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DUNNINGTON

BARTHOLOW & MlLLER LLP

ATTORNEYS AT LAW

250 Park Avenue I New Yor\:, NY 10177 I Telephone: 212.682.8811 I www.dunnington.com I rdowd@dunnington.com

VIAFEDEX

Ms. Carol McGee

Assistant Director, Derivatives Policy

Mailstop 8030

U.S . Securities & Exchange Commission

100 F Street N.E.

Washington DC 20549-7010

Re:

wr-·t.s::,, , 0 ~. ,. , .. ic .

ctO:-

Request For Interpretation of a Particular Agreement, Contract or Transaction

Pursuant to 17 C.F.R. §1.8

Dear Ms. McGee:

On February 2, 2017, we sent the enclosed letter with attachments to both the Commodity

Futures Trading Commission and the Securities and Exchange Commission requesting a joint

interpretation as to whether a contract stylized as a Reinsurance Participation Agreement is a

swap, security-based swap or mixed swap related to an insurance linked security.

We have just been informed that the letter was misaddressed to the incorrect division of

the Securities and Exchange Commission and were advised to forward the letter with

attachments to you. Thank you in advance for your attention to the enclosed.

Respectfully yours,

Raymond J. Dowd

Encl.

DUNNINGTON

BARTHOLOW & MILLER LLP

ATTORNEYS AT LAW

250 Parle Avenue I New Yolk, NY 10177 I Telephone: 212.682.8811 I www.dunnington.com I rdowd@dunnington.com

February 2, 2017

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

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. 654806/2016)("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. § 1.8(a). Two versions of the RPA, one issued in 2009 and the

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

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

DUNNINGTON

February 2, 2017

Page 2

BARTHOLOW & M I LLER LLr

Section I

Material Information Regarding The Terms Of The RPA

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"). AUl'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 A UI 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 publidy

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

RPA 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 RPA was illegal and

void as a matter of law and concluded that the RPA 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 lj[ 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 AU! and its affiliates to deceive consumers by promising

rates below the publicly-filed workers compensation rates.

http://www3.ambest.com/ambv/bestnews/presscontent.aspx?altsrc=l&refnum=24532

DUNNINGTON

Febroary 2, 2017

BARH\OLO\.V & MlLLER LLP

Page 3

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," observinf, 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, i'Il 44-47. To insurance regulators, the RPA is

represented as being "for purposes of investment only." See Exhibits 1-B and 1-L, i 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, "pruticipant", 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, 2015)("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'

www.auw.com

www .roughnotes.com/rnmagazine/2003/j une03/06p82.htm

www.businesswire.com/newslhome/20060208005272/en/Berkshire-Hathaway·Acquire-Applied-Underwriters

www.insurancejournal.com/news/national/2016/10/03/428268.htm _

www.bloomberg.com/news/articles/2016-11-04/buffett-backed-insurer-keeps-getting-sued-over-complex-products

DUNNINGTON

February 2, 2017

BARTHOLOW & M I LLER LLI'

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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 RPA. 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 tum, provide[] a risk sharing participation

program to the insured." Id.

Section III

The Reguesting 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 1B 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

February2, 2011

Paae 5

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BARTHOLOW & MILLER LLP

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 RPA 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, <I[ 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

http://www.d fs. ny.gov/reportpub/shadow_insurance_report_2013 .pdf

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 AM. 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(47)(A)(ii)-(iii). The practical effect of

the foregoing is that the RPA 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.

Raymond J. Dowd

Encl.

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

•

EXHIBITS

..... ~

M.:111 f rlY

f..; . '. l '

\l\J· · I 1nqr 111

•

Exhibit 1

•

!FILED: NEW YORK COUNTY CLERK 09/09/2016 05:36 Pij

•

INDEX NO. 654806/2016

RECEIVED NYSCEF: 09/09/20 1 6

NYSCEF DOC. NO. 2

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

--------------------------------------------------------------)(

BREAKAWAY COURIER CORPORATION, d/b/a

BREAKAWAY COURIER SYSTEMS

Plaintiff,

Index No.

VERIFIED COMPLAINT

-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.

--------------------------------------------------------------)(

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

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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 l 00 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 Yark 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 Yark regulations, Defendants have violated New Yark 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 RP A - 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 RP A 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 Jaw, 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.

Background

Workers Compensation Insurance - New York Law and Public Policy

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 .

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.

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.

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.

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 wellco llateralized.

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

shortfalls by and through the New York State Insurance Fund.

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.

Parties And Jurisdiction

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

West 36th Street, New York.

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.

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

16.

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 0 Id 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 tum 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 tum 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 113368Dl .

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 ofNACC, which is 100%

owned by Applied Underwriters, Inc.

25.

At all times herein mentioned, Defendants were and are "doing business" in the

State ofNew York as defined in N.Y. Ins. Law§ l lOl(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

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 , 201 2.

1 1 of 4 6

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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 §210l(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.

l lNYCRR 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.

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/rnanwcel/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 (1 51 Dept. 2000)

aff'd95 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."

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/20 13ar/201310-K.pdD

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.

4 7.

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 oflnsurance'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 RP As

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, 201 3, 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 RP A is also

signed by:

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC.,

SOLELY FORAND 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").

