# Petition for Writ of Certiorari — Slautterback v. IPC Mutual Indemnity, Ltd. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1060%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1999 - **Citation:** 525 U.S. 1103 ## Text ( \ Supreme Court, u.g, U FILED 98 665 0cT 2 21996 No. IN THE Supreme Court of the Gnited States October Term, 1998 . RICHARD D. SLAUTTERBACK, SANDRA L. SLAUTTERBACK, TRUSTEE, AMERICAN OWNER OPERATOR UNDERWRITERS, INC. and AMERICAN TRUCK UNDERWRITERS HOLDING CORPORATION, Petitioners, VS. IPC MUTUAL INDEMNITY, LIMITED, Respondents. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT RICHARD YOUNG, Esq. Attorney for Petitioners 125 Town Park Drive, Suite 300 Kennesaw, GA 30144-5803 Tel.: (770) 420-8290 Fax: (770) 420-8201 DICK BAILEY SERVICE (212) 608-7666 (718) 522-4363 (516) 222-2470 (914) 682-0848 Fax: (718) 522-4024 1-800-531-2028 Bienes wsaceanis i QUESTIONS PRESENTED 1. Whether a federal court may hold that the statute of limitations for fraud claims continues to run where two of three parties to a fiduciary relationship not only concealed their secret termination of one of three tripartite agreements binding the three parties, and where those same two parties conspired to and did falsely report to the Petitioner to conceal their fraud.. y Whether the federal court should have applied the statute governing mutual accounts, that is, that the statute of limitations for mutual accounts begins to run on the date of the last item thereto, rather than beginning at the time of the discovery of the alleged fraud. a Whether the federal court should have applied the ten- year statute of frauds governing causes of action against fiduciaries. 4. Whether a federal court should litigate the three contracts of an interlocking tripartite rent-a-captive arrangement in one civil action, such that the true relationship among the parties can be adjudged, considering the effect of the terms of the related agreements, and where the rent-a-captive relationship is a creature of Bermuda law, and with one of the three contracting parties a Bermuda incorporated captive insurance company. . 2 Whether this Court should review this case of first impression in regard to alternative to reinsurance programs which are implemented through offshore rent-a-captives now constituting 50% of all premium dollars of United States insureds. There is no American case law governing this huge multibillion dollar business, nor case law dealing with such tripartite arrangements. il PARTIES TO THE PROCEEDINGS In addition to the parties named in the caption, the following subsidiary or sister corporations were parties before the Court of Appeals: 330 Mad. Parent Corp. AIC Financial Corp. Allcity Insurance Co. American Life & Casualty Insurance Co. American Life Holding Co. American Travelers Insurance Company of N.Y. American Truck Underwriters, Inc. American Investment Co. American Life Holdings, Inc. American Investment Financial American Life & Casualty Marketing Division Co. American Investment Bank, N.A. American Travelers Life Insurance Co. Balwin Forest Products, L.L.C. Baldwin Enterprises, Inc. Baldwin-CIS, L.L.C. Bankers Life & Casualty Bankers National Life Insurance Co. Bankers Life Insurance Company of Illinois Bankers Life & Casualty Co. Bay Colony Insurance Co. Bayside Casualty Insurance Co. Bellpet, Inc. Beneficial Standard Life Insurance Co. Caja De Aharro y Seguro S.A. Capital Management, Inc. Centurion Insurance Co. Certified Life Insurance Co. Certified Life Insurance ill CFM Insurance Managers (Bermuda) Charter National Life Ins. Co. CITHC, Inc. CIHC Entertainment Nevada, Inc. CNC Real Estate, Inc. College Life Development Corp. Colonial Penn Group, Inc. Colonial Penn Insurance Company Colonial Penn Franklin Insurance Company Commercial Loan Insurance Corp. Commonwealth Risk Services (Europe) Limited (United Kingdom) Commonwealth P.isk Services, Inc. (Pennsylvania) Commonwealth Risk Services (West) Ltd. (California) Conseco Risk Management, Inc. Conseco Entertainment, L.L.C. Conseco Financial Services, Inc. Conseco Services, L.L.C. Conseco Entertainment, Inc. Conseco Equity Sales, Inc. Conseco Global Investments, Inc. Conseco Marketing, L.L.C. Conseco Mortgage Capital, Inc. Conseco, Inc. Conseco Private Capital Group, Inc. Continental Life Insurance Co. Conwed Corp. CPAX, Inc. CPI Investments, Inc. Empire Insurance Group Empire Insurance Co. Florida Power & Light Company FPL Group, Inc. Great American Reserve Insurance Co. Hamilton Management Ltd. (Wisconsin) iV HIF International (Bermuda) HSD Venture Intrameria Life Insurance Co. IPC Group of America, Ltd. (Pennsylvania) IPC Mutual Holdings Ltd. (Delaware) Jefferson National Life Insurance Company of Texas Larnar Life Insurance Co. Legion Management Corporation (Oklahoma) Legion Finance Corporation (Missouri) Legion Insurance Company (Pennsylvania) Leucadia National Corporation Life Partners Group, Inc. Lincoln American Life Insurance Co. Lincoln Income Life Insurance LNC Investments, Inc. Lornas Financial Corp. M & A Holdings, Ltd. (Bermuda) Marketing Distributions Systems Consulting Group, Inc. Massachusetts General Life Insurance Co. MRM Reinsurance Brokers (Bermuda) MRM (Vermont) Ltd. (Vermont) Mutual Risk Management (Bermuda) Ltd. Mutual Indemnity (Dublin) Ltd. Mutual Indemnity Ltd. (Bermuda) Mutual Indemnity (Barbados) Ltd. (Barbados) Mutual Risk Management (Cayman), Ltd. (Cayman) Mutual Risk Management Ltd. Mutual Risk Management (Barbados) Ltd. (Barbados) Mutual Finance, Ltd. (Bermuda) Mutual Group, Ltd. (Delaware) Mutual Indemnity (Bermuda) Ltd. (Bermuda) National Fidelity Life Insurance Co. Neward Corp. MASC, Inc. Park International Limited (Bermuda) Vv Pennpark Investors, L.L.C. Philadelphia Life Insurance Co. Philcorp, Inc. Premium Securities Limited (Bermuda) Professional Data Management, Inc. Rastin Investing Corp. Rerco, Inc. Shoreline Mutual Management (Bermuda) Limited (Bermuda) Silver Mountain Industries, Inc. Solana Corp. Sperry & Hutchinson Co., Inc. Telluride Properties Acquisition, Inc. Terreacor II TLIC Life Insurance Co. Transatlanta Truck Insurance Underwriters, Inc. Transport Life Insurance Co. Transportation Capital Corp. Truck Office of America Truck Underwniters of America, Inc. United General Life Insurance Co. Village of Inlet Beach, Inc. Vulcan Life Insurance Co. Wabash Life Insurance Co. Wedgewood Investments, L.L.C. Wells & Company, Inc. Wellsco, Inc. WMAC Investment Corp. WMAC Credit Insurance Corp. vi TABLE OF CONTENTS I os ee a ge i See II Sat ee ii BID ork Fig Dtctiuds bike os ook vc Sank vi NE SII 3 dl ns Se Addwid dass ook Vili oo) . ., ERS ET FESR eee l nee oe 8... rR eres l Constitutional and Statutory Provisions Involved ........ l SOT ONIN is C0 5 2 ea kee fone vce 2 I. Background of the Rent-a-Captive Alternative to Reinsurance Arrangement ......... 3 Il. The Tripartite Venture. .................... 6 Ill. The Federal Proceeding Below ............. 9 Reasons for Granting the Writ ...................... 1] I. Active Fraud and Fraudulent Concealment by a Fiduciary Tolls the Running of the Limitations Period - Resolution of the Split pe ere Freee See i A. Fiduciary Relationship ............. 11 B. Fraudulent Concealment ............ 13 C. “Injury and Concealment” versus “Separate and Independent Injury” ...... 14 Vii D. Actual Cause of Action ............. 15 II. The Petition should be Granted because the Court below Failed to Apply the Mutual Accounts Statute of Limitations to this Case ..... 17 A. The District Court erred in granting summary judgment for the Respondent on the ground of expiration of the gE rey rer rere 17 B. The District Court Should have found that the Shareholder Agreement gave Rise to a mutual account, as to which under Georgia law the limitation period does not begin to run until the date of the Inst therm Chereot oko kc ccc cecs 18 C. The District Court should have found Mutual Indemnity held Slautterbacks’ 432,000 shares of preferred stock in a constructive trust, so as to apply Georgia’s ten-year limitation period for actions against fiduciaries ...... eee III. The Petition Should be Granted Because there is no United States Case Law Governing Rent A Captive, or Alternative to Reinsurance/ Self-Insurance, and the Arrangement Constitutes 50% of all U.S. Citizens’ Premium Dollars which are Transmitted to Offshore Entities ...... 23 CN 55k SORES AES Coir ee ee wa eae ae 24 ane . | j Viil TABLE OF CITATIONS Cases Cited: Aetna Life Ins. Co. v. Weekes, 241 Ga. 169, 172 SUSE SI Alo. SAE RSS. 21 A.H. Kellos Construction Co. v. Balboa Insurance Co.., 495 G. Supp. 408 (S.D. Ga 1980) ................0008 11 Alder v. Hertling, 215 Ga. App. 769, ae eRe PE aE Fs 65 es ae cts acecadvccees 16 Allen v. Sanders, 176 Ga. App. 647, 649(1), SE Gene Es i chs 8 ss wie ie dee Chae eh eee 12 Bivens Gardens Office Building v. Barnett Bank, 906 F.26 1540-41 10s Cok. TOF oS oe ees 14, 15 Borden v. Sinskey, 530 F.2d 478 (3" Cir. 1976) ........ 21 Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 614, CO ne RE i ns Fes ELS 4eA CER ew ke 17 Carr v. Kupfer, 250 Ga, 106, 296 S.E. 2d 560 (1982). .... 18 Colonial Penn Ins. v. Slautterback, 36 F.3d 95 CE ye hes Gre Te i eS ei ee es 9,10 a e irance D’i France v. New England ReinsuranceCorporation, 57 F.3d 56, Fe Clee SOP sok ek os ns boa S ERS be DER Hobe se ; 22 Erie R.R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, gg ee rere PEE er ree 16 iX Fincit Company II v. Hardin, 225 Ga.App. 232, SES DE POD os. sab a dw oa btn es ae 11 v. Guy F. Atkinson Co., 209 Ga. 113, 70 S.E. BEL TALEO de he a os he A ok oe A 17 Holmbers v. Armbrecht, 327 U.S. 392 (1946)........... 17 Indon Industries Inc. v. Charles S. Martin Distributing Company, Inc. 234 Ga. 845, 218 S.E.2d 562 (1975) ..... 17 King Mfg. Co. v. Clay, 216 Ga. 118 S.E. 2d wn EES) it Bees Se er er oo 20 Klaxon Co. v. Stentor Elec. Mfg. Co. 313 U.S. 487, Gi S. CO FOR ie BO oi 5s avid ks knees 17 Klehr v. AO Smith Corp., U.S. Supreme Court Case No. 96-663 (Fume, 1997). 2... oui ee eee ce 11,14 Klewit Eastern Co. v. L&R Constr. Co.., 44 F.3d 1194, 1201 n. 16 (3d Cir 1995)............... 17 Lehman v. Zuckerman, 198 Ga.App. 202, SP ee Pe CR 5 ds oc ook Wi as Aw ke 12 Lloyd v. Prudential Secs., Inc, 211 Ga.App. PS Ga Pe FEE: iv np cos teak casseecbaes 17 McClure v. Raper, 266 Ga. 50, OG ee Bae EE oko foi eet ek 14 McLean v. Haden, 214 Ga.App. 413, OSE OO... 3... a is as a cc 15 xX Meinhard v. Salmon, 249 N.Y. 458, 464, 166 NE; 345, 346,62 ALR. O9ZB). oc ec cess 22 Phoenix Airline Services, Inc. v. Metro Airlines, Inc. 194 Ga. App. 120, 390 S.E.2d secs on oo 21 Pilkington v. United Airlines, Case No. 96-2539 ee ES Oy ARE agro eN ar a ra 15 Remediation Services, Inc. v. Georgia Pacific Corporation, 209 Ga.App. 427, ee RD EE Soos Cc i SNE Bo cle te eck ws 13 Shipman v. Horizon Corm., 245 Ga. 808, 8009, yg Say "a 2. Se eee eee rere se 20 Slautterback v. IPC Mutual, 132 F.3d 47 (Table) BRE es By Le Ra ae Se ea Sh 4 sn nena 1 Thomas v. Clarkson, 1125 Ga. 72, 54 S.E. 77 (1906) .... 17 Travelers Ins. Co. v. Buffalo Reinsurance Co., 86 Civ. 3369 (S.D.N.Y. June 18, 1991)............ 22,23 Turner v. Davidson, 188 Ga. 736, ee a oe os as ok se i io EO 18, 19 Vaught v. Showa Denko K.K., 1997 U.S. App. Lae er ET ho ns Sia ped ab ims 18 Vitner v. Funk, 182 Ga.App. 39(2), Se TIER, Se heks ad oe Camas cncdaees 12 Xl White v. Mercury Marine, 129 F.3d 1428 CRG Ba ae eI eae 1 TE PERRO 16, 24 Statutes Cited: Be Ra EAE ccs ee a SRS CEPR l United States Constitution Cited: PAM PANNE i os 652s C6 NEO 9 ] State Statutes Cited: AS Ra POE Ba a cs in ka aw ees Oe 16, 18, 19, 25 OSA. SG ii es SSeS IOS 20 PRADA Eee cs ks Pa de Seno awe ees 1, 16 SPE SEDs SPRL: go's oc bs Ven ca Cee ok eae 15 CPA ASPs © BOOS 05 0 io bee FAT has ee oe Ee 13 OLS AS 2206 oe ee as 13 Other Authority Cited: Gang, “Developmentes in Litigation Involving Reinsurer, Cedents and Insureds,” Reinsurance Litigation and Beet, FO. PLA, USSD) oi naive ne ev Swen as 22 C.E. Golding, The Law and Practice of Reinsurance, MOUS Gl COP ca 5 oso ok vn ds 0 Ee 21 xii John S. Diaconis, “Utmost Good Faith and Rescission: Non-Disclosure of Material Facts in Reinsurance Agreements,” Reinsurance Litigation and EN Ee 21 APPENDIX Appendix A - Opinion of the United States Court of Appeals for the Eleventh Circuit filed SESE SE PEGS Fe PCE EEE ETe la Appendix B - Order of the United States Court of Appeals for the Eleventh Circuit filed i EGO Gees eee haa tke seccccscce 3a Appendix C -Order of the United States District Court for the Northern District of Georgia, Atlanta Division, filed December 16,1996 ............ 4a Appendix D -AS&K GUIDE, Appelby, Spurling & Kempe, Counsel for Respondent ......... 29a Appendix E - Shareholder Agreement between Petitioner and Respondent as rent-a-captive .......... 45a Appendix F - Agency Agreement between Petitioner and the fronting company, Colonial ee EI CU es a Sb prec scces cca Sla Appendix G - Reinsurance Treaty ostensibly between Respondent and Colonial Penn Insurance Co. ......... 