponding guaranteed premium at the average of the actual losses 624. 

From a company perspective, the curvilinear approach presents a smoother looking curve which shows 

increasing benefit for exemplary safety performance (lower actual losses). 

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From an insurance carrier perspective, the accelerated increase in premium shown in feathered portion 614 

after the dimple 624 provides more premium dollars to help keep the upper plateau as low as possible. The 

curvilinear approach also allows small incremental increases 626 in premiums even if actual losses almost 

triple so that there is always some premium savings incentive for continued safety vigilance even in years 

when large losses have already occurred. 

Reinsurance Participation Plan 

One of the challenges of introducing a fundamentally new premium structure into the marketplace is that the 

structure must be approved by the respective insurance depatiments regulating the sale of insurance in the 

states in which the insureds operate. 

In the United States, each state has its own insurance department and each insurance department must give its 

approval to sell insurance with a given premium plan in its respective jurisdiction. Getting approval can be 

extremely time consuming and expensive, particularly with novel approaches that a department hasn't had 

experience with before. Also, many states require insurance companies to only offer small sized and medium 

sized companies a Guaranteed Cost plan, without the option of a retrospective plan. In part, this is because of 

governmental rules and laws that regulate the insurance industry. 

Disclosed herein is a reinsurance based approach to providing non-linear retrospective premium plans to 

insureds that may not have the option of such a plan directly. It also has the surprising ability to enable nonlinear plans while at the same time complying with state regulations. 

FIG. 7 illustrates an exemplary physical system and method tied to particular machines which allows for the 

provision of improved insurance premium plans in compliance with regulatory requirements that do not make 

specific provision for these plans. It is based on the fact that an insurance carrier can cede a certain portion of 

an insurance risk to a reinsurance company. Said reinsurance company can, in turn, enter into a separate 

Participation Agreement with the insured whereby a credit or debit is assessed on the insured as a function of 

the losses experienced by each insured. 

An admitted insurance carrier 730 has a license from a state insurance department 760 to sell Guaranteed 

Cost workers' compensation insurance in a given state. The insurance carrier obtains approval by using an 

industry standard Guaranteed Cost policy and filing premium rate requests with the insurance department 

735. The insurance department, already familiar with the policy, approves the rates 765. 

The insurance carrier then contractually arranges with a broker 750 to sell said standard policies to a targeted 

class of companies. These targeted classes include small sized 702 and medium sized 704 companies. As 

used herein, a small company has average losses of $60,000 per year or less. A medium sized company has 

average losses in the range of $60,000 to $500,000 per year. A large company has average losses of $500,000 

per year or more. In this instance, the insurance carrier elects not to offer the policies to large companies 706 

for competitive reasons. 

As used herein "broker" is used in a broad sense to include independent brokers, captive agents, independent 

agents, the insurance carrier's own sales force, and other entities licensed to sell insurance. 

Insured companies are shown in FIG. 7 as stick figures 710. The width 712 of a stick figure corresponds to 

the average loss rates for a given company. The height 714 ofa stick figure corresponds to the actual losses 

experienced in a given year. The hat on a stick figure corresponds to the aggregate riskiness of the jobs in the 

company. A hard hat 718 (e.g. construction) corresponds to relatively high risk jobs. A mortar board 716 (e.g. 

office) corresponds to relatively low risk jobs. 

In order to assist the broker in selling the insurance product, the insurance carrier 730 develops a computer 

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implemented sales tool 732. This is transferred 731 to the broker 750. The broker makes additional 

modifications 752 to adapt it to its own needs (e.g. installed broker logos). The broker then uses the tool to 

illustrate 751 policies to prospective insureds 760. Whereas the policies are Guaranteed Cost policies 754, the 

broker nonetheless has a certain amount of freedom 756 to adjust the premiums to meet market demands. 

If an insurance offering meets a prospective insured's needs, then it may apply 761 for coverage. A portion of 

the application information may then be transferred 733 to the insurance carrier 730 for underwriting 

purposes. If approved, the prospective insured then pays a premium and coverage is bound for the next year. 

In order to provide a certain amount ofloss participation to a prospective insured, the insurance carrier 730 

may cede 73 7 a portion 734 of the insured risk to a reinsurance company 7 40 and pay a corresponding 

premium to said reinsurance company. The reinsurance company may be a captive reinsurer. In an exemplary 

embodiment, the insurance carrier 730 may retain the initial 40% of the risk, cede the next 20% of the risk to 

the reinsurance company 7 40 and retain the final 40%. If the insurance carrier 73 0 as a whole experiences 

total losses greater than 40% of the expected losses, then the reinsurance company 7 40 will pay 7 4 7 up to the 

next20%. 

The reinsurance company 740 can now provide funds to implement a non-linear retrospective rating plan as a 

"participation plan". The reinsurance company does this by entering into a separate contractual arrangement 

directly with the insured. If the insured has lower than average losses in the next year, then the reinsurance 

company can provide a premium reduction 7 44 according to the participation plan. If the insured has higher 

than average losses in a given year, then the reinsurance company will assess additional premium 746 

accordingly. The insured can now, in effect, have a retrospective rating plan because of the arrangement 

among the insurance carrier 730, the reinsurance company 740 and the insured even though, in fact, the 

insured has Guaranteed Cost insurance coverage with the insurance carrier 730. 

The technology 742 to illustrate the participation plan can be transferred 741 to the broker 750 so that the 

broker will have the technology 758 to illustrate the plan to a prospective insured. One of the advantages of 

the participation plans described herein is that the broker 750 has greater freedom 759 to adjust the plan to 

meet the requirements of a prospective insured than it would have with either a Guaranteed Cost plan or a 

conventional linear retrospective plan. 

Companies eligible for the paiiicipation plan might be medium sized companies. The broker would target 

these companies and would present the combined insurance 755 and participation plans 757 to a given 

prospective insured 780. If the prospective insured applied 781 for both offerings, then the necessary 

information 733, 743 would be transfe!1'ed to the insurance carrier 730 and the reinsurance company 740 such 

that each could enter into its respective agreements. 

The non-linear plans described herein, such as a curvilinear plan, may even be offered 771, 773 to small 

companies if the loss experience of a multiplicity of small companies is aggregated into a cell 770. The 

companies within a given aggregation cell may not be aware of who the other companies are. Each one must 

make separate application 77 5 for coverage. Enough small companies should be present in a cell so that the 

collective expected losses are comparable to a medium sized company. 

Aggregation may also be over time. A relatively small company, for exainple, may be able to qualify by itself 

for a non-linear plan ifit is willing to make a firm commitment for three year participation so that it's average 

losses over three years are comparable to the average annual losses of a medium sized company. The 

insurance policies themselves are one year policies, but the separate participation plan agreement is for a 

three year term. 

It may be helpful in time-aggregation if prospective insureds are redundantly notified over the course of the 

sales process and thereafter with very explicit language that the participation agreement is for several years 

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and not just one. To accomplish this, for, example, multiple signatures by responsible parties in the 

prospective insureds for said redundant notifications may be required. This reduces the exposure of the 

insurance carrier, broker and reinsurance company to complaints by the insured company once the 

participation agreement is in force due to the fact that the insured company "didn't realize" that the agreement 

was for a term of multiple years. Similar considerations are useful for aggregations over multiple companies. 

Smith Premium Ratio Diagrams 

Another barrier to providing non-linear retrospective plans has been the inordinate complexity of calculating 

the appropriate premiums for companies of various sizes and presenting said premiums to prospective 

insureds. It has been surprisingly discovered, however, that a new method of graphically representing these 

plans largely overcomes these difficulties. This new form of graphical representation is termed a "Smith 

Premium Ratio diagram" or simply a Smith diagram. Smith diagrams are used in combination with Lee Loss 

Ratio diagrams (or simply "Lee diagrams") to substantially simplify the calculation of the appropriate 

relationship between actual losses and premium for non-linear retrospective plans. 

FIG. 8 is a Lee Loss Ratio diagram which illustrates the relationship between loss ratio (r) and cumulative 

distribution function of actual losses (CDF) for medium sized companies. Lee diagrams are more fully 

described in Lee, Yoong-Sin, "The Mathematics of Excess Loss Coverages and Retrospective Rating--A 

Graphical Approach", Section 4, PCAS LXX, 1983. Said publication is incorporated herein by reference. 

A loss ratio is the ratio of actual losses to expected average losses. If a company has expected average losses 

of $160,000 per year, and experiences an actual loss of $80,000 in a given year, it will have a loss ratio r of 

0.5 for said given year. 

The cumulative distribution function of actual losses (CDF) of a company is the rank of that company's actual 

losses in a given year relative to the actual losses of all of the other companies with the same expected 

average losses. If a company has a CDF of 0.5, then half of the other companies with the same expected 

losses had actual losses greater then said company had. 

Curve 808 in FIG. 8 shows the loss ratio versus CDF for companies with expected average losses of 

$160,000. This curve is calculated from the above referenced Table M. The scatter in the curve is due in part 

to rounding errors in the data presented in Table M. 

The loss ratio curve intersects the x axis 804 at a CDF of 0.1. This means that 10% of the companies in this 

class will have zero losses in a given year. 

The loss ratio has a value of 4 at a CDF of 0.95. This means that 5% of the companies 806 in this class will 

have losses that are at least four times the average in a given year. 

The area under the curve 802 represents the total losses for all companies in this class. Since they axis has 

been normalized by dividing the actual losses by the expected average losses, the area under the curve is 

unity. This is true for all classes of company size. The area under the curve includes the area not shown for 

values ofloss ratio above 4. 

FIGS. 9A and 9B compare the Lee diagram for medium sized companies and the Lee diagram for large 

companies. Relative to the loss ratio curve for medium sized companies 904, the loss ratio curve for large 

companies 914 is shorter and fatter. The probability that a large company has no losses 914 is very small. 

Likewise the probability that a large company has losses greater than 4 times the expected average loss 916 is 

also very small. The area under the curve for large companies 922, however, is still unity. 

FIG. 10 illustrates an exemplary Smith diagram for designing a non-linear retrospective premium plans. The 

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Smith diagram is similar to the Lee diagram in the sense that the x axis is the CDF of the actual losses 

experienced by the companies in a given size class. The y axis, however, is a designed Premium ratio (p) 

instead of an experienced Loss ratio (r). A Premium ratio is defined as the ratio of the actual premium 

charged to a given company divided by the Guaranteed Cost premium. A curve on a Smith diagram is a 

Premium ratio curve. It indicates what premium an insured company will be charged as a function of the 

CDF of their actual losses, as opposed to the actual losses themselves. The area I 002 under the premium ratio 

curve I 0 I 0 will be equal to unity for plans which are designed to collect the same amount of premium as if 

all insureds paid the Guaranteed Cost premium. Premium curves with higher and lower areas may be used 

depending upon the market requirements. 

A designer of a non-linear retrospective premium plan has tremendous freedom using a Smith diagram. In 

general, plans designed on a Smith diagram will be non-linear when premiums are graphed versus losses, due 

to the non-linear nature of the loss curves. This will be discussed in more detail below. 

FIG. 10 illustrates an exemplary non-linear premium plan 1010 with a variety of design features. The plan 

may have horizontal p01iions I 004 when insureds in a ce1iain range of losses should be paying the same 

premium. This would include insureds in relatively small size classes that are expected to have zero losses at 

lowCDFs. 

The plan may have regions that increase linearly with CDF I 006 where it is desired that premiums increase 

linearly with increasing losses. As indicated above, premiums may increase linearly with CDF, but they will 

not increase linearly with actual losses due to the non-linear relationship between loss ratios and CDF. 

The plan may have dimple sections 1008 where the slope of the premium increases. There can also be curved 

portions 1012 and step changes 1014. 

The premium curve should generally increase or at least stay the same as CDF increases. 

The premium curve should also be single valued at a given CDF so that only one premium will be charged 

for a given CDF. 

FIG. I IA shows how a Smith Premium Ratio diagram can be overlaid with a Lee Loss Ratio diagram so that 

the relationship between the loss ratio (r) and premium ratio (p) can be calculated. This, in turn, can be used 

to calculate the relationship between actual premium and actual losses. The premium ratio curve is shown as 

item 1100. The loss ratio curve is shown as item 1108. The CDF scales are matched and the loss ratio and 

premium ratio scales are also matched. 

For a given loss ratio 1102, the corresponding CDF 1104 is read off of the loss ratio curve 1108. The 

premium ratio 1106 is then read off of the premium ratio curve at the same CDF. In this example, a loss ratio 

of 1.00 corresponds to a CDF of 0.75. A CDF of 0.75, in turn corresponds to a premium ratio of 1.35. The 

loss ratio curve 1108 is for medium sized companies with average losses of $160,000 per year. An approved 

Guaranteed Cost premium for said companies might be $208,000. A company participating in this plan that 

has a loss ratio of 1.00, therefore, will pay a premium of $280,800 (p=l .35). 

FIG. 11 b shows that the same premium ratio curve 1110 can be used for substantially larger companies, such 

as those with average losses of $4,000,000 per year. The premium ratio for a given loss ratio is calculated in 

the same manner, but using the loss ratio curve for large companies 1118 of this size. At 1112 in FIG. 11 b, 

loss ratio of 1.00, for example, corresponds 1116 to a premium ratio of 1.2 and not the premium ratio of 1.35 

as for smaller companies. 

The steps for determining the relationship between premium and loss for non-linear plans can be automated 

using appropriate look up tables for loss ratio and premium ratio curves. Analytic forms can also be used. The 

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method has the surprising ability to provide accurate and reproducible premiums despite scatter in the 

underlying data of the loss ratio curves. 

FIGS. 12A through 14B present the Smith diagrams for a range of premium plans. 

FIG. 12A presents the Smith diagram from a simple Guaranteed Cost plan where the premium that the 

insured pays is the same no matter what its actual losses (CDF) are. 

The premium curve 1204 is a horizontal straight line. The area 1202 under the curve is one (i.e. 

1.00.times.1.0). 

FIG. 12B presents a Smith diagram for a straight line plan 1214. It is suitable for large companies where the 

probability of having zero losses is low. It has a premium that is linear with respect to CDF, but is non-linear 

with respect to actual losses. As discussed above, this is due to the curvature in the loss ratio curve of the 

corresponding Lee diagram. 

The area 1212 under the premium ratio curve is one (i.e. 1/2.times.2.00.times. l .O). This plan charges no 

premium to an insured if their losses are zero (CDF=O.O). The maximum premium is capped at twice the 

Guaranteed Cost premium (p=2.00). All insureds, however, have an opportunity to get a discount relative to 

the maximum premium, no matter how high their losses are. Even if an insured has losses that are in the top 

90% (CDF>0.9), it can still have a discount of 10% relative to the maximum. 

FIG. 13A presents a Smith diagram for a straight line plan 1304 with a horizontal premium cap 1306. The 

horizontal premium cap allows the insured to significantly lower the maximum premium 1308 should they 

experience high losses in exchange for a somewhat higher premium 1302 when they experience lower losses. 

FIG. 13B presents a Smith diagram for a straight line plan 1314 that has a positive y intercept 1316. The 

intercept corresponds to the Basic. This allows insureds to tradeoff a reduction in maximum premium 1318 in 

exchange for an increase 1312 in minimum premium while at the same time being able to earn a discount 

relative to the maximum no matter how high their losses are. 

FIG. 14A presents a Smith diagram for a straight line plan 1406 that has a horizontal portion 1402 of constant 

premium ratio at low CDFs. Plans with this feature are suitable for medium sized and even small sized 

companies where a significant fraction of insureds will not have any losses. In the case illustrated, the plan is 

suitable for companies that have up to a 20% chance of being loss free in a given year. This design also 

incorporates a horizontal cap 1408 on the maximum premium. 

FIG. 14B presents a Smith diagram for a premium plan that comprises a dimple 1414. The dimple allows the 

insurance company to anchor a reference premium, such as the Guaranteed Cost premium (p=l .00) at a 

particular CDF (e.g. 0.5). This plan also anchors the minimum premium 1412 at the Basic. A sales person 

presenting this plan to a potential insured has the option of independently lowering the maximum 1418 by 

increasing the intermediate values 1416 of the plan while at the same time keeping minimum pinned at the 

Basic and the median (CDF=0.5) pegged at the Guaranteed Cost premium. Thus, compared to conventional 

linear retrospective plans, this plan offers a lower maximum for the same Basic and Guaranteed Cost 

premmm. 

Example 1 

Company A applies for workers compensation insurance coverage from insurance carrier B. Company A has 

expected annual losses of$162,513. This places them in Expected Ultimate Loss Group 55. They would 

normally qualify for a Guaranteed Cost Premium plan but would be too small for any available linear 

retrospective premium plan. 

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Reinsurer C, however, offers a reinsurance participation plan to Company A through Insurance Carrier B's 

sales force. The reinsurance participation plan stipulates that Company A will receive a discount if its losses 

are low but will be liable for a surcharge if its losses are high. The company must also commit to 

participating in the plan for 3 years. 

In order to provide premium versus loss data to Company A (the prospective insured), an insurance agent for 

Insurance Carrier B inputs Company A's expected annual losses and other necessary information, such as 

number employees, work type, etc., into an input device, such as a laptop computer. The laptop computer 

then determines the EULG for Company A. 

The laptop computer has been specifically modified to calculate the premium versus loss data by at least 

appropriate programming and downloading of necessary data, such a Table M. The laptop calculates the 

premium versus loss data such that the data is described by the equation: premium=basic*VC(actual_losses) 

*actual_losses Where: premium is a premium; basic is a Basic; actual_losses is an actual loss; and VC 

(actual_losses) is a Variable Loss Conversion Factor Function that describes the variation of a Loss 

Conversion Factor with respect to actual losses. VC(actual_losses) may be provided as a look-up table or 

analytic or other function. IfVC(actual_losses) is provided as a look-up table, then interpolation or other 

smoothing may be used to estimate values between table values. 

Premium versus loss data is presented to the prospective insured using an output device (e.g. said laptop). 

The premium ("Collectible Premium") versus loss data ("Actual Losses") for this example is presented in 

Table 2 along with the corresponding Loss Conversion Factors. 

TABLE-US-00002 TABLE 2 Retrospective Premium Plan with Variable Loss Conversion Factor Loss 

Actual Collectible Conversion Losses Premium Factors $0 $124, 179 $16,3 70 $142,089 1.09 $24,278 

$146,608 0.92 $32,187 $1SO,OOS 0.80 $40,09S $1S3,386 0.73 $49,133 $1SS,64S 0.64 $S7,041 $1S7,904 O.S9 

$64,989 $160,164 O.SS $72,8S8 $161,301 O.Sl $80,766 $163,S61 0.49 $88,674 $16S,820 0.47 $102,231 

$183,796 O.S8 $121,437 $203,107 0.6S $142,902 $212,144 0.62 $167,7S7 $213,26S O.S3 $194,871 $213,26S 

0.46 $223,114 $214,387 0.40 >$223,114 $214,387 NA 

The minimum premium for no actual loses is $124,179. The maximum premium for losses greater than 

$223,114 is $214,387. The corresponding Guaranteed Cost premium is $162,Sl3. 

FIG. ISA illustrates the Variable Loss Conversion Factor Function lSOO versus actual losses for this 

example. The Loss Conversion Factors range from 0.4 to 1.09. This is a factor of more than 2.S 

(1.09/0.4=2.7). The smallest change in Loss Conversion Factor is from 0.49 to 0.47. This corresponds to 

about a 4% change (0.49/0.47=1.038). Benefits can be achieved even ifthe change in loss conversion factor 

is as small as 1 %. 

The Variable Loss Conversion Factor Function actually increases lSOI with increasing actual losses for an 

intermediate range of actual losses. This is manifested as a dimple in a plot of premium versus actual losses 

(item 624, FIG. 6 and item IS46, FIG. !SC). The increase in Variable Loss Conversion Factor over a range of 

actual losses allows for a lower maximum premium because more premium is collected from said 

intermediate range than if said Loss Conversion Factors were not allowed to increase. In this example, the 

intermediate range is set to begin at about the 112 of the expected annual losses ($88,674/162,Sl3=0.SS), and 

end at about 0.8 times the expected annual losses ($12!,437/$162,S!3=0.7S) that correspond to the EULG. 

This allows the prospective insured to more readily compare this offering with a standard Guaranteed Cost 

policy. The intermediate range can also be over different ranges depending upon the needs of the prospective 

insured. 

The premium is constant for losses greater than $223, 114. The Loss Conversion Factor is not applicable in 

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this range. 

FIG. 15B presents a Smith diagram for a premium ratio function used to determine at least in part the 

premium versus loss data of Table 2. The Smith diagram shows the premium ratio versus Cumulative 

Distribution Function, said Cumulative Distribution Function being with respect to actual losses of insured 

with a given EULG. 

The premium ratio function has a minimum 1502, a first CDF range 1504, a dimple 1506, and a second CDF 

range 1508, with a horizontal maximum 1512. 

The first CDF range is from 0 to about 0.6. A suitable equation for describing the premium ratio over said 

first range is: p=A *CDF+p.sub.o Where: pis the premium ratio; CDF is the Cumulative Distribution 

Function; A is the increase in p for a unit increase in CDF; and P.sub.o is the premium ratio at CDF=O 

In this example A is about 0.4 and P.sub.o is about 0.8. 

The second CDF range of from about 0.6 to about 0.8. A suitable equation for describing the premium ratio 

function over said second range is: p=(P.sub.l-P.sub.2)*(1-exp(-(CDF-CDF.sub.o)/CDF.sub. *))+P.sub. l 

Where: pis the premium ratio; CDF is the Cumulative Distribution Function; P.sub. l is the premium ratio at 

the start of the second CDF range; P.sub.2 is the premium ratio at the end of the second CDF range; 

CDF.sub.o is the CDF at the start of the second CDF range; and CDF* is a curvature parameter indicating 

how quickly p changes from P.sub. l to P.sub.2 

In this example, P.sub. l is about 1.0, P.sub.2 is about 1.3, and CDF* is about 0.05. 

The salesperson presenting the plan to the company can independently vary the parameters of the height of 

the dimple, the maximum and the total height 1516 of the premium plan in response the company's 

requirements even after the insurance carrier has underwritten the company. The software presenting the 

premium versus loss data to the company can alter the curvature of the premium ratio function over the 

second CDF range as the sales person adjusts the parameters so that the total area under the curve falls within 

a desired range. 