23 o f 4 6

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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 oflnsurance, 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, App lied' s projections of the cost of the plan

... ,. 2 of 10

APPLIED'f•~

UN D ERWRIT ERS

Account No. 816280

l'lan Torm 07!01112 m Cl613G'15

l'or !he l'eriad 01.01113 to 01131/13

i1'f

Plan Tif!J!t Cost

$600.lllO

Ma1$756,'72

$500.000

$400.000

SJ00.000

. ....

...... ......

"II

5399.196

5211Q.OOD

Min $139)19

$100.000

- - "8n T.rgwt C°"1

YwanJl!ltSOlll/Hr.m fot row l'Twr T~ Cost ifywcOfltitiw 111 Mrito-idr uah -*Big~ wc_..ie with us

;, dosing """'doims quicJJy end cost dfective}y.

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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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I 02.

•

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

2314 prohibits charging insured rates that are not authorized.

I 03.

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

been approved by or filed with New York State.

I 04.

Upon information and belief, the Request to Bind Services and RP As 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.

I 06.

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.

I 07.

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 oflnsurance.

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 RP As 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.

13 5.

Because the RP As purport to deviate from the rates approved by New York State

and transfer risk ofloss 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

13 7.

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 ofNew

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 RP As.

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.

COUNTV

AGAINST BERKSHIRE HATHAWAY GROUP

FRAUDULENT BUSINESS PRACTICES UNDER GEN. BUS LAW§ 349

14 7.

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

CPLR3016)

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 a~ 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 (I) 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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COUNTX

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 RP A - 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 Uust

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 Uust 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

untiled 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. 11NYCRR§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:

That the Court declare the Reinsurance Participation Agreements to be in

violation of the Insurance Law, illegal, null, void and unenforceable;

That the Court declare the Continental policies to be lawful and in full effect;

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)

4 5 of 46

•

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.

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.

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;

For attorneys' fees, disbursements and costs incurred for this action as available

by statute or otherwise; and

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 A venue, Suite 1103

New York, New York 10177

(212) 682-8811

rdowd@dunnington.com

sblaustein@dunnington.com

46 of 4 6

•

EXHIBIT A

•

INDEX NO. UNASSIGNED

RECEIVED NYSCEF: 09/09/2016

NYSCEF DOC. NO. 3

REQUEST TO BIND COVERAGES & SERVICES

TO:

Applied Underwriters

Attn : New Accounts Processing

P.O. Box 3646, Omaha, NE 68103

Fax: 877-234-4451

RE :

Premier Exclusive Quote #217289-1, Proposed Effective Date 07101 /09

The applicant(s) identified below, whether 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.

11 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, individually, 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.

IJo__"d_~_ ----· · -

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,

Appl icant 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 beN1een 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, Nebraska. 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 ($100.00) 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 forth herein shall survive and are incorporated by reference into the Agreements and Policies.

Ver . ppo_3052_3 a

•

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

Breakaway Courier Corporation

Address

PO Box 780

New York NY 10013

I 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 submit

that claim to us, and further indemnify and hold us harmless from any and all damages,

,e vs fees we may incur in connection with that claim .

Witness Signature

Print ed Name

Title

Date I Time

•

EXHIBITB

•

• !FILED:

-~~--==~~=-=-=====-=-==~~~,,.,.:;--;=-..,.-;::---;:;-;---n-~~~!Nr~N0-:-6548Q6";i201~

NEW YORK COUNTY CLERK 09/30/2016 05:29 PMJ

INDEX NO. 654806 12016

NYSCEF DOC. NO. 53

RECEIVED NYSCEF: 09/30/2016

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, 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 :

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.

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.

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:

"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."

Ver. aco_5100_2a

This Agreement may not be modified, amended or supplemented in any manner except in writ-

Page 1 of 10

•

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.

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.

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.

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 reinsured by the Company under the Treaty.

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.

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

Vtt aco _5100 _2a

Page 2 of 10

•

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 ucode") 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 perm itted 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 w ill be supplied to the Company by Participant or on

Participant's behalf with respect to this Agreement is accurate and complete, and w ith respect to financial

information , comports w ith generally accepted accounting principles.

1 2 . 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 t his 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.

1 3 . Nothing in this section shall be deemed to amend or alter the due date of any obligation under

this Agreement. Rather, t his section is only intended to provide a mechanism for resolving accounting

disputes in good faith .

(A)

It is the express intention of t he 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 related to this Agreement shall be fully determined in the British V irgin

Ver. aco_5 100 2a

Page 3 of 10

•

Islands under the provisions of the American Arbitration 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 .

(CJ

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.

(J)

Ver aco ~100 2a

The arbitrator or arbitrators shall be advised of all the provisions of this arbitration clause.

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 f urther agrees not to challenge venue in Nebraska provided such process is

delivered in accordance w ith 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 w ith 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

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 assigns , any rights, remedies , obligations or liabilities

under or by reason of this Agreement, except as expressly provided herein.

Ver. aco 5 100_2a

Page 5 of 10

•

IN WITNESS WHEREOF, the parties have set their hand .