74a Appendix H - Motion for Rehearing and Suggestion I Ua ceccdgadaabepocesccccess 88a Xill Appendix I - Seif-Insurance Manuel, NILS Pupeseng CONEY, T9G8 oa ees llla l Petitioners, Richard D. Slautterback, Sandra L. Slautterback, Trustee, American Owner Operator Underwnters, Inc., and American Truck Underwriters Holding Corporation (“the Slautterbacks”), respectfully request that a wnt of certiorari be issued to review the judgment of the United States Court of Appeals for the Eleventh Circuit in this case. OPINIONS BELOW The opinion of the United States Court of Appeals for the Eleventh Circuit is a non-published affirmance of the District Court decision pursuant to 11th Cir. R. 36-1. (App. A) The opinion of the District Court in Slautterback, et al. v. [PC Mutual Indemnity Limited (N.D. Ga., December 13, 1996) is not published. (App. C) STATEMENT OF JURISDICTION The judgment of the United States Court of Appeals for the Eleventh Circuit (“Court of Appeals’) was entered on December 1, 1997. The Court of Appeals denied a timely petition for rehearing on July 23, 1998. (App. B) The jurisdiction of this Court is invoked pursuant to 28 U.S.C. § 1254(1). | CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED The Fifth Amendment to the United States Constitution provides in relevant part: “No person shall . . . be deprived of life, liberty, or property, without due process of law... ..” If one party is barred or deterred from bringing an action by the fraud of the other party, the statute of limitations begins to run only from the time of the discovery of the fraud. O.C.G.A. § 9-3-96. The Shareholder’s Agreement which is the contract for breach of which Petitioners have filed the underlying suit, is the | 2 product of Bermuda law, the Insurance Act of 1978 (Act No. 39 of 1978), July 7, 1978, Bermuda. That act provides that the captive facility, i.e., the Respondent, “rents”’ its capital, surplus, and license to the policy holder, i.e., the Petitioner, and the rent-a-captive (Mutual) provides administrative services (escrow and mutual accounts). The agreement itself, i.e., the Shareholder’s Agreement, defines the relationshin of the parties providing that the Respondent is the administrator or escrow agent to merely receive the premiums generated by the Petitioner, and accounts for them as fiduciary and escrow agent for the benefit of the Petitioner/ Shareholder who rented the Captive, 1.e., Mutual, the Respondent. As such, the mutual accounts statute of limitations was the proper statute of limitations to apply, and not the fraud or contract statute of limitations. Bermuda law, defining the nature of a rent-a- captive, and the shareholders agreement, made under Bermuda law, governs the nature of the relationship of the parties, i.e., as a fiduciary relationship running from Respondent to Petitioner; and it is Georgia law, respecting the appropriate statute of limitations, i.e., the mutual accounts statute, that applies mandating the use of the ten-year statute of limitations respecting fiduciaries as the proper statute to apply in this case. STATEMENT OF THE CASE A fundamental question in this case is whether the statute of limitations in a contract case is tolled during the active fraud of two party fiduciaries against a third party to a tripartite “rent-a-captive” insurance venture. Secondly, should another statute of limitations have been considered. Thirdly, should the three contracts have been considered together which comprise the tripartite arrangement known as alternative to reinsurance, i.e., self-insurance as opposed to reinsurance. | 3 1. Background of the Rent-a-Captive Alternative to Reinsurance Arrangement. Creative entrepreneurs have found a way to allow the managing general agency, i.e., the generator of insurance sales and premiums, to obtain the underwriting profits, i.e., premiums less losses paid. A statutory requirement to receiving underwriting profit, or acting as an insurance company, is reinsurance or some alternative to reinsurance. Under Bermuda law rent-a-captives provide for the alternative. Through Bermuda law (no state in the U.S. has to date passed enabling legislation authorizing rent-a-captives) 2n MGA could rent a captive insurance company through the medium of the purchase of non-voting preferred stock in a Bermuda corporation that for a fee would act as an escrow agent for premium dollars and administer the program of insurance by taking the premium dollars ceded to it by the MGA and invest those premiums, pay over sufficient premium dollars to the MGA for the payment of claims; and, at designated times, pay to the MGA all premiums in excess of claims paid plus investment income as a preferred share dividend after deducting its fee. The rent-a-captive would take no risk, and so it has declared in SEC filings, in its New York Stock Exchange Prospectus and in all World Wide Web Sites and other sales literature. Respondent’s Bermuda counsel, Appleby, Spurling & Kempe, have published a guide, AS&K GUIDE, regarding special types of insurance vehicles, including a description of rent-a-captives, which states unequivocally that rent-a-captives take no risk and act as mere conduits of underwriting profits and investment income for organizations like the Petitioners. (Appendix D) The Sel/f-Jnsurance Manual, NILS Publishing Company, 1988, (Appendix H) states in Section 12.3.3.1 that rent-a-captives act as administrators only in alternative risk arrangements, including the use of a fronting company such as Colonial Penn. 4 In order to sell and issue policies in the U.S., the MGA contracted with a licensed insurer qualified in all states in the U.S. under an agreement that the licensed insurer would act merely as a fronting company, 1.e., license the use of its name on policies of insurance for a fee. The various states sanctioned the practice as long as the fronting company assumed a minimum of 10% of the risk, which Colonial Penn Insurance Co. agreed to do. Thus, the Petitioners purchased preferred stock in the Respondent (Appendix E), the rent-a-captive, and through the latter’s administration of the program Petitioners acted as the reinsurer, because the Reinsurance Treaty provided that the consideration for the reinsurance was 90% of the premiums to be paid to the named reinsurer, i.e., Mutual, however, via the Shareholder’s Agreement Mutual agreed to pay this 90% of the premiums ceded to the Petitioners after claims paid. The Agency Agreement (Appendix F) entered into between the Petitioners and the fronting company, 1.e., Colonial Penn, provided that the Petitioners, as attorneys in fact, would place the reinsurance, which it did through the reinsurance treaty signed by the rent-a-captive rented by Petitioner. The reinsurance treaty (Appendix G) provides that it was entered into for the consideration that 90% of the premium be paid to the reinsurer, which, although listed as the Respondent, the Respondent, via the Shareholder’s Agreement, committed to pay all those premium dollars over to the Petitioners. That is why all three contracts must be read together. Otherwise, its like the parable of the blind men and the elephant. One feels the trunk and thinks it a snake. Another feels the leg and thinks it a tree. If the agency agreement is read independently, Colonial Penn may seem to be the insurer, rather than the fronting company, at risk for only 10% of the premium and receiving only a fronting fee. If read oe a 5 independently, the reinsurance treaty might seem to be between an insurer and a traditional reinsurer, whereas, Mutual Indemnity, Respondent, takes no risk and receives no premium as consideration (as a traditional reinsurer must) according to Bermuda law governing rent-a-captives, according to the Mutual Indemnity’s SEC filings such as 10K and 10Q, according to its prospectus on Wall Street to all its investors as a publicly held company, according to all its sales literature, and according to the Shareholder’s Agreement it entered with Petitioners, which spells out in detail that Respondent is acting as a mere administrator of the program premiums, or escrow agent, receiving premium, paying over to Petitioners sufficient premium dollars to pay claims as periodically demanded by Petitioners, and finally paying over to Petitioners alone all underwriting profits, i.e., all premiums less claims paid plus investment income as a preferred share dividend as ownership or rent for the rent-a-captive. Thus the ostensible reinsurer, because it is “rented” by Petitioners under Bermuda law, signed the reinsurance treaty on behalf of Petitioners, who are the real reinsurer; or, to put it another way, the Petitioners were self- insured, by means of this device, sanctioned by Bermuda and the various states laws so long as a fronting company is used and the fronting company takes a minimum of 10% of the risk. Mutual has grown into a giant since this transaction, now showing several billions in assets. Mutual has the following World Wide Web addresses: www.comrisk.com; www.mutrisk. com; www.producersforum.com; and www.accessmrm.com, explaining the nature of a rent-a-captive and Mutual. Therefore, although at first blush from reading the Reinsurance Treaty it appears that the rent-a-captive or Mutual, i.e., the Respondent, is a traditional reinsurer contracting with an insurer, i.e., Colonial Penn, in a traditional reinsurance arrangement, further reference to the Shareholder’s Agreement 6 makes it clear that the arrangement is really a Bermuda rent-a- Captive, or alternative to reinsurance arrangement, because the Shareholder’s Agreement provides that 90% of premium dollars is paid over to the Petitioners, and none retained by Respondent, whe merely receives a fee for acting as a fiduciary in administering the money that merely passes through iis hands, i.e., the Respondent merely acts as an escrow agent and as a fiduciary for the benefit of the Petitioners, and the Petitioners, in effect, are self-insured, which is the objective of the Bermuda rent-a-captive arrangement. Industry statistics show that 50% of all U.S. premium dollars are now placed in rent-a-captive arrangements of this kind, i.e., alternative to traditional reinsurance arrangements, i.e., in fact no reinsurance, but, rather, a mechanism for self-insurance. I. The Tripartite Venture. In 1985, Slautterback (Insured/shareholder), Mutual Indemnity (Rent-a-Captive) and Colonial Penn (Fronting Company) entered into a tripartite, alternative risk management plan, through the execution of three contracts: (1) The Shareholder Agreement between Slautterback and Mutual Indemnity dated August 1, 1985, which is the subject of this suit, a Quota Share Treaty (or reinsurance agreement) between Colonial Penn and Mutual Indemnity, and an Agent Agreement between Slautterback and Colonial Penn. The relationship of the parties was expressed in three basic contracts, all interrelated, and no one of which would have been entered into by any of the parties but for the existence of the others. In other words, each of the parties to contract “A” was aware of the necessity for the other two contracts, “B” and “C” which needed to be signed before that party would agree to be bound under contract “A.” The arrangement was called a “tripartite” contract. The three contracts were 1) an agency agreement; 2) a share-holders’ 7 agreement; and 3) a reinsurance treaty. Pursuant to the Shareholder Agreement, Slautterback purchased 432,000 non-voting preferred shares of Mutual In¢emnity, by posting a $432,000 letter of credit. Insurance premiums were then collected by Slautterback from the policyholders, and Slautterback then issued the policies of insurance using Colonial Penn’s name, and then remitted premiums to Colonial Penn under the Agency Agreement. Colonial Penn deducted its fronting fee, and forwarded the remainder of the premiums to Mutual Indemnity as required by the Quota Share Treaty. Mutual Indemnity was to deduct its rental fee (rent-a-captive), then hold the balance of the premiums for the benefit of Slautterback, investing the premiums, paying premium dollars to Slautterback as demanded through reports of claims generated by Slautterback as claims manager, and finally, to return to Slautterback all premiums remaining as underwriting profits (premiums less claims paid under the program of insurance) plus investment income during the holding period. Mutual Indemnity was then to redeem the preferred stock on January 1, 1991. During the existence of the tripartite arrangement, Mutual Indemnity sent Slautterback annual financial statements regarding “[its] preferred shares Series V4" in 1986, 1987 and 1988, showing investment income and ihe stock’s current value. In 1989 and 1990, two of the three parties, i.c., Slautterback and Colonial Penn, were in litigation over the venture, and on January 1, 1991, when Mutual Indemnity failed to fulfill the scheduled stock redemption and to pay the funds over to the Slautterbacks, a letter was written to the Bermuda Monetary Authority concerning the stock. Slautterback learned from the Authority that the shares had been canceled in 1987. He also learned late in the litigation with Colonial Penn that in December, 1987, Mutual Indemnity and Colonial Penn had entered into a secret rescission of their Quota Share 8 Reinsurance Treaty, including a provision that Colonial Penn would indemnify, defend and hold harmless Mutual Indemnity from any liability it might incur with the Slautterbacks for wrongful termination of the rent-a-captive Shareholders Agreement. Thus, prior to that secret agreement, Mutual Indemnity had somehow secretly, unilaterally and illegally redeemed the Slautterback stock. This secret agreement was actively and purposefully concealed from Slautterback until March, 1989, when it was finally produced in discovery in the litigation between Slautterback and Colonial Penn. In the first law suit, Slautterback was sued by Colonial Penn, the mere fronting company, which misrepresented to Judge Tidwell that they were the 100% insurer rather than a fronting company, and they sued on only one of the three interrelated or tripartite agreements, and they denied that Mutual Indemnity was an indispensable party, although the latter was one of three parties tied together by the tripartite arrangement, and they alleged that Mutual Indemnity sold Colonial reinsurance, although Mutual Indemnity has declared to the world that they take no risk (find a reinsurer that doesn’t take risk and you have a strange anomaly), and on appeal they said that Slautterback was no party to any thing and due nothing, in spite of the Shareholders Agreement that says that Slautterback gets it all as follows: 1) Slautterback was the party to get 100% of the consideration for the reinsurance as stated in the Quota Share Reinsurance Treaty by virtue of the fact that Mutual Indemnity, to whom 100% of the consideration set forth in that reinsurance agreement goes, but its must be understood that Mutual Indemnity had by virtue of the Shareholders Agreement then turned that entire amount over to Slautterback. This is consistent with the nature of a rent-a-captive. A rent-a-captive rents its status as a captive to the renter, i.e., in this case Slautterback, and merely administers the premiums for the 9 benefit of the renter, i.e., in this case Slautterback. 