# BARTHOLOW & MlLLER LLP > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A3a81177a545b20d8 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text 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. 1 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, Q27 ~') C> ~' .:; . 1.11 •• 1•• 1.... II II11111 Il111l1ll 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.......................................................................... 2 3 4 7 7 9 • • 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 • • 1. 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 M Analysis of Program Costs, Continued • Final Plan Cost at Various Claims Cost Levels Ultimate Claims $0 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 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 ..... c: :l $30,000 (") $20,000 :l .... 0 c: 0 E ••:,.,.:,,:.:,.; :.::.,;~.;,;..~··;~;.;;.;·,·;,·;;.:;..:,::·..s:r~..=.·:~~'.:;;:,;:;:;.:.'.i.::'.::ili.t:;:;:;';':~:~~.:.!~;:..:; ;.;,:l~;~~:.;;:.::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•.... 0 UNDERWRITERS ·~, =~· ~ •· .:,":•,.;.. l · i •:; ': 1 ~·.' ~.:.';,:;: ~! ,,·.:;;;,;,;:,,·;:;:.;:.;r::;:;,:,:!.."..:..: ~,~.'..•..;::::.:~=~:\t.~:..::,:.,.:.;:.:~::.:~. ~-:::.'; ;:,';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'..:;:~..;:.:.:::~::::::.~:=; :.:: .;:.~ ~·-:~=:: ..:.~ :;, ,-,;.::,::.:;.;..·.... .:·. . , :.·..,:.·. ~ ••. · ~.•....:·- ·..... .· 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..' ;.;~;.::..::":..·~;~••:.::..::.>'-::;...;.;:;..:;.;.:..:.-:..:..;:-.::::;-;;;:!;:.:·..:;:,,,-:::·.::..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 $0 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:~;.::;;;,:;.~,;n Insurance Services. (Exh. 271-9). . 20 Exh. 65. The WCIRB promulgates experience ratings for each qualified employer pursuant to the rules set fotth in the California Workers' Compensation Experience Rating Plan (ERP); Experience rating utilizes a policyholder's past claims experience to forecast future losses by measuring the policyholder's loss experience against the loss experience of policyholders in the same classification to produce a prospective premium.credit, debit or unity modification. (Ins. Code § 11730, subd. (c)). The rules governing the reporting of loss data are found in the California Workers' Compensation Uniform Statistical Reporting Plan (USRP). Provisions of the ERP and USRP, including the Standard Classification System, are part of the Insurance Commissioner's regulations, codified at title 10, California Code of Regulations, section 2352.( 21 Exh. 271-14; Exh 272-22. 22 Exh. 272-22. The Commissioner notes for the record that the broker named Applied Underwriters as the insurance carrier. The broker made no mention of CIC anywhere in his presentation. 23 Exh..201-3. 8 :I • • • • • • • time he presented the program.24 After reviewing the premium and claim amount tables in AU's marketing materials, Shasta Linen agreed to enroll in the three-year EquityComp program.25 fu December 2012, the final month of the three-year program, Shasta Linen received a monthly bill for $77,593.66.2 6 By that time, Shasta Linen had already paid $934,466.60 in EquityComp costs over the three years and its captive cell held approximately $200,000.27 In January 2013, one month after the program ended and the workers' compensation insurance policy expired, Shasta Linen received a bill for an additional $166,619.75.28 Shasta Linen has not paid the additional $244,213.31 arguing that such payments exceed the guaranteed cost policy's quoted amount, were not fully explained and are inconsistent with the guaranteed cost policy.29 CIC continues to compound .intere&t on these unpaid charges each month. InJanuary2014, CIC calculated Shasta Linen's final payment at $290,524.58.30 CIC and Its Affiliated Entities B. 1. Organizational Structure CIC California Insurance Company is a licensed.property and casualty insurance company, domiciled in California and licensed to transact business in 26 states. CIC is whollyowned by North American Casualty Company, a non-insurer, which ·is in turn wholly-owned by Applied Underwriters, Inc. (AU), a Nebraska corporation.31 AU is an indirect subsidiary of Berkshire Hathaway Inc. AU is also the parent company for Applied Underwriters Captive Risk 24 Exh. 271-26. The broker had never emolled a client in EquityComp prior to enrolling Shasta Linen. 2s The guaranteed cost policy had an effective date of January 1, 2010. Shasta Linen did not enroll inEquityComp until January 5, 2010. 26 Exh. 213-23. 27 Tr. 819:8-11; Tr. 232:3-7; Exh. 31-2. 23 Exh. 214-1. 29 $77,593 .66 + $166,619.75 = $244,213.31. 30 Exh. 214-16. 31 Exh. 234-5; Tr. 1150:6-16. 9 • • • • • • • • Assurance Company, BVI (AUCRA) and Applied Risk Services (ARS). The following flow chart provides the organizational structure relevant to this proceeding: AU is a finan,eial service corporation that provides payroll processing services and underwrites workers' compensation insutance through its affiliated insurance companies to small and medium-sized employers. AU manages all of CIC's underwriting, investment, administrative, actuarial and claim services through a Management Services Agreement. 32 AU also administers the EquityComp program on behalf of CIC. All EquityComp documents presented and signed by Shasta Linen bear the name and logo of Applied Underwriters, Inc. EquityComp is a registered trademark of AU and all AU employees work on CIC issues. 33 AUCRA is an insurance company organized under the law of the British Virgin Islands and domiciled in Iowa.34 AUCRA's sole purpose in the Berkshire Hathaway family is to serve 32 Exh. 274-7. 33 Exh. 203-1 ; Tr. 706:23-707:4. 34 Tr. 620:2-3. 10 • • • • • • • • • as CIC's reinsurance ann. 35 It does not reinsure any other entities or perform any other functions. Applied Risk Services (ARS) is the billing agent for EquityComp and serves as CIC's service agent. 36 Under an Agency Agreement, ARS receives premium from policyholders and pays commissions to brokers on behalf of CIC. For this service, CIC reimburses ARS for the paid commissions. ARS and CIC are also parties to a Claims Services Agreement wherein ARS pays losses and loss adjustment expenses on CIC policies.37 CIC reimburses ARS for all losses and allocated loss adjustment expenses incurred on CIC claims. The Boards of Directors for CIC, AU, and AUCRA are identical in composition. 38 Mr. Silver, CIC's and AU's General Counsel, serves on each of these Boards, as well as on the Board of ARS. Ms. Gardiner, AU's Chief Actuary, is an officer of all the entities involved in this " litigation, namely, AU, CIC and AUCRA. CIC is also a party to an intercompany pooling agreement39 with its affiliated Berkshire Hathaway carriers. In 2010, the pooling agreement included CIC and Continental National Indemnity Company (CNI), with CIC assuming an 85% share and CNI assuming the remaining 15%.40 In 2011, the pooling agreement expanded to include Illinois Insurance Company (UC). CIC remained the lead company with an 80% share, while CNI assumed 15% and IIC assumed 5%. In 2013, affiliate Pennsylvania Insurance (PIC) was added to the pooling arrangement. As a result, CIC's share reduced to 75%. 35 Tr. 1154:3-15. 36 Tr. 1154:17-23; Exh. 234-6. 37 Exh. 274-8. 38 Tr. 1153:2-4; Tr. 863:1-3. 39 In pooling arrangements, entities share exposures to possible loss. Casualty Actuarial Society, Foundations of Casualty Actuarial Science, (41h ed. 2001), pp. 49-50. 4 CIC's 2010 Annual Statement, Management Discussion and Analysis. CIC's Annual Statements are available on the California Department oflnsurance's website. The Commissioner takes Official Notice ofCIC's Annual Statements from 2008 through 2014. ° 11 • • • • • 2. • • • • CIC's Workers' Compensation Policies CIC offers workers' compensation insurance through a guaranteed cost policy and a profit-sharing program. Each program is relevant to the underlying issue and described below. a. Guaranteed Cost Policy A great majority of California employers receive workers' compensation insurance coverage through guaranteed cost policies.41 Under a guaranteed cost policy, the insured company pays a fixed annual premium for the policy term, regardless of subsequent loss experience. The fixed premh,un is the sum of the average losses and the basic fees. Average losses take into account the base rate for each classification assigned to the policy and the employer's experience modification factor. The fees are the estimated costs of providing the insurance; that is sales, underwriting, prpfit and other fixed costs. Thus, a company with average losses of $500,000, may be charged $750,000 in premhnn; $500,000 to cover expected loss payments and $250,000 in basic fees. Every guaranteed cost policy must adhere to the Insurance Code and its applicable Regulations. All rates charged in a guaranteed cost policy must be filed with the WCIRB and approved by the Insurance Commissioner prior to use. In addition, every guaranteed cost policy must contain statutorily-required dispute resolution and cancellation language:42 CIC's guaranteed cost policies contain standard language approved by the Insurance Commissioner. For example, each policy states CIC's rates are filed with the Commissioner and open to public inspection. CIC warrants that it adheres to a single uniform experience rating plan and applies such experience rating to each policy.43 In addition, CIC's guaranteed cost 41 Tr. 310:4-6. 42 Ins. Code § 11650 et seq. 43 Exh. 209-17. 12 • • • • • • • • • policies notify employers of the dispute resolution process provided under California Insurance Code section 11737, subdivision (f). CIC's Policyholder Notice provides that: ffyou are aggrieved by our decision adopting a change in a classification assignment that results in increased premium, or by the application of our rating. system to your workers' compensation insurance, you may dispute these matters with us. If you are dissatisfied with the outcome of the initial dispute with us, you may send us a written Complaint and Request for Action as outlined below. You may send us a written Complaint and Request for Action requesting that we reconsider a change in a classification assignment that results in an increased premium and/or requesting that we review the manner in which our rating system has been applied in connection with the insurance afforded or offered you. Written Complaints and Requests for Action should be forwarded to: California Insurance Company, P.O. Box 281900, San . .Francisco, CA 94128· 1900, Phone No. (877) 234-4450; Fax No. (415) 508-0374.44 · Pursuant to California Code of Regulations, title 10, section 2509 .44, CIC must acknowledge the,complaint within 30 days and indicate whether the complaint will be reviewed. If CIC agrees to review the complaint, it must issue a decision within 60 days of the acknqwledgment letter. An insured dissatisfied with .C IC's decision may appeal to the Insurance Commissioner. The policy's dispute resolution provision does not provide for binding arbitration or any other alternative dispute methods. CIC's guaranteed cost policies also include a cancellation provision and a "Short Rate Cancellation" Notice, as required by the Insurance Code.45 Part 5, subsection E of the CIC policy provides that following cancellation, the final premium will be determined as follows: 1. If we cancel, final premium will be calculated pro rata based on the time the policy was in force. Final premium will not be less than the pro rata share of the minimum premium. · ~4 Exh. 208-15. 45 Exh. 208-93; See also Ins. Code§ 481, subd. (c). 13 • • • • • • • • 2. If you cancel, the final premium will be more than pro rata; it will be based on the time this policy was in force, and increased by our short rate calculation table and procedure. Final premium will not be less than the minimum premium.46 Tue Short Rate penalty is a percentage of the full-term premium based on the number of days of coverage in the canceled policy.47 The Short Rate Calculation Table in CIC's guaranteed cost · policies quotes subsection E and provides a formula for determining the early cancellation penalty. For example, an employer who pays an annual premium of $300,000 and cancels its policy after 100 days will owe $114,000; $82,192 in actual earned premium and $31,808 in penalties.48 After expiration of the policy, an employer may change insurance carriers without penalty. CIC's guaranteed cost policies also set a minimum and estimated annual premium based on.an employer's payroll estjmates, experience modification factor, and CIC's rates per $100 of payroll for each applic,able class,ification. After estimated taxes and fees, the guaranteed cost policies provide an, employer with an annual premium estimate. The final premium due is calculated using actual payroll amounts assigned to a specific classification of the policy and the employer's experience modification factor. The final premium is not impacted by the actual losses incurred during that same policy period. b. The Guaranteed Cost Policies are the Sole Insurance Agreements The guaranteed cost policies issued by CIC in this matter all contain the same language that the policies are the sole insuring agreements between CIC and Shasta Linen and go on to state that, "The only agreements relating to this insurance are stated in this policy. The terms of 46 Exh. 208-87. 