APPLIED UNDERWRITERS CAPTIVE RISK

ASSURANCE COMPANY, INC., SOLELY FOR AND

ON BEHALF OF PROTECTED CELL NO. 816280

PARTICIPANT

By:

Name:

Title:

Date:

Ver. aco_5100_2a

}< 6 &2' t

koR (~

p(f5; &~ f:

7-J'- O°f

Page 6 of 10

•

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY. INC.

PARTICIPANT NO. 816280

REINSURANCE PARTICIPATION AGREEMENT

SCHEDULE 1

EFFECTIVE DATE: JULY 1, 2009

This Schedule 1 applies as of the Effective Date to alt 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 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 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.

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 LOF'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.

(fl 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. eco_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 8, 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

with 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 Contain·

ment 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 conflict between the Agreement and this Schedule 1, this Schedule 1 shall control.

APPLIED UNDERWRITERS CAPTIVE RISK

ASSURANCE COMPANY, INC. , SOLELY FOR AND

ON BEHALF OF PROTECTED CELL NO. 816280

Ver. aco_6112_2a

Page 8 of 10

•

APPLIED UNDERWRITERS CAPTlVE RISK ASSURANCE COMPANY, INC.

PARTICIPANT NO. 816280

REINSURANCE PARTICIPATION AGREEMENT

SCHEDULE 1 TABLES

EFFECTIVE DAn: JULY 1, 2009

TABLE A

Loss Development Factors

Claim Age

Month

From

_I2.__

Weekly

Open

Closed

Claims

3.306

3.260

3.264

3.247

3 .231

3 .112

2,952

2.804

2.667

2.580

2. .517

, .232

1,151

1.101

1.084

1.078

1.069

1.055

, .046

1.044

1.040

, .032

Open

Monthly

Closed

Run-Off

Open

Closed

3.372

3.346

3.329

1.257

1 , 175

, . , 23

1.106

1.099

1.090

1.076

, .067

'1 .065

1.060

1 .053

5.527

4.904

4.033

4 ,033

4.033

1.201

1.111

3.312

3 .295

3 .174

3.011

2.860

2.720

2.632

2.567

TABLE 8

Exposure Group Adjustment Factors

Loss

&li.Q

0.00

0 .10

0.20

0.30

0.40

0.50

o.eo

0.70

0.80

0.90

Loss

Adjustment

Factor

1.6326

BfiliQ

1.00

1.10

1.20

1.5158

1.3793

1.2038

, .0672

0.9696

1.1114

1. 1063

1.30

1.40

1.50

1.60

, . 70

1.80

1.90

, .0000

1.2836

The Allocation Factor is 0.34 .

Page 9 of

Adjustm~nt

Factor

0.9629

0 ;9824

0.9824

0 .9824

0,9824

0.982-4

0 .9024

0.9824

1 ~ 111

,,,, ,

1.11,

1 .064

1.064

•

APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC.

PARTICIPANT NO. 816280

REINSURANCE PARTICIPATION AGREEMENT

SCHEDULE 1 TABLES

EFFECTIVE DATE; JULV 1, 2009

TABLE C

loss Pick Containment Rates and Estimated Annual Amounts

Class

Code

NY 7242

NY 8810

NY8742

NY 7231

loss Pick

Cootajnmeot Bate

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

•

r -=:(

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fi BRBOO\WAY

335 WEST 35TH STREET, 9th FLOOR

NEW YORK, NY 10001-1726

(212) 947-4455

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CITIBANK._N.A. BR. #300

CHINATOWN HNANCIAL CENTER

164 Canal Street, 2nd Floor, New York, NY 10013

•

1-8/210

7/9/2009

Applied Underwriters

PO Box 3646

Ohaha, NE 68103

** 11,433.00

Eleven Thousand Four Hundred Thirty-Three and 00/100*******************

MEMO

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,.,,.

•

ooLLARs

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335 West 35th Street, 9th Floor

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New York, NY 10001-1726

(/)

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New Accounts Processing

Applied Underwriters

PO Box 3646

Omaha, NE 68103

•

EXHIBIT D

•

RECEIVED NYSCEF: 09/09/2016

NYSCEF DOC. NO. 5

Page 1 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

APPLIEn·f·~

UNDERWRITERS~

Questions? Changes? Comments?

Breakaway Courier Systems

PO Box 780

New York, NY 10013

Your account manager is:

James C. Hofstetter

S' (877)234-4420

PREMIER!.f

(:xcLUSNE

IFAXI (877)234-4421

18]

P.O. Box 3646

Omaha, NE 68103-0646

Plan Analysis

Table of Contents

Section

•

INDEX NO. UNASSIGNED

Page

Summary of Workers' Compensation Plan Charges.......................

Projected Plan Volume........................................ ......................

Analysis of Program Costs........................................................

Adjusted Workers' Compensation Pay-In Rates............................

Claims Analysis....................................................................... .

Claims Listing..........................................................................