2) Slautterback was to receive the entire underwriting profits on 90% of the premiums (all premiums less claims paid) plus all of the investment income on the premiums administered, less Mutual Indemnity’s fee of 2 2%, according to the Shareholder Agreement. The result is that in the first case the court looked at only one contract, the agency agreement. In the second case, before Judge Julie Carnes, the Petitioners sued Mutual Indemnity, who had been effectively excluded as an indispensable party by the urgings of Colonial Penn and its lawyer, Paul Burke. In the second case, Mutual Indemnity’s lawyer, Paul Burke, argued that Slautterback was not a party to the reinsurance agreement and had no standing to bring the suit. But how could Mutual Indemnity be the reinsurer when it declares to the world that it does not take risk? If the trial court does look at the other contracts that constitute the tripartite contract arrangement, it will see that one of the three contracts sets forth that the consideration for the reinsurance, or 90% of the premiums ceded, was required passed through to Slautterback, making Slautterback effectively self-insured, especially when it is written in the Shareholder Agreement that the extent of reinsurance is 70% of premiums ceded, i.e, 70% of the 90% maximum, i.e., self-insurance in its classic form. This court may actually be able to see the whole picture and not a third as the other District Court was limited because of the misrepresentations of Colonial and Paul Burke, and the truth be finally known. II. The Federal Proceedings Below. On March 31, 1987, Colonial Penn sued Slautterback in U. S. District Court, Northern District of Georgia, Atlanta Division, alleging violations of the Agency Agreement. Colonial Penn v. Slautterback, et al., 36 F.3d 95 (11th Circuit 10 1994 per curiam) Slautterback sought to add Mutual Indemnity as a party to the Colonial Penn lawsuit, over Colonial Penn’s objections through counsel, Paul Burke. The District Court denied the motion for joinder on July 20, 1987, and in its final judgment and Order of September 29, 1993, the Court stated that “. . . since MI is not a party to this litigation, this decision does not purport to affect any rights Slautterback may have against MI.” Slautterback filed this action against Mutual Indemnity in the District Court for the Northern District of Georgia, Atlanta Division, on December 22, 1994, less than four years after the January 1, 1991, date that Mutual Indemnity was required by the Shareholders Agreement to redeem the preferred shares. Slautterback alleged breach of contract and fraud among its claims. Mutual Indemnity invoked its indemnity clause under the secret rescission contract with Colonial Penn, and Paul Burke now appeared to defend Mutual Indemnity, Respondent. Mr. Burke filed a Rule 11 against Slautterback’s counsel protesting that this suit was frivolous in light of the findings in the Colonial Penn suit, although he was privy to the proceedings in the Colonial Penn suit and the court’s order that “. .. since MI is not a party to this litigation, this decision does not purport to affect any rights Slautterback may have against MI.” This threat of a Rule 11 intimidated Slautterbacks’ counsel who, without informing the Slautterbacks, traded a legitimate motion for contempt against Mutual in consideration for dismissal of the Rule 11. Following discovery, Mutual Indemnity filed various motions, including a motion for summary judgment based upon expiration of the statute of limitations. It is in this motion that Mutual Indemnity, through Paul Burke under the indemnity agreement, pleads falsely that Colonial Penn was a 100% insurer rather than the 10% fronting company and that Mutual Indemnity sold reinsurance to Colonial Penn rather than a 2 PEAS 11 Mutual Indemnity’s true role as a rent-a-captive and mere administrator of premium funds for the benefit of Slautterback as supported by the Shareholder Agreement (Appendix E) and the AS&K Guide of their own counsel, Appleby, Spurling & Kempe (Appendix D). The District Court granted summary judgment in favor of Mutual Indemnity on December, 13, 1996, on the grounds that the claims were barred by statutes of limitations. An appeal was taken to the 1 1th Circuit which affirmed the District Court per curiam without opinion on December 1, 1997. (132 F.3d 47 (1997)). Rehearing was denied on July 23, 1998. It is from this decision that application for a Writ of Certiorari is made. REASONS FOR GRANTING THE WRIT I. Active Fraud and Fraudulent Concealment by a Fiduciary Tolls the Running of the Limitations Period - Resolution of the Split Among the Circuits In Klehr v. A. O. Smith Corp., Case No. 96-633 (June 1997) this Court declined to resolve the split in the various circuits as to what facts either start or stop the running of the statute of limitations, stating that the Court preferred to “. . . wait for a case that clearly presents these or related issues, providing an opportunity for full argument. . . ,” before it attempted to resolve them. The facts and issues in the case below provide just that opportunity. A. Fiduciary Relationship The relationship of the parties of a tripartite rent-a- captive insurance venture are similar in nature to the tripartite suretyship between a surety, principal and creditor. A. H. Kellos Construction Co. v. Balboa Insurance, 495 F.Supp. 406 (S.D. Ga. 1980) concerned suit on a construction performance 12 bond. Although that case was dismissed for failure to state a claim for negligence against the supplier of roofing material where damages were economic, it presents suretyship as a good analogy to the fiduciary relationship between a corporation and its shareholder, and between an insurance reinsurer and the insured. A second example is that which existed in Lehman v. Zuckerman, 198 Ga.App. 202, 400 S.E.2d 704 (1990), where a builder and an investor formed a construction company for the purpose of building houses. The investor put his own money into the company which the builder managed. When the company was dissolved, the builder agreed in wniting to repay the investor for his financial contributions. When the builder did not pay, the investor sued. The builder claimed at trial that the investor’s claims for reimbursement and the procuring of the agreement were fraudulent. The Georgia Court of Appeals held that ‘a special relationship of trust or confidence exists between partners, who owe a duty of ‘utmost good faith’ to each other. [Cit.] Because of that confidential relationship, one partner is entitled to rely on representations made by another partner.” Allen v. Sanders, 176 Ga.App. 647 (1) (337 S.E.2d 428) (1985). There was sufficient evidence for the Court to find the existence of a confidential relationship. Zuckerman and appellant were equal partners in the construction company, each providing his own experience toward a common business objective. See Vitner v. Funk, 182 Ga.App. 39 (2) (354 S.E.2d 666) (1987). Lehman, 198 Ga.App. At 431. In our facts, Slautterback acted as the “investor” - its funds (premiums) were sent to Colonial Penn, the “Builder,” who deposited them into Mutual Indemnity, the “Construction Company.” All three entities provided their own expertise towards the common business objective of making money from insurance policies. This clearly establishes the fiduciary/ confidential relationships as they related to the joint venture 13 itself. Mutual Indemnity is also a fiduciary with respect to its relationship to its stockholder, Slautterback. Mutual Indemnity held Slautterback’s money with the duty to invest and eventually return it to the Shareholder. Slautterback held shares of stock in Mutual Indemnity as its “collateral” or security for the return of the money, although the actual physical stock shares apparently never left Bermuda. Thus, by holding both the money and the physical shares of stock themselves in Bermuda, Mutual Indemnity was in a position to exert an overwhelming influence over Slautterback’s interests. Under Official Code of Georgia Annotated (O.C.G.A.) § 23-2-58, “fajny relationship shall be deemed confidential, whether arising from the nature, created by law, or resulting from contract, where one party is so situated as to exercise a controlling influence over the will, conduct and interest of another or where, from a similar relationship of mutual confidence, the law requires the utmost good faith, such as the relationship between partners, principal and agent, etc.” All that the law requires is the showing of a relationship in fact which justifies the reposing of confidence in one party by another. As provided in O.C.G.A § 23-2-53: “Suppression of a material fact which a party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case.” “[O.C.G.A § 23-2- 53] expressly goes beyond the strict fiduciary relations of the parties and states that the obligation to communicate may arise ‘from the particular circumstances of the case.’” Remediation Services, Inc. v. Georgia Pacific Corporation, 209 Ga.App. 427, 433 S.E.2d 631 (1993). B. Fraudulent Concealment Although the District Court found that the breach of contract occurred in December, 1987, with the execution of a secret rescission agreement between Colonial Penn and Mutual 14 Indemnity, the existence of this rescission agreement was unknown by and concealed from Slautterback by Colonial Penn and Mutual Indemnity until March of 1989, when the rescission agreement was finally produced during discovery. Not only did Colonial Penn and Mutual Indemnity actively conceal the existence of the rescission agreement from Slautterback, but Mutual Indemnity further perpetuated the fraud by continuing to send false and fraudulent annual financial statements to Slautterback showing the stock’s value in 1987 as well as in 1988, a year after the secret rescission was executed. These active acts of concealment of the fraud were intended to and did in fact cause Slautterback to “. . . remain in ignorance of it without any fault or want of diligence or care on his part.” Therefore, the “. . .bar of the statute does not begin to run until the fraud is discovered.” Holmbers v. Armbrecht, 327 U.S. 392 (1946). See also McClure v. Raper, 266 Ga. 60, 463 S.E.2d 125 (1995). Ss “Injury and Concealment” versus “Separate and Independent Injury” The 8th, 10th and 1 1th Circuits have adopted the “injury and pattern discovery rule” as described in Bivens Gardens Office Building v. Barnett Bank, 906 F.2d 1546, 1554-1555 (11th Cir. (1990)), while others apply forms of an “injury discovery rule, and finally, the 3rd Circuit uses a “last predicate act” rule in deciding whether the statute of limitations has run on a RICO claim. In Klehr v. A.O. Smith Corp., U.S. Supreme Court Case No. 96-633 (Decided June 19, 1997), the court considered the case of a farm silo which produced moldy and fermented cattle feed, despite false representations by the seller that the silo would prevent such damages. The plaintiff sued, claiming a civil RICO cause of action. The defendant interposed a statute of limitations defense, and the district court dismissed the claims. The Supreme Court affirmed, holding that when the plaintiff did not exercise due diligence to 15 discover the fraud, the defendant’s acts of fraudulent concealment do not toll the statute from running. This is in contrast to Slautterback, where there was due diligence and the active concealment of the fraud of Mutual Indemnity. In the case at bar, the question also arises as to when the final, separate injury occurred, which would mark the beginning of the running of the statute of limitations. Bivens Gardens Office Building, supra at 1556, and Pilkington v. United Airlines, Circuit Case No. 96-2539 (11th Cir. 1997). Although the district court found that our contract was breached at the time of the wrongful S*areholder’s Agreement rescission in 1987 (which fact was coucealed from Slautterback until 1989), Mutual Indemnity did not have a legal duty to redeem the shares of preferred stock until January 1, 1991. It was this failure to perform that legal duty which was the independent act which inflicted a new independent injury upon Slautterback, and thus the beginning of a new four year statute of limitations period, which had not yet run when suit was filed on December 13, 1994. D. Actual Cause of Action In Georgia, allegations of fraud must be “stated with particularity.” O.C.G.A. § 9-11-9(b) in order to have a valid cause of action. Unless and until Slautterback could state the “circumstances constituting fraud with particularity,” any suit for fraud would have been dismissed by the Court. McLean v. Haden, 214 Ga.App. 413, 448 S.E.2d 69 (1994). Under the District Court’s analogy of the statute having commenced prior to Slautterback being able to plead the facts, this would have left Slautterback without a remedy. The District Court found as fact that Mutual Indemnity concealed the existence of the rescission agreement from Slautterback until March, 1989, at the earliest. Since Slautterback could not have known the facts which constituted fraud, suit could not have been filed. 