The sales person presenting the plan also has the option of adjusting the area under the curve to be somewhat 

larger or smaller than unity by adjusting the total height of the curve 1516. The sales person is subject to the 

constraint, however, that the sum of the premium weighted areas for his/her total book of business (i.e. the 

other companies that the sales person has signed up) average to unity plus or minus a small percentage, such 

as 5%. Thus a sales person can provide discounts in certain competitive situations provided those discounts 

are matched by more profitable pricing as other competitive situations allow. The insurance carrier will then 

collect enough premium overall to cover expenses and claims. 

The insurance sales person presenting the reinsurance participation plan to the company uses a particular 

machine to calculate a set oflosses versus premiums in real time. The particular machine comprises a work 

station located with the sales person and a pricing server which may be located remotely. The 

communications link between the work station and the pricing server has sufficiently high bandwidth so that 

the sales person can present data in real time (e.g. lags of less than 10 seconds). The pricing server has the 

pricing algorithms including the premium ratio curve as well as loss ratio curve. The workstation receives 

input data from the company and transmits said data to the pricing server. The pricing server selects the 

appropriate loss distribution 1522, and determines a set of loss ratio 1526 and corresponding premium ratio 

1528 pairs wherein the loss ratio and premium ratio in each pair have the same CDF to within a suitable 

accuracy, such as +/-5 percent. This information is then transmitted to the workstation. 

FIG. 15C presents the loss ratio/premium ratio pairs for the data presented in Table 2 above. The Basic 1542, 

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Umted States Patent: 7908157 Page 17of18 

dimple 1546, and maximum 1552 are positioned where expected. 

Company A considers itself safer than its peers and is pleased with the opportunity to save up to 20% in its 

premium. It elects to purchase the policy and commit to the three year term of the reinsurance participation 

plan. 

Detect and Correct for Adverse Selection 

Allowing the insured to adjust the premium ratio curve to best meet its needs can help an insurance carrier 

detect and correct for adverse selection. Adverse selection means that the company has better information 

about its future losses than the insurance carrier has and can therefore select a form of coverage that may not 

leave the insurance company with enough premium to cover claims and expenses. For example, a company 

that anticipated higher than normal losses in a given year might select a premium plan that had a very low 

maximum cap but a high Basic. Companies that anticipated lower than normal losses might select plans with 

ve1y low Basics but high maximum caps. 

In principle, it should not matter what premium plan a company selected if the insurance carrier has done the 

proper job of underwriting. As a practical matter, however, the company has more information about its 

future plans and operations than the insurance canier does, so the carrier's underwriting may have a 

systematic error. 

Adverse selection may be compensated for at least in part by adjusting the overall area under the premium 

ratio curve in a Smith diagram in response to the choices a prospective insured makes. The area might be 

increased (i.e. more premium on average) if a company was a bit too concerned about the maximum 

premium. Conversely, it might be acceptable to decrease the area ifthe company exhibited very little concern 

about the maximum premium. 

These adjustments can be made by the sales software. 

Synergies with Bundled Employee Services 

There are surprising synergies when employee services are bundled with the insurance coverages and 

participation plans described herein. This is particularly true ifthe employee services are payroll payment 

services. 

It has been discovered that the data available from employer payroll services can be used to assess risk and to 

reduce fraud in workers' compensation insurance. This fraud might be on the part of the insured company. 

There are very large differences between required insurance premiums for high risk occupations and low risk 

occupations. There is a motivation, therefore, for insured companies to incorrectly categorize the occupations 

of its employees in order to obtain a rate reduction. This, however, can result in an imbalance in payroll. The 

payroll company can detect this and the insurance carrier, in turn, can insist that the insured company have 

the correct job classification codes for its employees and thus collect the appropriate amount of premium. 

Other Insurance Coverages 

The non-linear retrospective premium plans and reinsurance participation plans can be applied to other 

insurance coverages, such as general liability, professional liability, auto, health and others as long as 

appropriate loss ratio data is available or calculable. 

CONCLUSION 

As used herein, the terms "about", "approximately", and their synonyms mean within plus or minus 10 

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United States Patent: 7908157 Page 18of18 

percent of a given value, unless explicitly indicated otherwise or indicated otherwise by the context in which 

they are used. 

While the disclosure has been described with reference to one or more different exemplary embodiments, it 

will be understood by those skilled in the art that various changes may be made and equivalents may be 

substituted for elements thereof without departing from the scope of the disclosure. In addition, many 

modifications may be made to adapt to a particular situation without departing from the essential scope or 

teachings thereof. Therefore, it is intended that the disclosure not be limited to the particular embodiment 

disclosed as the best mode contemplated for carrying out this invention. 

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1 

2 COURT OF THE STATE OF NEW YORK 

COUNTY OF NEW YORK: TRIAL TERM PART 60 

3 

BREAKAWAY COURIER CORPORATION, d/b/a 

4 BREAKAWAY COURIER SYSTEMS, 

5 

PLAINTIFF, 

6 

- against -

7 

8 BERKSHIRE HATHAWAY, INC., CALIFORNIA 

INSURANCE COMPANY, COMMERCIAL GENERAL 

x 

9 INDEMNITY INC., APPLIED UNDERWRITERS, INC., 

A NEBRASKA CORPORATION, APPLIED RISK SERVICES 

10 INC., A NEBRASKA CORPORATION, APPLIED RISK 

SERVICES OF NEW YORK, INC., A NEW YORK CORPORATION, 

11 ARS INSURANCE AGENCY, INC., NORTH AMERICAN 

CASUALTY COMPANY, A NEBRASKA CORPORATION, 

12 CONTINENTAL INDEMNITY COMPANY, AN IOWA CORPORATION 

and APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE 

13 Company, INC., an IOWA CORPORATION, 

14 

DEFENDANTS. 

15 - - - - - - - - - - - - - - - - - - - - - x 

16 

17 

18 

19 

20 

INDEX NO: 654806/16 60 Centre Street 

New York, New York 10007 

November 1, 2016 

BEFORE: HONORABLE MARCY FRIEDMAN, Justice 

APPEARANCES: 

21 DUNNINGTON BARTHOLOW & MILLER, LLP 

Attorneys for Plaintiff 

22 250 Park Avenue 

New York, New York 10177 

23 BY: RAYMOND J. DOWD, ESQ. 

SAMUEL A. BLAUSTEIN, ESQ. 

24 BRIAN MANGAN, ESQ. 

25 

(Appearances continued on next page.) 

26 

NINA KOSS - OFFICIAL COURT REPORTER 

1 
1 PROCEEDINGS 

2 CLYDE & CO, LLP 

Attorneys for Berkshire Hathaway 

3 405 Lexington Avenue 

New York, New York 10174 

4 BY: MICHAEL A. KNOERZER, ESQ. 

5 

6 DLA PIPER, LLP 

Attorneys for Applied Defendants 

7 1251 Avenue of the Americas 

New York, New York 10020 

8 BY: SHAND S. STEPHENS, ESQ. 

ANTHONY P. COLES, ESQ. 

9 

10 

WILSON ELSER 

11 Attorneys for all Defendants except Berkshire 

1133 Westchester Avenue 

12 White Plains, New York 10604 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

BY: CLAIRE M. HANKIN, ESQ. 

NINA KOSS, C.S.R., C.M. 

OFFICIAL COURT REPORTER 

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PROCEEDINGS 

THE COURT: Good morning. 

appearances please. 

May I have counsel's 

MR. DOWD: Good morning. My name is Raymond J. 

Dowd, with the firm of Dunnington Bartholow & Miller. 

6 With me today is Samuel Blaustein and Brian Mangan 

7 for Plaintiff, Breakaway Courier. 

8 Also today, in the courtroom, is Mr. Robert Kotch, 

9 who is the President of the Plaintiff. 

10 

11 

12 

13 

14 

15 

16 

17 

MR. STEPHENS: Shand Stephens. Good morning. My 

partner, Anthony Coles. We are from DLA Piper. 

MS. HANKIN: Claire Hankin, from Wilson Elser. 

MR. KNOERZER: My name is Michael Knoerzer from 

Clyde & Company. I represent Berkshire Hathaway, Inc. 

THE COURT: Thank you. 

I have several motions, including a motion for a 

bond, so-called motion to strike, and a motion to dismiss. 

18 I am not going to hear the motion to dismiss today 

19 because I understand that another motion to dismiss is in 

20 

21 

22 

23 

24 

25 

the process of being briefed by Berkshire Hathaway and, in 

addition, I believe that there are threshold issues here 

concerning the bond, and possibly also the issue of whether 

an arbitration should be stayed. 

So, let's hear first on the bond, but I do want to 

tell you that these papers are written in what I can only 

3 

26 describe as ''private language''. The experts and the counsel 

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2 have not taken care to try to explain these concepts in 

3 plain language, and I have some questions, which I will ask 

4 along the way, but I am really concerned that I may actually 

5 

6 

7 

8 

9 

10 

need supplemental papers here. 

So, I ask you do the best you can to try to explain 

these insurance concepts and to elaborate on the claims that 

the Reinsurance Participation Agreement is undermining the 

coverage that was purchased by the Plaintiff and why. 

Now, also before we get to that, I do want to make 

11 a disclosure that a junior law clerk, who I hired a week 

12 ago, Morgan Manley, was the President of the Fordham Art Law 

13 Society, and she created an alumni board to which she 

14 invited Mr. Dowd to join. 

15 

16 

She has been his guest at a number of art forums 

and dinners in connection with those forums. She has not 

17 been working with me on this case, but I will hear briefly 

18 from counsel whether there is any request, under these 

19 circumstances, that I screen her off the case. 

20 

21 

22 

23 

24 

25 

26 

Mr. Dowd, do you want to be heard on this? 

MR. DOWD: Your Honor, I think it would be 

appropriate to screen her off the case. 

THE COURT: Mr. Stephens? 

MR. STEPHENS: I would agree. 

MR. KNOERZER: I would as well. 

THE COURT: I will do so. 

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1 PROCEEDINGS 

2 Is there any further request for relief on the part 

3 of any counsel based on this disclosure? 

4 

5 

6 Applied. 

7 

8 

9 

MR. KNOERZER: Not on behalf of Berkshire Hathaway. 

MR. STEPHENS: No, your Honor, not on behalf of 

THE COURT: Mr. Dowd? 

MR. DOWD: Thank you, your Honor. 

THE COURT: So, let's hear about the bond and the 

00:25:53 10 injunction. 

00:26:11 

00:26:27 

('~ ~6:49 

11 

12 

MR. DOWD: Thank you, your Honor. 

We acknowledge this is very, very, very difficult 

13 to follow. In light of that, we prepared a demonstrative 

14 that we would like to ask to hand up, particularly because 

15 we think it will aid in following all of the acronyms and 

16 concededly this is very difficult language. 

17 THE COURT: Well, I see that this has been provided 

18 to defense counsel. 

19 Is there any objection? 

20 MR. STEPHENS: I guess, it's not an objection so 

21 much as an observation, which is, this chart is essentially 

22 an argument about what they are saying in the complaint. 

23 It actually doesn't have an accurate representation of the 

24 transaction we are looking at here today. 

25 THE COURT: Well, I ordinarily don't take 

26 demonstrative exhibits for.precisely this reason. They are 

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PROCEEDINGS 

just about the only thing in this commercial practice that 

results in the making of objections. So, we will proceed 

through this without the demonstrative. 

6 

1 

2 

3 

4 

5 MR. DOWD: Your Honor, if I may, it would be solely 

6 offered, not as evidence but --

7 

8 

9 

10 

11 

12 

THE COURT: Mr. Dowd, I have made my ruling on that 

issue, and it is quite consistent with what I have done 

repeatedly in other cases in this part. 

MR. DOWD: Thank you, your Honor. I appreciate 

that. 

We believe the Court issue today is whether or not 

13 New York Insurance Law 1213 requires this Court to impose a 

14 

15 

bond requirement on each of the unlicensed entities that are 

Defendants in this action. 

16 To summarize, what we believe the opposition is, we 

17 believe it resides in two different things. One is simply, 

18 we are not doing the insurance business in New York, 

19 therefore, we shouldn't have to put up a bond and the other 

20 argument is, well, since Continental is licensed, the other 

21 Defendants don't have to put up a bond. 

22 I hope to persuade the Court that both of those 

23 arguments don't work. 

24 If we look at the language of 1213, New York 

25 

26 

insurance 1213, it requires that ''before any unauthorized 

foreign or alien insurer files any pleading in any 

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PROCEEDINGS 

proceeding against it, it shall either deposit with the 

Clerk of the Court, in which the proceeding is pending, cash 

or securities or file with such Clerk, a bond with good and 

sufficient sureties to be approved by the Court in an amount 

6 to be fixed by the Court sufficient to secure payment of any 

7 final judgement, which may be rendered in the proceeding. 

8 Then, it goes on to say, but ''the Court may, in its 

9 discretion, make an order dispensing with such deposit or 

10 

11 

12 

13 

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15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

bond, if the Superintendent certificates to it that such 

insurer maintains within this state funds '' ''in the 

state, funds or securities in trust or otherwise sufficient 

and available to satisfy any final judgement which may be 

entered in the proceeding.'' 

So, right now, we know that the Superintendent, 

that is the Department of Financial Services, has not 

certified to this Court that any of these entities have cash 

or securities sufficient in this state to satisfy any final 

judgement. 

Therefore, we submit, the Court doesn't have 

discretion --

THE COURT: Excuse me. What evidence, in the 

record, supports that contention? 

MR. DOWD: Well, there is no certification from the 

Department of Financial Services that any of these insurers 

26 maintains, within the state, funds or securities in trust. 

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PROCEEDINGS 

THE COURT: Is this based on a review of a website 

or some documentation that has been obtained from the 

Department? 

8 

1 

2 

3 

4 

5 I am just asking, what the evidence is that you are 

6 relying on for that proposition? 

7 

8 

9 

10 

11 

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13 

14 

15 

MR. DOWD: What the statute says, your Honor -- I 

am trying to answer. 

THE COURT: I just read the statute. 

You are saying that these entities are not licensed 

here. 

Is it undisputed? 

MR. DOWD: There are two entities that are 

licensed. One is Continental, one is California. So, we 

are, my discussion doesn't address those. 

16 Your Honor's question relates to the language if 

17 the Superintendent certificates to it. I read that as the 

18 Department of Financial Services must certify to this Court, 

19 

20 

21 

22 

that such insurer maintains within this state fund or 

securities in trust. So, there is no certification in this 

record, none of the Defendants have given. 

THE COURT: Are you taking the position that it is 

23 the burden of the Defendants to produce certification to the 

24 Court? 

25 

26 

MR. DOWD: Yes, your Honor. 

THE COURT: Is there case law that supports that? 

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PROCEEDINGS 

MR. DOWD: There is the plain reading of the 

statute, and also, yes, there is. We have got Travelers' 

insurance Company versus Underwriting Members of Lloyds. 

That was Justice Shainswit. We cited it in the papers. 

It's a one pager. 

Would your Honor like me to hand that up? 

THE COURT: No, thank you. 

9 

1 

2 

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7 

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9 

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14 

15 

MR. DOWD: The citation on that is 240 AD2d, 278, 

and in that situation, the Appellate Division upheld Justice 

Beatrice Shainswit's imposition of a bond in similar 

circumstances. 

But here, it's clear that the record is devoid of 

any certification of any of the non licensed, unauthorized 

Defendants in this case. So, we believe that a, the fair 

16 reading, consistent with the case law that we have cited, is 

17 since they haven't either obtained a license or gotten a 

18 certification, that they are holding cash and assets in this 

19 state, they must post bonds. 

20 Moving to the second part of their argument, as we 

21 understand it, they say well, A.M. Best has rated 

22 Continental as worth 500 to 700 million. Therefore, the 

23 other Defendants don't need to post a bond. 

24 The fallacy in that is evident when we look at 

25 

26 

Continental itself. Continental, in this scheme, was the 

licensed insurance company that issued Workers Compensation 

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PROCEEDINGS 

policies. But, a closer look at Continental shows that 

Continental never directly collected a dime of premium from 

Breakaway. Breakaway was not in direct privity with 

Continental. 

If we read the pooling agreement that Continental 

engaged in, Continental immediately cedes all of the 

premiums and all of its liabilities to California which, in 

turn, cedes them off. The net result of that is that 

Continental is, by definition, by reading this pooling 

agreement, an empty shell that relies, in turn, on other 

entities down the road. 

So, the securities and funds that this Court should 

have in this state, pursuant to the bonding requirements, 

are simply not there. Continental doesn't have them. So, 

16 we have got to look to the other entities to find the money. 

17 So, following the money trail leads us to where the 

18 

19 

00:34:56 20 

21 

22 

23 

24 

0°·35:06 25 

26 

money might be. It's not in Continental and it's not in 

California. It is perhaps, in AUI, Inc., which is an 

unlicensed holding company. 

THE COURT: What was that? I am sorry, I didn't 

catch it. 

MR. DOWD: AUI, Inc. 

THE COURT: What does that stand for? 

MR. DOWD: We believe that's the actual name of the 

entity. 

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PROCEEDINGS 

THE COURT: Is this a named Defendant? 

MR. DOWD: That's, sorry, that's Applied 

Underwriters, Inc. 

THE COURT: Applied Underwriters Inc. is a named 

Defendant? 

MR. DOWD: Correct, your Honor. I am sorry. I 

said AUI. I misspoke, it's Applied Underwriters, Inc. 

9 That was abbreviation. 

10 THE COURT: Let's just clarify something for a 

11 moment. 

12 (Pause in the proceedings). 

13 THE COURT: Can you clarify, California Insurance 

14 Company is licensed in New York, correct? 

MR. DOWD: That is correct, your Honor. 

THE COURT: And Continental Indemnity Company, is 

that also licensed in New York? 

MR. DOWD: That's correct, your Honor. 

THE COURT: And is there one other Applied entity 

that is licensed in New York? 

11 

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26 

MR. DOWD: ARS, New York. It's called Applied Risk 

Services of New York, Inc. 

THE COURT: That is licensed in New York? 

MR. DOWD: It's a licensed insurance claim 

adjustor. It's a licensed insurance claim adjustor. 

THE COURT: Can you explain why you are suing all 

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1 PROCEEDINGS 

2 of these other entities? 

3 Can you just paint the picture for me, and tell me 

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17 

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21 

what the allegations are as to the role of each of these 

Defendants? 

MR. DOWD: Yes, your Honor. 

Breakaway is a bicycle messenger courier company. 

They have about 300 employees. They operate mostly in New 

York City and the boroughs. 

They have employees who, they are required by 

statute, to get Workers Compensation insurance for. The 

statute is mandatory. It's highly regulated. 

So, New York State says what you have to charge, 

who can charge it, what the legal amounts are, and where the 

money should be kept. 

So, Continental has a license, but Continental is 

not in privity and could not, could not during, from 2009 

through 2014, issue Workers Comp policies to Breakaway, but 

Continental is not in privity with Breakaway. 

What happened was, Mr. Kotch was approached in New 

York by brokers and representatives of Applied. It's 

22 unclear who exactly approached him, because they seem to 

23 switch hats and switch letterheads and switch names, but the 

24 documents show variously Berkshire Hathaway, Inc., Berkshire 

25 

26 

Hathaway Group, Applied Underwriters, Applied Underwriters, 

Inc. There is all kinds of names all over these documents. 

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So, we have the initial offering documents that 

have certain corporate names and then, there is the actual 

thing that he signed. He signs something called a ''request 

to bind coverage.'' Then, he signed a Reinsurance 

Participation Agreement. 

Now, the Reinsurance Participation Agreement put 

him in privity with a company we refer to as AUCRA. That is 

9 Applied Underwriters Captive Risk Assurance Company, which, 

10 

11 

12 

13 

14 

15 

16 

in the first instance, was a British Virgin Islands company. 

We have since been informed that the BVI ceased to exist. 

But, for the first several years of the 

relationship, the only privity that Breakaway had, in terms 

of contractual, who they had signed with, was with this BVI 

entity. 

At one point that changed, and the details are in 

17 the complaint, and the relationship seemed to emerge that 

18 this new Iowa company, which is a Defendant in this action, 

19 Applied Underwriters Captive Risk Assurance Company, seemed 

20 

21 

22 

23 

to have taken over, without asking Mr. Kotch, the role of 

the initial BVI entity, and some of the papers we have show 

that Mr. Kotch entered into agreement with the BVI after it 

had ceased to exist by Iowa records. So, we have got a 

24 missing BVI. 

25 

26 

Now, what was promised to Mr. Kotch was a number of 

things. One is that he was entering into a profit-sharing 

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PROCEEDINGS 

First off and foremost, he understood he was getting 

3 Workers Comp insurance, and he understood that he was 

4 

5 

getting some sort of a discount on it. And, it was 

represented to him that hey, if you manage your claims well 

6 and you have fewer losses, you are going to get charged less 

7 money. 

8 Beyond that, he didn't understand much more than 

9 mechanics, other than hey, I am getting a little bit of a 

10 

11 

break, and this is being paid into a protected cell where 

some day, I will get a lot of profits if I am able to keep 

12 my losses really low. That sounded like a great deal. 

13 Now, the way the money worked, and we are still 

14 trying to figure out a lot of this, it appears, well, from 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

the agreement it says that ARS, Inc. or ARS New York, 

Applied Risk Services, Inc. or Applied Risk Services New 

York, is going to be the billing agent. 

Well, from the documents we have seen, it doesn't 

appear that the billing agent ever acted as a billing agent. 

It seems like all of the money went into a corporation 

called Applied Underwriters, Inc., which is not admitted and 

not a licensed insurer in New York. It seems like the funds 

that came out to pay for claims were all run through that 

one entity. 

money. 

So, we think that that's where there may be 

THE COURT: Excuse me. There were documents that 

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2 were signed, correct? 

3 MR. DOWD: Correct. 

4 

5 

6 

7 

8 

9 

10 

11 

12 

THE COURT: Was there a policy that was signed 

between the Plaintiff Breakaway and California Insurance 

Company? 

MR. DOWD: No, your Honor. 

THE COURT: Continental? 

MR. DOWD: No. 

THE COURT: There was no signed policy? 

MR. DOWD: No, no. The policies were issued. 

Nothing was signed. There was no privity. 