•

Page 2 of 9

Account No. 816280

Plan Term 07/0 1/09 to 06/30/12

For the Period 10/01 /09 to 12/31 /09

APPLIEn·t·~

UNDERWRITERS

Summary of

Workers'

Compensation

Plan Charges

6t:f

•

Summary of Plan Charges 10/01/09 to 12/31/09

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

Class Code

NY7231

NY7242

NY8742

NY8810

Payroll Reported

$76,212

272,350

168,259

190,020

$706,841

Rate

6 .05

7.27

0.40

0.24

Amount

$4,611

19,800

673

456

$25,540

•

S':-'mmary of Plan Charges to Date

Initial Capital Deposit

$10,272

Total Amount of Charges on Prior Plan Analyses

18,816

Total Amount of Charges for the Period 10/01 /09 to 12/31 /09

25,540

Total Billed Amounts

$54,628

•

Page 3 of 9

Account No. 816280

Plan Term 07/01/09 to 06/30/12

For the Period 10/01/09 to 12/31/09

APPLIEn·f.1L

UNDERWRITERS ~

•

Projected

Plan Volume

Plan to Date

Class Code

NY7231

NY7242

NY8742

NY8810

Total

Payroll Reported

Rate

07 /01/09-12/31 /09 per $100

$133,971

6.72

470,156

8.07

307,825

0.44

0.26

349,409

$1,261,361

Projected for Total Plan

Loss Pick

Containment Amount

$9,001

37,934

1,342

907

$49,184

Payroll Projected

01 /01/10-06/30/12

$688,692

2,501,370

1,761,949

1,989,681

$6,941,692

Payroll Projected

07 /01 /09-06/30/ 12

$822,663

2,971,526

2,069,774

2,339,090

$8,203,053

Maximum Cost Factor

1.30

Minimum Cost Factor

0 .34

Aggregate Retention (loss limit) Factor

0.96

Rate

per $100

•

Projected 3-year Plan Maximum Cost

$310,124x1.30

$403,161

Projected 3-year Plan Minimum Cost

$310, 124 x 0.34

$105,442

$310,124/3

:::