16 O.C.G.A. § 9-3-96. A similar situation occurred in Fincit Company II v. Hardin, 225 Ga.App. 2323, 483 S.E.2d 609 (1997), where the court considered a claim for damages and fraud in real estate partnerships. The Georgia Court of Appeals held that genuine issues of material fact remained as to when the fraud was discovered and whether the defendant’s alleged misrepresentation and concealment of the full extent of the fraud prevented the plaintiff from discovering it. In our case, the active concealment by Mutual Indemnity and Colonial Penn of the facts concerning the rescission, the redemption of the shares and the false financial statements, prevented Slautterback from being able to allege the fraud, and thus the statute must be tolled. Adler v. Hertling, 215 Ga.App. 769, 451 S.E.2d 91 (1994). The requirement of having concrete facts to point to the cause of an injury before starting the limitations bar from running was also pointed out by the 11th Circuit Court of Appeals in White v. Mercury Marine, 129 F3d 1428 (1 1th Cir. 1997). In White, that Court was interpreting the general maritime statute of limitations and again, deciding whether the “continuing tort,” “modified continuing tort,” or “discovery” theory should be applied to determine when the cause of action “accrued.” After analyzing each of the competing theories and law from other circuits as well as this one, this Court held that the cause of action accrues “when the Plaintiff knew or should have known of his injury and its cause.” [emphasis supplied] The plaintiff in that case was found to have waited too long to file suit after knowing of his injury (hearing loss) and its cause (engine noise), but not filing suit until the damages had increased. The evidence in our case shows that although Slautterback might have suspected fraud, Mutual Indemnity took significant steps to prevent him from discovering the facts to support the claim, until they were finally disclosed in March, wr | 4 ‘ ; a : 17 1989. Thus, the statute of limitations had not yet run on Slautterback’s causes of action when it filed suit in December, 1994. II. The Petition should be Granted because the Court below Failed to Apply the Mutual Accounts Statute of Limitations to this Case A. The District Court erred in granting summary judgment for the Respondent on the ground of expiration of the statute of limitations. A federal court in a diversity case must apply the substantive law of the state which encompasses its district, Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), including the conflict of laws rules of the forum state, Klaxon Co. V. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The federal court seeks to discern how the Supreme Court of the forum state would decide the issues involved. Klewit Eastern Co. v. L & R Constr. Co., 44 F.3d 1194, 1201 n.16 (3d Cir. 1995). When the forum state’s Supreme Court has not addressed an issue, the federal court may look to decisions of the intermediate courts for guidance. Id.; Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 614 (3d Cir. 1992). In Georgia, statutes of limitation are remedial and procedural rather than substantive, Thomas v. Clarkson, 1125 Ga. 72, 54 S.E. 77 (1906), so Georgia courts apply Georgia limitations rules even when the substantive law of another jurisdiction controls. Jndon Industries, 'c. v. Charles S. Martin Distributing Company, Inc., 234 Ga. 845, 218 S.E.2d 562 (1975), Lloyd v. Prudential Secs., Inc., 211 Ga.App. 247, 438 S.E.2d 703 (1993), Fimian v. Guy F. Atkinson Co, 209 Ga. 113, 70 S.E.2d 762 (1952); Cash v. Armco Steel Corporation, 18 462 F.Supp. 272 (N.D. Ga., 1978). Georgia’s limitations of actions are codified in Title 9, Chapter 3 of the Official Code of Georgia, with all limitations periods and tolling provisions meshing as gears of a single machine, integral parts of a unified whole. Therefore, while the contract clause selecting Bermuda law would be upheld as to substantive issues in Georgia, Carr v. Kupfer, 250 Ga. 106, 296 S.E.2d 560 (1982), Georgia tolling rules would apply because a tolling rule is an integral part of a statute of limitations. See, e.g., Vaught v. Showa Denko K.K., 1997 U.S.App. LEXIS 12786 (Sth Cir., 1997). B. The District Court should have found that the Shareholder Agreement gave rise to a mutual account, as to which under Georgia law the limitation period does not begin to run until the date of the last item thereof. The limitation period should be calculated from the date that the Shareholder Agreement provided for the final stock redemption, or January 1, 1991. O.C.G.A. § 9-3-7 provides that “the statute of limitations for a mutual account begins to run on the date of the last item thereof. A mutual account must include an indebtedness on both sides. Mere entries of credits of partial payment shall not be sufficient.” In cases of mutual accounts, the statute of limitations begins to run from the date of the last item embraced within mutual dealings. Turner v. Davidson, 188 Ga. 736, 4 S.E.2d 814 (1939). This statute, if applied, would start the limitations period running from January 1, 1991. The District Court’s Order, however, did not address the effect of this statute. Under Georgia law it is a jury question as to whether or not an account is mutual. Turner v. Davidson, 188 Ga. 736, 4 19 S.E.2d 814 (1939). Georgia law presumes that mutual accounts, once established, run through all the course of dealings of the parties. See, e.g., Gunn v. Gunn, 74 Ga. 555 (1985). In this case, there were mutual accounts between Slautterback and Mutual Indemnity. Slautterback gave Mutual Indemnity a letter of credit for US $432,000, and Mutual Indemnity in Bermuda issued to Slautterback 432,000 shares of non-voting preferred shares of stock in Mutual Indemnity. The contract provided that Mutual Indemnity would redeem the 432,000 shares on January 1, 1991, with the redemption payment adjusted to account for investment income earned and claims experience in the transaction. Mutual Indemnity, during the life of the account, would pay to Slautterback amounts necessary to pay claims. The letter of credit and shares would remain outstanding and in existence until January 1, 1991. Slautterback in turn, was obligated on the account to pay Mutual Indemnity up to 70% of the premiums deposited in that account for potential reinsurance claims for 90% of premiums deposited. Slautterback was obligated to pay Mutual Indemnity the latter’s fee of 2.5% for administration of the account, plus other lesser fees for Mutual Indemnity’s investing the premium dollars in the account. Thus, the requirements of the Mutual Accounts statute were met, i.e., that “A mutual account must include an indebtedness on both sides.” Therefore, because the running of the statute of limitations was tolled pursuant to O.C.G.A. § 9-3- 7, the limitation period in this case should be calculated to run from January 1, 1991. The six year limitation period for written contracts as we have here would thus expire January l, 1998. The four year limitations period for tort claims would expire on January 1, 1996, over a year after the case at bar was filed. If the ten year limitation period for claims against 20 fiduciaries, as we clearly have here as an administrator, escrow agent for the account and corporation owes to its shareholder, O.C.G.A. § 9-3-27 applies, and it would expire January 1, 2002. Under Georgia law, corporate officers and directors occupy a fiduciary relationship to the corporation and its shareholders, and are held to the standard of utmost good faith and loyalty. King Mfg. Co. v. Clay, 216 Ga. 581, 118 S.E.2d 581 (1961). Generally, the “mere silence” of a corporate officer accused of fraud, occupying such a fiduciary relationship with the shareholder, is sufficient to toll the statute. Shipman vy. Horizon Corp., 245 Ga. 808, 8009, 267 S.E.2d 244 (1980). Petitioners’ cause of action clearly alleges the intentional fraud of the Respondent, and the officers and directors of a corporation that has engaged in that kind of activity can be held personally accountable under this theory of fiduciary and as grounds for piercing the corporate veil. od The District Court should have found Mutual Indemnity held Slautterbacks’ 432,000 shares of preferred stock in a constructive trust, so as to apply Georgia’s ten-year limitation period for actions against fiduciaries. 0.C.G.A. § 9-3-27 provides that “all actions against executors, administrators, guardians, or trustees, except on their bonds, shall be brought within ten years after the nght of action accrues. In this case the Respondent should have been deemed to be the trustee of a constructive trust, and therefore subject to the ten-year limitation period. For purposes in this case of determining the procedural issue of tolling of the limitation period, a constructive trust arises with respect to property the title to which was acquired ne eRe, 21 by fraud, or where, although acquired originally without fraud, it is against equity that the title should be retained by the one who holds it. Aetna Life Ins. Co. v. Weekes, 241 Ga. 169, 172, 244 S.E.2d 46 (1978); O.C.G.A. § 53-12-26. A constructive trust is merely a type of equitable remedy designed to provide relief against unjust enrichment. See generally 76 AmJur2d, Trusts, §§ 221-2. In an appropriate case, a plaintiff can obtain both an award of monetary damages and imposition of a constructive trust, as adequate relief can be afforded only through the use of both remedies. See, e.g., Phoenix Airline Services, Inc. v. Metro Airlines, Inc., 194 Ga.App. 120, 390 S.E.2d 219 (1989); Borden v. Sinskey, 530 F.2d 478 (3rd Cir. 1976). In this case, the Respondent should be deemed the trustee of a constructive trust with regard to the 432,000 shares of non-voting preferred shares of stock and the investment income on those shares, which Respondent held pending the scheduled redemption date of January 1, 1991. For purposes of tolling of the statute of limitations is a procedural rather than a substantive question controlled by the choice of law and limitations rules of the forum state, Georgia -- the District Court should have deemed the presence of a constructive trust and should have applied the ten-year limitation period prescribed by O.C.G.A. § 9-3-27. Uberrimae fidei or “utmost good faith” is the guiding principle in Anglo-American reinsurance law. See C.E. Golding, The Law and Practice of Reinsurance. 4th Ed., (Brentford/Middlesex 1965). Uberrimae fidei is defined as “the most abundant good faith; absolute and perfect candor or openness and honesty; the absence of any concealment or deception, however slight.” This duty of utmost good faith is mutual; it is a duty owed by each party to the other. John S. Diaconis, “Utmost Good Faith and Rescission: Non-Disclosure of Material Facts in Reinsurance Agreements.” Reinsurance 22 Litigation and Arbitration 192 (Practicing Law Institute 1995). The requirement of uberrimae fidei was explained well by Justice Cardozo, before his ascension to the United States Supreme Court, in another context but fully applicable here as follows: Many forms of conduct permissible in a workaday world for those acting at arm’s length are forbidden to those bound by fiduciary ties. A trustee [or, in this case, a reinsurer] is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546, 62 A.L.R. 1 (1928). This duty of utmost good faith in the reinsurance context has been referred to as an “honorable engagement” and “honorable undertaking” which extends throughout the life of the agreement and may bind the parties years after its termination to a higher and continuing standard of contract performance and obligation, beyond the language of the agreement, not found in other arm’s length contracts. Gang, “Developments in Litigation Involving Reinsurers, Cedents and Insureds,” Reinsurance Litigation and Arbitration 96 (Practicing Law Institute, 1995). “Parties to a reinsurance contract . . . have been described as partners in a marriage or in a business relationship, owing to each other the highest degree of fidelity.” Compagnie De Ressurance D’ile De France v. New England Reinsurance. Corporation, 57 F.3d 56, 72 (ist Cir., 1995). “The hallmark of utmost good faith is absolute candor and honesty coupled with the absence of any concealment or deception.” Travelers Ins. Co. v. Buffalo Reins. 23 Co., 86 iv 3369 (S.D.N.Y. June 18, 1991) (jury instructions set forth in trial transcript, quoted in Diaconis, Reinsurance Litigation and Arbitration (Practicing Law Institute, 1995). Therefore, because Mutual Indemnity’s role as reinsurer was inextricably bound together with its role as “rent-a-captive” and with its shareholder agreement with Slautterback, Mutual Indemnity owed to Slautterback a duty of the highest standard of fidelity, honesty and candor, free from any concealment or deception, beyond the language of contract or what is required in other types of arms-length business transactions. Upon such an obligation of absolute fidelity may a jury find the basis for a relationship of trust sufficient to toll the statute of limitations. II. The Petition Should be Granted Because there is no United States Case Law Governing Rent A Captive, or Alternative to Reinsurance/Self- Insurance, and the Arrangement Constitutes 50% of all U.S. Citizens’ Premium Dollars which are Transmitted to Offshore Entities The alternative to reinsurance programs which are implemented through offshore rent-a-captives now constitute 50% of all premium dollars of United States insureds! There is no American case law governing this huge multibillion dollar business. There is no case law dealing with the tripartite arrangements, with the result that the Petitioner has had two courts to come to opposing conclusions, the one District Court determining that only one of the three contracts in the tripartite arrangement would be considered and without joining the other party to the tripartite arrangement, resulting in an out-of-context reading of an agreement that was only a third of the understanding of the parties, for without considering the three contracts together, the one contract would mislead the court as to the true relationship between the parties. The other District Court, i.e., the trial court below, has 24 correctly adjudged the arrangement to be governed by a tripartite set of contracts, but has still beer: misled as to the role of each of the parties, e.g., thinking the Respondent a reinsurer, when in fact if the Shareholder Agreement is read closely in conjunction with the other two contracts it becomes obvious that the Respondent was merely an administrator of the premiums, for a fee and due no premiums, and not a traditional reinsurer which would require a portion of the premiums as consideration for taking risk as a reinsurer. Mutual merely served as a vehicle for passing underwriting profit and investment income to Slautterback. Mutual Indemnity’s own World Wide Web sites, Wall Street prospectus and SEC Filings and Insurance Commissioner filings all say that it takes no