13 THE COURT: Was there an application for a policy 

14 made by Breakaway with a letterhead or something on it 

15 

16 

indicating who would issue the policy? 

MR. DOWD: Well, the request to bind coverage and 

17 services, the RPA, do refer Continental, but not direct 

18 privity. 

15 

19 I am focusing on that word ''privity'' because under 

20 

21 

22 

23 

24 

25 

the New York Insurance Law it's very important, because it's 

illegal to sell this type of reinsurance to this type of 

entity in New York. 

THE COURT: I just think we have to start with the 

basics -- who applied for what, from whom, and who issued 

what documents or who executed what documents, and I am 

26 deliberately referring to those documents in very general 

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terms. 

So, can we just get that? It doesn't have to be 

this complicated. 

MR. DOWD: Your Honor, he signed the request to 

16 

6 bind coverage. 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

THE COURT: Where is that? What exhibit is that? 

MR. DOWD: Exhibit A to the verified complaint. 

THE COURT: This name is Applied Underwriters? 

MR. DOWD: Correct, with no real corporate name, 

but with a Nebraska address. 

THE COURT: What else do we have? 

MR. DOWD: So, this doesn't say where, it just 

later on, it says Applied Underwriters, Inc. in the body of 

the language, that they are going to cause a Worker Comp 

policy to issue. That's basically what that says. 

There is also the arbitration clause. If you don't 

sign up to this -- and there is a second page there. 

Now, Exhibit B is the other document that Mr. Kotch 

signed, and that's the Reinsurance Participation Agreement. 

21 Now, in the first paragraph, that's Exhibit B of 

22 the verified complaint, we see that Applied Underwriters 

23 Captive Risk Assurance Company, Inc., a company organized 

24 and existing under the laws of British Virgin Islands, 

25 

26 

that's between Breakaway and the company we called AUCRA, 

Applied Underwriters Captive Risk. 

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Your Honor, would you like me to summarize the 

17 

3 meaning of the document? 

4 

5 

6 

7 

THE COURT: What others documents did Mr. Kotch 

sign for Breakaway? 

MR. DOWD: That's it, your Honor. 

Sorry, I misspoke. At Exhibit L, he signed one 

8 again, and this is the same -- I don't want to misspeak, but 

9 it's essentially the same agreement, with essentially the 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

same corporation. 

THE COURT: And, where is the policy? 

MR. DOWD: If your Honor looks, there is Exhibits G 

through each one of the exhibits is another policy -- G 

through J, and each one under New York law, a Workers Comp 

policy, is a one year coverage, so for each of those 

exhibits is a one year policy. I think the only one we are 

missing here is 200 9' which is supplied by another exhibit. 

THE COURT: You said Exhibits G through K? 

MR. DOWD: G through J -- sorry, your Honor. 

00:48:11 20 THE COURT: J. What is Exhibit C? 

21 

22 

MR. DOWD: This is a document that was provided to 

Mr. Kotch. The date here -- it's a plan analysis. It sort 

23 of describes to him what he should expect in terms of the 

24 plan cost and what -- may I back up a second just to -- this 

25 

26 

is different stuff. 

Under the Workers Compensation law, the regulators 

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set the annual rates. What this document Exhibit C purports 

to do, is to give him discounts, but estimating the loss. 

There is charts in there that estimate what these policies 

and what this coverage actually costs him. 

THE COURT: Can you -- withdrawn. 

7 Do I understand correctly that your position is, 

8 that the Reinsurance Participation Agreement is undermining 

9 the coverage that he obtained, the Workers Compensation 

10 

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coverage? 

MR. DOWD: Absolutely, your Honor. 

THE COURT: Can you explain how that happened, what 

the theory is as to how the Reinsurance Participation 

Agreement had that effect? 

MR. DOWD: Okay. 

THE COURT: Excuse me, and also pointing to the 

evidence in the record that supports that contention, of 

course. 

MR. DOWD: Yes, your Honor. 

I think there is two questions there; how it 

happened, and what the theory is, so I will try to parse my 

answer to address both of your Honor's questions. 

How it happened, he got the plan analysis. He said 

well, that's great, I will save some money, and according to 

the Reinsurance Participation Agreement he was going to have 

26 monies set aside in what they term a ''protected cell''. 

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2 So, if he experienced low losses and managed his 

3 claims wisely, he was going to get money back at the end. 

4 That was what was presented to Mr. Kotch. 

5 

6 

7 

8 

9 

10 

11 

Instead, he started getting these bills that he 

couldn't understand, and he got in big fights and, in fact, 

there is a promissory note in there that they made him sign 

to pay back --

THE COURT: Can you be a little more specific 

please? Instead of telling a story about bills he couldn't 

understand, tell me exactly what these bills were for and 

12 where they are in the record. 

13 We have to really focus on the legal details here 

14 or I am not going to be able to get a handle on this. 

15 MR. DOWD: I agree, your Honor. 

16 Over the course of time, and all the bills in the 

17 analysis of -- each bill is not attached to the complaint or 

18 fully analyzed yet. 

19 

20 

21 

22 

23 

24 

25 

26 

here. 

THE COURT: You are asking for a $6 million bond 

Let me hear something that sounds like a legal 

argument as to what the wrongdoing was. 

MR. DOWD: Yes. According to Mr. Schwartzman, who 

is our expert, he was the number two in the New York State 

Department --

THE COURT: Mr. Schwartzman's affidavit is 

completely conclusory. I have rarely seen an affidavit by 

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an expert that casts less light on an issue. 

MR. DOWD: Well, Mr. Schwartzman has opined that he 

has read and analyzed these documents, and that by signing 

them, in other words, the Reinsurance Participation 

6 Agreement, Mr. Kotch actually put the risk back on himself. 

7 

8 

9 

10 

THE COURT: How? Can someone explain that to me, 

how that had that effect? 

MR. DOWD: Yes. What the bills show is that, and 

this is, I refer to the charts appended to Mr. Schwartzman's 

11 analysis. 

12 If we look at Exhibit G to his initial affidavit, 

13 which is dated August 23rd, you will see that he took 

14 something called ''loss cost multiples'' and he laid out what 

15 

16 

was approved, and the loss cost multiples and the loss cost 

development factors that applied, had put in what it gave to 

17 Breakaway. 

18 And, if we, if your Honor looks at the charts that 

19 Breakaway, sorry, that were given to Breakaway, in the plan 

20 

21 

22 

23 

24 

25 

26 

analysis there is words like ''loss cost multipliers'', ''loss 

cost factors'', ''LDF runoffs'' and these are all 

multiplications that were done to calculate what Breakaway's 

costs would be. 

Mr. Kotch, over time, couldn't figure out how the 

math was done. It's extremely complicated. In fact, again, 

in the complaint at the final exhibit, we have an article 

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2 from the Workers Compensation executive that there is 

3 testimony in Court that actuaries and these experts, no one 

4 could figure out how Applied was coming up with these rates. 

5 

6 

7 

8 

9 

10 

11 

12 

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So, they are complicated, and they are mystifying, and I am 

not sure that the actuarial basis for their calculations is 

understood by anyone. 

But, what Mr. Schwartzman did was, accepted their 

actuarial calculations and their loss cost multiples at face 

value, and came up with the long tale, in other words, what, 

according to Applied, actuaries say his workers will be 

injured and Mr. Schwartzman did that calculation. 

So, according to Applied's own calculations, 

injured workers in New York, under his policies, need 

$6 million of reserves to cover those injuries. That's the 

16 basis. 

17 So, what happens in a Workers' Comp policy, you 

18 have a one year period, and let's say, this is asbestos, you 

19 have an injured worker, but they only know it ten years 

20 

21 

22 

23 

24 

25 

26 

later. That claim is still subject to Workers' Comp 

insurance. 

So, you have an injured worker who, two years 

later, reports the claim. Those are called incurred, but 

non reported claims . So, the reason Applied was sending 

bills to Breakaway was saying well, under your Reinsurance 

Participation Agreement you have to reserve for those 

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incurred, but not reported claims, and also, where there are 

reported claims, you have to pay us in excess of that, so we 

have a reserve. 

So, in essence, only after experiencing losses did 

6 he figure out that he didn't have insurance, and only after 

7 hiring an expert to go through this and he figured it out, 

8 did he realize that all of the risks and the cost had been 

9 shifted back onto his company. 

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He still entertained, until last year, the idea 

that there was a pot of gold, this protected cell that would 

somehow be returned to him. But, when the experts pored 

over this and said no, not only that, you didn't have 

insurance for that whole time. 

So, it's hard to understand, which is why they have 

gotten away with it for so long. It is difficult. It was 

difficult for that first Judge to figure out the Enron 

scandal. It's a difficult scheme that is rendered even more 

difficult by the language here. 

THE COURT: You are comparing this to the Enron 

scandal? 

MR. DOWD: I am, your Honor. 

I think there is a very solid basis for that. 

THE COURT: Well then, you are going to have to get 

more sophisticated expert testimony to explain what exactly 

is happening here. It doesn't have to be opaque. 

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2 Somebody can explain what happened and that hasn't 

3 been done in these papers, and I am not hearing it in this 

4 

5 

6 

7 

8 

9 

10 

argument either. 

What is the amount of the claim? 

What are the damages that are being claimed? 

MR. DOWD: The damages, we have a number of 

different theories. One is, under New York Insurance Law 

4226, says aggrieved party can get back all of the premiums. 

Then, there is the profits to call them back out of these 

11 protected cells. Then, there is treble damages, which is 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

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26 

under 2316 of the New York Insurance Law or under the 

Donnelly Act. 

THE COURT: How much was paid in premiums? 

MR. DOWD: $836,000, I believe. 

THE COURT: Your claim is that there is no 

insurance that will be available to protect your client when 

claims are made down the road? 

MR. DOWD: That's correct, your Honor. 

THE COURT: No insurance whatsoever? 

MR. DOWD: Well, no, I don't think that that's --

no, that's not what we are saying. 

There is a policy out there issued by Continental, 

but if a claim is made, they send him a bill through the 

RPA. So, it's not real insurance It's a sham. 

Continental doesn't, I think -- can I take you 

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through all of the contracts? It's very confusing stuff. 

1 

2 

3 

4 

5 

6 

THE COURT: It shouldn't be confusing. Someone has 

to unpack it, and that is the lawyer's job to do initially. 

Yes, I will sit here while you take me through the 

contracts. I do not want to have a story about bills that 

7 are not understood. 

8 I want to know exactly what the basis is for the 

9 claim that there has been a scheme by which the insurance 

10 

11 

12 

13 

14 

15 

has been undermined. 

MR. DOWD: Yes, your Honor. 

New York has a very simple system. That is, it 

requires employers to have guaranteed Workers' Comp 

insurance. That is, I pay a certain amount and that's it 

the injuries are covered. So, this is highly regulated. 

16 An employer like Mr. Kotch is not permitted to 

17 enter into reinsurance. It's expressly forbidden by 

18 statute. So, we say from the outset, that this RPA is 

19 completely forbidden by New York law and Mr. Schwartzman 

20 

21 

22 

23 

24 

25 

26 

makes that point very simply. 

Additionally, the entities 

THE COURT: The RPA, have they been the subject of 

litigation? 

MR. DOWD: Yes . 

THE COURT: And what are the courts saying about 

the legality of RPA? 

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MR. DOWD: In California they were held to be 

illegal because they were not filed. 

Basically, the way the system works is, you can't 

modify a guaranteed cost Workers' Comp policy without 

showing the modifications to the regulators. 

25 

7 THE COURT: How is this modification working? 

8 That is something I think I keep asking you to explain to 

9 me, and I just am yet to hear it this morning. 

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MR. DOWD: Well, if your Honor looks at the face of 

the Workers' Comp policy, it says Mr. Kotch will pay this 

amount, and he will have that coverage. The RPA has totally 

different terms. 

THE COURT: What are these different terms? How do 

they operate to undermine the coverage? 

Let's be specific please. 

MR. DOWD: They are based on estimated losses and 

they do something that provide what's called a 

''retrospective rating plan.'' That is a plan, rather than 

guaranteed cost which New York requires, is based on your 

loss experience. 

So, if you have lower losses, you will pay less. 

If you have higher losses, you will pay more. That, for an 

employer like Breakaway, is illegal in New York. 

So, the RPA terms -- and they are complex -- but 

the complexity doesn't matter. The simple proposition is 

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2 whatever thing they do to modify guaranteed cost policy is 

3 illegal. So, they are charging different rates. 

4 

5 

6 

7 

8 

9 

THE COURT: Can you point to any specific language 

10 

11 

12 

13 

14 

15 

16 

17 

which has modified the guaranteed cost policy? 

Can you show me how it works? 

MR. DOWD: Yes, your Honor. 

If you look at Exhibit C, all right, we see 

"Summary of Workers' Compensation Plan Charges." All right. 

That's on page 2. We have 54,628. 

On the following page, we have ''Projected Plan 

Volume." 

THE COURT: Where are we looking here? 

MR. DOWD: We are looking at Exhibit C, the second 

page. 

So, we have a summary for Workers' Compensation 

Plan charges, and that's $54,000. 

18 On the following page, we see a chart at the 

19 bottom. There is an estimated analyzed loss pick 

20 containment amount. 

21 Now, what that loss pick containment amount is 

22 based on, is various rates per class of worker. Then, they 

23 give a loss pick containment amount, they project payroll, 

24 

25 

26 

and they come up with amounts. 

We go to the following page. We see an analysis of 

program costs. So, they have a projected total three-year 

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2 plan loss pick containment amount, projected future loss 

3 ratio, projected future claims, and they come up with 

4 

5 

numbers, and at the bottom, estimated cost plan to date. 

All of these projections, whether or not we 

6 understand them, are different from a guaranteed cost 

7 policy, and they are estimates that are misleading to 

8 Breakaway, because whether they are true or not, whether 

9 actuaries can figure them out or not, they vary from the 

terms of the guaranteed cost policy. 

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16 

17 

18 

19 

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22 

Under a guaranteed cost policy, Continental is the 

insurer, Breakaway pays Continental the exact amount that 

the statute requires. 

In this case, Breakaway is paying a third-party. 

Paying a third-party alone, is completely illegal under New 

York law. 

THE COURT: This is the analysis, this Exhibit C is 

the analysis of the RPA? 

MR. DOWD: Yes. It is a plan that is referred to 

in the RPA -- not all of it is disclosed by the RPA -- and 

that is part of our complaint, is that the RPA is unclear. 

People can't figure it out. It is misleading. And, under 

23 New York law, we have causes of action for misleading 

24 documents. 

25 THE COURT: Do these numbers that you have been 

26 calling my attention to in Exhibit C differ, in any way, 

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from numbers in the Continental insurance policy? 

MR. DOWD: Yes, your Honor. 

THE COURT: Can you explain how? 

01:07:04 5 MR. DOWD: They are less. 

01:07:22 

01:07:44 

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6 

7 

8 

paying 

THE COURT: But, what's happening? Breakaway is 

premiums to Continental; is that right? 

MR. DOWD: Never happened, no. See, that's the 

9 problem. That's a very simple answer. 

10 

11 

12 

Breakaway never paid Continental anything. That's 

totally illegal. Under New York law, if there is an 

insurance policy, you pay that insurer. End of story. 

13 There is no, let's route it through a third-party. They 

14 

15 

may, a licensed billing agent, in other words Continental 

could have had a licensed billing agent that collects or may 

16 have a licensed third-party administrator, but none of this 

17 let's pass it through BVI or let's go through Nebraska, all 

18 of this is completely illegal on the very simple theory you 

19 can't offer reinsurance to a New York insured, and you can't 

20 

21 

22 

23 

24 

25 

pay premium to anyone other than a licensed insured or their 

licensed billing agent, who is just turning that money over. 

THE COURT: Is there legal authority to that 

effect? 

MR. DOWD: Yes, your Honor. 

And Mr. Schwartzman brings it right to the Court's 

26 attention in the beginning of his affidavit, and says very 

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2 simply, this is why this is entirely illegal. 

3 THE COURT: What legal authority are you relying 

4 on? 

01:08:31 5 MR. DOWD: New York Insurance Law, and in each 

6 

7 

8 

9 

case, the --

THE COURT: 

MR. DOWD: 

THE COURT: 

Is there case law? 

Yes. 

What cases are you relying on? 

01:08:41 10 MR. DOWD: Well, there is the, in terms of the 

01:08:57 

01:09:23 

0' ·09:43 

11 bonding, there is the Levin case, there is the Travelers' 

12 case. 

13 THE COURT: We are talking now about the alleged 

14 illegality of the scheme that you just referred to. 

15 MR. DOWD: Well, in each of these we have cited 

16 cases in our briefs discussing each one of these. 

17 THE COURT: Why don't you tell me what your best 

18 authority is for this proposition that it was illegal for 

19 Breakaway not to have paid premiums to Continental and to 

20 have paid premiums to another entity or paid sums of money 

21 to another entity? 

22 MR. DOWD: Well, if we look at the -- what the 

23 definition of doing the insurance business in New York is 

24 

25 

THE COURT: Mr. Dowd, I don't want you to just cite 

the insurance law again. I am asking about whether there is 

26 case law interpreting that law. 

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MR. DOWD: Yes, your Honor. 

30 

Well, there is two relevant statutes. One is what 

doing an insurance business is, and then second is the 

requirement of a license, and then, there is lots of case 

6 law that discuss what unlicensed insurers may or may not do 

7 depending on 

8 THE COURT: You are telling me that it was illegal 

9 for Breakaway not to pay premiums to Continental and to pay 

10 

11 

12 

13 

14 

15 

sums of money to other entities. 

Tell me what cases I should be looking at for 

confirmation of that proposition. This is a very 

straightforward question. 

MR. DOWD: I think if your Honor looks at the 

Shasta Linen case, which is a California case, but the 

16 factual analysis is right on point, where they show just 

17 like New York, and just like Mr. Schwartzman discusses, that 

18 where you have these unfiled agreements that modify 

19 

20 

21 

22 

23 

24 

25 

26 

guaranteed cost Workers' Compensation policies, they are 

void under New York law. So, the Shasta case is, I think, 

the best discussion of the facts. 

THE COURT: Is there any New York law on this 

issue? 

MR. DOWD: We don't have cases on that exact 

proposition with us, your Honor. 

THE COURT: Meaning they don't exist? 

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MR. DOWD: No, we just don't have them with us. 

THE COURT: How could you brief an issue under New 

York law and not cite New York cases? 

MR. DOWD: Well, your Honor --

THE COURT: Don't answer that question. That is a 

rhetorical question. 

Now, we are going to take a five-minute recess. 

(Recess taken.) 

THE COURT: Now, Mr. Dowd, if you would like to say 

11 anything further in support of your bond application or your 

12 motion to enjoin the filing of an arbitration, I will hear 

13 from you at this time. 

14 

15 

16 

MR. DOWD: Thank you, your Honor. 

I think, if we look at Insurance Law 1213, there is 

a, it really places, we believe it's mandatory in the 

17 instances that we have shown here, and the evidence that we 

18 put forth, that each one of the non licensed Defendants must 

19 post a bond, because there is no certification. 

20 And, if we look at the types of behavior, if we 

21 look at Insurance Law 1101, it talks about what doing 

22 business of insurance is in New York, and that's very 

23 important, because at each point, it's a very broad 

24 definition, and there is a catchall provision in 1101, which 

25 

26 

is, ''doing or proposing to do any business in substance 

equivalent to any of the foregoing, in a manner designed to 

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evade the provisions of this chapter.'' 

Here, we have shown that they filed a Federal 

patent saying that the purpose of this scheme is to avoid 

state regulation. So, right there, we believe that's a 

smoking gun. That was pointed out to the California 

Department of insurance. They saw that. 

32 

1 

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3 

4 

5 

6 

7 

8 

9 

10 

In response to your Honor's earlier questions about 

the complexity, I am looking at Mr. Schwartzman's affidavit 

and there is a couple of instances, paragraph 37, where he 

11 goes through each of the New York State Insurance Law 

12 provisions that are violated by this misconduct, and there 

13 is one after another after another, and they are pretty 

14 simple propositions that they can't do any of this. 

15 If, I would ask your Honor to take under 

16 consideration --

17 

18 

19 

20 

THE COURT: Mr. Dowd, I don't really understand 

what you mean when you are referring to my feelings about 

the complexity. This case is no more a complex than the 

residential mortgage backed securities docket that I have 

21 been dealing with for the last three years. 

22 These financial concepts can be complex, but they 

23 can be explained in a way that Courts can understand them 

24 and sometimes that requires explicit expert testimony. 

25 

26 

All I am saying here is not that this is too 

complex to figure it out. I don't know how many times you 

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2 have suggested that I have said that. 

3 I am saying that I need lawyering which will enable 

4 me to unpack the problem, and I don't think I have that on 

5 

6 

these papers. 

MR. DOWD: Given the opportunity, your Honor, we 

7 believe we can make this much clearer, and also, we would 

8 point out that much of the enforcement of these statutes 

9 does happen in the regulatory context, so there is not that 

10 

11 

much case law in many of these areas. 

THE COURT: Do you have anything further to say 

12 about the bond or the injunction? 

13 MR. DOWD: Yes, your Honor. 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

Right now, our client is at imminent risk, and we 

request that, for the reasons set forth in the papers, that 

the bond be fixed at the amount that we are requesting. 

THE COURT: Have you concluded? 

MR. DOWD: Yes, your Honor. Thank you. 

THE COURT: I will hear from the Defendants. 

How will you split up your time? We have taken 

about one hour, and you will certainly have equal time if 

you wish it. Just decide how you will divide it. 

MR. KNOERZER: I need three minutes. 

THE COURT: There is no such thing as three 

minutes. This will be a lawyer's three minutes. 

MR. KNOERZER: You can watch it, your Honor. 

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MR. STEPHENS: I think we can probably deal with 

this in 20 minutes, to be honest with you. 

What actually can I do to be of assistance to the 

Court at this, in this argument? 

34 

6 Would you want me to describe the policies and how 

7 they work or, would you rather I just focus on the bonding 

8 requirement? 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

THE COURT: Well, I would like to know what's your 

position, what your position is on how the policies work and 

why this is, according to you, a legal arrangement, and then 

I want to hear the position on the bond, of course. 

MR. STEPHENS: All right. So, I think the 

undisputed fact is that Breakaway had Workers' Compensation 

insurance through Continental Indemnity Company, a licensed 

New York insurer since, from the period 2009 to 2013. 