$103,375

Estimated Annualized Loss Pick Containment Amount

6.72

8.07

0.44

0.26

Loss Pick

Containment Amount

$55,271

239,755

9,026

6,072

$310, 124

I•

•

~~~~~~~~~~~----------------------------------------------------------------------------~--~~~~~. .-~~--~

•

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

APPLIEn·t·~

UNDERWRITERS ~

Analysis of

Program

Costs

•

Estimated Plan Cost

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

•

As of 12/31 /09

$310,124

84.14%

66%

$172,219

•

Adjusted Current Program Claims

33,648

Projected Total 3-year Plan Claims

205,867

•

Projected Total 3-year f>lan Cost (see table on next page)

309, 193

Percentage of Plan Completed as of 12/31 /09

15.86%

Estimated Plan Cost To Date

$49,038

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

$310, 124

0 .1 085

•

Page 5 of 9

Account No. 816280

Plan Term 07/01/09 to 06/30/12

For the Period 10/01 /09 to 12/31 /09

APPLIEn·t·~

UNDERWRITERS

Analysis of

Program

Costs,

Continued

•

Final Plan Cost at Various Claims Cost Levels

Ultimate Claims

35,912

As of 12/31 /09

Total 3-year Plan Cost

$105,194

56,412

74,895

197,642

229,181

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

263,605

352,797

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.

•

Page 6 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

APPLIEn·t·~

UNDERWRITERS ~

Analysis of

Program

Costs,

Continued

•

Total Deposit and Pay-In Requirements

Amount s as of 1 2/31 /09

Description

Estimated Annualized Loss Pick Containment Amount

Deposit Percentage

10%

$10,338

Fixed Portion of Deposit Requirement

Loss Pick Containment Amount to Date

Presumed Loss Ratio for the First Plan Year

•

$103,375

•

49, 184 (a)

65%

Presumed Losses to Date

31,970 (b)

Adjusted Current Program Claims

33,648 (c)

Retained Losses (greater of b end c)

33,648

Capital Deposit Requirement

43,986

Loss Pick Containment Amount to Date

0.34 (e)

Retained Loss Ratio (d I a)

68%

•

0 .9697 (fl

Base Fees (a x e x f)

16.216

Total Pay·ln Amount Due Under Your Contract

60,202

Total Pay-In We Are Requiring through 12/31/09

54,628

Less: Amount You Have Paid· In through 12/31 /09

54,628

Pay·ln Difference as of 12/31 /09 *

•

49, 184 (a)

Minimum Cost Factor

Exposure Group Adjustment Factor

(d )

•

* 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 .

•

Page 7 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

APPLIEn·f·~

UNDERWRITERS~

Adjusted

Workers•

Compensation

Pay-In Rates

Description

Trucking-Mail/Package &Driver

Bicycle Delivery

Outside Salesperson

Clerical

Claims

Analysis

•

Class Code

NY7231

NY7242

NY8742

NY8810

Rate Effective

Date

01/01/10

01/01110

01/01/10

Net Pay-In

Rate

4.70

5.65

0.31

0.18

Summary of Member Claims

$55,000

$50,000

$40,000

.....

$30,000

(")

$20,000

....

$10,000

2009. 2010

2010 - 2011

D Total Incurred

Indemnity

Year

Claim Count

2009 - 2010

2010 - 2011

2011 - 2012

•Total Paid

• Indemnity Claim Count

Total

Claim Count Total Incurred

$14

Total

Outstanding

$14

Total Paid

Claim Inventory

Activity for 1010112009 to 12/3112009

Incident Only

New Claims

New Open Claims

New Closed Claims

New Claim Closures

Reopened Claims

Total Open Claims

Total Closed Claims

Total Claims

Medical Only

Indemnity

•

·······-····-- -··

•

Page 8 of 9

Account No. 816280

Plan Term 07/01 /09 to 06/30/12

For the Period 10/01 /09 to 12/31 /09

APPLIEn·t-~

UNDERWRITERS~

Reporting Lag

Date of Injury to Employer Notify Date

0-3 days

2009 - 2010

2010 - 2011

2011-2012

This period

4-7 days

•

- - - - - - - - - - - - - - - - -- - -

8+ days

Average

Reporting Lag

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.

•

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

APPLIEn·t·~

UNDERWRITERS

Claims

Listing

&t:f

Insured:

Policy Number:

Policy Period:

Breakaway Courier Systems

Valuation Date: 12/31 /09

55-816280-01-01

07/01/09 - 07/01/10

Claim#

Claimant

43729

Litzenberg, Jason

•

State - Code

Status

Loss Type

Accident Description

Nature of Injury

Part of Body

Date of Injury xpense

Date Reported Type

Date Closed

NY - NY7242

Closed

Injured by Motor Vehicle

Contusion

10/26109

11 /17/09

IND

12/01/09

