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LOGAN et al v. WESTCHESTER FIRE INSURANCE COMPANY et al Complaint

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Case 1:10-cv-00928-SD Document 1
Filed 03/16/10 Page 1 of 8
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO EASTERN DIVISION SEAN C. LOGAN Chapter 11 Trustee of the PRS LIQUIDATING TRUST, Plaintiff, vs. WESTCHESTER FIRE INSURANCE COMPANY; ACE INA HOLDINGS, INC., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No.
COMPLAINT
Comes now the Plaintiff, Sean C. Logan, Trustee of the PRS Liquidating Trust by and through his attorneys James R. Schraf and Logan Yumkas, LLC and files this Complaint against the Defendant, Westchester Fire insurance Company and for his reasons states as follows: JURISDICTION AND VENUE 1. 2. The Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1332. Venue is proper in this district pursuant to 28 U.S.C. § 1391.
Case 1:10-cv-00928-SD Document 1
Filed 03/16/10 Page 2 of 8
THE PARTIES 3. The Plaintiff, Sean C. Logan is the Chapter 11 Bankruptcy Trustee of the PRS
Liquidating Trust (“PRSLT”) 1 established by the United States Bankruptcy Court for the District of Delaware and arising out of the bankruptcy filing of PRS Insurance Group, Inc. (“PRS”) and certain of its subsidiaries and affiliates. 4. PRS through an affiliated company, PRS Enterprises, Inc. (PRSE) was
administrator of two (2) workers compensation insurance programs written by Bonding & Insurance Specialist Agency, Inc. (“BISA”) and Persona/North American, Inc. (NA) issued on the paper of Reliance National Insurance Company (“Reliance”) and certain of its affiliated companies. 5. The Defendant, Westchester Fire Insurance Company (“Westchester”) is a
corporation organized under the laws of the State of New York with its principal office located in Philadelphia, Pennsylvania. Westchester is licensed to do business as an
insurance carrier in all fifty (50) states and the District of Columbia and, among other things, acts as a reinsurer from time to time.
1
The PRS Liquidating Trust was established pursuant to an approved Chapter 11 Plan in the United States Bankruptcy Court for the District of Delaware, Case No. 00-4070 (MFW). It was created to hold and liquidate the remaining claims and assets of the members of the PRS Group including PRS Insurance Group, Inc.; PRS Guaranty Insurance, Ltd.; PRS Insurance Holdings (Barbados) Ltd.; PRS Enterprise Insurance Services, Inc., Enterprise Group Insurance Co., Ltd.; Brookwell Insurance Co., Ltd.; PRS Management Group, Inc.; PRS Surety Bond Agency, Inc.; PRS Captive Investment Fund, Limited; PRS Benefits Services, Inc.; PRS Enterprises, Inc. d/b/a PRS Insurance Services; and PRS Management Services, Inc.
2
Case 1:10-cv-00928-SD Document 1
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6.
The Defendant, ACE INA Holdings, Inc. (“ACE”) is a Delaware corporation
with its principal place of business in Philadelphia, Pennsylvania. FACTS COMMON TO ALL COUNTS 7. Reliance began placing workers compensation coverage as a fronting insurer
with respect to the BISA and NA programs beginning on April 1, 1996 pursuant to the terms of a Program Manager’s Agreement between Reliance and PRSE. 8. The primary retention for workers’ compensation claims made against
Reliance policies issued under the BISA and NA programs was $250,000. 9. Losses in excess of $250,000 for workers’ compensation claims made against
Reliance policies issued under the BISA and NA programs were reinsured through a reinsurance facility of Reliance for the period April 1, 1996 through June 30, 1999. 10. Enterprise Group Insurance Company (“EGIC”) served as an assuming
reinsurer for one hundred percent (100%) for the primary retention for workers’ compensation claims made against Reliance policies issued under the BISA and NA programs for the period from July 1, 1999 through July 1, 2000. 11. EGIC and Westchester entered into two (2) Workers Compensation
Aggregate Excess of Loss Reinsurance Agreements both signed on August 31, 2000 whereby Westchester reinsured the losses sustained under the BISA and NA programs under certain reinsurance treaties numbered NW020580M (the “BISA Treaty”) and NW020590M (the “NA Treaty”) (collectively referred to as the “Treaties”).
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Case 1:10-cv-00928-SD Document 1
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12.
The Treaties provided reinsurance to EGIC for the period from July 1, 1999
through July 1, 2000. 13. Through the BISA Treaty Westchester agreed to pay up to $3,000,000 in the
aggregate in excess of, the greater of, $4,000,000 in claims or claims exceeding seventy-five percent (75%) of gross written premiums. 14. Through the NA Treaty Westchester agreed to pay up to $3,000,000 in the
aggregate in excess of, the greater of, $7,000,000 in claims or claims exceeding seventy-five percent (75%) of gross written premiums. 15. To date claims in both the BISA and NA programs have exceeded the
respective attachment points and are subject to reimbursement under the terms of the Treaties. 16. Treaties. 17. Complete documentation of both the claims under the BISA and NA Treaties A claim was made to Westchester and ACE pursuant to the terms of the
was provided to Westchester and ACE. 18. Westchester and ACE requested and were granted an audit of certain claim
and underwriting files with respect to both the BISA and NA Treaties held by Reliance. 19. Westchester and ACE requested and were provided with extensive
additional information concerning the reinsurance claims with respect to both the BISA and NA Treaties.