There is no dispute that Continental Indemnity 

issued the policies. In fact, they are attached to the 

complaint, and I would invite, and so for a period of five 

years, they were insured by Continental. 

21 The policies themselves are guaranteed cost 

22 Workers' Compensation policies, and if I could direct your 

23 attention please, your Honor, to Exhibit G, which is one of 

24 the policies, you can easily see how it works. 

25 

26 

So, the first page is, identifies Continental 

Indemnity as issuing the Workers' Compensation policy. 

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2 If you take a look at the second page, just flip 

3 the page, says WC-174 at the top, and it has this chart 

4 

5 

6 

7 

8 

9 

classifications of, classifications. It tells you actually 

10 

what's being charged and for whom, because each one of the 

employees in their job class has a different rate applied to 

that class, because they are more likely or less likely 

frankly, to be injured on the job. 

So, you see the first is trucking, mail parcel or 

package delivery, all employees and drivers. That's a code, 

11 and that code number is actually from the State of New York. 

12 Every one of these job classifications has a coding, that 

13 goes with them. 

14 Then, you can see the premium basis is right next 

15 

16 

17 

18 

19 

20 

21 

22 

to that, and the rate per hundred, which is how much it is 

per $100 of payroll that's associated with these trucking 

delivery employees. It's multiplied, and then you get a 

number. That's how these policies work. It's very simple. 

We have got classifications that are approved by the State 

of New York, and a rate approved by the State of New York. 

You do a multiplication of the rate, times the class, and 

then you get the premium at the other end. 

23 What can make this change, if it was going to 

24 change, is the fact that the payroll influences the premium. 

25 If the payroll goes up, then the premium would go up. If 

26 the payroll went down, the premium would actually go down. 

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So, that's that simple. 

The other contract that's actually at issue here is 

the Reinsurance Participation Agreement, the RPA. We have 

in the complaint actually exactly what it was that was 

presented to Breakaway and what it said. 

So, if you look please at Exhibit B to the 

complaint, it is the Reinsurance Participation Agreement for 

this particular period of time, through years from '09 to 

'12, and it is a way for the insured to try to make a hedge 

11 essentially against his premiums going up -- actually, the 

12 premiums he is paying on a guaranteed cost policy, so very 

13 simply, your Honor, the guaranteed cost policy, the premiums 

14 

15 

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20 

21 

22 

23 

24 

25 

are figured out as I just indicated, and the classifications 

and all of the statistical data from, frankly, decades of 

experience, go into determining what the cost of the policy 

is going to be, and the cost of the policy is very simple. 

It is those classifications, times the approved 

rates, and then, there is a fee added on for the insurance 

company. If you think that you are going to do better as an 

employer than the statistical data would suggest , then you 

would consider buying the RPA. Because, and I am looking 

now at Exhibit B, the RPA, if you look at paragraph 3 of it, 

specifically says, ''participant'', that's Breakaway, ''is 

participating in this agreement for purposes of investment 

26 only.'' It's not an insurance policy. 

NK 
01:31:17 

01:31:38 

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PROCEEDINGS 

What it actually is, is a captive reinsurance 

arrangement, and it allows Breakaway, in this instance, to 

put money into, capitalize a cell, its owned individual, its 

own individual cell in this reinsurance agreement, and then, 

6 if it turns out that the losses are lower, they are going to 

7 get, in the end, lower costs on their insurance. 

8 If it turns out, by the way, that the losses are 

9 higher than anticipated, the price on the overall insurance 

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plan could go up, but there is nothing more complicated that 

is going on than exactly that. 

Captive insurance, reinsurance arrangements are 

common throughout the world. In the case of big employers, 

your Honor, like United Airlines or IBM, they actually 

create their own captives in places, usually offshore, 

because of tax reasons, and then, they don't even buy 

insurance. They reinsure themselves at some level. They 

bought some other insurance perhaps, to take care of the 

risks, but big companies usually actually form a captive, 

rather than buy something from AIG. 

Smaller companies could do the same thing, but the 

expense actually of forming your own captive is, and then 

running it, is actually prohibitive. 

So, what this offers them the opportunity to do is, 

instead of having their own captive, they have a captive 

that has already been set up. It's call a ''sponsor 

NK 
01:32:56 

01:33:10 

01:33:26 

01:33:48 

0" ·34:08 

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2 captive". 

38 

PROCEEDINGS 

It has a word, and the participant in it, each 

3 have their own accounting and cell capitalized to either 

4 make money, because they are, their claims are lower or 

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perhaps have a higher cost. It's that simple. 

THE COURT: Why is it called a ''captive 

arrangement"? 

MR. STEPHENS: Because it's not available to the 

public. In other words, it belongs to somebody. It's 

not -- AIG is a public company and you can make an 

application and get insurance no matter who you are if you 

are approved. 

The captive doesn't have to accept risk from any 

anybody other than the owner or whoever it is the owner says 

I will include in my cell. 

THE COURT: Isn't the Plaintiff's point that it is 

illegal to essentially set up an arrangement like this? 

MR. STEPHENS: Yes, I think that's what they are 

saying. 

THE COURT: What's the response to that? 

MR. STEPHENS: It's not illegal. It's not 

THE COURT: The Insurance Law or the Workers' 

Compensation laws require employers, under certain 

circumstances, to procure Workers' Compensation insurance; 

correct? 

MR. STEPHENS: Yes. 

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THE COURT: Isn't this an end run around that 

3 requirement? 

4 

5 

6 

MR. STEPHENS: No, it's not. 

THE COURT: Why not? 

MR. STEPHENS: Because the Workers' Compensation, 

7 the guaranteed cost, Workers' Compensation policy is in 

8 place and available to Breakaway, the insured. 

39 

9 All this is, is an attempt to actually, to perhaps, 

10 

11 

12 

13 

benefit from lower claims costs. It has nothing to do with 

the policy itself. 

The policy actually is designed to protect the 

employees not designed to protect the employer. It's to 

14 make sure there is enough wherewithal to pay the claims for 

15 

16 

injured workers. 

THE COURT: Excuse me. I believe I heard during 

17 the Plaintiff's argument that no premiums were ever paid to 

18 Continental? 

19 

20 

MR. STEPHENS: A-hum. 

THE COURT: Has Continental paid claims? 

21 MR. STEPHENS: Yes, it has. But, what you heard is 

22 not true. They have paid premium of $800,000. So, they did 

23 pay premium. 

24 What he is confusing about that is that the bill 

25 

26 

came from a, the billing agent, which identifies itself as 

Applied Underwriters. It's not so -- they did pay a 

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01:35:29 

01:36:00 

01:36:25 

01:36:41 

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2 premium. 

3 

4 

5 

THE COURT: One moment please. 

(Pause in the proceedings). 

THE COURT: All right. So then, the Plaintiff is 

6 claiming that the premiums were not paid to Continental. 

40 

7 You are acknowledging that, but you are saying that 

8 they were paid to a billing agent for Continental? 

9 

10 

11 

12 

MR. STEPHENS: Right. I mean, if you paid your 

broker for your premiums and then the broker sent it to the 

insurance company, no one could say you didn't pay your 

premiums. It's just the methodology for it. 

13 THE COURT: And, you are representing that 

14 Continental has paid premiums to Breakaway, sorry -- has 

15 paid insurance benefits on account of Workers' Compensation 

16 claims for Breakaway? 

17 MR. STEPHENS: Every claim that has been submitted, 

18 and they all got submitted to Continental Indemnity, has 

19 been paid -- every single one of them. 

20 

21 

22 

23 

24 

25 

There is only one of them still outstanding. 

That's for a car accident. It's reserved at $45,000, and 

22,000 of that has already been paid so, yes, they have five 

years of worth of coverage from Continental Indemnity and 

all the claims that have been submitted have been paid and 

we are still paying, Continental is still paying claims 

26 because it has one more outstanding. 

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THE COURT: How much has been paid out to date, if 

there is evidence in the record to that effect. 

MR. STEPHENS: I don't know. I mean, well, 

undoubtedly, hundreds of thousands of dollars. I don't have 

6 any evidence of that. 

7 I have been in this business long enough to know 

8 that over that period of time, yes, hundreds of thousands of 

9 dollars. 

10 So, what they are suggesting is that despite the 

11 fact that Continental is licensed in New York, and despite 

12 the fact that the RPA is for investment only, and it's with 

13 a different party, AUCRA, that somehow, a bond is required 

14 even though we have got licensed entities, not just one, but 

15 three, there are three licensed entities here in this 

16 complaint that are licensed in New York, California 

17 Insurance Company as to which they don't make a claim, but 

18 California Insurance Company, Continental Indemnity and 

19 then, New York Risk Services. 

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26 

The notion, by the way, that the bond is not 

subject to the Court's discretion is wrong. 

THE COURT: Did you mean Applied Risk Services of 

New York, Inc? 

MR. STEPHENS: Right. That's a registered and 

licensed entity. 

The statute itself says it only applies to 

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PROCEEDINGS 

insurers. So, what they are trying to get you to say, even 

though Continental is the insurer and it's licensed in New 

York, these other organizations are somehow insurers, they 

haven't given you a shred of evidence to prove that. 

The second thing is, your Honor has discretion as 

to whether to require a bond or not. 

In our brief on page 7, we cited an opinion by the 

Department of Financial Services on that, and gave you the 

website. I have it in front of me here in my handy-dandy 

11 iPad. 

12 What it says is, there is no absolute right to 

13 avoid bond posting under New York Law 1213. 

14 

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THE COURT: Are you reading from a New York State 

insurance website? 

MR. STEPHENS: It's an opinion of the 

Superintendent for the Department of Financial Services and 

it --

THE COURT: Which is posted on their website? 

MR. STEPHENS: Yes, it is, your Honor. I gave you 

the citation in my brief. And, what it says is that the 

statute clearly allows the Court the discretion as to 

whether to permit an unauthorized insurer to dispense with 

filing a bond. Specifically says that. 

So, they actually have to prove to you two things, 

which is one, that these other entities are, in fact, 

NK 
01:40:31 

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PROCEEDINGS 

insurers, insuring here in the State of New York, and they 

can't do that because the entity that gave the insurance 

policy to Breakaway is, in fact, licensed. 

So, they have to prove -- one thing they can't 

43 

6 prove and then the other is, your Honor has discretion as to 

7 whether to require a bond. 

8 THE COURT: What is your position as to the role of 

9 these other entities in this transaction? 

10 

11 

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MR. STEPHENS: Well, actually, most of them don't 

have any role at all. What the Plaintiff is saying, without 

any support, is that somehow because of the manner in which 

these companies actually retain the premium they get, that 

somehow it's disappeared, and that that is a giant, 

fraudulent conspiracy, frankly -- and, that's unproven here. 

There is no evidence of it, and frankly, it's not even 

17 pertinent. 

18 What it is that a insurance company does with the 

19 premium it gets, whether it reinsures it through another 

20 

21 

22 

23 

24 

25 

26 

channel, whether it has a pooling arrangement with other 

companies, whether they be sister companies or not, is 

neither here nor there. 

The only thing that is important about the 

insurance company that actually offers the policy and 

underwrites the policy is what its rating is and here, 

Continental Indemnity, New York licensed, is rated by A.M. 

NK 
01:42:08 

01:42:33 

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PROCEEDINGS 

Best, which is the operation that does these things, A+ 

Superior. 

44 

What that means is that it has a superior capacity 

to meet its financial obligations. If you look at the 

6 affidavit of James Corcoran, you will see the A.M. Best 

7 rating, Exhibit 2, and you will also see that Continental 

8 Indemnity has financial size, it's called, of 500 million to 

9 $750 million. 

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There is no question that this organization is 

licensed in New York, regulated by New York, examined by New 

York, and examined, frankly, where it's in its home state. 

So, everyone that's taken a look at this, has taken a look 

at finances, they don't have any of the suspicion Mr. Dowd 

is trying to raise, and perhaps, even most pertinently, 

there is only $45,000 in claims out. 

reserve left. 

That's the only 

This policy, last time they had a policy, this 

organization did, was in 2013. So, we are three years out 

from that, and it:s an occurrence policy, so something 

happened during the period of the policy a claim could 

arise, but the only one that's extant now, three years 

later, is one. 

Both the Superintendents -- we gave you 

declarations from former Superintendants that said these 

claims develop over a reasonably short period of time, and 

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01:43:46 

01:44:05 

01:44:30 

01:44:45 

o· ·45:04 

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PROCEEDINGS 

you know, what it is that the claims are going to be after 

two and a half years or so. So, there is no reason to 

assume that there is going to be some massive increase in 

the claims that are being filed against Breakaway, and to 

45 

6 which the insurance would have to respond and, in fact, 

7 there is not only that, there is no reason to assume 

8 Continental Indemnity wouldn't be able to pay the claims if, 

9 in fact, they did somehow begin to expand. 

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So, I mean, the whole purpose of a bond is to 

protect Breakaway. It doesn't need that protection. It's 

got protection under its New York licensed insurance policy. 

So, this whole argument about all these other entities and 

whether they cede money to one another, it's a distraction 

and what I would call displacement activity. 

Doesn't have anything to do with the transaction, 

doesn't have anything to do with Breakaway security. 

Another curious thing about this case, your Honor, 

is that Breakaway has at least two operations, one here in 

New York and one in Boston, and both of them were insured 

under the Applied program, including RPA, and they still 

have the one in Boston. 

So, they are here in New York telling you the whole 

thing is a reverse Ponzi scheme, and they are keeping the 

insurance in Massachusetts. It doesn't make sense at all. 

I don't often, frankly, write what I would call sort of a 

NK 
01:45:25 

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PROCEEDINGS 

literary observation in a brief, because I don't think they 

are very helpful, but here, I know, I was willing to write 

down that this whole thing is like a publicity stunt. They 

went out, had a press conference. It got covered by the 

press. 

Berkshire Hathaway sued for fraud and now here we 

are and they can't explain to you what the fraud is because 

there isn't any. Though, I don't see, your Honor, honestly, 

that they have made a case out, that they need a bond or 

that they are entitled to one under 1213. 

And then, the other piece of it is, I have been 

doing this a long time -- too long. 

THE COURT: I have been doing this a long time 

myself. 

MR. STEPHENS: I get tireder every year, I tell 

you, but what I do get out of that is, you know, you think 

you have seen it all, and done it all, and then find 

something new comes up, frankly, every month. 

Here, we have somebody to enjoin our arbitration 

that hasn't even been demanded. 

request arbitration. 

I don't know if he will 

THE COURT: I just had that last week. 

MR. STEPHENS: No demand, and here we are trying to 

enjoin something that might happen. It's a waste of 

everyone's, frankly, time and effort and money. 

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01:46:54 

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1 PROCEEDINGS 

2 So, I don't have much more to say about that. 

3 They can't possibly prove the standards for preliminary 

4 

5 

6 

7 

8 

9 

10 

injunctive relief because.there isn't even any harm that's 

being threatened. 

What is the irreparable harm? There isn't any, let 

alone the fact they haven't shown you they have a colorable 

claim. 

So, I really think this is reasonably easy, meaning 

the bond and arbitration decision. I think it's clear, as 

11 opposed to opaque, and I do think that the real meat of this 

12 case is actually in the motion to dismiss that we filed and 

13 that Berkshire Hathaway filed, and I believe that, as your 

14 Honor gets through those papers, you will see that this 

15 

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complaint has a lot of work to do before it belongs in front 

of you. 

MR. KNOERZER: I will try to keep to my promise. 

Your Honor, I am Michael Knoerzer. I represent the single 

Defendant in this case, Berkshire Hathaway, Inc. 

As your Honor alluded, we earlier made a motion to 

dismiss for lack of personal jurisdiction. I understand 

that's not on for today and I won't argue that, but to use 

an old fashioned term, I will make a special appearance. 

am not waiving any of that. 

I 

We contend we are not subject to jurisdiction here. 

Berkshire Hathaway is a holding company. It's not an 

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01:48:15 

01:48:31 

01:48:52 

01:49:08 

r· ·49:25 

48 

1 PROCEEDINGS 

2 insurance company. There is no dispute about that. They 

3 are alleged in the complaint to be a holding company. 

4 

5 

6 

7 

8 

9 

10 

11 

Berkshire Hathaway, Inc does not issue insurance policies. 

There is no allegation in the complaint that they have ever 

issued an insurance policy. 

They can't. By law, they can't. They are not 

licensed to issue insurance policies. 

Therefore, Section 1213, the bond statute, does not 

apply to Berkshire Hathaway, Inc, because under that statute 

it expressly applies to foreign or alien insurers. 

12 If you read, I have long experience with this 

13 statute, if you read the commentaries and the notes on what 

14 a, why the statute was originally drafted, it's a consumer 

15 protection statute essentially. 

16 What it says is, if someone buys a policy from an 

17 out-of-state insurer, they can sue the insurer. There is a 

18 construct in the statute, they can sue the insurer in the 

19 

20 

21 

22 

23 

24 

25 

26 

state, but what the Courts didn't want, what the regulators 

didn't want, what the legislature didn't want, is for 

having, once the insured, having gotten a judgement, the 

insured wasn't going to be required to go out-of-state to 

enforce that judgement. That's the basis of Section 1213. 

So normally, what you have is a crystallized policy 

demand, a claim amount that has not been paid that falls 

within the policy, and that's the kind of thing that you 

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01:49:41 

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PROCEEDINGS 

ordinarily see in these sorts of cases. We don't see that 

here at all. 

Certainly, it does not apply where you have a 

insurer, who has issued a policy and is in New York State, 

49 

6 because the statute only applies to foreign or alien 

7 insurers. 

8 So here, I am not, I don't have any skin in the 

9 

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game because I represent Berkshire Hathaway, Inc., but I can 

tell you where there is a policy and the only policy is 

issued by a New York licensed insured. 

The fact that they sue other people for other 

things, doesn't change the fact that this, the only insurer 

involved in the case, is New York licensed. You can't 

bootstrap the fact that you have sued non New York companies 

and say well, gee, there is non New York companies involved 

as well who didn't issue policies, but I am going to use 

1213 on them. 

I think that's three minutes, your Honor. 

THE COURT: Mr. Dowd, would you like to reply? 

MR. DOWD: Briefly, your Honor. Thank you. 

I think that the most important starting point is 

to focus on the words you heard previously, ''retain 

premium". People who retain premium are doing the business 

of insurance in New York. 

So, any of these entities that took Mr. Kotch's 

NK 
01:51:12 

01:51:46 

01:52:09 

01:52:29 

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2 money, as it passed through all of these entities, if any of 

3 

4 

5 

them, as Mr. Stephens said retained premium, they are doing 

the business of insurance in New York. 

Also, if they solicit insurance policies in New 

6 York, they are doing the business of insurance in New York. 

7 I point your Honor to the reply affidavit of Martin 

8 Schwartzman dated 27th of October, Exhibit A. It says 

9 

10 

11 

12 

13 

14 

15 

there, that as a member of Berkshire Hathaway, Inc., we have 

the resources and you have the Applied Underwriters 

trademark, and it says a Berkshire Hathaway company. 

This is addressed to Berkshire Courier -- Breakaway 

Courier Corporation in New York. This is doing and 

soliciting the business of insurance in New York. 

If we go through all of this opaque group of 

16 contracts that are almost impossible to understand, you will 

17 see that each one takes their cut and takes some of 

18 Breakaway's premium and takes more of Breakaway's premium 

19 and takes more of Breakaway's premium until we are in the so 

20 

21 

22 

23 

24 

25 

26 

called protected cell. Everyone has heard about this 

protected cell. Well, we can never find out, all these 

years, was anything ever put into the protected cell? If 

so, what was it? 

What we have seen, if we look at Exhibit D to Mr. 

Schwartzman's affidavit, for the first time in 2013, 

September 2013, Mr. Kotch gets a plan analysis. Instead of 

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01:53:19 

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PROCEEDINGS 

his usual plan analysis, where he has all of his workers' 

losses, he gets a huge printout starting from 2009, and this 

is on, if you back, it says page 5 of 31 at the top of this 

chart. He gets a whole print out of workers' claims from 

6 other companies that are all blanked out. 

7 What we can see from this is that Applied is now 

8 saying, oh, this is not just your captive protected cell. 

9 We put a bunch of other workers in there. We are not 

10 telling you what their classifications are. We are not 

11 telling you who they are, and we are going to tell you for 

12 the first time in September of 2013 that you are stuck with 

13 

14 

15 

16 

17 

18 

19 

20 

a whole bunch of other people. You can see page 

THE COURT: Sorry, what do you mean by that? Can 

you --

MR. DOWD: We 

THE COURT: I am looking at the chart, but it's too 

folksy. Try to explain it in a more legal way. 

MR. DOWD: Sure, your Honor. If we look, we page 

through the first page, where it says name, and it's all 

21 blank. Those are all workers, okay, that are not Breakaway 

22 

23 

24 

25 

26 

workers. We turn to the next page. We see names, they are 

all blank. That's page 6 of 31. None of those are 

Breakaway workers. When we get to page 7 of 31, we see one 

name, Jason Litzenberg (ph). 

THE COURT: I see this. But, tell me what this is. 

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PROCEEDINGS 

MR. DOWD: The significance is, your Honor heard 

earlier that this policy was sold to Mr. Kotch on the 

premise that if he managed his claims well, he would get 

charged lower rates. 

52 

6 This, for the first time, reveals that he is stuck 

7 in with a whole bunch of other people, according to them 

8 now, so it doesn't matter how well he manages his claims. 

9 Any claim billing that he has been sent, is actually based 

10 

11 

12 

on calculation of workers that are not his. Not something 

that was ever disclosed previously. 

So here, we have specific example of fraud. We 

13 have him saying, you will get a discount if you can manage 

14 your claims, and this shows it's absolutely untrue. The 

15 first time this is revealed is in 2013. 

16 So, we go through page after page, and there is 

17 only one on each or it's blank, and this is the calculation 

18 that has been made. 

19 So, all these companies retaining premium, are 

20 doing the business of insurance in New York. All of these 

21 claims about you can get a discount for managing your claims 

22 well, false and misleading, and under New York State 

23 Insurance Law 4226, if there is any misleading statements 

24 made in the sale of insurance policy, my client has a 

25 

26 

private right of action guaranteed by that statute. 