47 The short-rate penalty discourages employers from switching insurers mid-policy year. 48 Exh. 208-20 to 208-22. . 14 • • • • • • • • • this policy may not be changed or waived except by endorsement issued by us to be part of this policy.',49 In addition, a standard form Policy Amendatory Endorsement-California is attached to each of the policies and state, "It is further agreed that this policy, including all endorsements forming a part thereof, constitutes the entire contract of insurance. No condition, provision, agreement, or understanding not set forth in this policy or such endorsements shall affect such contract or rights, duties. or privileges arising therefrom."50 [Emphasis added.] No endorsement is attached, endorsed, or included to the policies adding any provisions or changes relating to the RPA. Finally, the policies each state on page five, under Part Six-Conditions, C. Transfer of Your Rights ~d Duties: "Your tights or duties under this policy many not be transferred without our written consent." c. EquityComp In conjunction with AU, CIC offers a ''profit-sharing" loss sensitive program titled EquityComp. Loss sensitive programs are ones in which the premium for the policy year is impacted by the actual cost of claims incurred during the policy year. 51 By definition, loss sensitive plans are "profit-sharing.',s2 Generally, carriers market loss sensitive programs exclusively to large employers. 53 In fact, many jurisdictions restrict the sale ofloss sensitive programs to employers whose annual premiums exceed $500,000. Large employers are typically better able to cope with loss and experience modification variations and are in a better position to control claims costs. Also, given the sophistication oflarger companies, these employers are 49 Exhibits 208, 209, and 210. 50 Ibid. SI Tr. 595:9-14. 52 Tr. 604:9-14. 53 Tr. 310: 10-1'6; see also ALJ Exh. 1. 15 • • • • • • • • • better able to evaluate the cost effectiveness of the types of insurance policies available. 54 In essence, large employers are more prudent shoppers and can evaluate whether their costs match with an insurer's quote.ss Loss sensitive programs are issued as endorsements to guaranteed cost policies and require the Insurance Commissioner's approval. 56 EquityComp's profit-sharing plan is reflected in a Reinsurance Participation Agreement.s7 Neither CIC nor its affiliated entities filed or sought approval for the RPA or the EquityComp program. 58 The EquityComp program, and its accompanying Reinsurance Participation Agreement, is discussed in Section C, infra. 3. Financial Statements, Ratios and Market Share CIC is primarily a workers' compensation insurance carrier. Approximately 98 percent of its book of business is written in Cal,ifomia workers' compensation. 59 EquityComp currently " generat~ 80 percent9fCIC's policy premium. 60 That percentage has steadily increased since the program's inception in 2008. • In 2009, CIC's net earned premium totaled $71,512,000 with incurred losses and loss adjustment expenses (LAB) equaling $55,615,000. 61 This resulted in a net loss ratio of 77.7% and a combined ratio of 109.7%.62 Accordingly, CIC had a negative net income of $4,419,116. 63 54 Tr. 310:17-23. ss Tr. 311:4-1 l. 56 Tr. 875:2-4; An endorsement to an insurance policy "is an amendment to or modification of an existing policy of insurance" that "may alter or vary any term or condition of the policy" and that "may be attached to a policy at its inception or added during the term of the policy." Adams v. Explorer Ins. Co. (2003) 107 Cal.App.4th 438. S7 Tr. 621:2-16. 58 Tr. .1169:18-20. 59 Tr. 1155:24-1156:4. 60 Tr. 865:19-22. Mr. Silver's testimony contradicted that of Ms. Gardiner on this issue. The Commissioner credits Ms. Gardiner's testimony on this issue, as Ms. Gardiner serves as the chiefwiderwriter for AU and CIC. 61 CIC's 2010 Annual Statement, Statement of Income. 62 The net loss ratio is the sum of incurred losses and incutTed loss adjustment expenses divided by earned premium. These amounts are found on lines 1 through 3 ofCIC's Statement of Income. 63 CIC's 2010 Annual Statement, Five-Year Historical Data. 16 • • In 2010, CIC's net earned premium incr~ed to $87,444,676, while its incurred losses and LAB dramatically decreased to $17, 151,456. As a result of the significant decrease in losses, CIC net loss ratio dropped to 19.6% and its combined ratio declined to 54%. 64 This resulted in net income of$28,516,390. • In 2011, CIC's net earned premium rose 34 percent to $117,505,149 with incurred losses and LAB's of$34,725,831. That year, CIC's net loss ratio equaled 29.5% and its combined loss ratio equaled 55.7%. 65 CIC's net income for 2011 also increased to $3 6,573,942. 66 • In 2012, CIC saw a 16 percent earned premium increase with net earned premium totaling $135,598,473. CIC's losses and LAB equaled $17,116,000, for a net loss ratio of · 12.6% and a combined ratio pf 43.2%. 67 CIC's net income in 2012 equaled $47,582,838. ·• ~ 2013, CIC's neteapied premium increased another 37 percent to $186,034,034. CIC's losses and LAE totaled ~59,8~4,816, for a net loss ratio of32.1 %. After underwriting expenses, CIC combined ratio equaled·61.8%. 68 CIC recorded net income of $48,928,910 for2013. • In 2014, CIC's net earned premium rose another 29 percent to $240,474,973. CIC's incurred losses and LAE's for that year equaled $72,484,214, for a net loss ratio of 30.1%. 69 CIC's combined ratio for 2014 totaled 60% and CIC reported anet income of $65,540,948. 64 CIC's 2010 Annual Statement, Statement of Income & Five-Year Historical Data. 65 CIC's 2011 Annual Statement, Management's Discussion and Analysis, p. 4. 66 CIC's 2013 Annual Statement, Five-Year Historical Data. 67 CIC's 2012 Annual Statement, Management's Discussion and Analysis, p. 4. 68 CIC's 2013 Annual Statement, Management's Discussion and Analysis (Amended), p. 69 CIC's 2014 Annual Statement, Management's Discussion and Analysis, p. 4. 17 5. In sum, CIC's profits since EquityComp's 2008 inception equal $227,713,912. The following chart illustrates CIC's increase in net earned premium and net income: Fig.1': CIC's Net Earned Premium and Income (in millions) 300 250 200 150 - N e t Earned Premium .......... Netlncotne 100 50 0 2009 2010 2011 2012 2013 2014 . -50 . In comparison, CIC's tot~ combined profit for the three years prior to EquityComp's 2008 inception totaled $47,172,997. 70 From 2009 through 2014, CIC also posted significantly lower loss and combined ratios than other comparable carriers. CI C's calendar year ratios versus those of the industry as a whole are shown below: 71 1licy. 254 Tr. 457:7-23. Tr. 459:13-14. 255 Tr. 450: 15-452:4. 63 • • • • D. • • • • • CDl's Financial Audits Do Not Constitute Approval of Unfded Agreement CIC also contends that prior CDI financial examinations reviewed the EquityComp program and the RP A, and constitute approval under the Insurance Code.256 CIC's argument can be summarized as follows; since the examinations were silent with regard to EquityComp and the RPA, the CDI tacitly approved the RPA and EquityComp. This argument again ignores the clear mandate of Insurance Code section 11658 and mischaracterizes CDI's financial and market conduct reports. Insurance Code section 11658 sets a clear mandate for insurers. All policy, fonns and endorsements must be filed with the WCIRB and approved by the Insurance Commissioner prior to use. The Insurance Code does not pennit insurers to sell unfiled and unapproved policies nor is the regulatory scheme furthered by implicit approval. Unapproved policies and forms do not become lawful over time, regardless of the number of examinations conducted. In addition, CICmischaracterizes the CDI's reports. All three financial examinations reviewed CIC's assets and liabilities, and evaluated CIC's prospective risks. Financial examiners did not review the RPA or confirm compliance with section 11658. The financial examinations make only passing references to EquityComp, and evaluation of EquityComp was well beyond the exam's scope. TheMarket Conduct report's silence is equally unpersuasive. The purpose of a market conduct audit is to evaluate an insurance carrier's general operating procedures.257 The audit does not require the review and approval of side agreements, such as the RPA. Indeed, CIC's legal conclusions are based entirely on conjecture and silence. CIC provided no evidence to support its contention that the CDI reviewed the RPA and found that it complied with the Insurance Code. CDI examiners did not testify during the evidentiary hearing 256 Respondent's Post-hearing Opening Brief, 30:12-37:18. 257 Cal. Code of Regs., tit. 10, § 2591. 64 • • • • • • • • • nor did CIC make an evidentiary showing regarding the examination process. Accordingly, this argument is unsupported and without merit. E. The RPA is an Illegal Contract and Void as a Matter of Law Having determined the RPA to be an un:filed collateral agreement, CIC lastly contends the Insurance Commissioner lacks authority to void the RPA's application to Shasta Linen. CIC contends the Commissioner may only issue a prospective ord_er to stop the use of an unfiled rate after a separate hearing on the merits of the RPA. This argument ignores the fact that the RPA is void as a matter oflaw, as indicated by the legislature's comprehensive regulatory scheme and relevant case law. 1. Statutory Scheme Supports RPA is Void as a Matter of Law As detailed above, the RP/\. modifies the rates and rating plan sold to Shasta Linen by CIC. Nothing in sectfon 11737, 'sub'djv'ision (f) limits the Insurance Commissioner's authority to remedy such violation where a polj.c'yholder is aggrieved or to make conclusions regarding Hems that are as a matter oflaw. Insurance Code .section 11658 states that a workers' compensation insurance policy or endorsement "shall not be issued by an insurer" unless it is filed with the WCIRB and in .one way or another approved by the Insurance Commissioner, and subsection (b) states that issuing an unapproved policy or endorsement "is unlawful." Section 11658 is clear: the unfiled and Unapproved RPA is illegal under section 11658 and therefore void as a matter of law.2ss Subdivision (a) oflnsurance Code section 11735 requires all rates and supplementary rating information to be filed in this state before use and 30 days transpire before their effective date. The modifications ofthe Shasta Linen's rates or rating plan as a result of the RPA's re258 Kremer v. Earl (1891) 91 Cal. 112 (stating that "[i]t is not necessary that the act itself ... declare in express words" that a contract in violation of the act is ''void"); see also American Zurich Ins. Co. v. Country Villa Serv. Corp., supra, 80 Cal. Comp. Cases 687, 709. 65 • • • • • • • • • rating process also support the conclusion that the RPA is void as a matter oflaw.259 · In addition, if upon a review of the legislative scheme, a contract appears to contravene the design and policy of the laws, a court of equity will not enforce it."260 By its own admission, AU designed EquityComp and the RPA to circumvent workers' compensation policy. It would defeat the statutc:>ry purpose to allow CIC to bypass the governmental review process by simply waiting until after the insurance policy has gone into effect to introduce additional or modified terms tojts insurance program. Workers' compensation insurance is mandatory and California employers expect the statute's protection. CIC knew of the review and pre-approval process and deliberately ignored that process with regard to the RPA. It cannot now argue that the Insurance Commissioner should permit the use of an unapproved rate. As noted above, the legal requirement for modifying any workers' compensation insurance obligation is to .endorse the agryement to the insurance policy.261 This is done by filing . the agreement with the WCJRB, wh.ich in turn will file it with the Insurance Commissioner, and endorse it to the insurance policy after the requisite time or approval.262 Untiled side agreements are prohibited and shall not be used without complying with these requirements; otherwise, they are not permitted in this state and are void as a matter oflaw. 