EXP

Hip

MED

Tc.5TAL

PoHcy: 55-816280·01·01

Open Claims:

Closed Claims:

Open LT Claims:

Open MO & IR Claims:

Total Claims Open:

Paid-to·

Date

Incurred

Lost Time:

0 Closed MO & IR Claims:

MO& IR:

Total

Total Claims Closed:

Recovery

Closed LT Claims:

Outstanding

I •

Incurred

Less

Recovery

Totals for Insured: Breakaway Courier Systems

= Incident Report, MO = Medical Only, LT = Lost Time

•

Total Claims :

•

EXHIBIT D

•

RECEIVED NYSCEF: 09/09 /20 16

NYSCEF DOC. NO. 6

Page 1of13

Account No. 816280

Plan Term 07/01/09 to 06/30/12

For the Period 01/01 /12 to 03/31 /12

APPLIEn·t·~

UNDERWRITERS ~

Questions? Comments?

Your account manager is:

Trevor Rowell

Breakaway Courier Systems

PO Box 780

New York, NY 10013

i: (877)234-4420

IFAXI (877)234-4421

PREMIER!f

[8I

[xcLUSIVE

,........ ~·:.-::::: -,.·.............. ·.

·:::·-~::'.\'.

P.O. Box 3646

Omaha, NE 68103-0646

'.:.; .=::::

Plan Analysis

Table of Contents

Section

•

INDEX NO. UNASSIGNED

Page

Summary of Workers' Compensation Plan Charges. ...................... 2

Projected Plan Volume. ..... ........................................................

Analysis of Program Costs..... .... .. ......... ... .... ... .. ... ............ .........

Adjusted Workers' Compensation Pay-In Rates. ... .... ........ ...... ......

Claims Analysis..... ..... ....... .......... ............................................. 7

Claims Listing ......................... ................................................. 11

•

Page 2 of 13

Account No. 81 6280

Plan Term 07 /01 /09 to 06/30 / 12

For the Period 01/01 /12 to 03 /31 /12

APPLIEn·t·~

UNDERWRITERS

. ; .. ·• :: .·~.. ;;_c:.~•.~.:..~·.:.'; ,·,; ;.:.:::.:;..·.;. •.; ~-:.::.::.~•.~.:;; .:.;,:;:;t.:.!'i;.":.::..:i:.::-..:~·~ :: ;~ t~G·1~;:;~·~1~,;,: · :;.:;;~ ~-l·'.;:..t:~i;!-~..:;:,;;..r:..:::.·.·~~~~..:.:<~':'..;.·~~ii!;"~.'.'.:~~·:::.'.~' ,:,;,:::.:;·::.: !.;,~-:~:~.;:~ ;;;;~.i:: .<:..'.i:·.:.:.~~.:;,:;::_,::.:.:;:;:....:..:.::.>••:,.,.:,,:.:,.; :.::.,;~.;,;..~··;~;.;;.;·,·;,·;;.:;..:,::·..s:r~..=.·:~~'.:;;:,;:;:;.:.'.i.::'.::ili.t:;:;:;';':~:~~.:.!~;:..:; ;.;,:l~;~~:.;;:.<.~1:-'.~~.7.·.::..·u:.:~:::,!,;;;.:.-::;:.:'.!•:·U:.:.:.'!..'.<>::i;':..:.:..\~.:,~.::.:~ ~:;;;~:;...0."•.:-:..::;:,:. :-·-.·;..:,-.:::.~::: '.::;.:.··~·.:.•~:.::::.&2:;.;.::-;.:.;·.\.:.::.;,.: .;.:,,;.;.;:.;-. ~:.:,:.:: :.~; ,.., ,,., ·~.:..-. : •·.... ,· :,,,.,,.:,_.·•

Summary of

Workers'

Compensation

Plan Charges

•

Summary of Plan Charges 01/01/12 to 03/31/12

Period

Class Code

01/01/12 to 03/31/12

01 /01 /12 to .03/31 /12

01/01/12 to 03/31/12

01 /01 /12 to 03/31 /12

Total Charges

NY7231

NY7242

NV8742

NV8810

Payroll Reported

Rate

Amount

60,398

276,670

86,589

203,878

$627,535

8.20

9.84

0 .53

0.32

4,953

27 ,224

459

652

$33,288

•

Summary of Plan Charges to Date

Initial Capital Deposit

$10,272

Total Amount of Charges on Prior Plan Analyses

253,094

Total Amount of Charges for the Period 01 /01 /12 to 03/31 /12

33,288

Supplemental Plan Charges on 03/31 /12

93,997

Total Billed Amounts

$390,651

•

Page 3 of 13

Account No. 816280

Plan Term 07 /01 /09 to 06/30/ 12

For the Period 01/01/12 to 03/31112

APPLIED f•....

UNDERWRITERS

·~, =~·

•· .:,":•,.;.. l ·

i •:; ': 1 ~·.' ~.:.';,:;: ~! ,,·.:;;;,;,;:,,·;:;:.;:.;r::;:;,:,:!.."..:..: ~,~.'..•..;::::.:~=~:\t.~:..::,:.<'.·'.,::,;,;.';~;:;.;,.::.::•:~;~i_:', ! ;:-,~;~;·.: ;•,~:..~:\:;-::•: ;;,: ~;·.. ~.::,~:-:.:;.:,:,:.;:;,,::,''.;; ;::.:;~ ?.,::.~· ::~·:;,;,;\.::.;::.:..:.;~:,.:.;:..;:~:;: ::;,>,.:.;:.:~::.:~. ~-:::.';< •:: ~..~:: ;..::<",.t.i,\ ..:_,·.;_: :: ; '; ;.:'. '1 ~.::•:.4 ,'~~~:;~··.;.: ~·,;,' :::~-:~.{~',',;,:;~:;:~._!j.;;:;.:; =.;·:[.;:_·;:;;..':.::..:,;..l;;<:;~·";,j;~,i,;":/~;-.-.:.-.:.:;~;·~:;.:~~> ;:,';l:::.,';;:;,~;i,~ ~-·.; ,' .::;,-::;; ~. •;:,:,~.::..:; , -..,..,·,,,.:.·. ·,;·>;;;,\,, ;'..:, ', ;.::.;;.; ',',".'::..:.:';..\".,:!...:•:.:;:,.,, :_' ;:;.. , ::-.; ~:._, : ;".:', ;,: :·,~··. , .•..: ~ I · ,, ·. , ,

Projected

Plan Volume

Plan to Date

Class Code

Payroll Reported

Rate

07/01109-03/31/12 per $100

NY7231

NY7242

NY8742

NY8810

Total

$699,654

3,072,955

1,391, 107

2,007,759

$7,171,475

Projected for Total Plan

Loss Pick

Containment Amount

Payroll Projected

04/01 /12-06/30/12

Payroll Projected