In addition, if there is any anticompetitive 

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1 PROCEEDINGS 

2 behavior going on, there is a private right of action under 

3 Section 2316 of the New York Insurance Law. 

4 

5 

Now, to understand, in recap, to get this policy, 

this Continental policy issued to you, you have to commit to 

6 three years -- illegal with an out-of-state insurer to get 

7 them to issue a policy. That is all specifically contrary 

8 to statute. We list specifically what statute it violates. 

9 If we look at the Reinsurance Participation 

10 Agreement, we see a reference to issuing insurers. Also, 

11 there is references in the RPA to a pooling agreement. 

12 Now, this pooling agreement is in the reply 

13 affidavit of Martin Schwartzman, and it's almost impossible 

14 to read, but what, in essence is, best I understand it and 

15 

16 

17 

18 

19 

20 

as best Mr. Schwartzman understands it, is that Continental, 

upon signing that pooling agreement, and if you look at the 

signature page of the pooling agreement, which is found at 

Exhibit C, we see one signature page, California Insurance 

Company, signed by President, Steven Menzies; Continental 

Indemnity Company signed by President Steve Menzies; 

21 Illinois Insurance Company signed by President Steve 

22 Menzies; Pennsylvania Insurance Company signed by President 

23 Steve Menzies. 

24 

25 

26 

This is not illegal, but what they are doing is 

cross insuring everyone for everything. What they are 

saying, I am sorry if it's folksy, your Honor, specifically, 

NK 
01:58:35 

01:58:56 

01:59:14 

01:59:35 

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1 PROCEEDINGS 

2 with Continental, that upon Continental writing a policy, 

3 100 percent of the liability is ceded to California. 

4 California, in turn, by a quota share agreement that is 

5 located at Exhibit B, cedes off to AUCRA. That's the 

6 Applied Underwriters Captive Risk insurance Company, a 

7 British Virgin Islands, and later an Iowa corporation. 

8 So, in essence, it goes through this process with 

9 California, Continental first, taking only ceding 

10 

11 

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17 

18 

19 

20 

commissions. What that means is, as a practical matter, is 

all of the premium never ends up in Continental by the plain 

language of the pooling agreement. 

So, they, the assets that are supposed to pay the 

insurer is simply not in that entity. They pass to 

California. What does California do? California takes, in 

turn, a ceding commission, pockets that, and offloads to 

AUCRA. So, what's left in a protected cell is something 

that is di minimus. 

On top of that, they enter into what's called an 

excess loss agreement, and for 2013 it was $128 million to 

21 another Berkshire Hathaway entity. What that means is that 

22 this supposed protected cell is likely to have absolutely 

23 nothing in it. 

24 

25 

26 

In sum, right in the complaint, Exhibit M, we have 

the testimony of Patrick Watson, Applied employee, saying 

that no one ever got money back from this scheme in the 

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PROCEEDINGS 

whole history of this Applied Underwriters document. 

Therefore, the terms, profit sharing right up 

front, are misleading, and we have causes of action under 

that, and therefore, we ought to have a bond in a fair 

55 

6 amount to cover the amount of any final judgement that this 

7 Court might render. 

8 Thank you, your Honor. 

9 THE COURT: There was a lot of new argument there 

10 

11 

12 

on that reply. If there is a request for anything further, 

under that circumstance, I will permit a response. 

MR. STEPHENS: Just one thing -- two things from 

13 me, which is, I mean this argument about who knows where the 

14 money is some sort of a shell game. It's not supported by 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

anything in the record. 

If you take a look at Exhibit 2 to former 

Superintendent James Corcoran's declaration, it is the A.M. 

Best rating. 

THE COURT: It is? 

MR. STEPHENS: A.M. Best rating for Continental 

Indemnity and it says it has 500 to 750 million in size. 

It has an A plus rating. It is a superior claim paying 

operation. It has a capacity to pay its claims. 

Regardless, of what it is that Mr. Dowd thinks is 

confusing about reinsurance arrangements, they are 

26 completely irrelevant to the argument that he is trying to 

NK 
02:02:15 

02:02:42 

02:03:01 

02:03:23 

0?-03:38 

56 

1 PROCEEDINGS 

2 make about a bond. 

3 The second thing is, Mr. Schwartzman put Exhibit D 

4 

5 

6 

7 

8 

9 

10 

11 

to his supplemental affidavit, and if you take a look at it, 

it's actually, you can start with top of the page, the plan 

term is, it's an analysis of the whole plan from July 1, '09 

to 6/3/12 because it's a three-year plan. 

If you actually flip the page, your Honor, you will 

see that there is actually a listing of each and every claim 

that was filed during that three-year period of time. It 

tells you whether it's opened or closed. It tells you how 

12 much was, the costs were as to each one, each one and every 

13 

14 

15 

16 

17 

18 

19 

,20 

21 

22 

23 

24 

25 

one of those claims. It goes on page after page after page. 

It shows you not only is the information all being 

communicated to Breakaway, it also shows you what I just 

said, which is the only open claim, you take a look at the 

end, is James Spencer, reserved at $40,000. 

And so, I mean, the argument that you are hearing 

is essentially trying to mix everything up in a blizzard of 

argument that doesn't have anything, have anything to do 

with whether or not a bond is necessary. 

MR. KNOERZER: I didn't hear anything that accused 

my client, Berkshire Hathaway, from being a insurance 

company, and all the expert reports that they are citing to 

on the Plaintiff's side are improper under the New York law 

26 because all they do is try to construe the contract language 

NK 
02:03:56 

02:04:18 

02:04:49 

02:05:03 

0°·05:14 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

PROCEEDINGS 

or to find that somebody or something is in violation of 

statute. That's the province of your Honor. It's not the 

province of the experts. The expert reports aren't worth 

the paper they were written on. 

Thank you. 

THE COURT: I am going to reserve decision on the 

bond and the injunction motion. 

57 

It's requested that the Movant obtain a copy of the 

transcript of today's argument, e-file it with an errata 

sheet, and file two hard copies with the Clerk of Part 60 

with the errata sheet. The motions will not be marked 

submitted until I receive the hard copies. 

In addition, I am going to ask counsel, how close 

are we to the briefing on the Berkshire Hathaway motion to 

16 dismiss? 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

MR. KNOERZER: Our initial brief is filed, your 

Honor, so I think we are waiting for opposition. 

THE COURT: Is there a date for the opposition 

brief? 

MR. DOWD: We believe it's November 15th, your 

Honor. 

THE COURT: So, when are counsel expecting to have 

it fully submitted? 

MR. STEPHENS: Return date is the 22nd of November. 

THE COURT: The 22nd in Part 130? 

NK 
1 

2 

3 

4 

02 : 05 : 34 5 

6 

7 

8 

9 

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11 

12 

13 

14 

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16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

NK 

MR . STEPHENS : Right . 

58 

THE COURT : So , I think we will probably schedule 

that for after the first of the year, and when we get it, we 

will give you a date for both the motion to dismiss tha t was 

part of this series of motions, and the Berkshire Hathaway 

motion , and we will hear both of those arguments on the same 

date . 

Thank you . The record is closed for today ' s 

proceedings . 

xxx 

THE FOREGOING IS CERTIFIED TO BE A 

TRUE AND ACCURATE TRANSCRIPTION OF 

THE 

NINA ., C. M. 

OFFICIAL COURT REP TER 

NK 
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

59 
1 

$ 51:24 53:2, 55:4 AMERICAN [11 - 1 :11 approved 1s1- 7:5, 

3711J" 32:10 activity [1J-45:15 Americas 111- 2:7 20:15, 35:19, 35:20, 

$100[1J" 35:16 actual{2J - 10:25, 13:3 amount [13J - 7:5, 36:18, 38:12 

$128 [1J" 54:20 4 actuarial [2J- 21:6, 23:5, 24:14, 25:12, arbitration {SJ - 3:23, 

$40,00011J" 56:17 21:9 26:20, 26:21, 26:23, 16:17, 31:12, 46:20, 

$45,000 [2J" 40:21, 405 [1J" 2:3 actuaries [3J - 21 :3, 27:2, 27:12, 33:16, 46:22, 47:10 

44:16 4226 [2J" 23:9, 52:23 21:11,27:9 48:25, 55:6 areas [1]-33:10 

$54,00011J" 26:17 

5 AD2d [1J - 9:9 amounts [2J-12:14, argue [1J - 47:22 

$750 [1J "44:9 added11J - 36:19 26:24 argument[14J - 5:22, 

$800,00011J" 39:22 5[1J-51:4 addition [3J - 3:21, AN11J- 1:12 6:20, 9:20, 19:21, 

$836,00011J "23:15 500 [3J" 9:22, 44:8, 52:26, 57:14 analysis 1121-17:22, 23:4, 34:5, 39:17, 

55:21 additionally !11 - 18:23, 19:17, 20:11, 45:13, 55:9, 55:13, 

• 54,62811J-26:10 24:21 20:20, 26:25, 27:17, 55:26, 56:18, 56:20, 

'09 [2J" 36:9, 56:6 address [3J - 8:15, 27:18, 30:16, 50:26, 57:10 

'1211J-36:10 6 16:11, 18:22 51:2, 56:6 arguments 121 - 6:23, 

addressed 111 - 50:12 analyzed (31 - 19: 18, 58:7 

6[3J· 19:19, 21:15, adjuster [2J - 11 :25 20:4, 26:19 arise [1] - 44:22 1 51:23 administrator{1J - ANDi1J-58:16 arrangement 1s1-

1[2J-1:16, 56:6 6/3/1211J-56:7 28:16 annual 111 - 18:2 34:11, 37:3, 38:7, 

10011J" 54:3 60[3J· 1:2, 1:15, admitted 11J - 14:21 answer[4J- 8:8, 38:17, 43:20 

10007[1J" 1:16 57:11 

affidavit 1101 - 19:25, 18:22, 28:9, 31 :6 arrangements 121-

10020 [1J" 2:7 654806/1611J" 1:15 19:26, 20: 12, 28:26, ANTHONY 11J - 2:8 37:12, 55:25 

1017411J" 2:3 

7 32:9, 44:6, 50:7, Anthony 11J - 3:11 ARS [4J - 1:11, 11 :21, 

10177[1J" 1:22 50:25, 53:13, 56:4 anticipated [1) - 37:9 14:15 

10604[1J-2:12 712J" 42:8, 51 :24 AGENCY[1J·1:11 anticompetitive 111 - Art11J - 4:12 

1101 [2J" 31 :21, 31 :24 700 [1J" 9:22 agent[SJ - 14:17, 52:26 art11J - 4:15 

1133 [1J" 2:11 750 [1J" 55:21 14:19, 28:14, 28:15, appeari1J - 14:19 article (1) - 20:26 

1213 [9J" 6:13, 6:24, 28:21, 39:25, 40:8 appearance 111- asbestos 111- 21 :18 

6:25, 31:15, 42:13, A aggrieved 111- 23:9 47:23 aside 111 - 18:26 

46:11, 48:9, 48:23, a-hum 11J - 39:19 ago11J-4:12 APPEARANCES {1J - assets [2J - 9:18, 

49:18 agree[2J-4:24, 19:15 1 :19 54:13 

1251 11J" 2:7 A.M {SJ - 9:21, 43:26, agreement [141 - 10:6, Appearances 111 - assistance !1J - 34:4 

44:6, 55:17, 55:20 130 [1J· 57:26 

abbreviation (1J - 11 :9 10:11, 13:22, 14:15, 1:25 associated 111 - 35:16 

15th [1J " 57:21 17:9, 36:25, 37:5, appearances [1J - 3:3 assume 121 - 45:4, able[3J· 14:11, 19:14, 53:11, 53:12, 53:16, Appellate[1J-9:10 45:7 

2 45:8 53:17, 54:4, 54:12, appended [1J- 20:10 Assurance {3J - 13:9, absolute 111 - 42:12 

213J" 26: 10, 44:7, absolutely [3J - 18:11, 54:20 application [3J - 13:19, 16:23 

55:16 52:14, 54:22 Agreement 1121 - 4:8, 15:13, 31:11, 38:11 ASSURANCE [1J -

13:6, 13:7, 16:20, Applied 129J - 2:6, 5:6, 1 :12 20 [1J" 34:3 acceptf1J- 38:13 18:8, 18:14, 18:25, 11:3, 11:8, 11:19, attached 121 - 19:17, 2009[4J· 12:17, accepted f1J - 21 :8 20:6, 21 :26, 36:4, 11:21, 12:21, 12:25, 34:18 17:17, 34:16, 51:3 accident111-40:21 36:8, 53:10 13:9, 13:19, 14:16, attempt11J - 39:9 2013 [7J" 34:16, according (SJ - 18:24, agreements 111 - 14:21, 16:9, 16:14, attention [3J - 27:26, 44:19, 50:25, 50:26, 19:22, 21:11, 21:13, 

51:12, 52:15, 54:20 30:18 16:22, 16:26, 21 :4, 28:26, 34:23 

34:11, 52:7 aid11J - 5:15 21 :11, 21 :24, 39:26, attorneys [1] - 1 :21 2014[1J· 12:18 account 111- 40:15 AIG 12J - 37:20, 38:10 41 :22, 45:21, 50:10, Attorneys [3J - 2:2, 2016[1J- 1:16 accounting !11- 38:3 Airlines [1J - 37:14 51 :7, 54:6, 54:25, 2:6, 2:11 22,000 [1J" 40:22 ACCURATE [1J - alien [3J - 6:26, 48:11, 55:2 AUCRA [SJ - 13:8, 22nd 12J - 57:25, 57:26 58:16 49:6 applied l4J - 11 :5, 16:25, 41 :13, 54:5, 2316 [2J" 23:12, 53:3 accurate 111 - 5:23 allegation !11 -48:5 15:24, 20:16, 35:6 54:17 

23rd 11J - 20:13 accused r11- 56:22 allegations [1]-12:4 APPLIED [4J - 1 :9, 1 :9, August11J-20:13 240 [1J" 9:9 acknowledge 111 - alleged [2J - 29: 13, 1:10, 1:12 AUi [3J - 10:19, 10:23, 250 [1J" 1 :22 5:12 48:3 Applied's 11J - 21 :13 11 :8 

27811J" 9:9 acknowledging 111- allows 12J - 37:3, applies 13J - 41 :26, authority [3J - 28:22, 27th [1J" 50:8 40:7 42:22 48:11, 49:6 29:3, 29:18 

acronyms {1] - 5:15 alluded [1J - 47:20 apply [2J - 48:10, 49:4 available [4] - 7:13, 

3 Act[1J - 23:13 almost121- 50:16, appreciate [1J - 6:10 23:17, 38:8, 39:8 

311J" 36:23 acted[1J-14:19 53:13 approached 121- Avenue 141 - 1 :22, 2:3, 

300[1J· 12:8 action1s1-6:15, alone [2J - 27:15, 47:7 12:20, 12:22 2:7, 2:11 

31 l3J" 51 :4, 51 :23, 13:18, 27:23, 52:25, alumni 111 - 4:13 appropriate {1J - 4:22 avoid 12J - 32:4, 42:13 

MYRON CALDERON - OFFICIAL COURT REPORTER 
2 

B BLAUSTEIN 111·1:23 burden [11- 8:23 casts 111- 20:2 City 111-12:9 

blizzard 111 • 56:19 business [11] -6:18, CASUAL TY 111·1 :11 claim [171- 11 :24, 

backed 111- 32:20 board 111 - 4: 13 29:23, 30:4, 31:22, catch 111 - 10:22 11 :25, 21 :20, 21 :23, 

Bartholow 111- 3:5 body 111 -16:14 31:25, 41:7, 49:24, catchall [1J - 31 :24 23:5, 23:16, 23:24, 

BARTHOLOW111- bond 1311 • 3: 17, 3:22, 50:4, 50:6, 50:14, causes 121 - 27:23, 24:9, 40:17, 41:17, 

1 :21 3:24, 5:9, 6:14, 6:19, 52:20 55:4 44:21, 47:8, 48:25, 

based !SJ - 5:3, 8:2, 6:21, 7:4, 7:10,9:11, buy 121 • 37:16, 37:20 ceased121-13:11, 52:9, 55:22, 56:9, 

25:17, 25:20, 26:22, 9:23, 19:19,31:11, buying 111 - 36:22 13:23 56:16 

52:9 31:19, 33:12, 33:16, buys111-48:16 cede [1] - 45:14 claimed 111 - 23:6 

basics 111 - 15:24 34:12, 41:13, 41 :20, BVl[Sl· 13:11, 13:14, ceded 111 - 54:3 claiming 111- 40:6 

basis1s1-21:6, 21:16, 42:7, 42:13, 42:24, 13:21, 13:22, 13:24, cedes [31-10:7,10:9, claims [29J - 4:7, 14:5, 

22:23, 24:8, 35: 14, 43:7, 45:10, 46:10, 28:17 54:5 14:23, 19:3, 21:24, 

48:23 47:10, 48:9, 55:5, BY!41-1:23,2:4, 2:8, ceding 121- 54:9, 22:2, 22:3, 23:18, 

BE111-58:15 56:2, 56:21, 57:8 2:12 54:16 27:3, 38:4, 39: 10, 

Beatrice [1] - 9:11 bonding[31· 10:14, cell 1121 -14:10, 39:14, 39:20, 40:16, 

BEFORE 111·1 :18 29:11, 34:7 c 22:11. 37:4, 37:5, 40:24, 40:25, 44:16, 

begin 111 • 45:9 bonds 111 - 9: 19 38:3, 38:15, 50:20, 44:26, 45:2, 45:5, 

beginning 111 - 28:26 bootstrap111- 49:15 C.M 121 • 2:18, 58:21 50:21, 50:22, 51 :8, 45:8, 51 :5, 52:4, 

behalf121- 5:4, 5:5 boroughs 111 - 12:9 

C.S.R 121·2:18, 58:21 

54:17, 54:22 52:8, 52:14, 52:21, 

behavior 121- 31 :20, Boston (2J - 45:20, 

calculate f1J - 20:22 

cell" 111 -18:26 55:23, 56:13 

53:2 45:22 calculation [3J - cells 111- 23:11 Claire(1J-3:12 

belongs [2J - 38:9, bottom 121·26:19, 21:12, 52:10, 52:17 Centre[1J-1:15 CLAIRE111-2:12 

47:15 27:4 calculations !31 - certain [3J - 13:3, clarify 121 • 11: 10, 

benefit 111- 39: 10 bought111-37:18 21:6, 21:9, 21:13 

24:14, 38:23 11 :13 

benefits 111- 40: 15 break111-14:10 

California {17! - B: 14, certainly 121- 33:21, class [41 · 26:22, 35:6, 

Berkshire r211 - 2:2, Breakaway {39] - 3:7, 10:8, 10:19, 11:13, 49:4 35:7, 35:21 

2:11, 3:14, 3:20, 5:4, 10:4, 12:7, 12:18, 15:5, 25:2, 30:15, certificates [2J- 7:10, classifications f7l -

12:24, 46:7, 47:13, 12:19, 13:13, 15:5, 32:6, 41:16,41:18, 8:17 35:4, 35:12, 35:19, 

47:19, 47:26, 48:4, 15:14, 16:25, 17:5, 53:18, 54:3, 54:4, certification {6) - 7:24, 36:14, 36:18, 51:10 

48:10, 49:9, 50:9, 20:17, 20:19, 21:25, 54:9, 54:15 

8:20, 8:23, 9:14, clause111 -16:17 

50:11, 50:12, 54:21, 25:24, 27:8, 27:12, CALIFORNIA111- 1 :8 

9:18, 31:19 clear[2J • 9:13, 47:10 

56:23, 57:15, 58:6 27:14, 28:6, 28:10, capacity 121- 44:4, CERTIFIED111·58:15 cleareri11- 33:7 

BERKSHIRE 111 • 1 :8 29:19, 30:9, 34:14, 55:23 

certified 111 - 7: 17 clearly 111-42:22 

best1s1- 4:6, 29:17, 36:6, 36:24, 37:3, capitalize 111- 37:4 

certify 111- 8:18 Clerk [31 - 7:3, 7:4, 

30:21, 53:14, 53:15 39:8, 40:14, 40:16, capitalized Ill - 38:3 

change [31 - 35:23, 57:11 

Best 1s1- 9:21, 44:2, 43:4, 45:5, 45: 11, Captive 1s1- 13:9, 35:24, 49:13 clerk 111 - 4:11 

44:6, 55:18, 55:20 45:17, 45:19, 50:12, 13:19, 16:23, 16:26, changed111-13:16 client [4J - 23:17, 

better111-36:20 51:21, 51:24, 56:15 54:6 

channel f1l - 43:20 33:14, 52:24, 56:23 

between 12J - 15:5, BREAKAWAY 121 • CAPTIVE 111·1 :12 

chapteri11- 32:2 close 111 - 57:14 

16:25 1 :3, 1 :4 captive !9J - 37:2, charge[2J · 12:13, closed [2J - 56:11, 

beyond111-14:8 Breakaway's !4) - 37:12, 37:19, 37:22, 

12:14 58:9 

bicycle111-12:7 20:22, 50:18, 50:19 37:25, 38:6, 38:13, 

charged !3J - 14:6, closer r11 - 10:2 

51:8 big [31 • 19:6, 37:13, BRIAN 111- 1 :24 

captive" 111- 38:2 35:5, 52:5 Clyde 111- 3:14 

37:19 Brian r11- 3:6 Charges f1J - 26:9 CL YOE [11 • 2:2 

bill[3J-19:17, 23:24, brief !•I· 31 :3, 42:8, captives 111- 37:15 

charges 111- 26:17 co 111 · 2:2 

39:24 42:21, 46:2, 57:17, cari11 • 40:21 

charging f1J - 26:3 code 121- 35:10, 35:11 

billing1s1-14:17, 57:20 care121- 4:2, 37:18 

chart [SJ· 5:21, 26:18, coding111-35:12 

14:19, 28:14, 28:15, briefed 111 - 3:20 case1241·4:17, 4:19, 

35:3, 51:5, 51:17 COLES 111 • 2:8 

28:21, 39:25, 40:8, briefing 111-57:15 4:22, 8:26, 9:15, 

charts [31 • 18:4, Coles 111- 3:11 

52:9 briefly 121·4:17, 9:16, 27:14, 29:6, 

20:10, 20:18 collected 111- 10:3 29:7, 29:11, 29:12, billS[?J-19:5, 19:10, 49:21 

29:26, 30:5, 30: 15, circumstance 111- collects 111 - 28: 15 

19:11, 19:16, 20:9, briefs11J-29:16 

30:20, 32:19, 33:10, 55:11 colorable 111- 47:7 

21 :25, 24:6 brings [1J - 28:25 37:13, 45:18, 46:10, circumstances [3] - coming 111- 21 :4 

bind[31· 13:5, 15:16, British 13! - 13:1 o, 47:12, 47:19, 49:14 4:19, 9:12, 38:24 commentaries f1J -