263 2. Case Law Supports RPAis Void as a Matter of Law CIC' s argument is also devoid of case law support and ignores case law directly on point. In Country Villa, discussed ante, the federal court using California law, determined that Zurich's failure to file the IDA with the WCIRB and the Insurance Commissioner violated Insurance Code section 11658. The court held the proper remedy for such a violation was to find 259 Ibid. 260 Kremer v. Earl, supra, 91 Cal. .112. 261 Title 10 CCR § 2268. 262 See Ins. Code § 11658. 263 Ins. Code§ 11658; American Zurich Ins. Co. v. Country Villa Serv. Corp, supra, 80 Cal. Comp. Cases 687, 695. 66 • • • • • • • • • the IDAs void and unenforceable. 264 In so holding, the district court stated that untiled and unapproved side agreements are illegal and void as a matter oflaw. As such, the Commissioner's determination that the RPA is void as a matter oflaw, is amply supported by analogous case law. 3. No Compelling Reason Exists to Enforce RPA In compelling cases, California courts will enforce illegal contracts "in order to avoid unjust enrichment and a disproportionately harsh penalty upon the plaintiff.'.i6 s·The extent of enforceability and the remedy granted depend upon a variety of factors, including the policy of the transgressed law, the type of illegality, and the particular facts. Application of these factors to the RPA supports the conclusion that the RPA should not be enforced. First, the. Insurance Code re'quires full disclosure, review, and approval for workers' compensation policies in o'rd~ to safeguard California consumers from discriminatory, . unsupported, or exploitati:ve rates aq_d to prevent monopolies. Shasta Linen is exactly the type of California employer the statutory scheme is meant to protect. It would defeat the statute's purpose to pennit CIC and its affiliated companies to sell EquityComp and the RPA without regulatory approval and oversight. Indeed, it would be directly contrary to sections 1165 8 and 11735 to allow an insurance company to bypass the regulatory review process by waiting until after the policy has gone into effect to introduce additional or modified terms to its insurance program.266 Second, there is no risk of unjust enrichment by Shasta Linen. An insurer's issuance of an illegal contract, even if it·results in enrichment to the insured, does not result in unjust 264 A merican Zurich Ins. Co. v. Country Villa Serv. Corp ., supra, 80 Cal. Comp. Cases 687, 695. 265 Malekv. Blue Cross ofCal. (2004) 121 Cal.App.4th 44, 70; Asdourian v. Araj (1985) 38 Cal.3d 276, 291. 266 American Zurich Ins. Co. v. Country Villa Serv. Corp, supra, 80 67 Cal. Comp: Cases 687, 710. • • • • • • • • • enrichment, since the insured did nothing wrong. 267 And if the RP A is void, Shasta Linen remains liable to CIC under the guaranteed cost policies for the agreed-upon premium and fees based upon the applicable filed rates. Third, denying enforcement of the void RPA is not unduly harsh. CIC knew California's filing requirements for policies ~nd endorsement and chose not to seek the required regulatory approval. Permitting CIC to enforce the illegal RPA would encourage illegal activity by it and other insurers, run contrary to the workers' compensation insurance system, and would be an abdication of the Commissioner's regulatory oversight. Finally, CIC is not blameless since it created a product to circumvent California's statutory and regulatory requirement; a product that ultimately enriched CIC at the expense of California employers. It would n6tbe equitable to allow the party who created the illegality to enforce the illegal contact. 268 · Shasta Linen ~gues it should be:liable only for the claims paid during the duration of the three-year program. Shasta Linen provides no support for this contention, nor does Shasta Linen explain why the Insurance Commissioner should bar enforcement of the guaranteed cost policy. Shasta Linen is not legally self-insured, it has a guaranteed cost policy with CIC, and it should pay the appropriate insurance premium based upon the filed rates applicable to Shasta Linen. Any additional remedies to which Shasta Linen is entitled based upon CIC' s conduct are outside the scope of this proceeding. 267 Id. at 709. 268 American Zurich Ins. Co. v. Country Villa Serv. Corp, supra, Id. At 710. 68 • • • • • • • • • VIII. Conclusion Pursuant to California Code of Regulations, title 10, section 2509.61, subdivision (a), a ''party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he or she is asserting." Based on the foregoing findings of facts and conclusions of law, the Insurance Commissioner finds by a preponderance of the evidence that Shasta Linen met its burden of proof in demonstrating that it is aggrieved by CIC' s misapplication of its filed rates as a result of an un:filed and unapproved collateral agreement that modified the terms and conditions of the guaranteed cost policy, in violation of Insurance Code sections 11737 and 11658 and California Code of Regulations, title 10, section 2268. Further, CIC,'s EquityComp program's Reinsurance Participation Agreemerit constitutes a collateral agreement modifying the rates and obligations of the insured and the insurer, and is void as a matter oflaw ~ince it was required to be filed with the Workers' Compensation Insurance Rating Bureau and filed with the Department of Insurance before its use in the State of California, pursuant to Insurance Code section 11658 and California Code of Regulations, title 10, sections 2268 and 2218. ORDER 1. Shasta Linen is responsible only for the premium and costs associated with the three guaranteed cost policies issued on January 1, 2010, January 1, 2011 and January 1, 2012 and the rates applicable to those policies. To the extent that Shasta Linen has remitted to CIC funds in excess of the amounts under the guaranteed cost policy, CIC shall refund that amount, including all amounts held in Shasta Linen's captive cell, within 30 days of the date of this decision; 69 • • • • • • • • • • I I 2. The entirety of this Decision and Order is designated precedential_pursuant to Government Code section 11425.60, subdivision (b), and; 3. Pursuant to Government Code section 11519, this Decision shall be effective immediately. IT IS SO ORDERED. DATED: June 20, 2016 70 ... •• • • • EXHIBIT D . • • • • • • • • INDEX NO. UNASSIGNED RECEIVED NYSCEF: 09/09/2016 NYSCEF DOC. NO. 8 EXAMI NAT ION REPORT ,OF APPLIED UNDERWRITERS CAPTI VE RISK ASSURANCE COMPANY , INC . CEDAR RAPIDS, IOWA AS OF DECEMBER 31, 2013 • • • • • • • • • Omaha, Nebraska March 23 , 2014 Honora ble Dave Jone s Insurance Commissioner California Department of Insurance 300 Capitol Mall Suite 1700 Sacramento, California 95814 Honorable Nick Gerhart Commissioner of Insurance Iowa Insurance Division 601 Locust St., 4th Floor Des Moines, Iowa 50309 Commissioners: In accordance wi th your respe c tive a uthorizations and pursuant statutory provisions, an Association Examination h as been made of the business affairs and financial condition of to Iowa records, APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC . CEDAR RAPIDS , IOWA AS OF DECEMBER 31, 2013 at the Company's administrative office, 10805 Old Mill Road, Omaha, NE. INTRODUCTION Applied Underwr i te rs Capti ve Ris k Ass urance Compa ny , Inc ., r eferred to as the "Company", does not have a prior examinati on. commenced business on October 21, 2011 . hereinafter The Company SCOPE OF EXAMINAT ION Thi s is the regular compreh ens i ve finan cial examination of the Company covering the i n tervening period from Octobe r 2 1, 201 1 to the c l ose of business on December 31 , 201 3 , inc luding a ny material tran saction s and/or events occurri ng and noted subsequent to the examination period. The examinatio n wa s conduc t ed i n acc or dance with the NAI C Financial Conditi on Examiners Handbook. The Handb oo k requires t h at we plan and perform the examina t ion t o evalua t e the financia l cond i tion and identify prosp ective ris ks of the Company by obt a ini ng informat i o n about the Company, includi ng corp orate governance , ident i f yin g and assessing inhe r e nt risks within the organizat i on , and eva luating system control s and proce du res us ed t o mi t igat e those r i s ks . An exami n ation a l so includes ass e ss ing t he principl es u sed and significant estimates made by management, as wel l as evaluating the overall fi na n cial statement presentati on, management ' s compliance wi t h Statutory Account ing Principles a nd annual stateme nt instru ctions , when applicable to domesti c state regulations . 1 • • • • • • • • • All accounts and activities of the organization were considered in accordance with the risk-focused examination process . The Company ' s assets were verified and evaluated and the liabilities determined to reflect herein a statement of its financial condition as of December 31 , 2013. HISTORY Applied Underwriters Captive Risk Assurance Company, Inc . was incorporated in Iowa on August 29, 2011 and is authorized to write workers ' compensation . The Company merged with Applied Underwriters Captive Risk Assurance Company, Inc . , a British Virgin Islands company, which ceased to exist after the merger . The Company is wholly owned by North American Casualty Co . an indirect subsidiary of Berkshire Hathaway Inc. The Company assumes workers ' compensation premiums and losses through a reinsurance agreement with affiliate California Insurance Company . The Company is licensed in California and Iowa. CAPITAL STOCK The Amended Articles of Incorporation provide that the authorized capital of the Company is $10 , 000 , 000 consisting of 10 , 000 , 000 shares of common stock at $1 par value each . At December 31 , 2013 , the Company had 5 , 700,000 shares of common stock issued and outstanding with a total par value of $5 , 700 , 000 and $17 , 650 , 000 of gross paid in and contributed surplus. All shares were owned by North American Casualty Co. The Company did not pay any stock d i vidends during the examination p er iod . INSURANCE HOLDING COMPANY SYSTEM The Company is a member of an insurance holding company system as defined by Chapter 521A, Code of Iowa. A simplified organizational c hart as of December 31, 2013, reflecting the ultimate parent and holding company system, is shown below . 2 • • • • • • • • • • Berkshire Hathaway Inc. ( 8 1% ownership) I AU Holding Company,Inc. I Applied Underwriters, Inc. I North American Casualty Co. I I I I I I ~p.1.ieu California Insurance Company Continental Indemnity Company Pennsylvania Insurance Company Illinois Ins ur ance Company Underwriters Capti ve Risk Assurance f""-----·· MANAGEMENT AND CONTROL STOCKHOLDERS The Bylaws and Re gul ations of the Company state that the annual meeting of t he s h areholders for the electi on of dire ctors , for the consideration of reports to be l a id before such meeting and f or the transacti o n of s u c h ot her business as may properly come before such meeting , shall b e h e ld each year at a l ocati on to be d ete rmine d on t h e f irs t Monday in September . Meetings of the shareholders may be call ed only b y the Chairman of the Board , the President , or in the case of the Pres ident's absence , death , or d is abi li ty , t h e Vice President a utho ri zed to exercise the authority of the President ; the Secretary ; the directors by action at a meeting , or a majority of t h e directors act ing wi thou t a me e ting; or t h e h o l ders of at l east 50% of al l shares o uts tandi n g a nd ent itl e d t o vote t h e r eat . All me etings of shareholders shall be held a t the princ ip a l office of t he corporation , unless otherwise provided by action o f the directors . Mee ti ngs of shareholders may b e h e ld at any place within or wi thout the State of Iowa . At any mee ting of s hareh o l ders , the holders of a ma jority in amount of t h e vot i ng s h ares of the corporation then ou tstanding a nd ent itl ed to vote thereat , present in p e rson or by proxy , shal l constitu te a q uorum for s uch meeting . 