risk, therefore, it cannot be a reinsurer and is what the Petitioner pleads it to be, a rent-a-captive, a device to facilitate the Petitioner being its own reinsurer, i.e., self-insured. It is of vital concern to the American insurance industry that the highest court of this land define the role of an offshore rent-a-captive for what it is, an alternative to traditional reinsurance. CONCLUSION The District and Circuit Courts erred by determining that the statute of limitations begins to run when a party has the mere suspicion of the existence of fraud, as mere suspicion does not give rise to the “accrual” of a cause of action under White v. Mercury Marine, supra. The confidential relationships likewise toll the running of statutes of limitations, and for both these reasons, the Court should grant Certiorari and hear the appeal of the Petitioner. In addition, the District Court should have used the statute of limitations applicable to mutual accounts which provides that the limitations period begins to run from the last act to be performed which was the redemption of the shares of stock to take place on January 1, 1991, allowing 25 the timely filing of the case at bar. Finally, the District Court should have used the statute of limitations pertaining to claims against fiduciaries, a ten year statute of limitations, allowing the timely filing of the case at bar. Any one and each of these theories is proper on its own merits and legally sufficient to reverse the District and Circuit Courts. This Court should reverse the Per Curiam Order of the United States Court of Appeals for the 11th Circuit of July 23, 1998, and the Order of the United States District Court for the Northern District of Georgia, Atlanta Division, filed December 16, 1996, granting summary judgment and remand this case for further proceedings consistent with finding the limitation of actions was tolled until January 1, 1991, pursuant to O.C.G.A. § 9-3-7. Alternatively, the Court should reverse and remand for further proceedings consistent with the statutes of limitation having been tolled due to the concealment of fraud by the Respondent and Petitioners’ discovery of the wrongful rescission of the Shareholder Agreement on or about March, 1989. Alternatively, the Court should reverse and remand for further proceedings consistent with the choice of the statute of limitations governing claims against fiduciaries. Respectfully submitted, Richard Young, #782650 Attorney for Petitioners 125 TownPark Drive, Suite 300 Kennesaw, Georgia 30144 770 420-8290 PMR ew dutch sine BON. APPENDIX A IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT No. 97-8050 D.C. Docket No. 1:94-CV-3402-JEC RICHARD D. SLAUTTERBACK, SANDRA L. SLAUTTERBACK, Trustee, AMERICAN OWNER OPERATOR UNDERWRITERS, INC., AMERICA TRUCK UNDERWRITERS HOLDING CORPORATION, INC., Plaintiffs-Appellants, versus IPC MUTUAL INDEMNITY, LIMITED, Defendant-Appellee. Appeal from the United States District Court for the Northern District of Georgia (December 1, 1997) Before TJOFLAT and BARRETT, Circuit Judges, and PROPST*, Senior U.S. District Judge. *Honorable Robert B. Propst, Senior U.S. District Judge for the Northern District of Alabama, sitting by designation. 2a PER CURIAM: AFFIRMED. See 11th Cir. R. 36-1.' ” “Costs taxed against Plaintiffs-Appellants. Entered: December |, 1997 For the Court: Thomas K. Kahn, Clerk By: s/ Matt Davidson Deputy Clerk ISSUED AS MANDATE: AUG 05 199 11th Cir. R. 36-1 provides: When the court determines that any of the following circumstances exist: (a) judgment of the district court is based on findings of fact that are not clearly erroneous; (b) the evidence in support of a jury verdict is sufficient; (c) the order of an administrative agency is supported by substantial evidence on the record as a whole; (d) summary judgment, directed verdict, or judgment on the pleadings 1s supported by the record; (e) judgment has been entered without a reversible error of law: and an opinion would have no precedential value, the judgment or order may be affirmed or enforced without opinion. 3a APPENDIX B IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT No. 97-8050 RICHARD D. SLAUTTERBACK, SANDRA LL. SLAUTTERBACK, Trustee, AMERICAN OWNER OPERATOR UNDERWRITERS, INC., AMERICA TRUCK UNDERWRITERS HOLDING CORPORATION, INC., Plaintiff-Appellants, versus IPC MUTUAL INDEMNITY, LIMITED, Defendant-Appellee. On Appeal from the United States District Court for the Northern District of Georgia BEFORE: TJOFLAT and BARRETT, Circuit Judges, and PROPST*, Senior U.S. District Judge. PER CURIA 7: The p ition(s) for rehearing filed by the appellant is denied. ENTE?.ED FOR THE COURT: s/ UNITED STATES CIRCUIT JUDGE ORD-41 *Honorable Robert B. Propst, Senior U.S. District Judge for the Northern District of Alabama, sitting by designation. Pe 4a APPENDIX C IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION RICHARD D. SLAUTTERBACK, SANDRA L. SLAUTTERBACK, Trustee, AMERICAN OWNER OPERATOR UNDERWRITERS, INC., and AMERICAN TRUCK UNDERWRITERS HOLDING CORPORATION, INC., Plaintiffs, vs IPC MUTUAL INDEMNITY, LIMITED, Defendant. CIVIL NO. 1:94-cv-3402-JEC ORDER This case is presently before the Court on plaintiffs’ Motion for Reconsideration of Order Denying Extension of Discovery [57], defendant’s Motion for Summary Judgment [63], and plaintiffs’ Motion to Amend More Definite Statement [68]. The Court has reviewed the record and the arguments of the parties and, for the reasons set out below, concludes that plaintiffs’ Motion for Reconsideration should be DENIED, defendant’s Motion for Summary Judgment should be GRANTED, and plaintiffs’ Motion to Amend More Definite Statement should be DENIED. Sa BACKGROUND This litigation arises out of an insurance program which was formed in 1985. The program was comprised of a tripartite agreement between plaintiffs, defendant, and Colonial Penn, an insurance company which is not involved in the present lawsuit. The agreement allowed plaintiffs to sell insurance policies to truckers nationwide without becoming licensed to sell insurance in each state. (Pl. Resp. to Def. Mot. for Sum. J. [70] at 3.) The agreements were written so that plaintiffs would perform the primary functions of the insurer, such as claims handling, administratiou, and underwriting profits made on the program. (/d.) Colonial Penn, pursuant to an agency agreement with plaintiffs, essentially rented the use of its name and license to sell insurance to plaintiff. (/d. at 2.) Defendant acted as the reinsurer of the program. (/d. at 4.) Pursuant to the tripartite agreement, premiums were collected by plaintiff, and subsequently sent by plaintiff to Colonial Penn under the agency agreement. (/d.) The premiums, less Colonial Penn’s fee, were then sent to defendant by Colonial Penn pursuant to the reinsurance agreement. Defendant was obligated to return to plaintiffs funds from the premiums needed to pay any claims that arose. If the premium funds were not used, defendant was obligated to invest the premiums, returning to plaintiffs any premiums remaining, less claims paid and defendant's fee, in December of each year. These payments were to be made to plaintiffs pursuant to a shareholder agreement between plaintiffs and defendant, in the form of dividends on shares of stock of defendant’s preferred series stock which the contract between plaintiffs and defendant obligated plaintiff to purchase with a $432, 000 letter of credit. (id. at 4.) On 6a January 1, 1991, defendant was to return to plaintiffs all money accumulated on the entire program that had not already been distributed. The letter of credit was also to be returned to plaintiffs on January |, 1991 if it did not have to be used during the program to cover losses. The graphic illustration attached to defendant’s motion for summary judgment clarifies the way the program worked. (See Def. Mot. for Sum. J. [63] at Ex. “F’’.) Sometime in 1987 the parties began to experience problems wilth the program, and Colonial Penn filed a lawsuit against plaintiff alleging breach of contract. (id. at 10.) Soon after this, defendant signed an agrement to rescind its reinsurance agreement with Colonial Penn. Under the rescission agreement defendant agreed to return to Colonial Penn all premiums it had received under the program up to that point, less a $300,000 fee for its services. (See Rescission Agreement, attached to Def. Mot. for Sum. J. [63] at Ex. “K’’.) The agreement provided that no further premiums would be forwarded to defendant under its reinsurance contract with Colonial Penn. (id.) The agreement also required defendant to draw down plaintiffs’ $432,000 letter of credit and place it in escrow pending the results of the litigation between plaintiffs and Colonial Penn. (id.) Thus, pursuant to the rescission of the reinsurance agreement the link whereby premuims flowed from Colonial Penn to defendant was destroyed.’ 1. The case between plaintiffs and Colomial Penn was tried in 1993, and resulted in a $5,637,039.00 verdict for Colonial Penn on its breach of contract claim. a ‘fF 4 3 7 m4 7a Several months after the conclusion of the litigation between plaintiffs and Colonial Penn, on December 22, 1994, plaintiffs filed this lawsuit against defendant primarily on the basis of defendant’s failure to comply with the shareholder agreement. Plaintiffs are alleging breach of contract, fraud, conversion, and conspiracy, as well as a Georgia Securities Act Claim. Defendant contends that all of plaintiffs’ claims are barred by the statute of limitations, and has moved for summary judgment. In response to defendant’s Motion for Summary Judgment, plaintiffs have filed Motion to Amend their More Definite Statement to add a claim for RICO violations. Plaintiffs have also moved the court to reconsider an Order entered on July 2, 1996 in which the Court refused to extend the time allowed for discovery. DISCUSSION L Plaintiffs’ Motion for R devas Plaintiffs have filed a motion for the Court to reconsider a discovery Order entered on July 2, 1996. In that Order the Court denied plaintiffs’ Motion for Extension of Discovery and Motion to Compel Production of Documents. (See Order [56].) The Court also denied plaintiffs’ Motion for Order that Matters are Admitted on Grounds of Insufficiency of Answer or Objection, but directed defendant to respond to plaintiffs’ requests for admission by July 9, 1996. (id.) The Court issued its July 2nd Order before receiving plaintiffs’ reply briefs, but within the time which plaintiffs allowed to file reply briefs. Plaintiffs thus urge the Court to reconsider their motions in light of the arguments in their reply briefs that the Court did not have an 8a opportunity to consider before entering the Order. The Court has now carefully considered plaintiffs’ reply briefs in support of each discovery motion made and concludes that plailntiffs have not raised any new issues or made any arguments in their reply briefs which necessitate a change in the July 2, 1996 discovery Order. A. Motion to Compel Documents The Court noted in its prior Order considering plaintiffs’ Motion to Compel Production of Documents that defendant’s response indicated that it had disclosed all requested discovery in its possession. (id. at /.) The Court ordered defendant to disclose all requested discovery within its constructive possession INSTANTER and warned defendant that it would be subject to contempt proceedings and sanctions if it were later discovered that it failed to tum over requested discovery. (id. at 2.) The Court does not see, and plaintiffs’ reply does not demonstrate, the need for any additional relief to plaintiffs as to this request. B. Requests for Admission In its July 2nd discovery Order, in response to plaintiffs’ Motion that Matters are Admitted on the Grounds of Insufficiency of Answer or Objection, the Court directed defendant to submit answers to plaintiffs’ requests for admission by July 9, 1996. (id.) Defendant points out in its response to plaintiffs’ Motion to Reconsider that it complied with the Court’s Order and responded to plaintiffs’ requests for admission by July 9th. (See Def. Resp. to Pl. Mot. to Reconsider [61] at 2.) Plaintiffs’ reply, filed before defendant had an opportunity to comply with the Court’s July 2nd Order, obviously does not address this issue. Given ) ) vate Ore a el ete sewielteres «4 9a defendant’s response to plaintiff's requests for admission, the Court can provide no additional relief to plaintiffs with regard to this motion. 3 Motion to Extend Discovery Plaintiffs’ reply brief presents no new circumstances which convince the Court to change its prior Order denying plaintiffs’ Motion to Extend Discovery. In a January 23, 1996 scheduling order /33/], the Court stated: [T]his case is on a four month discovery track. The parties are requesting an additional four month discovery period and the Court is allowing same. Accordingly, discovery expires on SUNDAY JUNE 2, 1996. No extension of this dated will be granted except in exceptional cases where the circumstances on which the request is based did not exist or could not have been anticipated by counsel at the time the preliminary statement was filed. Parties cannot reserve the right to request additional discovery time. See Local Rule 225-1 (b). In its July 2nd Order the Court pointed out that it had previously indicated to the parties that it would not entertain any motions for extension of discovery. (Order /56].) The Court also noted that this case, at the time of that Order, was over 18 months old and that there had been ample time for discovery. (id.) Plaintiffs raise no new factual or legal issues in their reply in support of their Motion to Extend Discovery. As in their original brief supporting this motion, plaintiffs argue that discovery should be extended because defendant has failed to properly respond to discovery requests. (See Pi. 10a Reply in Support of Mot. to Reconsider [54] at 2.) Plaintiffs’ argument that this allegation makes this case an exceptional one, meriting an extension of discovery, is no more persuasive in their reply than in their original brief *n support of the motion. This case is not an “exceptional” on “where the circumstances on which the request [to extend discovery] is based did not exist or could not have been anticipated by counsel at the time the preliminary statement was filed.” (Scheduling Order [33].) Accordingly, plaintiffs’ Motion to Reconsider the Court’s Order refusing to extend discovery is denied. tL Plaintiffs" Moti ) its M Pefini Statement Plaintiffs have filed a motion requesting leave to amend their more definite statement in order to “clarify” their statement of a claim against defendant for violating the Georgia and federal RICO statutes, 18 U.S.C. § 1961 et seq.’ Plaintiff makes this motion in response to defendant’s Motion for Summary Judgment in which RICO was not discussed. Plaintiffs’ Motion to Amend, filed on September 17, 1996, is in fact the first filing from either party which mentions the possibility of a RICO claim. 2. As “Georgia RICO’s similarity to federal RICO has prompted federal courts to apply the same analysis to both statutes,” the Court will discuss only plaintiffs’ federal RICO claim. Bowers v. Dairymen, Inc., 813 F. Supp. 1580, 1585 (S.D.Ga. 1991); see also Morastu v. Lance, 631 F. Supp. 474, 481 (N.D. Ga. 1986) (holding same). vi & 4 % lla Plaintiffs initially contend that the addition of a RICO claim does not require an amendment to their More Definite Statement. Relying on the liberal pleading rules of the Federal Rules of Civil Procedure, plaintiffs argue that their More Definite Statement already contains a “short and plain statement showing that [plaintiffs] are entitled to relief” under RICO, satisfying the minimal pleading requirements of Rule 8(a). (Pl. Mot. to Amend [68] at 2. ) Plaintiffs’ argument is without merit because although the pleading standard is liberal, plaintiffs’ pleading should still serve to give defendant “fair notice of what plaintiffs’ claim is and the grounds upon which it rests.” Quality Foods v. Latin Am. Agribusiness Devel., 711 F.2d 989, 995 (11th Cir. 1983) (citing Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 103 (1983)). Plaintiffs’ More Definite Statement fails to provide any kind of notice to defendant of potential liability under the Georgia or federal RICO statutes.’ Plaintiff rely on the fact that their More Definite Statement describes the facts surrounding their fraud, conversion, and conspiracy claims, and that these same facts are sufficient to state a claim for violating RICO. (Pl. Mot. to Amend [68] at 2.) While it is true that RICO violations often involve fraud or conspiracy, several elements must be plead in order to state a RICO claim. A plaintiff must plead: 3. This conclusion becomes quite clear when considering defendant’s Motion for Summary Judgment. In its motion, defendant appears to have addressed any claim that plaintiffs’ More Definite Statement could possibly be construed to contain—including a claim for Georgia Securities law violations to which plaintiff did not even respond. (See Def. Mot. for Sum. J. [63].) That defendant never discussed RICO suggests that plaintiffs’ More Definite Statement failed to provide notice of a RICO claim. (1) The conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Durham v. Business Mgmt. Assoc., 847 F.2d 1505, 1511 (11th Cir, 1988) (quoting Sedima S.P.R.L. v. Inex Co., Inc., 473 U.S. 479, 105 S. Ct. 3275 (1985)). Plaintiffs’More Definite Statement does not allege a “pattern of racketeering activity” or point to the existence of a criminal “enterprise.” See Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982, 989 (10th Cir. 1992) (dismissing RICO claim and stating that “plaintiffs must sufficiently allege each element of a RICO violation and its predicate acts of racketeering with particularity, a requirement justified by the threat of treble damages”’); and Miranda v. Ponce Federal Bank, 948 F. 2d 41, 44 (1st Cir. 1991) (stating that “because Civil RICO is an unsually potent weapon.....a civil RICO complaint must, at a bare minimum, state facts sufficient to portray (i) specific instances of racketeering activity within the reach of the RICO statute and (ii) a causal nexus between that activity and the harm alleged”). See also Reynolds v. East Dyer Dev. Co., 882 F.2d 1249, 1251 (7th Cir. 1989) (holding that “‘it is essential to plead precisely in a RICO case the enterprise alleged and the RICO section allegedly violated”’). Because plaintiffs’ More Definite Statement is insufficient as it is currently written to state a claim for RICO violations, an amendment to plaintiffs’ More Definite Statement is required in order for plaintiff to pursue its claims under RICO. Rule 15(a) of the Federal Rules of Civil Procedure provides that a party may amend its pleading as a matter of course at any time before a responsive pleading is served. Because defendants have not consented to plaintiffs’ amendment and because defendants have filed a responsive pleading to plaintiffs’ complaint, the Court must grant plaintiffs leave to amend before they may amend the 13a complaint. Rule 15(a) provides that ieave to amend a pleading shall be “freely given when justice so requires.” “Courts have interpreted [amendment] provisions liberally, in line with the Federal Rules’ overall goal of resolving disputes, insofar as possible, on the merits and in a single judicial proceeding.” Spartan Grain & mill Co. v. Ayers, 517 F.2d 214, 220 (5th Cir. 1975).* In explaining the amendment standard, the Eleventh Circuit haas observed that “unless a substantial reason exists to deny leave to amend, the discretion of the district court is not broad enough to permit denial.” Shipner v. Eastern Air Lines, Inc., 868 F.2d 401. 407 (11th Cir. 1989). In determining whether a substantial reason exists to deny leave to amend, the district court should consider the following facts: (1) undue delay, bad faith, or dilatory motive on the part of the movant. (2) repeated failure to cure deficiencies by amendments previously allowed, (3) undue prejudice to the opposing party by virtue of the allowance of the amendment, and (4) futility of amendment. Nolin v. Douglas C ‘ounty, 903 F.2d 1546, 1550 (115h Cir. 1990. The Court denies plaintiffs’ Motion to Amend on the basis of plaintiffs’ undue delay. As defendant points out, the reason that RICO was not discussed in its Motion for Summary Judgment is that RiCO was not mentioned by any 4. In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit Court of Appeals adopted as binding precedent all of the decisions of the former Fifth Circuit Court of Appeals handed down prior to the close of business on September 30, 1981. l4a party prior to plaintiffs’ Motion to Amend, which was filed on September 17, 1996. Plaintiff makes this motion over a month after defendant has filed for summary judgment, and over three months after the completion of discovery. Plaintiffs have offered no explanation as to why they did not bring their RICO claim at the time of filing the original complaint or in their More Defenite Statement. By their own argument plaintiffs were aware of the facts underlying this claim when the action was brought, but delayed until after the discovery period and would subject defendants to further expense as a result of plaintiffs’ dilatory actions. Although amendments to complaints are to be liberally granted “when justice so requires.” plaintiffs’ attempt to amend the complaint tat this late stage of the proceedings cannot be allowed. Plaintiff has filed this motion over a month after defendant filed its Motion for Summary Judgment, over three months after completion of discovery, and almost two years after the initial complaint was filed. See Local 472, Etc, v. Georgia Power Co., 684 f.2D 721, 724 (11th Cir. 1982) (upholding denial of motion to amend filed two years after action instituted, after discovery was complete, and after defendants had filed motions for summary judgment); Williams v. Mun. Water Works, 21 F.3d 218 (8th Cir. 1994) (upholding denial of motion to amend complaint where motion was filed 14 months after original complaint was filed and six days after discovery cutoff date); and Coleman v. Ramad Hotel Operating Co., 933 F. 2d 470, 473 (7th Cir. 1990) (denial of motion to amend upheld where filed at close of discovery, a month after defendant filed motion for summary judgment). Plaintiffs’ argument that allowing the amendment will not alter the defendant’s current defense strategy is unpersuasive. Defendant has taken four depositions and in all of them asked questions relevant to establishing statute of limitations and collateral estoppel defenses for all claims which plaintiffs’ complaint could be construed to contain, including breach of contract, fraud and tort claims, personal claims of plaintiff, and even « Georgia Securities Act claim. (See pl. Resp. to Def. Mot. to Amend [71] at 5). Plaintiff contends that it wishes to clarify the existence of the RICO claim “so, if [djefendant believes they have a summary judgment claim in regards to the RICO claim they can assert them now so as to have all the issues before the Court.” (P1. Mot. to Amend [68] at 2-3). At this point, however, when defendant has already filed for summary judgment, and when discovery ended three months ago, all of the issues should already before the Court. Moreover, plaintiffs have offered no explaination of their decision to wait until this particular time to move to amend their More Definite Statement. Plaintiffs claim that this motion was inspired by their discovery in May of 1996 of defendant’s division of money which belonged to plaintiffs. (P1. Mot. to Amend [68] at 2.) Plaintiffs do not explain, hewever, why they did not file this motion in May, before discovery ended and before defendant filed its Motion for Summary Judgment. Also, this money was divided as part of the distribution of an escrow account that was established several years ago and of which plaintiffs have at all times been fully aware. Allowing plaintiffs to amend their More Definite Statement to add a RICO claim, which subjects defendant to potential liability for treble and punitive damages, at this stage in the litigation would unduly prejudice defendant. Accordingly, piaintiffs’ Motion to Amend their More Definite Statement to add a RICO claim is denied. l6a IT. Defendant's Motion for Summary Judgment A. Summary Judgment Standard Summary judgment is not properly viewed as a device that the trial court may, in its discretion, implement in lieu of a trial on the merits. Instead, Rule t6 of the Federal Rules of Civil Procedure mandates the entry of summary judgment against a party who fails to make a showing sufficient to establish the existence of every element essential to that party’s case on which that party will bear the burden of proof at trial. Celotex Corp. y. Catrettt, 477 U.S. 317, 322 (1986). In such a situation, there can be no genuine issue as to any material fact, as a complete failure of proof concerning an essential element of the non-moving party’s case necessarily renders all other facts immaterial. /d. at 322-23. The movant bears the initial responsibility of asserting the basis for his motion. /d. at323; Apocoa, Inc. v. Fidelity Nat'l \ank, 906 F.2d 610, 611 (11th Cir. 1990). However, the movant is not required to negate his opponent’s claim. The movant may discharge his burden by merely “showing” -- that is, pointing out to the district court --that there is an absence of evidence to support the non- moving party’s case.” Celotex, 477 U.S. at 325. After the movant has carried his burden, the non-moving party is then required to “go beyond the pleading” and present competent evidence’ designating “specific facts showing that there is a genuine issue for trial.’” Jd. at 324 (quoting Fed. R. Civ. 5. The non-moving party may meet its burden through affidavit and deposition testimony, answers to interrogatories, and the like. Celotex, 477 U.S. at 324. 17a P.56(e)). While the court is to view all evidence and factual inferences in a light most favorable to the non-moving party, Samples v. City of Atlanta, 846 F.2d 1328, 1330 (11th Cir. 1988), “the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242. 247-48 (1986). A fact is material when it is identified as such by the controlling substantive law. Jd. at 248. An issue is genuine when the evidence is such that a reasonable jury could return a verdict for the nonmovant. Jd. at 249-250. The nonmovant “must do more than simply show that there is some metaphysical doubt as to the material facts. . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.’” Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citations omitted). An issue is not genuine if it is unsupported by evidence, or if it is created by evidence that is ‘merely colorable” or is “not significantly probative.” Anderson, 477 U.S. at 249-50. Thus, to survive a motion for summary judgment, the non- moving party must come forward with specific evidence of every element material to that party’s case so as to create a genuine issue for trial. B. Statute of Limitations Plaintiff's More Definite Statement states claims for breach of contract, conspiracy, fraud, conversion, tortious interference with contract and violations of Georgia security laws. Defendant contends that all of plaintiffs’ claims are barred by the statute of limitations. The parties agree that Georgia law governs the statute of limitations issue. (See 18a P1. Brief in Resp. to Def. Mot. for Sum. J. [70] at 18). 1. Plaintiffs’ Georgia Securities Law Claim Plaintiffs failed to respond to defendant’s statute of limitations defense as to plaintiffs’ claim under the Georgia Securities Law statute, O.C.G.A. § 10-5-14. Section 10-5- 14(e0 of this statute requires that a cause of action commence within two years of the date of the transaction upon which the action is based. Plaintiffs do not contest defendant’s assertion in its brief that the sale of stocks on which plaintiff bases its Georgia Securities Law claim occurred in 1985, and that the two year statute of limitations has long since run on this claim. The Court thus grants summary judgment to defendant on plaintiffs’ Georgia Securities Law claim. 