16:6 16:24, 54:7 citation 121 - 9:9, 48:13 cases [7J - 6:9, 29:9, bit111 -14:9 broad 111- 31:23 29:16, 30:11, 30:24, 42:21 commercial 111 - 6:2 

blank[3J·51:21, broker 121- 40: 10 31:4, 49:2 cite 121 - 29:24, 31 :4 COMMERCIAL 111 • 51 :23, 52: 17 brokers [1J-12:21 cash{3J-7:3, 7:17, cited [4J - 9:5, 9:16, 1 :8 

blanked 111- 51 :6 bunch 131·51:9, 9:18 29:15, 42:8 commission 111-

Blaustein 111- 3:6 51:13, 52:7 citing 111 - 56:24 54:16 

MYRON CALDERON - OFFICIAL COURT REPORTER 
3 

commissions 111- conclusory 111- 19:26 CORPORATION 171- 33:11, 33:17, 33:19, 11:6, 13:18, 47:19 

54:10 conference 11J - 46:5 1:3, 1:9, 1:10, 1:10, 33:24, 34:9, 38:6, DEFENDANTS 111-

commit111- 53:5 confirmation 111- 1:11, 1:12, 1:13 38:16, 38:20, 38:22, 1 :14 

common 111 - 37:13 30:12 Corporation !1l - 39:2, 39:5, 39:16, Defendants [11]-2:6, 

communicated 111 - confusing [4J - 24:2, 50:13 39:20, 40:3, 40:5, 2:11,6:15,6:21, 

56:15 24:3, 39:24, 55:25 correctf9J-11:7, 40:13, 41:2, 41:22, 8:21, 8:23, 9:15, 

Compl91-12·.18, connection 111 - 4:16 11:14, 11:15, 11:18, 42:14, 42:19, 43:8, 9:23, 12:5, 31:18, 

14:3, 16:15, 17:14, consider 111 - 36:22 15:2, 15:3, 16:10, 46:14, 46:23, 49:20, 33:19 

21:17, 21:20, 24:13, consideration 111- 23:19, 38:25 51:14, 51:17, 51:26, defense[1)-5:18 

25:5, 25:11 32:16 correctly [1J-18:7 55:9, 55:19, 57:7, definition [3J - 10:10, 

companies {9J - consistent 121 - 6:8, cost f24J - 17:24, 57:19, 57:23, 57:26, 29:23, 31:24 

37:19, 37:21, 43: 13, 9:16 20:14, 20:15, 20:20, 58:3, 58:22 deliberately 111-

43:21, 49: 15, 49:16, conspiracy 111 - 43:15 20:21, 21:9, 22:8, Court1101- 6:12, 6:13, 15:26 

51:6, 52:19 construct {11- 48:18 25:5, 25:20, 26:2, 6:22, 7:3, 7:5, 7:6, delivery 121- 35:10, 

Company (16)-3:14, construe 111- 56:26 26:5, 27:4, 27:6, 7:8, 7:17, 7:20, 8:18, 35:17 

9:4, 11:14, 11:16, consumer[1J-48:14 27:10, 27:11, 30:19, 8:24, 10:13, 21:3, demand 121 - 46:24, 

13:9, 13:19, 15:6, containment 141- 34:21, 36:12, 36:13, 34:5, 42:22, 55:7 48:25 

16:23, 34:15, 41:17, 26:20, 26:21, 26:23, 36:16, 36:17, 38:5, Court's 121- 28:25, demanded 111 - 46:21 

41:18, 53:19, 53:20, 27:2 39:7 41 :21 demonstrative f3J -

53:21, 53:22, 54:6 contend 111- 47:25 costs 1s1-18·.5, 20:23, courtroom 111- 3:8 5:13, 5:26, 6:4 

COMPANY 131 - 1 :8, contention 121- 7:23, 26:26, 37:7, 39:10, courts 111- 24:25 DepartmentfBJ- 7:16, 

1:11, 1:12 18:17 56:12 Courts 121 - 32:23, 7:25, 8:4, 8:18, 

company1201-1:13, context111- 33:9 counsel fSJ - 3:26, 48:19 19:24, 32:7, 42:9, 

9:26, 10:20, 12:7, Continental {55J - 4:18, 5:3, 5:18, cover12J-21:15, 55:6 42:17 

13:8, 13:10, 13:18, 6:20, 8:14, 9:22, 57:14, 57:23 coverage 1111- 4:9, deposit [2J - 7:2, 7:9 

16:23, 16:25, 22:9, 9:25, 10:2, 10:3, counsel's {1J - 3:2 13:5, 15:16, 16:6, describe 121 - 3:26, 

36:20, 38:10, 40:11, 10:5, 10:6, 10:7, COUNTY111-1:2 17:15, 18:5, 18:9, 34:6 

43:18, 43:24, 47:26, 10:10, 10:15, 10:18, couple111-32:10 18:10, 25:12, 25:15, describespJ-17:23 

48:2, 48:3, 50:11, 11:16, 12:16, 12:19, courier111-12:7 40:23 designed [3) - 31 :26, 

56:24 15:8, 15:17, 23:23, COURIER 121 - 1 :3, covered [2J- 24:15, 39:12, 39:13 

comparing r11 - 22:20 23:26, 27: 11, 27:12, 1 :4 46:5 despite 121-41:10, 

Compensation [16J - 28:2, 28:7, 28:10, Courier [3J - 3:7, create 111 - 37:15 41 :11 

9:26, 12:11, 17:26, 28:14, 29:19, 30:9, 50:12, 50:13 created 111 - 4: 13 details 121- 13:16, 

18:9, 21:2, 26:9, 34:15, 34:17, 34:20, course[3J-18:18, cross f1J - 53:25 19:13 

26:16, 30:19, 34:14, 34:25, 39: 18, 39:20, 19:16, 34:12 crystallized (1J - determining [1J -

34:22, 34:26, 38:23, 40:6, 40:8, 40:14, COURT 11121 - 1 :2, 48:24 36:16 

38:24, 39:6, 39:7, 40:18, 40:23, 40:25, 2:18, 3:2, 3:15, 4:23, curious f1J - 45:18 develop 111- 44:26 

40:15 41:11,41:18,42:3, 4:26, 5:7, 5:9, 5:17, CUt[1J- 50:17 developmentr11-

complaint11s1- 5:22, 43:26, 44:7, 45:6, 5:25, 6:7, 7:22, 8:2, 20:16 

13:17, 16:8, 16:22, 53:5, 53:15, 53:19, 8:9, 8:22, 8:26, 9:8, D devoid111-9:13 

19:17, 20:26, 27:21, 54:2, 54:9, 54:11, 10:21, 10:24, 11:2, dlbla 111 -1 :3 di111-54:18 

34:19, 36:5, 36:8, 55:20 11:5, 11:10, 11:13, damages [3J - 23:6, differ 111 - 27:26 

41:16, 47:15, 48:3, CONTINENTAL 111 - 11:16, 11:19, 11:23, different [9J - 6:17, 23:7, 23:11 48:5, 54:24 1 :12 11:26, 14:26, 15:4, 17:25, 23:8, 25:13, 

completely [SJ - continued 111- 1 :25 15:8, 15:10, 15:13, dandy 111-42:10 

25:14, 26:3, 27:6, 

19:26, 24:19, 27·.15, contract r21 - 36:3, 15:23, 16:7, 16:9, data 121 - 36:15, 36:21 

35:6, 41:13 

28:18, 55:26 56:26 16:12, 17:4, 17:11, date 171 - 17:22, 27:4, difficult!6J - 5:12, 

complex [4J - 25:25, contracts {3J - 24:2, 17:18, 17:20, 18:6, 41 :2, 57:19, 57:25, 5:16, 22:16, 22:17, 

32:19, 32:22, 32:26 24:6, 50:16 18:12, 18:16, 19:9, 58:5, 58:8 

22:18, 22: 19 

complexity [3J - contractualr11-13:14 19:19, 19:25, 20:7, dated 121 - 20:13, 50:8 

dime 111 - 10:3 

25:26, 32:9, 32:19 contrary 111 - 53:7 22:20, 22:24, 23:14, deal 121- 14:12, 34:2 

dinners 111 - 4: 16 

complicated [4J - copies r21 - 57:11, 23:16, 23:20, 24:3, dealing 111 - 32:21 

direct [3J - 10:4, 

16:4, 20:25, 21 :5, 57:13 24:22, 24:25, 25:7, decades 111- 36:15 

15:17, 34:22 

37:10 copy 111- 57:9 25:14, 26:4, 26:13, decide 111- 33:22 

directly 111-10:3 

concededly 111 - 5:16 Corcoran 111 - 44:6 27:17, 27:25, 28:4, decision r21- 47:10, disappeared 111 -

concepts f3J - 4:2, 28:6, 28:22, 29:3, 57:7 

Corcoran's f1J - 55: 17 43:14 

4:7, 32:22 corporate 121 - 13:3, 29:7, 29:9, 29:13, declaration 111- 55:17 

disclosed r21 - 27:20, 

concerned [1J - 4:4 16:10 29:17, 29:24, 30:8, declarations 111-

52:11 

concerning [1] - 3:22 corporation (3J - 30:22, 30:26, 31 :3, 44:25 

disclosure 121 - 4:11, 

concluded111-33:17 14:20, 17:10, 54:7 31:6, 31:10, 32:17, Defendant !41- 11 :2, 5:3 

MYRON CALDERON - OFFICIAL COURT REPORTER 
4 

discount f3l - 14:4, 30:14, 30:24, 31 :2, entertained 111 - 22:10 50:24, 53:18, 54:5, 32:26 

52:13, 52:21 31:5, 31:14, 33:6, entirely 111 - 29:2 54:24, 55:16, 56:3 figured 121 - 22:7, 

discounts111 - 18:3 33:13, 33:18, 49:21, entities !16] - 6:14, exhibits [3J - 5:26, 36:14 

discretion [6J - 7:9, 51:16, 51:19, 52:2, 7:17, 8:10, 8:13, 17:13, 17:16 file 131 - 7:4, 57:10, 

7:21, 41:21, 42:6, 57:21 10:12, 10:16, 12:2, Exhibits 121-17:12, 57:11 

42:22, 43:6 Dowd 1111- 3:5, 4:14, 24:21, 30:10, 41:14, 17:18 filed 111 - 25:3, 32:3, 

discuss 111- 30:6 4:20, 5:7, 6:7, 29:24, 41:15, 42:26, 43:9, exist[3J-13:11, 45:5, 47:12, 47:13, 

discusses {1) - 30:17 31:10, 32:17, 44:14, 45:13, 49:26, 50:2 13:23, 30:26 56:10, 57:17 

discussing [1J- 29:16 49:20, 55:24 entitled 111 - 46: 11 existing [1]-16:24 files 111- 6:26 

discussion 12J - 8: 15, down1s1-10:12, entity 1121- 10:26, expand {1J - 45:9 filing121-31:12, 

30:21 23:18, 35:26, 46:4 11:19, 13:15, 13:21, expecti11-17:23 42:24 

dismiss [7]- 3:17, drafted 111 - 48:14 14:24, 15:22, 29:20, expecting [1J - 57:23 fina]{s1- 7:7, 7:13, 

3:18, 3:19, 47:12, drivers 111 - 35:10 29:21, 41 :25, 43:3, expense 111- 37:22 7:18, 20:26, 55:6 

47:21, 57:16, 58:5 Dunnington 111- 3:5 54:14, 54:21 experience [3J - finances 111 - 44: 14 

dispense 111- 42:23 DUNNINGTON 111 - equal 111- 33:21 25:21, 36:16, 48:12 financial [3J - 32:22, 

dispensing r11- 7:9 1 :21 equivalent 111 - 31 :26 experienced 111 - 19:2 44:5, 44:8 

displacement111 - during {4J - 12:17, errata [2J - 57:10, experiencing [1] - Financial [SJ - 7: 16, 

45:15 39:16, 44:21, 56:10 57:12 22:5 7:25, 8:18, 42:9, 

dispute 121 - 34:17, ESQ {71- 1 :23, 1 :23, expert 111 - 19:23, 42:17 

48:2 E 1:24, 2:4, 2·.8, 2·.8, 20'.2, 22:7, 22:25, firm 111 - 3:5 

distraction fll - 45:14 e-file 111- 57:10 2:12 32:24, 56:24, 57:4 first 11s1- 3:24, 13: 10, 

divide 111- 33:22 easily 111- 34:24 essence {3] - 22:5, experts 141- 3:26, 13:12, 14:2, 16:21, 

Division 111 - 9: 10 easy 111- 47:9 53:14, 54:8 21 :3, 22:12, 57:4 22:17, 34:25, 35:9, 

DLA 121- 2:6, 3:11 effect 141- 18: 14, essentially [?J - 5:21, explain 1111- 4:2, 4:6, 50:25, 51:12, 51:20, 

docke!{11- 32:20 20:8, 28:23, 41 :3 17:9, 36:11, 38:17, 11:26, 18:12,20:7, 52:6, 52:15, 54:9, 

documentf5J-16:19, effort111-46:26 48:15, 56:19 22:25, 23:2, 25:8, 58:4 

17:3, 17:21, 18:2, either{41- 7:2, 9:17, 

estimate [1J - 18:4 28:4, 46:8, 51:18 five {31 - 31 :8, 34:19, 

55:2 23:4, 38:3 

estimated [3J - 25:17, explained 111- 32:23 40:22 

documentation [1J - elaborate 111 - 4:7 26:19, 27:4 explicitr11- 32:24 five-minute 111 - 31 :8 

8:3 Elser111-3:12 

estimates [1J - 27:7 expressly 121-24:17, fixed 121- 7:6, 33:16 

documents 1111- ELSER111-2:10 estimating 11J - 18:3 48:11 flip [2] - 35:2, 56:8 

12:24, 12:26, 13:2, emerge [1]-13:17 evade [1J - 32:2 extant111-44:22 focus[3J-19:13, 

14:18, 14:26, 15:25, employee 111 - 54:25 

evidence !9J - 6:6, extremely [1] - 20:25 34:7, 49:23 

15:26, 17:4, 20:4, 7:22, 8:5, 18:17, focusing111-15:19 

27:24 employees {6J - 12:8, 31:17, 41:3, 41:6, F folksy 121 - 51:18, 12:10, 35:6, 35:10, dollars 121- 41 :5, 41 :9 35:17, 39:13 42:5, 43:16 

face 121- 21 :9, 25:10 

53:26 

done 1s1- 6:8, 20:22, evident [1J - 9:24 follow111- 5:13 

20:25, 23:3, 46:18 employer [41 - 24:16, exact121-27:12, fac!{1s1- 19:6, 20:25, following {SJ - 5:15, 

Donnelly 111- 23:13 25:24, 36:21, 39:13 30:24 34:14, 34:18, 35:24, 10:17, 26:11, 26:18, 

DOWD 1781- 1 :23, 3:4, employers [3J - 24:13, exactly {61- 12:22, 41 :11, 41 :12, 42:26, 26:25 

4:21, 5:8, 5:11, 6:5, 37:13, 38:23 19:11, 22:25, 24:8, 43:4, 45:6, 45:9, forbidden{2J-24:17, 

6:10, 7:24, 8:7, 8:13, empty 111-10:11 36:5, 37:11 47:7, 49:12, 49:13, 24:19 

8:25, 9:2, 9:9, 10:23, 

enable 111 - 33:3 examined 12J - 44:11, 49:15 Fordham [1]-4:12 

10:25, 11:3, 11:7, 

end 161- 19:3, 28:12, 44:12 factors [2J - 20: 16, foregoing 111 - 31 :26 

11:15, 11:18, 11:21, 35:22, 37:7, 39:2, example{1]-52:12 20:21 FOREGOING 111-

56:17 facts 111- 30:21 

11 :24, 12:6, 15:3, ends 111 - 54:11 except111-2:11 factual 111- 30:16 

58:15 

15:7, 15:9, 15:11, enforce [1J - 48:23 excess !2J - 22:3, fair{21- 9: 15, 55:5 foreign [3] - 6:26, 

15:16, 16:5, 16:8, 54:20 48:11, 49:6 

16:10, 16:13, 17:6, enforcement [1J - excuse [4J - 7:22, fallacy 111- 9:24 foremost[1J-14:2 

17:12, 17:19, 17:21, 33:8 14:26, 18:16, 39·.16 falls 111- 48:25 form111-37:19 

18:11, 18:15, 18:19, engaged 111 - 10:7 executedt1J-15:25 false 111- 52:22 former [2J - 44:25, 

19:15, 19:22, 20:3, enjoin 131- 31 :12, executive t11- 21 :2 fashioned 111 - 47:23 55:16 

20:9, 22:22, 23:7, 46:20, 46:25 exhibit 131- 16:7, Federal [1J - 32:3 forming 111- 37:22 

23:15, 23:19, 23:21, Enron 121-22:17, 17:17, 20:26 fee111-36:19 forth121-31:18, 33:15 

24:11, 24:24, 25:2, 22:20 Exhibit{221 - 16:8, feelings [1J - 32:18 forums [2J - 4:15, 4:16 

25:10, 25:17, 26:7, enter 121- 24: 17, 16:19, 16:21, 17:7, fewer 111 - 14:6 frankly 1s1 - 35:8, 

26:14, 27:19, 28:3, 54:19 17:20, 18:2, 20:12, fights 111-19:6 36:15, 43:15, 43:16, 

28:5, 28:8, 28:24, entered 121 - 7:14, 26:8, 26:14, 27:17, figure 1•1- 14:14, 44:12, 45:26, 46:19, 

29:5, 29:8, 29: 10, 13:22 27:26, 34:23, 36:7, 20:24, 21 :4, 22:6, 46:26 

29:15, 29:22, 30:2, entering 111 - 13:26 36:23, 44:7, 50:8, 22:17, 27:9, 27:22, fraud 131 - 46:7, 46:8, 

MYRON CALDERON - OFFICIAL COURT REPORTER 
5 

52:12 34:12, 56:22, 58:7 39:25 37:3 iPad 111- 42:11 

fraudulent r1J - 43:15 heard 1s1- 4:20, illegal [14] - 15:21, instances 121 - 31 :17, irrelevant [1J - 55:26 

FRIEDMAN 111-1:18 39:16, 39:21, 49:23, 25:3, 25:24, 26:3, 32:10 irreparable 111 - 47:6 

front 131 - 42:10, 50:20, 52:2 27:15, 28:11, 28:18, instead {4J - 19:5, IS111-58:15 

47:15, 55:4 hearing (2J - 23:3, 29:2, 29:18, 30:8, 19: 10, 37:25, 50:26 Islands 131 - 13: 10, 

fully 121-19:18, 57:24 56:18 38:17, 38:21, 53:6, insurance [56J - 4:7, 16:24, 54:7 

fund111-8:19 hedge 111 - 36:10 53:24 6:18, 6:25, 9:4, 9:26, issue [14) - 3:22, 6:8, 

funds1s1-7:11, 7:12, held 111 - 25:2 illegality 111- 29:14 11:24, 11:25, 12:11, 6:12, 12:18, 15:15, 

7:26, 10:13, 14:22 helpful 111 - 46:3 Illinois r11 - 53:21 14:3, 21:21, 22:6, 16:16, 20:2, 30:23, 

future 121 - 27:2, 27:3 higher 131 - 25:23, immediately [1J-10:7 22:14, 23:17, 23:20, 31 :3, 36:3, 48:4, 

37:9, 38:5 imminent111- 33:14 23:25, 24:9, 24:14, 48:8, 49:17, 53:7 

G highly121-12:12, important 141 - 15:20, 28:2, 28:12, 29:23, issued f9J - 9:26, 

game 121 - 49:9, 55:14 

24:15 31 :23, 43:23, 49:22 29:25, 30:4, 31 :22, 15:11, 15:24, 23:23, 

himself111- 20:6 impose 111 - 6:13 32:7, 34:15, 36:19, 34:18, 48:6, 49:5, 

gee111-49:16 hired 111 - 4:11 imposition r11 - 9:11 36:26, 37:7, 37:9, 49:11, 53:5 

general111-15:26 hiring [1J - 22:7 impossible f2J - 37:12, 37:17, 37:18, issues [1J - 3:21 

GENERAL 111 - 1 :8 history 111 - 55:2 50:16, 53:13 38:11, 38:24, 40:11, issuing 121 - 34:26, 

giant 111- 43:14 holding 141 - 9: 18, improperr1J- 56:25 40:15, 42:15, 43:3, 53:10 

given[4J-8:21, 20:19, 10:20, 47:26, 48:3 lnc1201-3:14, 10:19, 43:18, 43:24, 45:6, itselfl41 - 9:25, 39:11, 

33:6, 42:5 home[1J-44:12 10:23, 11:4, 11:5, 45:12, 45:25, 48:2, 39:25, 41:26 

gold 111 - 22:11 honest [1J - 34:3 11 :8, 11 :22, 12:24, 48:4, 48:6, 48:8, 

grea![21-14:12, honestly [1J - 46:9 12:26, 14:15, 14:16, 49:25, 50:4, 50:5, J 

18:24 Honor 1s21- 4:21, 5:5, 14:21, 16:14, 16:23, 50:6, 50:14, 52:20, 

group111-50:15 5:8, 5:11, 6:5, 6:10, 41:23, 47:19, 48:4, 52:24, 54:6, 56:23 James [3J - 44:6, 

Group111-12:25 8:7, 8:25, 9:7, 11 :7, 48:10, 49:9, 50:9 INSURANCE 121 - 1 :8, 55:17, 56:17 

guaranteed [14J - 11:15, 11:18, 12:6, INC 171 - 1 :8, 1 :9, 1:10, 1 :11 Jason111-51:25 

24:13, 25:5, 25:20, 15:7, 16:5, 17:2, 1:10, 1:11, 1:13 Insurance (18] - 6:13, job 141 - 24:4, 35:6, 