3 Tn ,.. • • • • • • • • BOARD OF DIRECTORS In accordance with the Articles of Incorporation , the business and affairs of the Company shall be managed by a Board of Directors consisting of not less than five nor more than 21 as may be fixed by the shareholders at each annual meeti n g or , if no number is so fixed, of five directors , and each of whom shall be elect ed annually by the shareholders at each annual meeting to serve for a term of one ye ar or until a successor has been elected and qualified. The annual meeting of the Board of Directors shall be h eld immediately following the annual shareholders meeting . Special meetings of the Board of Directors may be held as directed by the Chairman or a majority of the Board of Directors. Qualified directors serving on the Board as of December 31, 20 13 were: Name Principal Occupation Term Expires Sidney R. Ferenc Highland Beach , Florida Chief Executive Officer Applied Underwriters, Inc. Affiliates 2014 Steven M. Menzies Omaha, Nebraska Chief Operating Officer Appl ied Underwriters, Inc . 2014 Jeffrey A. Silver Omaha , Nebraska Executive Vice President Applied Underwriters, Inc. 2014 Jon M. Mccright Cedar Rapids, Iowa Attorney Lynch Dallas P . C. 2014 Marc M. Trac t Nassau, New York Att orney Katten Muchin Rosenmann LLP 20 1 4 COMMITTEES The Board of Directors may designate from their own number an executive committee , an investment commit t ee and one or more other committees . Committees d es i gnated were as follows: Audi t Committee Jeffrey A. Silver Marc M. Tract Jon M. Mccright Investment Committee Sidney R. Ferenc Steven M. Menzies Jeffrey A . Silver The full Board of Directors reviews and approves investments at least quarterly . OFFICERS The Bylaws and Regul at i ons presc rib e tha t the officers of the corporat ion to be e l ected by t h e dir ectors s h a ll b e a President , one or more Vi ce Presidents , a Secretary, a Treasurer, and may, but shall not be required to include, one or more 4 • • • • • • • • • Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers , none of whom shall be required to be shareholders or directors . Any two or more offices may be held by the same person, but no officer shall execute , acknowledge , or verify any instrument in more than one capacity if such instrument is required by law , the Articles , the Bylaws and Regulations or the Bylaws to be executed , acknowledged or verified by two or more officers. Each officer shall be elected annually by the Board of Directors at each annual meeting to serve a term of off ice of one year or until a successor has been elected and qualified . Officers elected and serving as of December 31 , 2013 were as follows: Off ice Chairman and Chief Executive Officer President , Treasurer and Chief Operating Officer Vice President of Finance Vice President and Chief Actuary Secretary Name Sidney R. Ferenc Steven M. Menzies Robert L. Stafford Ellen M. Gardiner Jeffrey A. Silver The Company does not have any salaried officers or employees. costs are shared under an inter-company service agreement . Services and CONFLICT OF INTEREST The Company has a Conflict of Interest policy that states , "If an officer or director has an interest in or contemplates entering into a transaction that presents an actual or potential conflict of interest , the same must be disclosed in writing to the Company ' s Board of Directors and , if necessary, to the stockholder of the Company. " The annual Conflict of Interest questionnaires were reviewed , and it was noted that each of the officers and directors had completed and signed a questionnaire . A copy of the Conflict of Interest policy was attached to each of the signed questionnaires . CORPORATE RECORDS noted . The minutes of the stockholders and Board of Directors meetings were read and The minutes appeared to be complete and were properly attested. INTER- COMPANY SERV I CE AGREEMENT The indirect parent , Applied Underwriters , Inc. , has agreed to provide certain management , claims processing , premium processing , and data processing services for the Company at actual cost . The Company entered into a Cost Sharing Arrangement with this affiliate for rent , salaries, and general administrative expense , which has been approved by the Iowa Division of Insurance. All payments due for 2012 and 2013 were waived by the affiliate . FIDELITY BONDS AND OTHER INSURANCE The Company ' s indirect parent , Applied Underwriters , Inc . maintains fidelity bond coverage up to $2 , 000 , 000 , which adequately covers the suggested minimum amount 5 • • • • • of coverage for the Company as recommended by the NAIC . as a named insured on the fidelity bond . • • • • The Company is identified The Company also maintains Property , Crime, General Liability, and Automob ile coverages , along with an overall umbrella policy with a limit of $ 10 , 000 , 000. EMPLOYEE WELFARE The Company does n o t have any salaried employe es and is provi ded services from an inter - company service agre ement . REINSURANCE The Company ' s current reinsurance program consists of the following : The Company only assumes from the intercompany agreement with Cali forn ia Insurance Company . The premium as sumed is for p rofi t sharing policies wri tten by California Insura n ce Company and Con t inental Indemni ty Company . The Company cedes Profit Sharing plans ceded premium and l osses paid to client cells per contract rates . This is accounted for pursuant to a prescribed practice approved by the Iowa Di vision of Insurance . The Company also maintains an excess loss agreement with affiliate Commercial General Indemnity, I nc . This agreement covers the policies with losses that exceed the maximum l osses covered in the profit sharing contract rates . STATUTORY DEPOSIT As of December 31 , 2013 , the boo k / adjusted carrying value of securities held in a custodial account and vested in the Insurance Commissioner o f California for all other special deposits totaled $36 , 369 , 404. TERRITORY AND PLAN OF OPERATI ON Th e Compan y is l icensed in Iowa and Californi a. Th e Company does n ot write a ny direct business . GROWTH OF COMPANY The following signi ficant data , ta ke n from the Company ' s statements for the years indi cat e d reflects the growth of the Company : 2013 Premiums Earned 20 12 fi l e d 20 11 0 0 0 Net Underwriting Gain/(Loss) (502 , 052) 1 , 361 , 689 (8 , 862 , 983) Net Income (1 , 739 , 493) (4 2 4 , 602) 484 , 446 Total Assets 372 , 919 , 928 347 , 098 , 936 186 , 927 , 352 Total Liabilities 347 ,4 22 , 269 322 , 084 , 096 172 , 33 1 , 746 Surplus As Regards Polic yholders 25 , 497 , 659 25 , 014, 8 40 14 , 595 , 606 6 annual • • • • • • • • • ACCOUNTS AND RECORDS The Company maintains its principal operational offices in Omaha, where this examination was conducted. Nebra ska, McGladrey & Pullen, an independent CPA audited the Company' s statutory basis financial statements annually for the years 2011, 2012 and 2013. The Company' s accounting records were maintained on a computerized s yst em . The Company' s balance sheet accounts were verified with the line items of the annual statement submi tted to the Division of Insurance . An evaluation of the information technology Company was completed during the examination. and computer systems of the During the course of the examination , no material statutory compliance issues were no ted , nor aggregate surplus differences identified , from t he amount reflected in the financial statements, as presented in the annual statement a t De cember 31, 2013 . 7 • • • • • • F I NA N C I A L AN D NOTE: • • • S T A T E ME N T S C 0 MM E N T S T H E R E 0 N Ex c ept as otherwise stated, t he finan cial statements immediately foll owi ng reflect on ly the trans ac tions for the period ending De cember 31 , 2013 and t he a ssets a n d l i abili ties as o f t his date. Sche dul es may not add or tie precisely due to rounding . 8 • • • • • • • • • • STATEMENT OF ASSETS AND LIABILITIES ASSETS Not Admitted Ledger Bonds Cash & Short term investments Investment income due and accrued Premiums and considerations: Deferred premium Reinsurance Amounts recoverable Net def erred tax asset Receivables from parent and affiliate Aggregate write - ins Prepaid Expenses Total assets $ 39 , 266 , 917 224,092 , 009 74 , 435 116 , 709 , 679 Admitted $ $ 39 , 266 , 917 224 , 092 , 009 74 , 435 9,607 , 145 107 , 102 , 534 (14 , 468, 033) 13, 208 , 916 8 , 488 , 358 4 , 845 ,209 (14 , 468 , 033) 8 ,363 , 707 8,488,358 80 80 0 $ 387 , 372 , 361 $ 14 , 452,434 9 $ 372 , 91 9 , 927 • • • • • • • • Liabilities, Surplus and Other Funds Losses Reinsurance payable on paid losses and loss adjustment expenses Loss adjustment expenses Other expenses Taxes, licenses and fees Current federal and foreign income taxes Ceded reinsurance premium payable Funds held by company under reinsurance treaties Payable to parent and affiliates Total liabilities $ $ 6,197,795 (27,425,703) 68,388 43 ,868 72,000 1,420,926 128 , 680 , 998 237,841,918 522 ,079 $ 347,422 , 269 Common capital stock Gross paid in and contributed surplus Unassigned funds (surplus) $ 5 ,7 00 ,000 17,650,000 2 ,147,659 Surplus as regards policyholders $ 25,497 , 659 $ 372 , 919 , 928 Total liabiliti es , surplus and other funds 10 • • • ·• •• •• • • • STATEMENT OF INCOME PERIOD ENDING DECEMBER 31, 2013 Underwriting income Premium earned Deductions Losses incurred Loss adjustment expenses incurred Other underwriting expenses incurred Total underwriting deductions $ 119, 059 158,05 7 224,936 502,052 Net underwriting gain (loss) $ Investment Income Net investment income earned $ (502,05 2) 315,468 315,468 Net investment gain (loss) Other Income Administrative fee $ 2,910,386 2,910,386 Total other income Net income before Federal income tax Federal & fore ign income taxes Net income $ 2 ,7 23 , 802 4,463, 29 5 $ (1,739,493) $ 25 ,014, 840 $ (1 , 739,493) 3,547,308 (1,324, 997) Capital and Surplus Account Surplus as regards policyholders, December 31 , 2012 Gains and (Losses) in Surplus Net Income Change in net deferred income tax Change in non-admitted assets Change in surplus as regards policyholders for the year Surplus as regards poli c yholde rs, 482,818 December 31, 2013 $ 11 25 ,014,8 40 • • • • • • • • CASH FLOW Premium collecte d net of reinsurance Net investment income Miscellaneous income Total Benefit and loss related payments Net transfers to separate, s e gregated & protected cell accounts Commissions , expe n s es pa i d a nd aggr e gate write-in for deductions Dividends paid to policyholders Federal and foreign income taxes paid Total Net cash from operations Cost of investments aquired (l ong-te rm only) : Bonds Total investment acquired Net increase (decrease) in contract loans and premium notes Net cash from inves tment s Cash provided (applied ) : Other cas h provided (applied ) Net cash from financing and miscellaneous sources Net change in cas h , cash equival e nt & short term investment s Cash , cash equi val ent & short term investments : Beginning of year End of year 12 $ 13, 78 4 , 418 $ $ 260 , 727 2 , 910 , 386 16 , 95 5 , 531 13 , 76 8 , 775 216 , 108 $ $ (25 , 6 4 9 , 1 55) (11,664 , 272) 28 , 619 , 803 $ $ 36 , 525 , 000 36 , 525 , 000 $ ( 36 , 525,000) $ 32,249 , 454 32 , 249 , 454 $ 24 , 34 4 , 257 $ 1 99 , 747 , 75 1 224 , 092 , 008 • • • • • • • • • CONCLUSION The insurance examination practices and proce dures as promul gated by t h e NAI C have been followed in ascertaining t h e financial c ondition of App lied Underwri t ers Captive Risk Assurance Company , Inc. as of December 31 , 2013, consistent with the insurance laws o f the Stat e of I owa . In addition to the undersigned , t he following participated i n the examination : Ryan Havick, CFE , Senior Manager , Eide Bailly LLP; Emilie Brady , CFE , AIE, Mana g er, Eide Bailly LLP; James Burch , Associate, Eide Bailly LLP. Resp ectfully submitted , Isl Emil ie Brady Emili e Bra d y , CFE Examiner in Charge Eide Bailly LLP on behalf of t h e I owa Insurance Divi sion 13 • • • • • • EXHIBIT D • • • • • • • • • • • • INDEX NO. 654806/2016 YORK COUNTY CLERK 09 30 2016 05:29 p • RECEIVED NYSCEF: 09/30/2016 CONTINENTAL INDEMNITY COMPANY NAICNo.28258 10825 OldMillRoad, Omaha, NE 68154 817-2344420 WORKERS' COMPENSATION AND EMPLOYER'S LIABILITY INSURANCE POLICY INFORMATION PAGE Policy No. 55-816280-01-02 1. Insured and Mailing Address Entity: FEIN: State No. Enforce Coverage Group 425 New York Ave Ste 203 Huntington, RY 11743-3436 Breakaway Courier Corporation DBA Breakaway Courier Systems PO Box 780 New York, RY 10013-0676 Producer and Mailing Address iiiiiill Agent No. Billing: DIRBCT BILL Corporation RenewalofPolicyNo. 