07101 /09-06/30/12

Rate

per $100

Loss Pick

Containment Amount

$47,006

247,938

6,067

5,212

$306.223

$65,368

287.103

129,970

187,583

$670,024

$765,022

3,360,058

1.521,077

2, 195,342

$7,841.499

6.72

8.07

0.44

0 .26

$51,398

271,103

6,633

5,699

$334,833

6.72

8.07

0.44

0.26

Maximum Cost Factor

1.30

Minimum Cost Factor

0.34

Aggregate Retention (Loss Limit) Factor

0.96

•

Projected 3-year Plan Maximum Cost

$334,833 x 1.30

$435,283

Projected 3-year Plan Minimum Cost

$334,833 x 0.34

$113,843

$334,833 / 3

$111,611

Estimated Annualized Loss Pick Containment Amount

•

Page 4 of 13

Account No. 81 6280

Plan Term 07/01/09 to 06/30/12

For the Period 01/01/12 to 03/31/12

APPLIED0 f•~

UNDERWRITERS ~

..;. ::;::..; .~: ::;~.:..t

•

.:. :. ~;;..::-.;.:, :~...;. ,~...•:;.: :"J.::.:. ~~: ;L_,.~;.-,::.;:,;::..~:·::-,·:;:~:::·.::;·:.:::::..:~;·;·;-...~· .•.:.:t·~ ~~:.;.~:i;: : ·-~~..;..:·:·:~:.·_, ::::~.:.:~:-~.,-~·:.::;s:;.~,;;, i!.~~:::;..::.;.·.1..;;;: .;.;·;,_;_,;.;~~·..::.::. ~·.;.:.;.· ·;::.:.: ;:.~ ,';..: ::.:~ ! ~·..;..:.:.~·-:.:.; ;::s~.::.,:.;: .··;• ::.::. .~.:·-.~:.::...:.:::.:~·.;:.G::.-.. !:.:.:;:..:::.;.:..'~:. {,.1:~.·:'. ~.::-~-:.:.~.:::...:;:.~:;:-.:.;;.,~.:.r.;.;.:r.;.::;.:.: ~:~o,:.'.i'..:;:~..;:.:.:::~::::::.~:=; :.:: <.'::'"'..:.':. ...:·.~ :·~;:,. .~.:~·~.-~:.:~~-~::.-:;;:..:::.•.:.-:..:....:. '-':;.i'.:. >.;:.~ ~·-:~=:: ..:.~ :;, ,-,;.::,::.:;.;..·.... .:·. . , :.·..,:.·. ~ ••. · ~.•....:·- ·..... .·

Analysis of

Program

Costs

Estimated Plan Cost

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

$334,833

8.54%

66%

$18,873

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

•

As of 03/31/12

$334,833

0.9600

Adjusted Current Program Claims

321.440

Projected Total 3-year Plan Claims

340,313

Projected Total 3-year Plan Cost (see table on next page)

431,265

Percentage of Plan Completed as of 03/31 /12

91 .46%

Estimated Plan Cost To Date

•

$394,435

•

Page 5 of 13

Account No. 816280

Plan Term 07 /01 /09 to 06/30/12

For the Period 01/0 1/12 to 03/31/12

APPLIEn=f.~

UNDERWRITERS

•

·.; , ·,..: :.; ·:·.·. \i..' ;.;~;.::..::":..·~;~••:.::..::.>'-:<,~._., ;;::.:·.::::.::.t~:~~:;..:;..·,;.:~::: :~,::;:,:.<,:;;..::~-..<.'.t2.'.i'.<::;.?.:.::~-::•~~..;..~.~-...i.::;·,:;:.:·: :.:...:.·~:u.::.::.:o.-.::;.::r.. ~.:Oi.'i";:J';!'.:::l:·: 1;;:;;;:::.;;:.::;;,:;:;-.::.-::-~;,:;:~::.x;. '.;:~~:;:,·~·..: .;.:;,;,; ::;::·,::~.:.·.::.:.:::,~:..·..:. .:.: ::.:..:. ~!.!.;;,::, ~.:.;·.;;~,~:::.:..!..--.:.>:;...;.;:;..:;.;.:..:.-:..:..;:-.::::;-;;;:!;:.:·..:;:,,,-:::·.::..Ge;;.;;..:;:\~:;..;;::,.;s;~,;-.·.; :.:r~;:.;:.~~·;..:.~-~~·:.:::-:.;,.t.;·.;~ :;:.;-:'2.,·..:;:;;.-...~- ~".;;::.·.;: :;..:,,:;...;.;.~·;......,_ -:,,..;.;,,_·.:.::~·-:·~= : ~~-....~ (;..;,;.;:.:;::...;;:.:,·:-.;.:. :..;.;,_,,.; .; ;......

Analysis of

Program

Costs,

Continued

Final Plan Cost at Various Claims Cost Levels

Ultimate Claims

As of 03/31/12

Total 3-year Plan Cost

$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

182,719

300,580

202,641

324,956

222, 597

336,039

238, 100

347,088

311 ,663

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

•

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.

•

Page6of13

Account No. 8 16280

Plan Term 07/01/09 t o 06/30/1 2

For the Period 01 /01 /12 to 0 3/31 /12

APPLIED°' f•~

U NDE RWRITERS ~

" •. ":! ;.~~-~-:,;.~~;c:,,·:·;::.~ .:·~:.:"C:..!:;•.:,.,::.:.:.:,:;=.:.;:;·;~.~-,~ ~:·;.:;,:_r;.:.;:.:.,;,:,:,;,;;,i~ i.\';::.,;t';;':;~",."',;~;;;,.:,; !(~i.:::;,',;;;:;;:..!.;:~~~:::~-·•.i.~,·;;~;;'.'..J,:;,';2,\~\::::;;I,;.~-.t:::::~:.'.:~;,;;:;:".:,;;;·.;:.'.:·;.i..ij.1.~:;~;":;l'.:;t:;~.;;~·~.:-,;,,-.; .;.:..;..:·,4;·~.,;;; ..;.'..: ;;;;;:..;";.\';.:..;..:;.:;;,:.; :.:.;.;.;:::~·,;;;·;:..;,;; ~.~;~:,;.;;-.;.;>;;f, :;~~:·.'.;: :~:.:;:-:.;::.:,;,.:.::.;.•.1·.:~~·,:;.:.'.;~.:\t.;;.'\~;.:;:l:'i'~·;~..:.:.;:_t:~;.::;;;,:;.~,;<:,:.1".;.:;.i;;~.~·.::.;:.\.'.;,;: .. ;:.· .' ;~:)..!.,; ,~.:.:;,;·~: ~·, ':;,.~- . : ' ' '·"~ _. , ..,~' 1 l'~ i.. , ",

Analysis of

Progra m

Costs,

Continued

..,

•

: .:.': ;·:,....-,·•• • ,; •• •: , , • .

Total Deposit and Pay-In Requirements

Description

Estimated Annualized Loss Pick Cont ainment Amount

Deposit Percentage

Amounts as of 03/31 /12

10%

Fixed Portion of Deposit Requirement