26:2, 26:5, 27:6, 17:6, 17:12, 17:19, include [1J - 38:15 11:13, 15:5, 15:20, 35:8, 35:12 

27:10, 27: 11, 30:19, 18:11, 18:19, 19:15, including 121- 3:16, 23:8, 23:12, 29:5, join111-4:14 

34:21, 36:12, 36:13, '20:18, 22:22, 23:19, 45:21 31:15, 31:21, 32:11, Judge 111 - 22:17 

39:7, 52:25 24:11, 25:10, 26:7, increase (1J - 45:4 38:22, 41:17, 41:18, judgement{SJ - 7:7, 

guess [1J - 5:20 28:3, 28:24, 30:2, incurred [2J - 21 :23, 52:23, 53:3, 53:18, 7:13, 7:19, 48:21, 

gues![11- 4:15 30:14, 30:25, 31:5, 22:2 53:21, 53:22 48:23, 55:6 

gun 111- 32:6 31:14, 32:15, 33:6, Indemnity 1121 - 11 :16, insured (9J - 28:19, July 111 - 56:6 

33:13, 33:18, 33:26, 34:15, 34:17, 34:26, 28:20, 34:20, 36:10, juniori11- 4:11 

H 34:23, 36:13, 37:14, 40:18, 40:23, 41 :18, 39:8, 45:20, 48:21, jurisdiction 121-

half111-45:3 42:6, 42:20, 43:6, 43:26, 44:8, 45:8, 48:22, 49: 11 47:21, 47:25 

hand 121 - 5:14, 9:7 45:18, 46:9, 47:14, 53:20, 55:21 insurer 11e1 - 6:26, Justice 131 - 1 :18, 9:5, 

handle{1J-19:14 47:18, 47:20, 49:19, INDEMNITY 121 - 1 :9, 7:11, 8:19, 14:22, 9:10 

handy 111- 42:10 49:21, 50:7, 51:19, 1 :12 27:12, 28:12, 34:16, 

handy-dandy 111 - 52:2, 53:26, 55:8, INDEX111-1:15 42:3, 42:23, 48: 17, K 

42:10 56:8, 57:3, 57:18, indicated 111 - 36:14 48:18, 49:5, 49:13, keep 131 - 14:11, 25:8, 

Hankin f1J - 3: 12 57:22 indicating111-15:15 53:6, 54:14 47:17 

HANKIN 121-2:12, Honor's f3J - 8:16, individual (2) - 37:4, insurers [BJ - 7:25, keeping 111 - 45:24 

3:12 18:22, 32:8 37:5 30:6, 42:2, 42:4, kept[11 -12:15 

hard131-22:15, HONORABLE 111 - influences 111 - 35:24 43:2, 48:11, 49:7, kind 111 - 48:26 

1 :18 information 111- 53:10 kinds 111- 12:26 57:11, 57:13 insuring 121 - 43:2, 

harm 121 - 47:4, 47:6 hope 111 - 6:22 56:14 KNOERZER 191 - 2:4, 

HATHAWAY 111 - 1 :8 hour111 - 33:21 informed[1J-13:11 53:25 3:13, 4:25, 5:4, 

Hathaway {19J- 2:2, huge [1J - 51 :3 initial[4J - 13:2, 13:21, interpreting 111- 33:23, 33:26, 47:17, 29:26 

3:14, 3:20, 5:4, hum 111- 39:19 20:12, 57:17 56:22, 57:17 

12:24, 12:25, 46:7, hundred 111- 35:15 injunction {3] - 5:10, investment 121 - Knoerzer121- 3:13, 

47:13, 47:19, 47:26, hundreds 121 - 41 :5, 33:12, 57:8 36:25, 41:12 47:18 

48:4, 48:10, 49:9, 41:8 injunctive 111- 47:4 invite f1J - 34:19 knows 111- 55:13 

50:9, 50:11, 54:21, injured [6J - 21 :12, invited 111-4:14 KOSS 121 - 2:18, 58:21 

56:23, 57: 15, 58:6 I 21:14, 21:19, 21:22, involved [2]-49:14, Kotch 11s1- 3:8, 49:16 

hats111-12:23 IBM111-37:14 35:8, 39:15 12:20, 13:20, 13:22, lowa!3J-13:18, 

hearr111- 3:18, 3:24, idea111-22:10 injuries 121 - 21 :15, 13:23, 54:7 

13:25, 16: 19, 17:4, 

4:17, 5:9, 19:20, 24:15 17:22, 19:4, 20:6, identifies 121 - 34:25, IOWA121-1:12, 1:13 

25:9, 31 :12, 33: 19, instance12J-13:10, 20:24, 24:16, 25:11, 

MYRON CALDERON - OFFICIAL COURT REPORTER 
6 

50:26, 52:3 45:12, 48:8, 49:11, 53:13 14:25, 18:24, 19:3, MS 111- 3:12 

Kotch's 111- 49:26 49:14 Massachusetts [1J - 28:21, 29:20, 30:10, multiples [3J - 20:14, 

light [2) - 5: 13, 20:2 45:25 37:4, 38:4, 45:14, 20:15, 21:9 

L likely [31- 35:7, 54:22 massive [1J - 45:4 46:26, 50:2, 54:26, multiplication 111-

Jack 111 - 47:21 

Linenf1J-30:15 math 111- 20:25 55:14 35:21 

laid 111- 20:14 

list111- 53:8 matter [41 - 25:26, monies11J-18:26 multiplications [11 -

language [9) - 4:3, listing 111- 56:9 38:11, 52:8, 54: 10 month 111-46:19 20:22 

5:16, 6:24, 8:16, literary 111- 46:2 mean [BJ - 32:18, 40:9, Morgan 111 - 4:12 multiplied 111-35:17 

16:15, 22:19, 26:4, litigation 111- 24:23 41:4, 41:22, 45:10, morning [4] - 3:2, 3:4, multipliers [11 - 20:20 

54:12, 56:26 Litzenberg [1J - 51 :25 51:14, 55:13, 56:18 3:10, 25:9 must[3J -8:18, 9:19, 

language" 111- 3:26 Lloyds 111- 9:4 meaning !31 - 17:3, mortgage 111 - 32:20 31 :18 

last 141 - 22: 10, 32:21, LLP 131- 1 :21, 2:2, 2:6 30:26, 47:9 most 131 - 43: 10, mystifying 111- 21 :5 

located 111- 54:5 means [3J - 44:4, 44:15, 49:22 

44:18, 46:23 

look 1231 - 6:24, 9:24, 54:10, 54:21 mostly111-12:8 N Jaw 1201- 4:11, 8:26, 

9:16, 17:14, 17:26, 10:2, 10:16, 20:12, meat111-47:11 motion 1121 - 3: 16, name [7J - 3:4, 3:13, 

24:19, 27:16, 27:23, 26:8, 29:22, 31:15, mechanics 111-14:9 3:17, 3:18, 3:19, 10:25, 16:9, 16:10, 

28:11, 29:7, 29:25, 31:20, 31:21, 35:2, meet 111 - 44:5 31:12, 47:12, 47:20, 51 :20, 51 :25 

29:26, 30:6, 30:20, 36:7, 36:23, 44:5, member111-50:9 57:8, 57:15, 58:5, named121-11:2, 11:5 

44:13, 50:24, 51:19, Members [11- 9:4 58:7 

30:22, 31 :4, 33:10, names 141- 12:23, 

48:7, 56:25 53:9, 53:16, 55:16, Menzies f4J - 53:19, motions [3J - 3:16, 12:26, 13:3, 51:22 

LaW[13J-4:12, 6:13, 56:4, 56:16 53:20, 53:22, 53:23 57:12, 58:6 

NEBRASKAi3J-1:9, 

15:20, 23:8, 23:12, looking 171- 5:24, messenger111-12:7 Movant111- 57:9 1:10, 1:11 

29:5, 31:15, 31:21, 26:13, 26:14, 30:11, methodology [1J - moving {1] - 9:20 Nebraska[2J-16:11, 

32:11, 38:22, 42:13, 32:9, 36:22, 51: 17 40:12 MR [1121 - 3:4, 3: 10, 28:17 

52:23, 53:3 looksi<J-17:12, MICHAEL 111- 2:4 3:13, 4:21, 4:24, 

necessary (1J - 56:21 

Jaws 121 - 16:24, 38:23 20:18, 25:10, 30:14 Michael 121- 3:13, 4:25, 5:4, 5:5, 5:8, need 171- 4:5, 9:23, 

lawyer's 121 - 24:4, loss [14]-18:3, 20:14, 47:18 5:11, 5:20, 6:5, 6:10, 21: 14, 33:3, 33:23, 

33:25. 20:15, 20:20, 21 :9, might[3J-10:18, 7:24, 8:7, 8:13, 8:25, 45:11,46:10 

lawyering [11 - 33:3 25:21, 26:19, 26:21, 46:25, 55:7 9:2, 9:9, 10:23, net111-10:9 

LDF 111- 20:21 26:23, 27:2, 54:20 Milleri11- 3:5 10:25, 11:3, 11:7, never [SJ - 10:3, 28:8, 

Jeads111-10:17 losses 1101- 14:6, MILLER 111- 1 :21 11:15, 11:18, 11:21, 28:10, 50:21, 54:11 

14:12, 19:2, 22:5, million (7] - 9:22, 11:24, 12:6, 15:3, 

Jeast111-45:19 neW[3J-13:18, 46:19, 25:17, 25:22, 25:23, 19:19, 21:15, 44:8, 15:7, 15:9, 15:11, 

left 121 - 44: 17, 54: 17 37:6, 37:8, 51 :3 15:16, 16:5, 16:8, 55:9 

Jegaf[7J-12:14, 44:9, 54:20, 55:21 

IOW[2]-14:12, 19:2 minimus 111 - 54:18 16:10, 16:13, 17:6, NEW1<1-1:2, 1:2, 

19:13, 19:20, 28:22, lower [6J - 25:22, 37:6, minute111-31:8 17:12, 17:19, 17:21, 1:10 

29:3, 34:11, 51:18 NeW[821-1:16, 1:22, 37:7, 38:4, 39:10, minutes [SJ - 33:23, 18:11, 18:15, 18:19, 

legality 111- 24:26 52:5 33:25, 34:3, 49: 19 19:15, 19:22, 20:3, 2:3, 2:7, 2:12, 6:13, 

legislature [1J - 48:20 

misconduct [1J - 20:9, 22:22, 23:7, 6:18,6:24, 11:14, 

less 1s1 - 14:6, 20:2, 23:15, 23:19, 23:21, 11:17, 11:20, 11:21, M 32:12 25:22, 28:5, 35:7 24:11, 24:24, 25:2, 11:22, 11:23, 12:8, 

letterhead 111 - 15:14 mail [1J - 35:9 misleading f6J - 27:7, 25:10, 25:17, 26:7, 12:13, 12:20, 14:15, 

letterheads 111- 12:23 maintains [3J- 7:11, 27:22, 27:23, 52:22, 26:14, 27:19, 28:3, 14: 16, 14:22, 15:20, 

level 111- 37:17 7:26, 8:19 52:23, 55:4 

28:5, 28:8, 28:24, 15:22, 17:14, 19:23, 

Levin [1J - 29:11 manage 121- 14:5, missing [2J - 13:24, 29:5, 29:8, 29:10, 21:14, 23:8, 23:12, 

17:17 Lexington 111- 2:3 52:13 29:15, 29:22, 30:2, 24:12, 24:19, 25:20, 

liabilities 111-10:8 managed [2J - 19:2, misspeak 111- 17:8 30:14, 30:24, 31:2, 25:24, 27:15, 27:23, 

liability 111- 54:3 52:4 misspoke [2J - 11 :8, 31:5, 31:14, 33:6, 28:11, 28:19, 29:5, 

license [3] - 9:17, manages 111- 52:8 17:7 33:13, 33:18, 33:23, 29:23, 30:17, 30:20, 

12:16, 30:5 managing 111- 52:21 miX[1J-56:19 33:26, 34:2, 34: 13, 30:22, 31:3, 31:4, 

licensed [32J - 6:20, mandatory121-12:12, modification (1J - 25:7 38:8, 38:18, 38:21, 31:22, 32:11, 34:16, 

8:10, 8:14, 9:14, 31 :16 modifications (1J - 38:26, 39:4, 39:6, 35:11, 35:20, 41:11, 

9:26, 11:14, 11:17, MANGAN 111- 1 :24 25:6 39:19, 39:21, 40:9, 41:16, 41:19, 41:23, 

11:20, 11:23, 11:24, Mangan 111- 3:6 modified 111 - 26:5 40:17, 41:4, 41:24, 42:3, 42:13, 42:14, 

11 :25, 14:22, 28: 14, Manley 111- 4:12 modify 131 - 25:5, 42:16, 42:20, 43:10, 43:2, 43:26, 44: 11, 

28:15, 28:16, 28:20, manner[2J - 31 :26, 26:2, 30:18 46:16, 46:24, 47:17, 45:12, 45:20, 45:23, 

28:21, 31:18, 34:15, 43:12 moment121-11:11, 49:21, 51:16, 51:19, 49:5, 49: 11, 49: 14, 

41:11, 41:14, 41:15, MARCY111-1:18 40:3 52:2, 55:12, 55:20, 49:15, 49:16, 49:25, 

41:16, 41:25, 42:3, marked 111- 57:12 money1201-10:16, 56:22, 57:17, 57:21, 50:4, 50:5, 50:6, 

43:4, 43:26, 44:11, Martin [2J - 50:7, 10:17, 10:18, 12:15, 57:25, 58:2 50:13, 50:14, 52:20, 

14:7, 14:13, 14:20, 52:22, 53:3, 56:25 

MYRON CALDERON - OFFICIAL COURT REPORTER 
7 

next131-1:25, 35:14, 40:20, 40:26, 41 :14, pageri11- 9:6 49:12, 49:24, 51 :13, 48:4, 48:8, 49:17, 

51:22 42:26, 43:5, 44:22, paid11s1-14:10, 52:7 50:5 

NINA 121- 2:18, 58:21 44:23, 45:14, 45:19, 23:14, 28:10, 29:19, peri31 - 26:22, 35: 15, policy 1so1- 15:4, 

N0111-1:15 45:20, 45:22, 46:11, 29:20, 39:17, 39:20, 35:16 15:10, 15:13, 15:15, 

non 1s1- 9:14, 21 :24, 50:17, 51:24, 52:17, 39:22, 40:6, 40:8, percent 111 - 54:3 16:16, 17:11, 17:13, 

31:18, 49:15, 49:16 53:18, 54:26, 55:12, 40:9, 40:14, 40:15, perhaps1s1-10:19, 17:15, 17:16, 21:17, 

none 131- 8:21, 28: 16, 56:12, 56:13 40:19, 40:22, 40:24, 37:18, 38:5, 39:9, 23:23, 25:5, 25:11, 

51:23 opaque 131- 22:26, 41:2, 48:25 44:15 26:2, 26:5, 27:7, 

normally 111 - 48:24 47:11, 50:15 paintt1J-12:3 period 1a1 - 21 :18, 27:10, 27: 11, 28:2, 

NORTH 111- 1 :11 open 111- 56:16 paperi11- 57:5 34:16, 34:19, 36:9, 28:12, 34:26, 36:12, 

note111-19:7 opened 111- 56:11 papers 1a1- 3:25, 4:5, 41 :8, 44:21, 44:26, 36:13, 36:16, 36:17, 

NOTES 111- 58:17 operate 121 - 12:8, 9:5, 13:21, 23:3, 56:10 36:26, 39:7, 39:11, 

notespJ-48:13 25:15 33:5, 33:15, 47:14 permit 121 - 42:23, 39:12, 43:4, 43:24, 

nothing141-15:12, operation 12J - 44:2, paragraph 131- 16:21, 55:11 43:25, 44:18, 44:20, 

37:10, 39:10, 54:23 55:23 32:10, 36:23 permitted 111 - 24:16 44:21, 45:12, 48:6, 

notion [1J - 41 :20 operations 111- 45:19 parcel Ill - 35:9 personal 111 - 47:21 48:16, 48:24, 48:26, 

November {3J - 1 :16, opined 111- 20:3 Park 111- 1 :22 persuade f1J - 6:22 49:5, 49:10, 52:3, 

57:21, 57:25 opinion 121- 42:8, parse [1J - 18:21 pertinent 111 - 43:17 52:24, 53:4, 53:5, 

number[6J-4:15, 42:16 PART111- 1 :2 pertinently 111- 44:15 53:7, 54:2 

13:25, 19:23, 23:7, opportunity 121 - 33:6, part1s1-5:2, 6:9, ph)111-51:25 Ponzi {1J - 45:24 

35:11, 35:18 37:24 9:20, 27:21, 58:6 pick 141- 26:19, 26:21, pooling 1a1- 10:6, 

numbers {3J - 27:4, opposed 111- 47:11 Part 121- 57:11, 57:26 26:23, 27:2 10:10, 43:20, 53:11, 

27:25, 28:2 opposition [3J - 6:16, participant 121 - 36:24, picture !11 - 12:3 53:12, 53:16, 53:17, 

57:18, 57:19 38:2 piecer11-46:12 54:12 

0 order [1J - 7:9 participating 111 - PIPER 111- 2:6 pored111-22:12 

ordinarily [21- 5:25, 36:25 Piperi11 - 3: 11 position (5J - 8:22, 

objection 121 - 5: 19, 49:2 Participation 1121- place 111- 39:8 18:7, 34:10, 34:12, 

5:20 organization 121 - 4:8, 13:6, 13:7, 43:8 

objections r11 - 6:3 places [2J - 31 :16, 

44:10, 44:19 16:20, 18:8, 18:13, 37:15 possibly 121- 3:22, 

obligations f1l - 44:5 organizations [1) - 18:25, 20:5, 21 :26, plain 1a1- 4:3, 9:2, 47:3 

observation (2) - 5:21, 42:4 36:4, 36:8, 53:9 54:11 postl31- 9:19, 9:23, 

46:2 organized [1J - 16:23 particular11J-36:9 31 :19 

obtain [1J - 57:9 

Plains 111-2:12 

ORIGINAL 111- 58:17 particularly 111- 5:14 PLAINTIFF 111- 1 :5 posted 111-42:19 

obtained [3J - 8:3, originally 111-48:14 partneri11- 3:11 Plaintiff 171- 1 :21, 3:7, posting 111-42:13 

9:17, 18:9 otherwise {1J - 7: 12 party 161- 23:9, 27:14, 3:9, 4:9, 15:5, 40:5, pot111-22:11 

occurrence 111 - 44:20 ought 111- 55:5 27:15, 28:13, 28:16, 43:11 practical [1J- 54:10 

October 111- 50:8 out-of~state [3) - 41 :13 Plaintiff's f3J - 38:16, practice 111- 6:2 

OF1s1-1:2, 1:2, 1:10, 48:17, 48:22, 53:6 pass 121- 28:17, 54:14 39:17, 56:25 precisely {1) - 5:26 

58:16 outset111-24:18 passed 111- 50:2 plan 1161-14:2, 17:22, preliminary [1J - 47:3 

offer111-28:19 outstanding 121- patent111- 32:4 17:24, 18:23, 20:19, premise111- 52:4 

offered 111- 6:6 40:20, 40:26 Patrick 111- 54:25 25:19, 27:2, 27:4, premium 11s1- 10:3, 

offering {11 -13:2 overall 111 - 37:9 pause 121 - 11 :12, 40:4 27:19, 37:10, 50:26, 28:20, 35:14, 35:22, 

offers f2J - 37:24, own 161 - 21 :13, 37:5, pay 11a1- 14:23, 19:8, 51:2, 56:5, 56:6, 35:24, 35:25, 35:26, 

43:24 37:15, 37:22, 37:25, 22:3, 24:14, 25:11, 56:7 39:22, 39:23, 40:2, 

OFFICIAL121- 2:18, 38:3 25:22, 25:23, 28:12, Plan 1a1- 26:9, 26:11, 43:13, 43:19, 49:24, 

58:22 owned 111- 37:4 28:20, 30:9, 39:14, 26:17 50:3, 50:18, 50:19, 

offloads 111- 54:16 owneri21- 38:14 39:23, 39:26, 40:11, pleading 111- 6:26 52:19, 54:11 

offshore [1J - 37:15 45:8, 54:13, 55:23 plus 111- 55:22 premium" 111- 49:24 

often 111 - 45:26 p paying 171 - 27: 14, pockets 111 - 54:16 premiums r1s1- 10:8, 

old 111- 47:23 27:15, 28:7, 36:12, point1s1-13:16, 23:9, 23:14, 28:7, 

once 11J - 48:21 package 111- 35:10 40:25, 55:22 24:20, 26:4, 30:16, 29:19, 29:20, 30:9, 

one 1491 - 6: 17, 8:14, page 1271- 1 :25, payment111- 7:6 31:23, 33:8, 38:16, 36:11, 36:12, 36:13, 

9:6, 11:19, 13:16, 16:18, 26:10, 26:11, payroll 1s1- 26:23, 49:22, 50:7 39:17, 40:6, 40:10, 

13:26, 14:24, 17:7, 26:15, 26:18, 26:25, 35:16, 35:24, 35:25, pointed 111- 32:6 40:12, 40:14 

17:13, 17:14, 17:15, 34:25, 35:2, 35:3, 35:26 pointing 111-18:16 prepared 111- 5:13 

17:16, 21:3, 21:18, 42:8, 51 :4, 51 :13, pays 111- 27:12 policies [17)-10:2, presented 121- 19:4, 

23:8, 29:16, 30:3, 51 :19, 51 :20, 51 :22, pending [1J - 7:3 12:18, 15:11, 18:4, 36:6 

31:18, 32:13, 33:21, 51:23, 51:24, 52:16, Pennsylvania 111- 21:14, 30:19, 34:6, President [6J - 3:9, 

34:23, 35:5, 35:12, 53:17, 53:18, 56:5, 53:22 34:10, 34:18, 34:21, 4:12, 53:19, 53:20, 

40:3, 40:11, 40:19, 56:8, 56:13 people 1s1- 27:22, 34:22, 34:24, 35:18, 53:21, 53:22 