55-816280-01-01 See Additional Named Insured Endorsement and Locations Endorsement if attached. 2 The policy period is from07 /01/10to 07 /01/1112:01 A.M. Standard Tune atthe insured's mailing address. 3. A Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here: NY 4. R Employers Liability Insurance: Part Two ofthe policy applies to work in each state listed in item 3.A. The limits ofour liability under Part Two are: Bodily lnjuty by Accident $1, o OO, ooo each accident Bodily lnjllly by Disease $1, O0 0, O0 O policy limit each employee Bodily lnjllly by Disease $1, OOo, OOo C. Other States Insurance: Part Three of the policy applies to all states except the states listed in item 3.A and the states of North Dakota, Ohio, Washington, and Wyoming. D. See attached list for endorsements and schedules. The premium for this policy will be determined by our Manuals of Rules, Classifications, Rates and Rating Plans. All information listed on the Extension oflnfonnation page is subject to verification and change by audit. See Extension of Information Page for premium rating schedule. MinimumPremium $ 87 5 Total EstimatedAnnualPremium $ 100, 136 Estimated Taxes and Assessments $ 17.622 Issuing Office: OMAHA, NE CNIC-WC-IP-7/08 Countersigned by: WC-OO-OO-OlA • • • • • • e • • • Continental Indemnity Comp. . WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY WC990401 UST OF ENDORSEMENTS AND SCHEDULES Endorsements on Policy: ss-816280-01-02 Form Number Endorsement Number Name WCOOOOOlA_CNJ:C 'I.nfo:r:matiou Page WC990401_CNXC List of Endorsements And Schedules WC000174 Extension of 'I.nfo:r:mation Page A 'I./L_CNJ:C Additional Hamed Insured and/or Locations 1«:310308 1 New York Limit Of Liability Endorsement WC000419 2 Premium Due Endorsement WC310319B 3 New York Construction Classification Premium Adjustment Program Terrorism Risk 'I.nsurance Program Reauthorization Act Disclosure WC000422A WC000421C 5 Catastrophe WC000406 6 Premium Discount WCOOOOOOA_ar.tC 7 Workers CQJ11Pensation and Bmployers Liability - Quick Reference PN000001 100 Short Rate Cance1ation Policyholder Notice • • • • • • • • • WC174 (Ed. 4-84) WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY EXTENSION OF INFORMATION PAGE Policy Number 55-816280-01-02 4. Premium Classifications Code No. Premium Basis Total Estimated Annual Remuneration Rate Per $100of Remuneration Estimated Annual Premium Trucki1191 Mai1, Parcel Or Package De1ivery- Al1 Employees & Drivers 7231 259,786 8.1000 21,043.00 Bicycle De1ivery of Bnve1opes, Parcels or Packages 7242 965,106 9.7300 93,905.00 Sa1espersons, Collectors Or Messengers-outside 8742 582,893 0.3700 2,157.00 Clerical Office Employees NOC. 8810 698,451 0.2400 1,676.00 0.9300 110,466.00 Experience Modification Premium Discount 0063 10.6000 98,757.00 Terrorism 9740 0.0450 1,128.00 catastrophe 9741 0.0100 251.00 Estimated Am:Lual Premium - New York 100,136.00 State Assessment 0932 14.2000 15, 881. 99 New York Workers Compensation Security Pw:l.d 9749 1.5000 1,740.27 NY Total Estimated Annual Premium $ 117,758.26 • • • • • • • • • Poltcy Number: ss-11&2ao-01•02 CONTINENTAL INDEMNITY COMPANY Additional Named Insured and/or Locations Item (1) lns'11'9d of the Information page Is amended to Include the follOwlng: Breakaway Courier Co:r:pora~iail DBA Breakaway Courier Syatems 335 W !5th St Bew York BY -1.0001-l,7J6 J'rom1 07/01/1.0 TOI 01/01/11 nDt- BN'l'ITY1 Blibchaptar CO:r:p. This endorwmetit ~part of yourpollcy and takes eff~ on the e~ctive date or your,pbll,cy, 1Jnl~ another effective da~ Is shown below. ·Endorsen:ien!Eff8cllve 1nsuted ~t ~c 879Ctmlil ,Q lunlan!!enedby - - - - - - - - - - - - All ot11er terms and c;ondJtions of thl.s pallcy remafn unchanged, A UL S/90 • • • • • • • • • WC310308 WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY NEW YORK LIMIT OF LIABILITY ENDORSEMENT This endorsement applies only to the Insurance provided by Part Two (Employers Liability Insurance) because New York Is shown In Item 3.A. of the lnfonnatlon Page•• We may not limit our liability to pay damages for which we become legally liable to pay because of bodily Injury to your employees If the bodily injury arises out of and In the course of employment that is subject to and is compensable under the Workers' Compensation Law of New York. This endorsement changes the policy to which It Is attached and Is effecttve on the date Issued unless otherwise stated. Endorsement Effective 07 /01/10 Insured Breakaway Cour.ier sysi;ems Insurance Company Con1;.inen1;al %Ddemnit:y Company (Ed.1-00) PoDcyNo. 55-816280-01-02 EutbsementNo. 1 Prant.m 0. 00 • • • • • • • • • WC000419 WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY PREMIUM DUE DATE ENDORSEMENT This endorsement Is used to amend: Section D. of Part Five of the policy Is replaced by this provision PART FIVE PREMIUM D. Premium is amended to read: You will pay all premium when due. You will pay the premium even If part or all of a workers compensation law Is not valid. The due date for audH and retrospective premiums Is the date of the bllllng. This endorsement changes the policy to which It Is attached and Is elfectlve en the date Issued unless otherwise stated. Endorsement Effective 07 /01/10 Insured Breakaway Courier Systems Insurance Company Continez:1t&l. Zndemnity Company (Ed. 1-01) Poficy No. 55-816280-01-02 Endorsement No. 2 Premium o. oo Countersigned by----------- • • • • • • • • • WC310319E WORKERS COMPENSATION AND EMPLOYERS UABILllY INSURANCE POLICY NEW YORK CONSTRUCTION CLASSIFICATION PREMIUM ADJUSTMENT PROGRAM EXPLANATORY ENDORSEMENT The New York Construction Classlficatlon Premium Adjustment Program (NYCCPAP) allows premium credits fer some employers in the construction Industry. These credits exist to recognize the difference In wege rates between employer& within the same construcllon Industries In New York. The declarations secllon of this policy will show a credit of 0.00% Ifyou ere not eligible fer this credit, or Ifycu are eligible for this cnidlt and have not yet applied fer a credit Credits are earned fer average wages In excess of $15.50 per hour fer each eligible class. If your policy shows one of the feUowlng clesslflcetlon cedes, and ycu are experience rated, you are eUglble to apply fer an NYCCPAP credit 0042 5057 3365 5059 3724 3726 3737 5000 5022 5037 5040 5069 5102 5160 5183 5184 5188 5190 5193 5213 5221 5429 5491 5443 5506 5445 5507 5606 5610 5645 5222 5462 5508 5648 5223 5348 5402 5403 5428 5473 5474 5479 5480 5536 5536 5545 5547 5651 5701 5703 5709 5003 6229 6325 9526 6005 6233 6400 9527 6017 6018 6045 6204 6216 6217 6235 6251 6252 8260 6308 6319 6701 9534 7536 9539 7538 7601 7855 8227 9545 9549 9553 The basis fer determining the aedlt Is the limited payroll of each employee fer the number of hours worked (excluding overtime premium pay) fer each construction clesslflcatlon (other than emplcyees engaged In the construction of one- or two-family residential housing) fer the third quarter, as reported to taxing authorities, ferthe year pl9C8dlng the policy date. Total payroll Is to continue to be reported fer employees engaged In the construction of one- or two-family residential housing. For example: POUCYEFfECTIVEPATE 411/06thru3131/07 411J07thN3131/08 411/08 thN 3131/09 411/09thru3/31/10 411/10 thru 3131/11 411/11 thru 3131/12 411/12thru 3131/13 lH!RDAUARJERPAYROLb 2005 2006 2007 2008 2009 2010 2011 Ifycu have any eligible classes on your policy, you should have been nottfled by your Insurance canter or the New York Compensation Insurance Rating Board approximately nine months prior to the Inception date of this policy. If ycu believe ycu may be eDglble for a credit and have not received an appllcetlon, ycu should Immediately contact ycur agent, Insurance canter, or the New York Compensation Insurance Rating Board. Credits are celculeted by the New York Compensation lnsinnce Rating Board. You must submit a completed appDcetlon to: Attention: Field Services Department, New York Compensation Insurance Rating Board, 200 East Forty-Second Street, New York, New York 10017. Applications must be received by the Rating Board six (6) months prior to the pollcy renewal decllve date. The Rating Board will accept and process an application IfIt Is received between the poHcy effective date and expiration date, however, It must be accompanied by a letter stating the reason for the delay. Under no circumstances wlfl an appllcetlon be accepted fer any poDcy IfIt Is received after the expiration date of the policy. For short-term pollcles the application must be received prior to the expiration date of the short-term poDcy. If It la received after the policy expiration, no cndlt wlfl be calculated. The New York Workera Compensation and Employers Ueblllty Insurance Manual, and not this endorsement, govern the lmplement&tlon and use ofthe NYCCPAP. This endorsement changes the policy to which It Is attached and Is effective on the date Issued unless otherwise stated. Endorsement Effective 07 /Ol/10 Insured Breakaway Courier Systems Insurance Co~a~ Continental Zndemnity Campany Polley No. 55-816280-01-02 Countersigned b y - -- (Ed.10-08) - - --- .. Endoraement No. l Premium 0 • 0 O - - - - - - - -- - -- - -- - - - - - - -------- • • • • • • • • • WC000422A WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT DISCLOSURE ENDORSEMENT This endorsement addresses the requirements of the Terrorism Risk Insurance Act of 2002 as amended and extended by the Terrorism Risk Insurance Program Reauthorization Act of 2007. It serves to notify you of certain limitations under the Act, and that your Insurance carrier Is charging premium for losses that may occur In the event of an Act of Terrorism. Your policy provides coverage for workers compensation losses caused by Acts of Terrorism, Including workers compensation benefit obligations dictated by state law. Coverage for such losses Is still subject to all te11T1s, definitions, exclusions, and conditions In your policy, and any appllcable federal and/or state laws, rules, or regulations. Definitions The definitions provided In this endorsement are based on and have the same meaning as the definitions In the Act. If words or phrases not defined In this endorsement are defined In the Act, the definitions In the Act will apply. •Acr means the Terrorism Risk Insurance Act of 2002, which took effect on November 26, ·2002, and any amendments thereto resulting from the Terrorism Risk Insurance Program Reauthorization Act of 2007. •Act of Terrorism• means any act that Is certified by the Secretary of the Treasury, In concurrence with the Secretary of State, and the Attorney General of the United States as meeting au of the following requirements: a. The act Is an act of terrorism. b. The act Is violent or dangerous to human life, property or Infrastructure. c. The act resulted In damage within the United States, or outside of the United States In the case of the premises of United States missions or certain air carriers or vessels. d. The act has been committed by an lndMdual or lndMduals as part of an effort to coerce the civilian population of the United States or to Influence the policy or affect the conduct of the United States Government by coercion. "Insured Loss· means any loss resulting from an act of terrorism (and, except for Pennsylvania, Including an act of war, In the case of workers compensation) that Is covered by primary or excess property and casualty Insurance Issued by an Insurer If the loss occurs In the United States or at the premises of United States missions or to certain air carriers or vessels. "Insurer Deductible" means for the period beginning on January 1, 2008, and ending on December 31, 2014, an amount equal to 20% of our direct earned premiums, over the calendar year Immediately preceding the applicable Program Year. "Program Year- refers to each calendar year between January 1, 2008 end December 31, 2014, as applicable. Limitation of Llablllty The Act limits our liability to you under this policy. If aggregate Insured Losses exceed $100,000,000,000 In a Program Year and If we have met our Insurer Deductible, we are not llable for the payment of any portion of the amount of Insured Losses that exceeds $100,000,000,000; and for aggregate Insured Losses up to $100,000,000,000, we will pay only a pro reta share of such Insured Losses as dete11T1ined by the Secretary of the Treasury. (Ed. 09--08) Page 1 of2 • • • • • • • • • WC000422A WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY Policyholder Disclosure NoUce 1. Insured Losses would be partially reimbursed by the United States Government Ifthe aggregate Industry Insured Losses exceeds $100,000,000 in a Program Year, the United Slates Government would pay 85% of our Insured Losses that exceed our Insurer Deductible. 