2. Plaintiff's Breach of Contract Claims The statute of limitations for breach of contract is six years under Georgia law. O.C.G.A. § 9-3. .} provides that “all actions upon simple contracts in writing shall be brought within six years after the same become due and payable.” The begins to run when a cause of action for breach of contract accrues, which is at the time of the breach. Owen v. Mobley Construction Co., 171 Ga. App. 462, 320 S.E. 2d 255 (1984). Plaintiffs filed the original complaint in this action on December 24, 1994. Any claims for breach of contract . included in the complaint are thus barred if the breach occurred before December 24, 1988. It is established beyond question in plaintiff Slautterback’s deposition that the breach of contract on which plaintiffs’ action is based occurred in December of 1987, when defendant signed a rescission agreement with Colonial Penn. The following 19a exchange occurred in plaintiff's deposition: Q: Is it [plaintiffs] contention in this lawsuit that [defeiidant] somehow breached its contract with [plaintiff] when it rescinded the quota share reinsurance agreement that it had with Colonial Penn? A: Absolutely Q: Is it [pleintiff's] position that [defendant] somehow breached its contract with [plaintiff] when it placed the $ 432, 000 in an escrow account? A: Both of which were in secret. (Slautterback Depo. at 24-25, attached to Def Mot. for Sum. J. [63] at Ex. “J”.) The rescission of the reinsurrance agreement and the placement of the $432, 000 in escrow occurred in December of 1987, over six years prior to when plaintiff filed this action in December of 1994. (See Rescission Agreement, attached to Def. Mot. for Sum. J. [63] at Ex. “K”). Indeed, given the way in which the three contracts comprising the insurance program at issue here worked together, the only logical conclusion is that defendant breached its contract with plaintiff, if at all, when it signed the rescission agreement with Colonial Penn in 1987. As explained, defendant was obligated, under its contract with 6. Defendant contends that execution of the rescission agreement was not actually a “breach” because at the time of its execution plaintiffs’ actions had already caused a breakdown of the entire insurance program justifying the rescission. (Def. Mot. for Sum. J. [63] at 15.) The Court does not decide whether defendant breached its contract with plaintiff by signing the rescession agreement, but works from the assumption that if a breach occurred, it occurred when the rescission agreement was executed. i 20a plaintiffs, to accept premiums from Colonial Penn, to pay claims from these premiums, and to invest the remainder of the money. The investment income and profits made on the program were to be returned to plaintiffs in December of each year, and all of the profits made on the entire program were to be returned to plaintiffs on January 1, 1991. Defendant was also obligated to cancel plaintiff's $432, 000 letter of credit on January 1, 1991. The 1987 rescission agreement brought this entire program, which involved a continuous flow of funds from plaintiffs to Colonial Penn, then from Colonial Penn to Defendant and eventually from defendant back to plaintiffs, to a halt. The rescission agreement obligated defendant to return all premiums it had received under the program, less its own $300,000 fee, to Colonial Penn. (See Rescission Agreement, attached to Def. Mot. for Sum. J. [63] at Ex. “K”). The agreement provided that no additional funds would flow from Colonial Penn to defendant under this program. (/d.) Pursuant to the rescission agreement defendant also drew down plaintiff's $432, 000 letter of credit and placed it into escrow. (/d.) Thus in complying with the rescission agreement, defendant stopped receiving the premiums from Colonial Penn which defendant’s contract with plaintiffs obligated it to invest and ultimately return to plaintiffs. Moreover, because defendant drew down plaintiffs’ letter of credit and placed the proceeds in escrow, defendant could not possibly have had anything to return to plaintiffs on the “redemption date” of the contract, January |, 1991. Plaintiffs’ attempt to resurrect its breach of contract claim pursuant to the “divisible contract” doctrine is unpersuasive. Although Georgia law provides that the statute of limitations runs separately as to each individual 2la breach of a divisible contract, the contract between plaintiff and defendant was not divisible. See O.C.G.A. § 13-7-14 (providing that an action will lie for each breach of a contract found to be severable). A contract is only divisible where “the whole performance is divided into two sets of Partial performances, each part of each set being the agreed exchange for a corresponding part of the set of performances to be rendered by the other promisor.” Piedmont Life Ins. Co. v. Bell, 103 Ga. App.. 225, 235, 119 S.E. 2d 63, 71 (1961). Although plaintiffs would characterize defendant’s obligation to make yearly payments of investment income, as well as defendant’s obligation to returns plaintiffs’ letter of credit and all monies accumulated fromoperation of the program to plaintiffs on January 1, 1991, as independent obligations, an examination of the contract between plaintiffs and defendant illustrates that these obligations of defendant were an inseparable part of the entire insurance program. The contract provides that “if on the redemption date defendant continues to hold funds pursuant to the treaty with the insurance company (Colonial Penn),” defendant will make a final payout of these funds on January 1, 199]. (See Shareholder Agreement,, attached to P1. Resp. to Def. Mot. for Sum. J. [70] at Ex. “3”). The contract thus provides for the return to plaintiff, on January 1, 1991, of ail profits and investment income accumulated from the operation of the entire insurance program. Plaintiffs’ letter of credit was also part of the consideration given for the entire contract, as it was to remain in defendant’s possession from the initiation until the termination of the contract, at which time it was to be returned to plaintiffs if lossess incurred on the program did not necessitate its use. (/d.) 22a The contract between plaintiffs and defendant does not evidence an intent by the parties to divide the contract into yearly sets of performance. On the contrary, the yearly return to plaintiff of income and profits accumulated on the program seem to be merely a convenient manner of periodically ceding the plaintiff portions of the underwriting profit on the program. All of defendant’s obligations were part of a single promise based on a single consideration. This promise was breached, if at all, when defendant removed itself from the program by signing a rescission agreement in 1987. The rescission agreement severed the treaty between defendant and Colonial Penn which provided the flow of funds from which defendant was to make investments and yearly payments to plaintiffs, completely terminating defendant’s participation in the insurance program. Plaintiffs’ breach of contract claim thus cannot survive defendant’s Motion for Summary Judgment on the basis of the “divisible contract” doctrine. Plaintiffs argue further that the statute of limitations on its breach of contract claim was tolled by fraud on the part of defendant which deterred plaintiffs from bringing their action. O.C.G.A. § 9-3-96 provides that “if the defendant or those under whom he claims are guilty of a fraud by which the plaintiff has been debarred or deterred from bringing an action, the period of limitation shall run only from the time of the plaintiff's discovery of the fraud.” under this code section “time of discovery of the fraud” means the time at which the fraud is or should have been discovered in the exercise of reasonable diligence. Stricker v. Epstein, 213 Ga. App. 226, 229, 444 S.E. 2d 91, 94 (1994). The failure to use reasonable diligence to discover fraudulent acts which deter a plaintiff from bringing an action may be excused, however, where there is a confidential relationship between 23a plaintiff and defendant. Shipman v. Horizon Corp., 245 Ga. 808, 267 S.E. 2d 244 (1980). The only fraudulent act plaintiff alleges as deterring plaintiffs from filing suit until December of 1994 is defendant’s preparation of false financial statements. Plaintiffs’ reliance on this action by defendant to invoke O.C.G.A. § 9-3-96 is undermined, however, by plaintiff slauterback’s admissions in his deposition that he was aware of defendant’s alleged frauduent conduct long before December of 1988, which is the point to which the statute of limitations has to be tolled in order to save plaintiffs’ breach of contract action. The following exchange occurred in plaintiff's deposition. Q: When did you first become aware of the fraudulent conduct of [defendant]? A: Just shortly after the shareholder meeting which we attended on June 4th, June Sth, 1986. (Slautterback Depo. at 33.) Then later in the deposition: Q: Let me ask you--let me rephrase the question. Weren't you aware that by your own allegations the shareholder agreement had been breached a good while before [1991]? A: We were aware right after the shareholder meeting in 1986 that there was something bad wrong, the fidelity was not there, but we could not . . . make an allegation or file a suit without something tangible in hand. (/d. at 43, attached to Def. Mot. for Sum. J. [63] at Ex. “J”.) As to the last sentence of plaintiff quoted above, see Owen, 24a 171 Ga. App. at 463 (stating that “mere ignorance of facts constituting a cause of action does not prevent the running of a statute of limitations). Moreover, the record contains items of correspondence and documents confirming plaintiffs’ awareness of defendant’s allegedly fraudulent conduct prior to December of 1988. Defendant apparently stopped making payments to plaintiffs, pursuant to the rescission agreement with Colonial Penn, in 1987. On September 25, 1987 plaintiffs’ attorney wrote a 1987. On September 25, 1987 plaintiffs’ attorney wrote a demand letter to defendant requesting the return of plaintiffs’ letter of credit and investment income. (See Def. Mot. for Sum. J. [63] at Ex. “R”). On March 17, 1988 plaintiffs’ attorney wrote another letter demanding the return of premiums held, charging defendant with unlawfully drawing down its letter of credit, and threatening to “advise the insurance commissioners of the 50 states of [defendant’s] attitude and proceed with such other actions as this situation may warrant.” (See Def. Mot. for Sum. J. [63] at Ex. “S”). Plaintiffs present absolutely no evidence in response to these items of correspondence from which the inference can be drawn that plaintiffs were deterred by defendant’s fraudulent conduct from bringing suit until December of 1994. Plaintiffs instead rely on the assertion that there was a confidential relationship between plaintiffs and defendant, suggesting that the existence of this relationship alone tolls the statute of limitations whenever fraud is alleged. (See P1. Resp. to Def. Mot. for Sum. J. [70] at 15). Although a confidential relationship may excuse the use of diligence in discovering fraud on the part of defendant, the existence of a confidential relationship does not help plaintiffs’ case 25a because plaintiffs admit to having actual knowledge of the alleged fraudulent conduct of defendant. A plaintiff seeking to invoke O.C.G.A. § 9-3-96 must be deterred from filing an action. See Jim Walter Corp. v. Ward. 245 Ga. 355, 356, 265 S.E. 2d 7,9 (1980) (recognizing that fraud sufficient to toll statute of limitations under O.C.G.A. § 9-3-96 must be fraud that conceals existence of a cause of action from plaintiff); and Averill y. Akin, 219 Ga. App. 32, 33, 463 S.E. 2d 730, 731 (1995) (holding that shareholder attempting to invoke § 9-3-96 on basis of a confidential relationsip cannot “negligently refuse to acquire knoledge that was open and available to him through the inspection of corporate books and records”). There is simply no evidence that defendant committed any act of fraud which concealed plaintiffs’ cause of action or in any sense deterred plaintiffs from filing suit until after December 21, 1988. Even assuming a confidential relationsip between plaintiffs and defendant, as well as fraudulent behavior on the part of the defendant in an attempt to conceal plaintiffs’ cause of action, plaintiffs cannot invoke § 9-3-96 to tol] the statute of limitations on their breach of contract claim because statement by plaintiff Slautterback in his deposition, as well as several items of correspondence, establish plaintiffs’ knowledge of the existence of a cause of action for breach of contract well before December of 1988. Because the statue of limitations on plaintiffs’ breach of contract claim began to run when the contract was breached in 1987, and because the contract was not divisible and the statute of limitations was not tolled by fraud on the part of defendant, the Court grants summary judgment to defendant on plaintiffs’ breach of contract Claim. 