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Case 1:10-cv-00928-SD Document 1
Filed 03/16/10 Page 5 of 8
20.
The Plaintiff has now made numerous requests that the claims under the
reinsurance Treaties be paid. 21. Despite repeated requests for payment pursuant to the terms of the Treaties,
Westchester and ACE have failed to make payment. COUNT I (Breach of the BISA Treaty) 22. The Plaintiff realleges the allegations set forth in paragraphs one (1) through
twenty-one (21) of the complaint as if fully set forth herein and further states as follows: 23. Treaty. 24. 25. BISA Treaty. 26. Westchester and ACE’s refusal to pay as agreed under the BISA Treaty The Plaintiff has made demand for payment under the BISA Treaty. Westchester and ACE have refused to make payment under the terms of the The Plaintiff has complied with all of the applicable provisions of the BISA
constitutes breach of contract. Wherefore the Plaintiff demands judgment from Westchester and ACE in the amount of $10,000,000 plus pre-judgment interest, post-judgment interest, attorney’s fees and the costs of this proceeding. COUNT II (Breach of the NA Treaty) 27. Plaintiff re-alleges and incorporates by reference the allegations set forth in
paragraphs one (1) through twenty-six (26) of this Complaint as if fully set forth herein.
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Case 1:10-cv-00928-SD Document 1
Filed 03/16/10 Page 6 of 8
28. Treaty. 29. 30. NA Treaty. 31.
The Plaintiff has complied with all of the applicable provisions of the NA
The Plaintiff has made demand for payment under the NA Treaty. Westchester and ACE have refused to make payment under the terms of the
Westchester and ACE’s refusal to pay as agreed under the NA Treaty
constitutes breach of contract. Wherefore the Plaintiff demands judgment from Westchester and ACE in the amount of $10,000,000 plus pre-judgment interest, post-judgment interest, attorney’s fees and the costs of this proceeding. COUNT III (Bad Faith Refusal to Settle BISA and NA Treaties) 32. Plaintiff re-alleges and incorporates by reference the allegations set forth in
paragraphs one (1) through thirty-one (31) of this Complaint as if fully set forth herein. 33. The Plaintiff submitted his claims for recoveries under both the BISA and NA
Treaties and notified the Plaintiff of the existing loss obligation on July 3, 2005. 34. In response to the claim for recovery under the treaties, Westchester and ACE
assigned Citadel Risk Management, Inc. (“Citadel”) to perform an audit of both the underwriting and claim files for both the BISA and Persona programs. 35. The audit was completed and the results of the audit were presented by
Citadel to Westchester.
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Case 1:10-cv-00928-SD Document 1
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36.
On January 13, 2009 the Plaintiff met with representatives of the Defendants.
At the meeting the Defendants’ representatives noted for the first time that it was raising as a defense that Credit General Insurance Company (“CGIC”) 2 was insolvent when the treaties were executed and that the Defendants were entitled to rescission of the treaties. 37. EGIC is the reinsured under both the BISA and NA treaties, was solvent at all
times prior to the inception of the treaties and, in fact, maintained collateral in the form of letters of credit and later reinsurance trusts managed by a third party for both programs. 38. The Plaintiff has presented the Defendants with audited financial statements
for EGIC and copies of its tax returns. 39. At the meeting on January 13, 2009 the Bermuda Insurance Manager of EGIC
was present and confirmed to the Defendants’ representatives that EGIC was solvent prior to the inception of the treaties at issue. 40. The Plaintiff has made repeated demands of the Defendants to provide
evidence of its claimed defense. 41. Despite repeated demands for evidence of insolvency, the Defendants have
cited only news articles and allegations set forth in pleadings in cases in other jurisdictions that were never adjudicated and ultimately settled.
CGIC is a wholly owned subsidiary of the PRS Insurance Group, Inc. (“PRS”). EGIC is also a wholly owned subsidiary of PRS. EGIC is the party to the contract with Westchester not CGIC. The underlying insurance policies that EGIC reinsured are not policies written by CGIC but rather policies issued by Reliance National Insurance Company, a company with no common ownership or relationship with CGIC.
2
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Case 1:10-cv-00928-SD Document 1
Filed 03/16/10 Page 8 of 8
42.
The Defendants’ refusal to pay the claims under the treaties is in bad faith
and designed to force the Plaintiff to seek the recoveries due through expensive arbitration and/or litigation. Wherefore the Plaintiff demands judgment from Westchester and ACE in the amount of $10,000,000 plus pre-judgment interest, post-judgment interest, attorney’s fees and the costs of this proceeding. LANDSKRONER $ GRIECO $ MADDEN, LLC
s/Justin F. Madden JUSTIN F. MADDEN (0062529) JACK LANDSKRONER (0059227) 1360 West 9th Street, Suite 200 Cleveland, Ohio 44113 (216) 522-9000 (216) 522-9007 (fax) justin@lgmlegal.com jack@lgmlegal.com James R. Schraf Logan, Yumkas, Vidmar & Sweeney, LLC 2530 Riva Road, Suite 400 Annapolis, Maryland 21401 Telephone (410) 571-2780 Facsimile (410) 571-2798 JSchraf@LoganYumkas.com Attorneys for Plaintiff Sean C. Logan
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