2. Notwithstanding Item 1 above, the United States Government will not make any payment under the Ad for any portion of Insured Losses that exceeds $100,000,000,000. 3. The premium charge for the coverage your policy provides for Insured Losses Is Included In the amount shown in Item 4 of the lnformatton Page or in the Schedule below. Schedule State Premium Rate 0.050 1,128.00 Thia endorsement changes the poDcy to which It Is attached and la effective on the date Issued unless otherwise stated. Endoraement07 /0l/10 Effective Polley No.55-816280-01-02 lnsuredBreakaway Courier Systems EndoraementNo.4 Premium$ o.oo Insurance CompanyCODtinental Indemnity Campanyeounteralgned b Y - - - - - - - - - - - - - - - (Ed.09-Q8) Page2of2 • • • • • • • • • WC000421 C WORKERS COMPENSATION AND EMPLOYERS UABILITYISURANCE POLICY CATASTROPHE (OTHER THAN CERTIFIED ACTS Of TERRORISM) PREMIUM ENDORSEMENT This endorsement Is notification that your Insurance carrier Is charging premium to cover the losses that may occur In the event of a Catastrophe (other than Certified Acts ofTerrorlsm) as that tenn Is defined below. Your policy provides coverage for workers compensation losses caused by a Catastrophe (other than Certified Acts of Terrorism). This premium charge does not provide funding for Certified Acts ofTerrorism contemplated under the Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement (WC 00 04 22 A), attached to this policy. For purposes of this endorsement, the following definitions apply: Catastrophe (other than Certified Acts ofTenorism): Any single event. resulting from an Earthquake, Noncertlfled Act of Terrorism, or Catastrophic Industrial Accident, which results In aggregate workers compensation losses In excess of $50 million. Earthquake: The shaking and vibration at the surface of the earth resulting from underground movement along a fault plane or from volcanic activity. Noncertifled Act of Terrorism: An event that Is not certified as an Act of Terrorism by the Secretary of Treasury pursuant to the Terrorism Risk Insurance Act of 2002 (as amended) but that meets all of the fOllowlng criteria: a. It is an act that Is violent or dangerous to human life, property, or Infrastructure; b. The act results In damage within the United States, or outside of the United States In the case of the premises of United States missions or air carriers or vessels as those tenns are defined In the Terrorism Risk Insurance Act of 2002 (as amended); and c. It Is an act that has been committed by an Individual or individuals as part of an effort to coerce the civilian population of the United States or to Influence the policy or affect the conduct of the United States Govemment by coercion. Catastrophic Industrial Accident A chemical release, large explosion, or small blast that Is localized in nature and affects workers In a small perimeter the size of a building. The premium charge for the coverage your policy provides for workers compensation losses caused by a Catastrophe (other than Certified Acts of Terrorism) is shown In Item 4 of the Information Page or In the Schedule below. Sc.hedule State Rate NY 0.01 Premium 251.00 This endorsement changes the poOcy to which It la ettached end Is eff&c:tlVe on the date Issued unleaa otherwise stated. Endorsement07 /0l/10 Effective Poncy No. 55-816280-01-02 Insured Breakaway Courier Systems Endorsement No. 5 Premium$ o.oo Insurance Company Continental Indemnity CompanyCounterslgned by _ _ _ _ _ _ _ _ _ _ _ _ _ __ (Ed.09-08) • • • • • • • • • WORKERS COMPENSATION. EMPLOYERS LIABILITY INSURANCE .ICY WC000406 PREMIUM DISCOUNT ENDORSEMENT This endorsement changes the policy to which It Is attached effective on the Inception date of the policy unless a different date Is Indicated below. (The following "attaching clause" need be completed only when this endorsement ls l&auecl subsequent ID preparation of the pollcy.} This endorsement, effective on 07 /Ol/10 at 12:01 A.M. standard time, forms a part of (DAlE) Polley No. 55-816280-01-02 Endorsement No. 6 Continental Xndemnity Company of the (NAME OF INSURANCE COMPANY) Issued toBreakaway Courier Systems Premium (If any) $ o. oo Authorized Representative The premium for this policy and the policies, If any, listed In Item 3. of the Schedule may be ellglble for a discount. This endorsement shows your estimated discount In Items 1. or 2. of the Schedule. The final calculation of premium discount will be determined by our manuals and your premium basis as determined by audit. Premium subject to retrospective rating Is not subject to premium discount. Schedule 1. State Estimated Ellglble Premium First Next $190,000 $10,000 2. Average percentage discount Next $1,550,000 Balance % 3. Other policies: 4. If there are no entries In Items 1., 2. and 3., of the Schedule, see the Premium Discount Endorsement attached to your policy number: 55-816280 - 01-02 WC578 (8-95) • • • • • • • • • Continental Indemnity Company 10825 Old Mill Road Omaha, Nebraska 68154 WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY QUICK REFERENCE BEGINNING ON Page Information Page ••••••••••••••••••••••••••.•••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• I General Section ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 1 A. The Policy ......................................................................................................................................... 1 B. Who Is Insured ................................................................................................................................. 1 C. Workers Compensation Law ............................................................................................................ 1 D. State ................................................................................................................................................. 1 E. Locations .......................................................................................................................................... 1 PART ONE· WORKERS COMPENSATION INSURANCE ........................................................................... 1 A. How This Insurance Applies ............................................................................................................. 1 B. We Wm Pay ...................................................................................................................................... 1 C. We Will Defend ................................................................................................................................. 1 D. We Wiii Also Pay .............................................................................................................................. 1 E. Other Insurance ................................................................................................................................. 1 F. Payments You Must Make ................................................................................................................ 2 G Recovery From Others •...••......•.•....•..••.•..••..•............••..•...•..•.....••..•.•••••...•.•••.......•..••.•••••.•••....•••••...... 2 H. Statutory Provisions .......................................................................................................................... 2 PART TWO • EMPLOYERS LIABILITY INSURANCE ···············-································································· 2 A. How This Insurance Applies ............................................................................................................. 2 B. We Will Pay ...................................................................................................................................... 2 C. Exclusions ........................................................................................................................................ 3 D. We Will Defend ................................................................................................................................. 3 E. We Wiii Also Pay .............................................................................................................................. 3 F Other Insurance ................................................................................................................................. 3 G. Umlts of Uablllty ............................................................................................................................... 3 H. Recovery From Others ...................................................................................................................... 4 I Actions Against Us ............................................................................................................................ 4 • • • • • e • • • • e QUICK REFERENCE - CONTINUED BEGINNING ON 1!!91 PART THREE - OTHER STATES INSURANCE······-····················-······-··············································-······ 4 A. How This Insurance Applies •....•••.•.•.......•..•.•.••.•.•..•.•••...••.•••••••.•.......••••••••••••.••••.•••.••••.•...•..••.••••••..... 4 B. Notice ............................................................................................................................................... 4 PART FOUR • YOUR DUTIES IF INJURY OCCURS··················································-································ 4 PART FIVE • PREMIUM ·································-···-·····················-································································· 4 A. B. C. D. E. F. G Our Manuals ••.......••.•••........•••..........•..••.•..••...•.•....••...•........••.•.••.•••...•...••••.••...•••.........•....•...•...•...•.•.. 4 Classifications ................................................................................................................................... 4 Remuneration .................................................................................................................................... 4 Premium Payments ••.•....•.•..•.••..............•.•...•...........•••....••.••..•.....•.•..•....•.••....•.••..•.•.••.......•....•........•• 5 Final Premium ................................................................................................................................... 5 Records ............................................................................................................................................ 5 Audit .•...••••••.••......••.....••..•.••••••••.•..•..••••.•••••••..•.•..••••••.•.....•..•••••••••••••.•..••••••••••••.•••.•..••••••••••.•.•...•.•.•••• 5 PART SIX - CONDmONS ·······························································································-···-·······················5 A. Inspection ••...•..••••••...•..••.•....•......••..••..•..•.......•.••..••..........•.•••..•••••••••....•••.•..••••••..•...•.•..•.•........•.•.•••.•. 5 B. Long Term policy .............................................................................................................................. 5 C. Transfer of Your Rights and Duties ..................................................................................................... 5 D. Cancellation ...................................................................................................................................... 5 E. Sole Representative ...•....•.••.•.•...•.••••.••....•....••..••.•.•.•.•.••.•........•..•.........••••..••••....•.•.•..•.•..•••••.....•..•.•... 