Loss Pick Containment Amount to Date

Presumed Loss Ratio for the Third Plan Year

•

$111 ,6 11

$11,161

306,223

(a)

•

30%

Presumed Losses to Date

91 ,867

(b)

Adjusted Current Program Claims

321.440

(c)

Retained Losses (greater of b and c)

321.440

Capital Deposit Requirement

332,601

306,223

(a)

Minimum Cost Factor

0 .34

{e)

Retained Loss Ratio (d I a)

105%

Loss Pick Containment Amount to Date

Exposure Group Adjustment Factor

0.9629

(d)

•

(f)

Base Fees (a x e x f)

100,253

Total Pay-In Amount Due Under Your Contract

432,854

Total Pay-In We Are Requiring through 03/31/12

392,915

Less: Total Pay-In We Required Prior t o 03/31 /12

390,651

Pay-In Difference as of 03/31 /12 "

$2,264

" This is not a bill. Your Pay-In factor will be adjusted to reconcile the tote/ pay-in we are requiring and the amount you have paid

in through 03131112.

•

Page 7 of 13

Account No. 81 6280

Plan Term 07/01/09 to 06/30/12

For the Period 01/01/12 to 03/31/12

APPLIEDGt·~

UNDERWRITERS

•

.··..: ". ...: . ..

······ ··.'·;::.: .· .. ·

·~

Adjusted

Workers'

Compensation

Pay-In Rates

Class Code

NY7231

NY7242

NY8742

NY8810

Description

Trucking-Mail/Package &Driver

Bicycle Delivery

Outside Salesperson

Clerical

Net Pay-In

Rate

8.73

10.49

0.57

0.34

Rate Effective

Date

04/01 /12

04/01112

04/01/12

Summary of Member Claims

Claims

Analysis

$100,000

$90,000

$80,000

$70,000

$60,000

$50,000

$40,000

$30,000

$2.0,000

$10,000

~-------------.

__l=

i\f=

/i.:.UH~--i

:;,;,: j

2009. 2010

0 Total Incurred

Indemnity

Year

Claim Count

2009 - 2010

2010 - 20 11

2011 - 2012

2011 -2.012.

2010 - 20i 1

•Total Paid

• Indemnity Claim Count

Total

Claim Count Total Incurred

$23,365

79,824

Total Paid

$23,365

32,661

16,900

1,925

Total

Outstanding

47.163

14,975

Claim Inventory

Activity for 01101/12 to 03/31112

Description

New Claims

New Open Claims

New Closed Claims

New Claim Closures

Reopened Claims

Total Open Claims

Total Closed Claims

Total Claims

Incident Only

Medical Only

Indemnity

...

•

.; ' ~

•

Page 8 of 13

Account No. 816280

Plan Term 07/01/09 to 06/30/12

For the Period 01/01/12 to 03/31/12

APPLIED~f...

UNDERWRITERS

·. . . . ·. ·..... :·:: ·.·. : .. . '.. .

•

... ·.. ·;;

·:

Reporting Lag

Date of Injury to Employer Notify Date

Period

2009 - 2010

2010 - 2011

2011-2012

This period

Average

Reporting lag

8 + days

0-3 days

4-7 days

126

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

Closed

100%

.,..

Cl.

./II

Date of Injury

Open

2009 - 2010

Total

2010 - 2011

33%

67%

2011 - 2012

100%

2009. 2010

2010 -2011

Date of Injury

2011 - 2012

•

UNDERWRITERS ~

·.. · . ··~:.:::

. ··"·;:.'··

.....::.: ··:.·. . . . . . ·.. ' •. .....

·,:

Claims Summary by Accident Cause

Struc k or

Injured

Motor Vehicle

Indemnity Claim Count

NCCI Accident Cause Grouping

Fall, Slip, or Trip

Motor Vehicle

Striking Against or Stepping On

Struck or Injured

Total

Total Incurred ($)

Claim Count

Indemnity

Total

Total Incurred

$3,824

8,008

19,54 7

88,710

$120,089

Average

Incurred

$3,824

4,004

19,547

14,785

$12.009

Largest

Loss

$3,824

5,000

19, 547

70,000

$70,000

Claims Summary by Body Part Injured

l/,

Upper

Ext remities

Upper

Ext remities)

(

. / • ·. • ·

Lower

Extre mities

Inde mnity Claim Count

NCCI Body Part Grouping

Lower Extremities

Multiple Body Parts

•

Page 9 of 13

Account No. 816280

Plan Term 07/0 1/09 to 06/30/12

For the Period 01 /01 /12 to 03/31/12

APPLIED9 f.~

.:: : .

•

Total Incurred ($)

Claim Count

Total Indemnity

Total Incurred

$74,033

8,638

Average

Incurred

$18 ,508

4,319

Largest

Loss

$70,000

5,000

Upper Extremities

37,418

9,355

19,547

Total

$120,089

$12,009

$70,000

.·.·, .

•

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

APPLIED0 f•~

UNDERWRITERS

•

. .. ·. ·-·;. -~

.·· :··"

Claims Summary by Nature of Injury

LMultiple

Injuries

Indemnity Claim Count

NCCI Nature of Injury Grouping

Multiple Injuries

Specific Injury

Total

Total Incurred {$1

Claim Count

Indemnity

Total

Total Incurred

This text is long and has been trimmed here. Open the source document for the complete record.

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