MYRON CALDERON - OFFICIAL COURT REPORTER 
8 

press 121- 46:5, 46:6 provided 121 - 5: 17, reasons (21 - 33:15, 5:23 role 141- 12:4, 13:20, 

pretty 111- 32:13 17:21 37:16 representatives 111- 43:8, 43:11 

previously 121-49:23, province [2J - 57:3, recap f1J - 53:4 12:21 route[1J-28:13 

52:11 57:4 receive [1J - 57:13 represented 111- 14:5 RPAIHl-15:17, 

price [11 - 37:9 provision 111- 31:24 recess 111- 31 :8 representing [1J - 23:25, 24:18, 24:22, 

print111-51:5 provisions 121- 32:2, Recess 111- 31 :9 40:13 24:26, 25: 12, 25:25, 

printout[1J-51:3 32:12 record [SJ - 7:23, 8:21, request1a1-4:18, 5:2, 27:18, 27:20, 27:21, 

private (3] - 3:26, public 121- 38:9, 9:13, 18:17, 19:12, 13:4, 15:16, 16:5, 36:4, 36:22, 36:23, 

52:25, 53:2 38:10 41 :3, 55:15, 58:9 33:15, 46:22, 55:10 41:12, 45:21, 53:11 

privity [SJ - 10:4, publicity 111- 46:4 records f1J - 13:23 requested 111 - 57:9 ruling 111 - 6:7 

12:17, 12:19, 13:8, purchased [1] - 4:9 refer[31-13:8, 15:17, requesting [1J- 33:16 run 121- 14:23, 39:2 

13:13, 15:12, 15:18, purports 111- 18:2 20:10 require [3] - 38:23, running 111 - 37:23 

15:19 purpose 121- 32:4, reference (1) - 53:1 O 42:7, 43:7 runoffs 111 - 20:21 

problem 121 - 28:9, 45:10 references f1J - 53:11 required (3J - 12:10, 

33:4 purposes [1J - 36:25 referred 121- 27:19, 41:13, 48:22 s 

proceed {1J - 6:3 pursuant111 -10:14 29:14 requirement[4) - sale 111 - 52:24 

proceeding [4J - 7:2, put1101-6:19, 6:21, referring !2J - 15:26, 6:14, 30:5, 34:8, Samuel 111 - 3:6 

7:3, 7:7, 7:14 13:7, 20:6, 20:16, 32:18 39:3 SAMUEL111-1:23 

proceedings 111 - 31 :18, 37:4, 50:22, regardless 111- 55:24 requirements 111 - satisfy 121- 7:13, 7:18 

58:10 51 :9, 56:3 registered 111 - 41 :24 10:14 save [1J - 18:24 

proceedings) 121 - regulated 131- 12:12, requires (6J - 6:13, 

11:12, 40:4 Q 24:15, 44:11 6:25, 24:13, 25:20, saw 111- 32:7 

scandal [2]-22:18, 

process r21 - 3:20, questions {4) - 4:3, regulation 111- 32:5 27:13, 32:24 

22:21 

54:8 18:20, 18:22, 32·.8 regulators [3J - 17:26, reserve [4J - 21 :26, schedule 111- 58:3 

procure 111 - 38:24 quite 111- 6:8 25:6, 48:19 22:4, 44:17, 57:7 

scheme [7J - 9:25, 

produce 111- 8:23 quota 111- 54:4 regulatory [1] - 33:9 reserved 121- 40:21, 22:18, 24:9, 29:14, 

profit121- 13:26, 55:3 Reinsurance 1121- 56:17 

profit-sharing 11J - 4:8, 13:5, 13:7, reserves [1J- 21:15 32:4, 45:24, 54:26 

13:26 R 16:20, 18:8, 18:13, residential [1J - 32:20 Schwartzman 1111-

profits121-14:11, raise[1J-44:15 18:25, 20:5, 21 :25, resides 111-6:17 19:22, 20:3, 21 :8, 

21:12, 24:19, 28:25, 

23:10 rarely 111-19:26 36:4, 36:8, 53:9 resources 111- 50:10 30:17, 50:8, 53:13, 

program 121 - 26:26, rate 141 - 35:6, 35:15, reinsurance [7J - respond [1J - 45:6 53:15, 56:3 

45:21 35:20, 35:21 15:21, 24:17, 28:19, response {3J - 32:8, Schwartzman's f4J -

prohibitive 11J - 37:23 rated 121- 9:21, 43:26 37:2, 37:5, 37:12, 38:20, 55: 11 19:25, 20:10, 32:9, 

projectpJ - 26:23 rates [61 - 18:2, 21 :4, 55:25 result [1J - 10:9 50:25 

Projected (1) - 26:11 26:3, 26:22, 36: 19, reinsure [1] - 37:17 results [1J - 6:3 screen (2J - 4: 19, 4:22 

projected [3] - 26:26, 52:5 reinsures 111- 43:19 retain [3J - 43:13, second [BJ - 9:20, 

27:2, 27:3 rather[3J -25:19, relates [1J- 8:16 49:23, 49:24 16:18, 17:24, 26:14, 

projections [1] - 27:5 34:7, 37:20 relationship 121 - retained 111 - 50:3 30:4, 35:2, 42:6, 

promise [1J - 47:17 rating [6J- 25:19, 13:13, 13:17 retaining [1J- 52:19 56:3 

promised [1J-13:25 43:25, 44:7, 55:18, relevant111- 30:3 retrospective 111- Section (3J- 48:9, 

promissory 111 - 19:7 55:20, 55:22 relief121-5:2, 47:4 25:19 48:23, 53:3 

proposing 111 - 31 :25 ratio [11- 27:3 relies[1J-10:11 return r11 - 57:25 secure [1] - 7:6 

proposition [SJ - 8:6, RAYMONO 111- 1 :23 relying 131- 8:6, 29:3, returnedr11-22:12 securities !71 - 7:4, 

25:26, 29:18, 30:12, Raymond 111- 3:4 29:9 revealed 111 - 52:15 7:12, 7:18, 7:26, 

30:25 read 111- 8:9, 8:17, renderr11- 55:7 reveals 111- 52:6 8:20, 10:13, 32:20 

propositions 111 - 10:6, 20:4, 48:12, rendered 121 - 7:7, reverse 111 - 45:24 security [1J-45:17 

32:14 48:13, 53:14 22:18 review111- 8:2 see 1251- 5:17, 16:22, 

protect{4J-23:17, reading 141 - 9:2, 9:16, repeatedly 111- 6:9 rhetorical [1] - 31 :7 20:13, 26:8, 26:18, 

39:12, 39:13, 45:11 10:10, 42:14 reply 141- 49:20, 50:7, RISK 131-1:9, 1:10, 26:25, 28:8, 34:24, 

protected 1101- 14:10, real 131- 16:10, 23:25, 53:12, 55:10 1 :12 35:9, 35:14, 44:6, 

18:26, 22:11, 23:11, 47:11 reported (3J - 21 :24, risk 131- 20:6, 33:14, 44:7, 46:9, 47:14, 

50:20, 50:21, 50:22, realize 111 - 22:8 22:2, 22:3 38:13 49:2, 50:17, 51:7, 

51 :8, 54:17, 54:22 really 161- 4:4, 14: 12, REPORTER 121- 2:18, Risk1101-11:21, 13:9, 51 :13, 51 :22, 51 :24, 

protection f3J - 45:11, 19:13, 31:16, 32:17, 58:22 13:19, 14:16, 16:23, 51:26, 53:10, 53:18, 

45:12, 48:15 47:9 reports [3] - 21 :23, 16:26, 41 :19, 41 :22, 56:9 

prove [SJ - 42:5, reason {4] - 5:26, 56:24, 57:4 54:6 seem 111- 12:22 

42:25, 43:5, 43:6, 21:24, 45:3, 45:7 represent[3J- 3:14, risks [2]-22:8, 37:19 se/1111-15:21 

47:3 reasonably [21- 47:18, 49:9 road [2J-10:12, 23:18 send 111 - 23:24 

provide 111 - 25:18 44:26, 47:9 representation 111- Robertr11- 3:8 

MYRON CALDERON - OFFICIAL COURT REPORTER 
9 

sending [1] - 21 :24 32:14, 35:18, 36:2, statements 111 - 52:23 17:2 18:16, 19:9, 19:19, 

sense 111- 45:25 36:17, 38:5 statistical 121- 36:15, Summary 111- 26:9 19:25, 20:7, 22:20, 

sent121-40:10, 52:9 simply [SJ- 6:17, 36:21 summary 111- 26:16 22:24, 23:14, 23:16, 

September 121 - 10:15, 24:20, 29:2, statute f20J - 8:7, 8:9, sums 121 - 29:20, 23:20, 24:3, 24:22, 

50:26, 51:12 36:13, 54:14 9:3, 12:11, 12:12, 30:10 24:25, 25:7, 25:14, 

series 111- 58:6 single [2]-40:19, 24:18, 27:13, 41:26, Superintendants Pl - 26:4, 26:13, 27:17, 

Services 1101- 7:16, 47:18 42:22, 48:9, 48:10, 44·.25 27:25, 28:4, 28:6, 

7:25, 8:18, 11 :22, sisterr11-43:21 48:13, 48:14, 48:15, Superintendent [SJ - 28:22, 29:3, 29:7, 

14:16, 41 :19, 41 :22, sit111- 24:5 48:18, 49:6, 52:25, 7:10, 7:15, 8:17, 29:9, 29:13, 29:17, 

42:9, 42:17 situation 111- 9:10 53:8, 57:3 42:17, 55:17 29:24, 30:8, 30:22, 

SERVICES 121- 1 :9, size 121- 44:8, 55:21 statutes 121 - 30:3, Superintendents {11 - 30:26, 31 :3, 31 :6, 

1:10 skin 111 - 49:8 33:8 44:24 31:10, 32:17, 33:11, 

services11J-15:17 smaller111- 37:21 stayed 111- 3:23 Superioq11- 44:3 33:17, 33:19, 33:24, 

set 1s1- 18:2, 18:26, smoking [11 - 32:6 STENOGRAPHIC [11- superior {2J - 44:4, 34:9, 38:6, 38:16, 

33:15, 37:26, 38:17 so-called 111- 3:17 58:17 55:22 38:20, 38:22, 39:2, 

several 121 - 3:16, Society 111-4:13 Stephens 131- 3:10, supplemental 121 - 39:5, 39: 16, 39:20, 

13:12 sold 111- 52:3 4:23, 50:3 4:5, 56:4 40:3, 40:5, 40:13, 

Shainswit 111 - 9:5 solely 111- 6:5 STEPHENS [281- 2:8, supplied 111 - 17: 17 41:2, 41:22, 42:14, 

Shainswit's 111- 9:11 solicit111- 50:5 3:10, 4:24, 5:5, 5:20, support121-31:11, 42:19, 43:8, 46:14, 

shall 111- 7:2 soliciting 111- 50:14 34:2, 34:13, 38:8, 43:12 46:23, 49:20, 51:14, 

sham 111- 23:25 solid 111- 22:23 38:18, 38:21, 38:26, supported 111- 55:14 51:17, 51:26, 55:9, 

Shand 111- 3:10 someone (3] - 20:7, 39:4, 39:6, 39:19, supports [3J - 7:23, 55:19, 57:7, 57:19, 

SHAND [1J - 2:8 24:3, 48:16 39:21, 40:9, 40:17, 8:26, 18:17 57:23, 57:26, 58:3, 

share 111- 54:4 sometimes [1J - 32:24 41:4, 41:24, 42:16, supposed 121: 54:13, 58:15, 58:17 

sharing [2J - 13:26, sophisticated 111- 42:20, 43:10, 46:16, 54:22 themselves 121 -

55:3 22:25 46:24, 55:12, 55:20, sureties r11 - 7:5 34:21, 37: 17 

Shasta 121-30:15, sorry [91- 10:21, 11 :3, 57:25, 58:2 suspicion (11 - 44:14 theories 111 - 23:8 

30:20 11:7, 17:7, 17:19, Steve [3J - 53:20, switch [3J - 12:23 theory [3J-18:13, 

sheet 121- 57: 11, 20:19, 40:14, 51:14, 53:21, 53:23 system 121- 24:12, 18:21, 28:18 

57:12 53:26 Steven111-53:19 25:4 therefore [6] - 6:19, 

shell[2J-10:11, 55:14 SOrt[4J -14:4, 17:22, still m - 14:13, 21 :20, SYSTEMS 111- 1 :4 7:20, 9:22, 48:9, 

shifted 111- 22:9 45:26, 55:14 22:10, 40:20, 40:25, 55:3, 55:5 

shortpJ -44:26 sorts 111 - 49:2 45:21 T thinks 111- 55:24 

show 1s1- 12:24, sounded111-14:12 story [3J - 19:10, 24:6, third 141- 27:14, 

13:21, 20:9, 26:6, sounds 111-19:20 28:12 tale111-21:10 27:15, 28:13, 28:16 

30:16 special 111- 47:23 straightforward 111- talks 111- 31 :21 third-party 141 - 27:14, 

showing111-25:6 specific [4]-19:9, 30:13 tax(1J-37:16 27:15, 28:13, 28:16 

shown[JJ-31:17, 25:16, 26:4, 52:12 Street111-1:15 ten111-21:19 thousands [2J - 41 :5, 

32:3, 47:7 specifically [SJ - strike 111- 3:17 TERM 111- 1 :2 41:8 

shows {4) - 10:2, 36:24, 42:24, 53:7, stuck121-51:12, 52:6 term 131- 18:26, threatened [1J - 47:5 

52:14, 56:14, 56:15 53:8, 53:26 stuff 121- 17:25, 24:2 47:23, 56:6 three [13] - 26:26, 

shred 111- 42:5 Spencer111 - 56:17 stunt[1J- 46:4 terms 191- 13:13, 32:21, 33:23, 33:24, 

side 111- 56:25 split 111- 33:20 subject 141- 21 :20, 16:2, 17:23, 25: 13, 33:25, 41:15, 44:19, 

sign [3J - 16:18, 17:5, sponsor[11- 37:26 24:22, 41:21, 47:25 25:14, 25:25, 27:10, 44:22, 49:19, 53:6, 

19:7 stand 111-10:24 submit [1J - 7:20 29:10, 55:3 56:7, 56:10 

signature 121 - 53:17, standards 111- 47:3 submitted J5J - 40: 17, testimony [4] - 21 :3, three-year[JJ -26:26, 

53:18 start 121- 15:23, 56:5 40:18, 40:24, 57:13, 22:25, 32:24, 54:25 56:7, 56:10 

signed (14] - 13:4, started111-19:5 57:24 THE [1121- 1:2, 3:2, threshold 111- 3:21 

13:5, 13:14, 15:2, starting {2] - 49:22, substance 111 - 31 :25 3:15, 4:23, 4:26, 5:7, throughout 111 - 37:13 

15".4, 15:10, 15:12, 51:3 sue [3J - 48:17, 48:18, 5:9, 5:17, 5:25, 6:7, tirederr11-46:16 

16:5, 16:20, 17:7, STATE111-1:2 49:12 7:22, 8:2, 8:9, 8:22, TOpJ-58:15 

53:19, 53:20, 53:21, state113J-7:11, 7:12, sued 121- 46:7, 49:15 8:26, 9:8, 10:21, today 101- 3:6, 3:8, 

53:22 7:18, 7:26, 8:19, sufficient [4] - 7:5, 10:24, 11:2, 11:5, 3:18, 5:24, 6:12, 

significance [1J - 52:2 9:19, 10:14, 32:5, 7:6, 7:12, 7:18 11:10, 11:13, 11:16, 47:22 

signing 121- 20:4, 44:12, 48:17, 48:19, suggest111-36:21 11:19, 11:23, 11:26, today's 121- 57:10, 

53:16 48:22, 53:6 suggested 111- 33:2 14:26, 15:4, 15:8, 58:9 

signs 111 - 13:4 StatepoJ-12:13, suggesting [1J - 41 :1 O 15:10, 15:13, 15:23, took 121- 20:13, 49:26 

similari11- 9:11 19:23, 32:11, 35:11, suing 11J - 11 :26 16:7, 16:9, 16:12, top [41- 35:3, 51 :4, 

simple [91- 24:12, 35:19, 35:20, 42:14, sum [11 - 54:24 17:4, 17:11, 17:18, 54:19, 56:5 

25:26, 28:9, 28:18, 43:2, 49:5, 52:22 summarize 121 - 6:16, 

17:20, 18:6, 18:12, total 111- 26:26 

MYRON CALDERON - OFFICIAL COURT REPORTER 
10 

totally 121- 25:12, 11 :4, 11 :5, 11 :8, 23:20 44:19, 44:22, 45:3, 

28:11 12:25, 13:9, 13:19, wherewithal [1J 

- 50:22, 53:6 

trademark f1J - 50: 11 14:21, 16:9, 16:14, 39:14 YORK 141 - 1 :2, 1'.2, 

trail111-10:17 16:22, 16:26, 39:26, White 111- 2: 12 1:10 

transaction [31- 5:24, 50:10, 54:6, 55:2 whole 1101- 22:14, Yorkl821-1:16, 1:22, 

43:9, 45:16 UNDERWRITERS 121- 45:10, 45:13, 45:23, 2:3, 2:7, 2:12, 6:13, 

transcriptr11- 57:10 1:9, 1:12 46:4, 51:5, 51:13, 6:18, 6:24, 11:14, 

TRANSCRIPTION 111- underwrites 111 

- 52:7, 55:2, 56:6 11:17, 11:20, 11:21, 

58:16 43:25 willing 111 

- 46:3 11:22, 11:23, 12:9, 

Travelers' r21- 9:3, Underwriting (1J 

- 9:4 WILSON [11- 2:10 12:13, 12:21, 14:15, 

29:11 undisputed 121- 8:12, Wilson111-3:12 14:17, 14:22, 15:20, 

treble 111- 23:11 34:14 wisely[1J-19:3 15:22, 17:14, 19:23, 

TRIAL 111 - 1 :2 undoubtedly 111 

- 41 :5 wish [11- 33:22 21:14, 23:8, 23:12, 

trucking 121 - 35:9, untiled 111- 30:18 withdrawn !11 

- 18:6 24:12, 24:19, 25:20, 

35:16 United111-37:14 word121-15:19, 38:2 25:24, 27:16, 27:23, 

true 121- 27:8, 39:22 unlicensed [3J 

- 6:14, words (6J 

- 20:5, 28: 11, 28: 19, 29:5, 

TRUE111-58:16 10:20, 30:6 20:20, 21:10, 28:14, 29:23, 30:17, 30:20, 

trust13J- 7:12, 7:26, unpack 121 

- 24:4, 38:9, 49:23 30:22, 31:4, 31:22, 

8:20 33:4 Worker111-16:15 32:11, 34:16, 35:11, 

try 171-4:2, 4:6, unproven 111- 43·.15 worker !31 

- 21 :19, 35:20, 41:11, 41:16, 

18:21, 36:10, 47:17, untrue111-52:14 21 :22, 26:22 41:19, 41:23, 42:4, 

51 :18, 56:26 up 1211- 5: 14, 6:19, Workers ra1- 9:26, 42:13, 42:14, 43:2, 

trying 111 - 8:8, 14:14, 6:21, 9:7, 16:18, 12:11, 12:18, 14:3, 43:26, 44:11, 44:12, 

42:2, 44:15, 46:24, 17:24, 21:4, 21:10, 17:14, 17:26, 18:9, 45:12, 45:20, 45:23, 

55:26, 56: 19 26:24, 27:3, 33:20, 21 :2 49:5, 49:11, 49:14, 

turn 1s1- 10:9, 10:11, 35:25, 36:11, 37:10, workersfSJ-21:11, 49:15, 49:16, 49:25, 

51:22, 54:4, 54:16 37:26, 38:17, 46:19, 21:14, 39:15, 51:9, 50:4, 50:6, 50: 13, 

turning 111- 28:21 54:11, 55:3, 56: 19 51:21, 51:22, 51:24, 50:14, 52:20, 52:22, 

turns 121 - 37:6, 37:8 upheld 111 

- 9:1 o 52:10 53:3, 56:25 

two 1111- 6:17, 8:13, usual [1) 

- 51 :2 workers' 121 - 51 :2, 

18:20, 19:23, 21 :22, 51:5 

30:3, 42:25, 45:3, v Workers' 11a1- 21 :17, 

45:19, 55: 12, 57:11 value[1J-21:10 21'.20, 24:13, 25:5, 

type121-15:21 various [1J 

- 26:22 25:11, 26:9, 26:16, 

types [11- 31 :20 variously [1] -12:24 30:19, 34:14, 34:22, 

34:26, 38:22, 38:24, 

u vary 111 

- 27:9 39:6, 39:7, 40:15 

verified [2J - 16:8, 

unauthorized f3J - 16:22 

works [3J - 25:4, 26:6, 

34:24 

6:25, 9:14, 42:23 versus r11 

- 9:4 world 111- 37:13 

unclear121-12:22, violated [1J- 32:12 

27:21 violates 11 J - 53 :8 

worth 131 - 9:22, 

underi2a1-4:18, violation 111 

- 57:2 

40:23, 57:4 

15:19, 16:24, 17:14, Virgin [3J-13:10, 

write 121 - 45:26, 46:3 

17:26, 21 :14, 21 :25, 16:24, 54:7 writing 111 

- 54:2 

23:8, 23:12, 27:11, void 111 

- 30:20 

written 121- 3:25, 57:5 

27:15, 27:22, 28:11, Volume [1] -26:12 wrongdoing [1J 

-

30:20, 31:3, 32:15, 

19:21 

38:23, 42:13, 45:12, w x 45:21, 46:11, 48:10, waiting r11 - 57:18 52:22, 53:2, 55:4, XXX[11-58:12 

55:11, 56:25 waiving 111 

- 47:24 

undermine 111- 25:15 waste 111 

- 46:25 y 

undermined 111 - watch [11- 33:26 

24:10 Watson [1J 

- 54:25 yeario1-17:15, 17:16, 

undermining 121- 4:8, WC-174111- 35:3 21:18, 22:10, 26:26, 

18:8 website 141 

- 8:2, 46:16, 56:7, 56:10, 

understood !4) - 14:2, 42:10, 42:15, 42:19 58:4 

14:3, 21:7, 24:7 week 121 

- 4:11, 46:23 years 1121-13:12, 

Underwriters {16J - Westchester111- 2:11 21:19, 21:22, 32:21, 

whatsoever[1J - 34:20, 36:9, 40:23, 

MYRON CALDERON - OFFICIAL COURT REPORTER