5 IMPORTANT: This Quick Reference Is not part of the Workers Compensation and Employers Liability Policy and does not provide coverage. Refer to the Workers Compensation and Employers Liability policy Itself for actual contractual provisions. PLEASE READ THE WORKERS COMPENSATION AND EMPLOYERS LIABILITY POLICY CAREFULLY. • • • • • • • • • e WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY In return for the payment of the premium and subject to all terms of this policy, we agree with you as follow: GENERAL SECTION A. The Polley This poUcy includes at Its effective date the Information Page and all endorsements and schedules listed there. It Is a contract of Insurance between you (the employer named in Item 1 of the Information Page) and us (the Insurer named on the Information Page). The only agreements relating to this Insurance are stated In this pollcy. The terms of this poDcy may not be changed or waived except by endorsement issued by us to be part of this policy. workmen's compensation law and occupational disease law of each state or territory named In Item 3.A. of the Information Page. It Includes any amendments to that law which are In effect during the poHcy period It does not incllxfe any federal WOfkers orworkmen's COrJl>8nsation law, any federal occupational disease law or the previsions of any law that provide nonoccupatlonal dlsabUity benefits. D. State State means any state of the United States of America, and the District of Columbia. B. Viholslnsured You are insured If you are an employer named In Item 1 of the Information Page. If that employer Is a partnership, and If you are one of Its partners, you are Insured, but only In your capacity as an employer of the partnership's employees. C. Workers Compensation Law E. Locations This policy covers all of your workplaces listed In Items 1 or 4 of the Information Page; and It covers all other workplaces In Item 3.A. states unless you have other Insurance or are self-Insured for such workplaces. Workers Compensation Law means the workers or PART ONE· WORKERS COMPENSATION INSURANCE D. We Wiii Also Pay A. How This Insurance Applies This workers compensation Insurance applies to bodily Injury by accident or bodily Injury by disease. Bodily Injury Includes resulting death. We will also pay these costs, In addition to other amounts payable under this Insurance, ~part of any claim, proceeding or suit we defend: 1. Bodily Injury by accident must occur during the policy period. 2. Bodily Injury by disease must be caused or aggravated by the conditions of your employment The employee's last day of last exposure to the conditions causing or aggravating such bodily Injury by disease must occur during the policy period. B. We Wiii Pay 1. reasonable expenses lncunect at our request, but not loss of earnings; 2. premiums for bonds to release attachments and for appeal bonds In bond amounts up to the amount payable under this Insurance; 3. litigation costs taxed against you; 4. Interest on a judgement as required by law until we offer the amount due under this Insurance; and We will pay promptly when due the benefits required of you by the workers compensation law. 5. expenses we Incur. C. We Wiii Defend E. Other Insurance We have the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this Insurance. We have the right to Investigate and settle these claims, proceedings or suits. We have no duty to defend a claim, proceeding or suit that Is not covered by this Insurance. We wlll not pay more than our share of benefits and costs covered by this Insurance and other Insurance or self-Insurance. Subject to any limits of Dabllity that may apply, all shares will be equal until the loss Is paid. If any Insurance or self-Insurance Is exhausted, the shares of an remaining Insurance wil be equal until the loss Is paid. Page1 • • • F. • • Payments You Must Make • • e - • • notice of the injury when you have notice. You are responsible for any payments In excess of the benefits regularly provided by the workers compensation law Including those required because: 1. of your serious and willful misconduct; 2. you knowingly employ an employee In violation of law; 2. Your default or the bankruptcy or Insolvency of you or your estate will not relieve us of our duties under this Insurance after an Injury occurs. 3. We are directly and primarily liable to any person entitled to the benefits payable by this Insurance. Those persons mayenforceourdutles; so may an agency authorized by law. Enforcement may be against us or against you and us. 4. Jurisdiction over you Is jurisdiction over us for purposes of the workers compensation law. We are bound by decisions against you under that law, subJect to the provisions of this poUcy that are not In conflict with that law. 3. you fail to comply with a health or safety law or regulation; or 4. you discharge, coerce or otherwise discriminate against any employee In violation of the workers compensation law. If we make any payments In excess of the benefits regularly provided bythe workers compensation law on your behalf, you will reimburse us promptly. G. Recovery From Others We have your rights, and the rights of persons entitled to the benefits of this Insurance, to recover our payments from anyone liable for the Injury. You will do everything necessary to protect those rights for us and to help us enforce them. H. Statutory Provisions These statements apply where they are required by law. 1. As between an Injured worker and us, we have 5. This Insurance conforms to the parts of the workers compensation law that apply to: a. benefits payable by this Insurance; b. speclal taxes, payments Into securlly or other special funds, and assessments payable by us under that law. 6. Terms of this Insurance that conflict with the workers compensation law are changed by this statement to conform to that law. Nothing In these paragraphs relieves you of your duties under this policy. PART TWO· EMPLOYERS LIABILITY INSURANCE e. We Wiii Pay A. How This Insurance Applies This employers liability Insurance applies to bodily Injury by accident or bodily injury by disease. Bodily Injury Includes resulting death. We will pay aD sums you legally must pay as damages because of bodily Injury to your employees, provided the bodily Injury Is covered by this Employers Uablllty Insurance. The damages we will pay, where recovery Is permitted by law, Include damages: 1. for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of Injury to your employee; 2. for care and loss of services; and 1. The bodDy Injury must arise out of and In the course of the Injured eJ11>loyee's employment by you. 2. The employment must be necessary or Incidental to your work In a state or territory llsted In Item 3A of the Information Page. 3. Bodily Injury by accident must occur during the policy period. 4. Badly Injury by disease must be caused or aggravated by the concfrtions of your employment The employee's last day of last exposure to the concfltions causing or aggravating such bodily Injury by disease must occur during the policy period. 5. If you are sued, the original suit and any related legal aclfons for damages for bodily Injury by accident or by disease must be brought In the United States of America, Its territories or possesIons, or Canada. 3. for consequential bodily Injury to a spouse, child, parent, brother or sister of the Injured employee; provided that these damages are the direct consequence of bodily Injury that arises out of and In the course of the Injured employee's employment by you; and 4. because of bodily Injury to your employee that arises out of and In the course of employment, claimed against you In a capacity other than as employer. Page2 • • • • • • • • • e 12. damages~ underthe Migrant and Season· al Agricultural Workers Protection Act. (29 USC Sections 1801-1872) and under any other federal lawawardlf9 damagesfcr1he vldatlon ofthose laws or regulations Issued thereunder, and any amendments to those laws. C. Excluslons This Insurance does not cover: 1. fl8bllity assumed under a contract. This exduslon does not apply to a warranty that your work will be done In a workman6ke manner; D. We Wiii Defend 2. punitive or exemplary damages beau JSe of bodily Injury to an employee employed In violation of law; We have the right and duty to defend, at our expense, any claim, pnx:eedlng or suit against you for damages payable by this Insurance. We have the right to Investigate and settle these claims, proceedings and suits. 3. bodily Injury to an employee while employed In violation of law with your actual knowledge or the actual knowledge of any of your executive officers; We have no duty to defend a claim, proceeding or suit that Is not covered by this Insurance. We have no duty to defend or continue defending after we have paid our applicable llmlt of llablllty under this insurance. 4. any obligation Imposed by a workers compensation, occupational disease, unemployment compensation, or dlsablllty benefits law, or any slmllarlaw; E. We Wiii Also Pay 5. bodily Injury Intentionally caused or aggravated by you; We wlll also pay these costs, in addition to other amounts payable under this Insurance, as part of any daim, proceeding, or suit we defend: 6. bodily Injury occurring outside the United States of America. Its territories or possessions, and Canada This excluslon does not apply to bodily Injury to a citizen or resident of the United States of America or Canada who Is temporarily outside these countries; 7. damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against or termination of any employee, or any personnel practices, policies, acts or omissions; 1. reasonable expenses Incurred al our request, but not loss of earnings; 2. premiums for bonds to release attachments and tor appeal bonds In bond amounts up to the limit of our liability under this Insurance; 3. litigation costs taxed against you; 4. Interest on a judgement as required by law until we offer the amount due under this Insurance; and 5. expenses we Incur. e. bodily Injury to any person In work subject to the Longshore and Harbor Workers' Col1llensallon Act (33 USC Sections 901-950), the Nonappropriated Fund Instrumentalities Act (5 USC Sections 8171-8173), the Outer Continental Shelf Lands Act. (43 USC Sections 1331-1356), the Defense Base Act. (42 USC Sections 1651-1654), the Federal Coal Mine Health and Safety Act. of 1969 (30 USC Sections 901-942), any other federal workers or workmen's compensation law or other federal occupational disease law, or any amendments to these laws; 9. bodily Injury to any person In work subject to the Federal Employers' LJaljJity Act.(45 USC Sections 51-60), any other federal laws obllgating an employer to pay damages to an employee due to bodily Injury arising out of or In the course of employment. or any amendments to those laws; F. Other Insurance We will not pay more than our share of damages and costs covered by this Insurance and other insurance or self-Insurance. Subject to any Hmhs of llablUty that apply, all shares wlll be equal until the loss Is paid. If any insurance or self-Insurance Is exhausted, the shares of all remaining Insurance and self-Insurance wlli be equal until the loss Is paid G. Umlts of Llablllty Our llabllity to pay for damages is limited. Our limhs of llablllty are shown In Item 3.B. of the Information Page. They apply as explained below. 10. bodily Injury to a master or member of the crew of any vessel; 1. Bodily Injury by Accident The limit shown for "bodily Injury by accident - each accidenr Is the most we wlll pay for all damages covered by this Insurance because of bodily Injury to one or more employees In any one accident 11. fines or penalties imposed for violation offederal or state law; and A disease Is not bodily Injury by accident unless It results directly from bodily injury by accident Page3 • • • • • • • • • e e one liable for an injury covered by this insurance. You will do everything necessary to protect those rfghts for us and to help us enforce them. 2. Bodily Injury by Disease. The limit shown for "bodily Injury by disease - policy limit" Is the most we will pay for all damages covered by this Insurance and arising out of bodily Injury by disease, regardless of the number of employees who sustain bodily Injury by disease. The limit shown for 1Jodlly Injury by disease - each employee• Is the most we will pay for all damages because of bodily Injury by disease to any one I. Actions Against Us There will be no right of action against us under this Insurance unless: 1. You have complied with all the terms of this policy; and employee. Bocfdy injury by disease does not include disease that results dlrecUy form a bodDy injury by accident 3. We will not pay any claims for damages after we have paid the appUcable Omit of our DabDlty under this Insurance. H. Recovery From Others We have yourrtghtsto recover our payment from any- 2. The amount you owe has been determined with our consent or by actual bial and final judgement This Insurance does not give anyone the rfght to add us as a defendant In an action against you to determine your liability. The bankruptcy or insolvency of you or your estate will not relieve us of our obDgations under this Part PARTTHREE·OTHERSTATESINSURANCE A. How This Insurance Applies 1. This other states Insurance applies only if one by the workers compensation law of that state If we are not permitted to pay the benefits directly to persons entitled to them. 4. If you have work on the effective date of this poDcy In any state not fisted In Item 3A of the Information Page, coverage will not be afforded for that state unless we are notified within thirty days. B. Notice Tell us at once if you begin work In any state listed In Item 3.C. of the Information Page. or more states are shown In Item 3.C. of the Information Page. 2. If you begin work in any one of those states after the effective date of this policy and are not Insured or are not self-Insured for such work, all provisions of the pollcy will apply as though that state were listed In Item 3.A. of the Information Page. 3. We will reimburse you for the benefits required PART FOUR • YOUR DUTIES IF INJURY OCCURS Tell us at once if injury occurs that may be covered by this policy. Your other duties are listed here. pers related to the Injury, clalm, proceeding or suit 4. Cooperate with us and assist us, as we may request, In the lnvesUgatlon, settlement or defense of any claim, proceeding or suit. 5. Do nothing after an Injury occurs that would Interfere with our rfght to recover from others. 1. Provide for Immediate medlcal and other services required by the wortd Underwriturs sales manager-who, under qu1?Stioning by Department of Insqrance Administrative Law Judge Kristin L. Rosi, made the admission that OC's filed rates arcJmmatcrial as to what the employer pays. Watson testified that he heads one of two teams that deal with California brokers and, by telephone, who work directly with California employers. Workers' Comp Executive could find no insurance license record for Watson in the CDI database. "Applied" continued on page 9 Workers' Comp Bills: Does It Really Matter? A proposed bill to create a workers' comp prescription drug formulary cleared the Assembly on all ayes. It is not as if the formuJary will save Califor· nia's employers all that much, but it will provide certain ganders with something to tell their geese. A disproportionate effort was made in the backrooms and crevices of the Building until its author accepted modest amendments delaying the effective date and expanding the panel of experts that will create the formulary. Influence, ahh glorious influence. As currently drafted, the bill, AB 1124 by Assemblyman Henry Perea (D-Fresno), requires the Division 0 • INDEX NO. UNASSIGNED RECEIVED NYSCEF: 09/09/2016 NYSCEF DOC. NO . 15 0 • of Workers' Compensation to have a formulary adopted and operational by July 1, 2017. We'll au just see about that since DIR is so busy appeasing a lengthy list of special interests. It isn't known for making the legislature's [artificial] deadlines. Under the rules of the Legislature, bills had to dear their house of origin by June 5 to continue being viable. Two measures that were strongly opposed by employers - SB 563 by Sen. Richard Pan (D-Sacramento) to limit utilization review, and AB 511 by Assemblyman Mike Gipson CD-Compton) to extend "Bills" continued on page 8 • 0 • • • • • • • • • • • • • - ) • • Paga 131 of 237 Emaitedlink!i - • ft&tli Caa11 11 ~,ftl«tdfro!#.~ 1 ~· Riufa~lf had., ~ .ciofid ~altri fQ.Uiliqg ~~tely ssomo. 'l1u!'R \fi.il a •$ml claim ror ii breken Jrm ~t '}µlppelfed on the last day·of the secnod yeas and which Applied was n¢. ~aware ol for pmruum C'.'ill· cUla\ton pu rposr.;. Applied Jnafe thin ttlpll!d the monthly duirgea l.n .some .$94;000•.At this point Randano r.an:el\!d. Appl~ Jiled 'fa~ l;lln~~tton f11!¥S. which pro'Utlked the fraud Ill.Of. . for Randazzo iirllp'tdiilJ thi!tf.pQrttC'tt ' JNtituice·adm~•tivi 1~w juitge,. (~ k $1&9.tit J..me.n ~c:. on page l ). !t 411Jege:s 1' sliniJJ!l pat~ of ab\lse, (RPA) i$.lioih ·pru~!,,lralty ud sul,1non'fH!otlosute. aiQd u~ of non..fil1td 11tantjw,l y pn~cm._bJ~. Viti! J11.IUIS. Thd ;1rbitr~ti~ ,pro'ri5!0Ji5 w~ iri ltt0Frw11 ~ MJCV. cQ.nti'~c,t al fow.id AuCff4 to c.ee'kfnj!'ornvia t'fHal in the ~tcif At the root of R;.na1u:2t0'HQmplD!11t ~ ~~ch cit thteali.!l'lad bn:ili.11 of the is.ht!_,, iha~~ ~tyd .dt~ts;}n ~ t"tn~)f Whni; the empigyir col&\d event of cta1ms w11re td'~dl16diitoo antf a.~~ ~ wor.!l! ,\lfter pcl?vatli~g ~ col!etted. 'f.Jtat J,?~s tp w~lt if oftha iUbitt:aifol\ dal.llltt mAppl~~ Reimuraitl'e'Pjj.rtiri p3t:ion A.g~l!nt "Jbe.empJnyer '~ffl~g'"'~~l\ .: .!ii•ilr:&ftti:lia~. . · o( the Pofu;)' -4 t.n!Jve th~~VIPUlcl ~~ ' fr( ;fi:qllitfng 8-: au lo go kf tlHt 1~ ".:i fe'tum ~hdl .P.re~\lrns,paAIJ .4d;l1~~' it ,g'lve.a major &>cmt to tEl,lli tiily 11!ltoun1S pald (or tlalms:" ~imlia:wl:' ~ndazto su,tceieded in ..\ppU~ U~rwrifff$ C'.1.ptiv~ ?lisle. .h~!h~ t~atbttri:ltfOn'.·)ldld f" C•lilor~ ~~~~ Cotnp;niy (AqCRA,) ~~ht nta. ~pplled's a,pun:u!o~~U;ired t;fiat ~ck. S(> f.11} thit ~~r ha& p~~ MbltnliaFJWSS to take pl~in'Tortola, pally pmr,iilid. .. •h.e ~rl~h V"ugj:rt h\[!Ufd!i. ~l\4~ ~th~ toml'.I:iint in !he No~~trlibict of~ Un,ib!~ S~~ Qu;ll:11::l Co\1 . rt. Applied f 09ght bark 6Jln&.mahmian~rtmenr "' .say.s:15' t.l;t uripredi,dB~,Uity t;!f~h.\t. t~ w~ br~cfoirgen .in ,iny si~!ffl t:fl~l1~ tot llslW>1"rt5' l'Q,IJ\~ pc>]iqi, ~~ii~s ~tian ·is \~111 .,hat:)he- RP~·~o~ b.c reM b1lffii:1~llf to (Jil~ .1.(l~ •hcrp)'iring fcrtnWas! 1'fia dtarge is ~$.h?nt.wnh r.ta~mcrttsiiIJif 1esti~ mony.I~ '~$ha$~ ti~-~-. ~ CQTilpany mninm~ tb.bt ~t 1)\4,d~ m,im~us ~l\11.!1~ :b"t Applied hil~~d:'.fi:> pr:gv,i~:a rormwoi that 1.11ul4 ~,1L!if!d ii:t ~mw !lw Charges tf'.JJ:l:ci~ (sec the lma~ olRandn.t.i:r'J!.ed:litiJt fl.alow). 'l"\ddltiotrlnY, lt ml'lintatns that Appned u~" ~­ !h\l formulifthi1n It was t~ld would be' used ai:.the oubiet ottf.rp1tJ$rlllli tp "'ft11ud ~¢;1ntllirtedv1rpagc ii t ·Pm Mt~ 1he witness sta od and do not n~ tour urlllat~rn1' fit,.i)lt4.trc:i.rt t~ te5Pon"inpo w.ut t!-m~lt. Mo~Q!.rl!efyw.mr tnqul'r)I reffecu th~ sal'fle fundan;~~I m)$.mdvtmf!dlng itnit ~ ttad tft1Dh jeape~1 tii ~jqUll:\ICOm~Pr«:1ShH1.t0·thiJJ Is lho lw)lt·of t~ 41m~~m: ·~ R:'5Ulw hm'1Hr. · ~ Rem~i:~ 911rtrqpatMI~. Ajr:aelflii!ti) .~. ~~l!fon tt,J·a.~\ivct.ra.\i;..~!1celJet(on·Pt!nillhY frooi Ra't\dafiQ ·' Ert~'I'~ 'atl.v~all Iiidart of~ ~01~rs· felmPc!n.ter:ron'pob:t.y if~Pl\!il Pcin!S ~~ (lrtor b:I dolqiJ. IO. '" tact.;vau Mwt- rhe :•e.a"~~+.l2 Ff'l~rfr.!J ~ltit11if To: Jel'f~ ' . . '. . . .. SubJeu: ~en~..~ "~-~-~i. ·:ii.::=:-"'""""'*'r~ !lil..,._-.~:-.M!t1119'--=ti~...,_....,...,_ lillilld-s._~\lli\l'OO M.a.uti.tl.ft201J - • • • • • • • Emaiktdltnb 0 0 0 Classifieds - • - Exhibit 2 .!FILED: • • • NYSCEF DOC . NO. 3 8 • • ~W YORK COUNTY CLERK 09/13/2016 09:39 PMJ • INDEX NO. 6 54806/201 6 RECEIVED NYSCEF : 0 9/1 3 /2 0 16 Prepattld lot: PresBnted by: Breakaway Courier Corporation PO Box 780 New York, NY 10013 Pat Ryder Enforce Coverage Group Workers' Compensation Program Proposal & Rate Quotation Thl1 Pf'OPOHI expire• on 08/07/09 at 12:01AM local time. Thia propoNI ·~• and voids any and el written or oral Pf'OPOaals previously IMued. Thi• quotation does not euthoria My busine11 MtViCel or bind My lnaurence coverege. Marketing representetlvel. end brokers do not hive the authority to bind INur-. c:owrage or enter into contrecu on our behalf Of on beNlf of our affillete•. lni1ietlon of business .-vie• 8nd lrllurence coverage• la aubject to our finel review lrlCI fomill acctptlOCe. Insurance coverage will be bound only after: 11 we I • - a written quotation; 21 aft conditions precedent have been aatilfied: 31 - gr.m the propoNI flNI approval; 41 - have received payment of the depollt end initial dlltgea; and 51we llsue written notice that llllurance covereoe II bound. Thie proJl(Hlll was prepared by Applied Risk SeMce1. New York: ARS In-Agency, Uc. I PC937411 eoem•. Premier E>ccluliv.. ii • regiltertcl trlldemark of Applied Underwrit.,., Inc. C2007 Applied UndllfWriters. Inc. Quote 1217289· 1 luued 07/07109. PropoMd Effective Date 07101109 at 12:01AM local time. 1 o f 57 Page1 of 5 - • • • • • • • ( Pref'llred for: Pre8tlnted by: Breakaway Courier Corporation Pat Ryder Enforce Coverage Group PO Box 780 New York, NY 10013 Premier Exclusive™ is a workers' compensation product available solely through select agents of our Company. Premier Exclusive gives agents and insureds direct access to our insurance companies which have excellent fmancial standing and deliver the highest quality service. Only insureds that are best in class qualify for this elite product. APP LI En· t·~ UNDERWRITERS ~ A BerksNre Hathaway Compall'/ Applied Underwriters is a premier financial services group of companies with leading expertise in the casualty insurance, reinsurance, and business services disciplines. We were founded in 1994 with the mission to provide creative insurance and business services solutions for employers countrywide. Applied Underwriters' business philosophy has always been rooted in the needs of the business owner. We think like an owner and deliver solutions to the business owner accordingly. As a member of Berkshire Hathaway Inc. we have the resources and experience that make us the industry leader in our field. Our insurance companies, The North American Casualty Group, maintain an excellent financial standing as recognized by industry rating organizations. This excellent financial standing is based on delivering best practices in underwriting and claims, including medical management operations, in every geographic trading area. Our service commitment is built on the concept of high customer touch leading to superior service in all aspects of our business. We achieve one of the highest customer satisfaction and retention rates in both the insurance and business service industries. Applied Underwriters' employees are simply the best in the business. We maintain the highest competency level in every discipline, and these standards make us the best, providing competitive products and unparalleled service to those we serve. The North Ameriun CUually Group9, Caffomia lnaun1nce C~. Continent•! Indemnity Company4t, end Pl'omesa Health9 are registered trademarks of Applied Underwriters. lne. Quote 1217289-1 Issued 07/07109. PropOMd Effective Date 07/01/09 at 12:01AM local time. 2 of 5 7 Page2 of 5 • • • • • • • PnlpanKI for: Presented by: Breakaway Courier Corporation Pat Ryder Enforce Coverage Group PO Box 780 New York, NY 10013 Policy Rating Information Guaranteed cost workers' compensation insurance policies will be issued by admitted companies in conjunction with this program, and the rating factors for these policies are listed below. All issuing companies are part of the North American Casualty Group, rated A by A.M. Best. and are affiliates of Applied Underwriters Inc. a member of Berkshire Hathaway Inc. A Profit Sharing Plan, effected through a reinsurance transaction that is separate from the guaranteed cost policies and independently rated, also applies. Exp Freq Sched NY A 1.190 1.00 ~ Exp Ten'Ol'lsm Fog!qn Dom • .046 Prem .&WI C.ID'.lll ..MmL .J!4CHL ...Bl1lrul.. .....l2WL 10.60 0 Net .Qibl[1 i2lbta Diblr.a Qlbm fllllm .010 A • Continental Indemnity Company E.L. Limits $600K/$600K/$600K 1.080 Est. Taxes and Assessments $17, 156 Profit Sharing Plan This Profit Sharing Plan is a reinsurance transaction separate from the guaranteed cost policies. Your risk retention Is created by your participation in, and cession of allocated premiums and losses to our facultative reinsurance facility, Applied Underwriters Captive Risk Assurance Company IAUCRA) under a subscription to the Program identified below. AUCRA is a subsidiary of Applied Underwriters Inc., a member of Berkshire Hathaway Inc. Your retention is held in a segregated, protected cell which Is not liable for the debts and liabilities of any other AUCRA cell. This Profit Sharing Plan is not a filed retrospective rating plan or dividend plan. and nothing contained herein la to be so construed. This Profit Sharing Plan requires a minimum three year contractual commitment from you with significant penalties for early cancellation. Based upon the annual payroll by class code information you provided, and depending upon the claims experience of the Program while you are subscribed, your net three-year cost will vary between a minimum possible cost of $104,526 and a maximum possible cost of $400,699. Program No. 665 • Enforce Coverage Gtoup Prefetred Program Eatlmattd Ntt Co [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A3a81177a545b20d8. Public record. Not legal advice.