26a 3. Plaintiffs’ Tort Claims Plantiffs’ More Definite Statement contains tort, conspiracy, fraud, conversion and tortious interference with contract claims, all of which are subject to the four year statute of limitations in O.C.G.A. §§ 9-3-31 and 9-3-32. See McLendon v. Georgia Kaolin Co., 782 F.Supp. 1548 (M.D. Ga. 1992) (recognizing that O.C.G.A. § 9-3-31 is applicable to actions seeking damages for fraud). Those code sections provide that “actions for injuries to (or the conversion of ) personalty shall be brought within four years after the nght of action accrues.” O.C.G.A. § 9-3-32. Like plaintiffs’ claim for breach of contract, plaintiffs tort, fraud and conspiracy claims are primarily based on the 1987 rescission agreement between defendant and Colonial Penn. Plaintiffs allege that defendant “entered into a secret contract whereby the [p]laintiffs were deprived of any and all profit or benefit under the program, and [Colonial Penn] agreed to hold the [d]efendant harmless form any section taken by the [p]laintiffs.” (Pl. Brief in Resp. to Def. Mot. for Sum. J. [70] at 23.) “As part of their fraud, conspiracy, and plan of conversion,” plaintiffs further state, “the Defendant also entered into a secret escrow agreement with [Colonial Penn].” (id.) Plaintiffs are thus relying on the 1987 rescission agreement between defendant and Colonial Penn as the basis of their fraud, conversion and conspiracy claims. Plaintiffs admit to having had an opportunity to read the rescission agreement between defendant and Colonial Penn in March of 1989. (See Slautterback Depo. at 33, attached to Def. Mot. for Sum. J. [63] at Ex. “J” (stating that letter plaintiff received in March of 1989 “was the last piece of the puzzle to show fraud’’)). Plaintiff Slautterback also says in his deposition that he was aware of “ things 27a going on behind the scenes” as early as 1986, (/d.) Also, as iscussed while considering plaintiffs’ breach of contract to make income and profit payments and defendant’s drawing down plaintiff's letter of credit, in 1987. (See Def. Mot. for Sum. J. [70] at Ex. “R” and Ex. ae Plaintiffs’ attempt to revive their claim with the “continuing tort” theory cannot be entertained. The continuing tort theory is only applicable to cases involving Personal injury. Stocks y. Glover, 220 Ga. App. 557, 588, 469 S.E. 2d 677, 678 (1996) (citing Corp. of Mercer Uniy. y Nat. Gypsum Co., 258 Ga 36., 368 S.E. 2q 732 (1988)). Plaintiffs’ complaint does not state a claim for personal injury. Plaintiffs’ argument that the stainte of limitations has not run on its conspiracy claim because several separate acts, some of which were completed within the Statute of revive their breach of contract claim, plaintiffs attempt to characterize defendant’s refusal on January 1, 199] to redeem stock under the shareholder agreement as an independent act. Plaintiffs contend that this act was in furtherance of the conspiracy alleged in plaintiffs’ complaint. (See Pl. Brief in Resp. to Def. Mot. for Sum. J. [70] at 23.) Plaintiffs also point to a division of funds in furtherance of the alleged conspiracy. (/d at 25.) Both of these actions were taken, however, pursuant to the rescission agreement which was executed in 1987 and about which 28a plaintifff had knowledge at least by March of 1989. The agreement specifically provides that these funds would be placed in escrow until the completion of litigation between plaintiff and Colonial Penn. (See Rescission Agreement, attached to Def. Mot. for Sum. J. [63] at Ex. “K”.) As discussed, the agreement also expressly provides for the return of all premiums to Colonial Penn and the termination of the agreement by which funds would flow to defendant and, from defendant, eventually to plaintiffs. (Jd.) Plaintiffs have thus failed to produce any evidence that defendant committed any act of fraud, conspiracy or conversion within the period of limitaions for maintaining these actions. Accordingly, the Court grants summary judgment to defendant on plaintiffs’ tort, fraud, conversion, and conspiracy claims. CONCLUSION For the foregoing reasons, the Court concludes that plaintiffs’ Motion for Reconsideration is DENIED, plaintiffs’ Motion to Amend its Complaint is DENIED, and defendant’s Motion for Summary Judgment is GRANTED. SO ORDERED, this 13 day of December, 1996. s/ JULIE E. CARNES UNITED STATES DISTRICT JUDGE 29a APPENDIX D AS&K GUIDE Section 5 - SPECIAL TYPES OF INSURANCE VEHICLES A. Rent-A-Captives Revisited Bermuda has long been recognized as the domicile of choice for the world’s captive insurance industry. One reason for Bermuda’s preeminence is the success of arrangements which may be structured under its insurance laws, which offer alternatives to more conventional risk management options available in the “traditional markets og A “captive” is a closely-held insurance company whose insurance business is primarily supplied and controlled by its Owners - in the sense that the owners have and exercise direct involvement and influence over the company’s major operations, such as its underwriting, claims management and investment policies - and in which the original insureds are the principal beneficiaries. The “rent-a-captive”’ represents an evolution of the “captive” insurance company, and has been employed for specialized situations for nearly as long as more standard forms of captives have been operated. A rent-a-captive program can be structured so that effectively unrelated parties may participate in the underwriting profits generated by the risks which they insure (or arrange to insure) via the captive. In addition, rent-a- captive policyholders (or the owners of such policyholders) may by negotiation secure a significant degree of influence Over both the investment of underwriting reserves maintained by the captive in respect of the programs with which they are associated, and control the rate of the “flow of funds” through the captive (in the sense of the timing of 30a permitted distributions). Such advantages over traditional insurance arangements have long been the hallmark of the rent-a-captive, and in recent years innovations in Bermuda insurance laws have extended the options for structuring rent-a-captives, leading to a resurgence of interest in their use. 1. What is a Rent-a-Captive? A rent-a-captive is a company, typically established in an offshore domicile like Bermuda, which “rents” its capital surplus and legal capacity to engage in underwriting activities (i.e. its insurance license) to policyholders who are not its voting shareholders. The rent-a-captive will often provide its policyholders (‘program participants”) with required administrative services. As such, the term “rent-a- captive” applies to any arrangement where the insured party obtains equivalent benefits to those provided by standard forms of captives without actually participating in ownership or management.2 One of the principal characteristics of a rent-a-captive is that the account established for each program participant is segregated in some manner from accounts established for other program participants. This is done to achieve a separate accounting basis for the insurance business attributable to each program participant. Such segregation may be accomplished administratively by the rent-a-captive itself, or there may be a full legal segregation which results in statutory protection for losses attributable to other program participants. 2. Advantages of a Rent-a-Captive Rent-a-captive programs have long been acknowledged as alternatives to commercial insurance and as structures which offer more cost-effective and flexible risk management 3la solutions, particularly with regard to workmen’s compensation but also for general liability, automobile liz bility and professional liability programs. A rent-a-captive program offers program participants many of the advantages of a wholly-owned captive without requiring the insured party (or its owners) to make an equivalent commitment to fund the Captive’s start-up and management expenses. These advantages include the facility to customize the insurance programs and contro] premiums, pricing and access to reinsurance. Establishment of the rent- a-captive in a select domicile (e.g. Bermuda) results in favorable (yet responsible) governmental regulation. Additionally, the rent-a-captive can often secure coverage for specialized risks when this is unavailable in the commercial insurance markets. However, the main advantage of rent-a- captives may lie in enabling the program participants to obtain a retu-n of underwriting profit and investment income earned on the reserves held in their respective insurance programs. Such returns will of course depend on the loss experience of the particular case. Typically, each program participant will retain a portion of its own risks, insuring the balance with the rent-a-captive. This arrangement creates powerful incentives to program participants to be proactive with loss control and claims handling measures. Such measures wil] often be co-ordinated by agreement between the program participant and the rent- a-captive, and perhaps with professional claims handling service providers. 3. Ownership and Corporate Structure There are various ways to own and structure a rent-a-captive, depending on whether the proposed program participants are single corporations, or a group or association. There may be 32a tax and other factors to consider, from the standpoint of both the proposed program participants and the sponsors of the rent-a-captive. One of the more common rent-a-captive structures involves the sponsors forming a Holding Company which owns 100% of the voting shares of a Reinsurance Subsidiary. The Reinsurance Subsidiary in turn reinsures each program participant, in association with an Jssuing Carrier which issues the policies of insurance to the program participants. The Issuing Carrier will usually be an insurance company which is licensed in the jurisdiction(s) in which the program participants are resident. The program participant will be afforded access to the rent-a-captive program when it arranges for a policy to be issued by the Issuing Carrier and, in association with this, it will purchase one or more preferred non-voting shares in the Holding Company. Such shares will be purchased pursuant to the provisions of a shareholder agreement wherein the Holding Company agrees to cause a dividend to be declared to the owner of record of the preferred shares. Dividend payments will also be controlled by the shareholder agreement, e.g. on a date indicated in an appendix, being an annual payment date or the termination date of the particular program. Dividends will be calculated according to a specific formula involving investment income earned and underwriting gain or loss. Payment of dividends will be subject to the availability of surplus funds (i.e. surplus of the statutory reserve requirements) in the related account. The shareholder agreement will provide for indemnification of both the Holding Company and Reinsurance Subsidiary by the program participant, the indemnity being designed to protect these entities in respect of any net underwriting losses, loss expenses and collateralization expenses arising from the related insurance program. As collateral for this 33a indemnity, the program participant will usually agree to provide the Reinsurance Subsidiary with a letter of credit (or substitute cash collateral). The shareholder agreement will also provide for the payment by the program participant of all premiums due to the rent-a- captive. Failure will constitute a material breach of the agreement. The amount of any such non-payment, together, together with interest may be deducted from any surpius reserves held for the account of the particular program, or any dividend due to the program participant. Dividends on the preferred shares issued to each program participant will be declared and paid separately, i.e. as a separate class or series. Such shares will also be redeemable at face value upon the termination of a program. However whe-= the capital required for the particular program has ben. “rented” from the rent-a-captive, the shares will be redeemed less financing costs. In other cases, the structure may not involve a holding company, leaving a reinsurance company which stands alone as the rent-a-captive. In such an arrangement, it will be this stand-alone reinsurance company which issues the preferred shares and enters into the shareholder agreement with the program participant. This alternative is not otherwise different from the structure illustrated above. A growing number of rent-a-captives use a private Act of the Bermuda Legislature, a sample of which is provided in the following Exhibit, so that they may achieve legal segregation of the assets and liabilities of each insurance program which they underwrite, so that there is no potential for “cross liability” of one such program resulting from the experience of another. Where the rent-a-captive is so structured (and 34a depending upon the precise language of the private Act), the complete segregation of each program participant’s account can be achieved, the assets from each program participant being isolated and protected from the liabilities of other program participants and the failure of the rent-a-captive itself. The advantages of such a structure will be clear. Pursuant to the typical provisions of such a private Act, a liquidator is as a matter of law bound to recognize the separate nature of the segregated account established for each program, and may not apply assets identified as the assets of any one program to pay claims of insureds under other policies issued by the rent-a-captive, or the rent-a-captive’s mon-insurance creditors. In addition, the liquidator typically has no power to void or cancel the terms of any policy, deed or contract issued in respect of any program. Not all rent-a-captives will be structured to take the benefits afforded by private Acts of this kind. Some rent-a-captive owners take the view that their program participants may not be able to deduct premiums for tax purposes if there is demonstrably less risk-sharing among program participants. Rather than issue preferred shares, some rent-a-captives simply enter into a form of profit sharing agreement with their program participants. This is an alternative means by which program participants may directly participate in the underwriting and investment income arising out of their respective programs. 4. How does the Rent-a-Captives Work? In the typical scenario, the program participant (either on its own or with the assistance of a broker or the rent-a-captive or 35a both) wiil negotiate with the Issuing Carrier, which will be an admitted insurance company (or “fronting” company) for the provision of policy-issuing and related Services in the relevant jurisdiction for the policyholder. The fronting company wil] then issue the policy and cede the working layer to the rent-a- captive. For this service, the fronting company charges a fee, which may range anywhere from 5%-14% of gross premium. The fronting company will also be required to deduct certain federal and/or state taxes. As a matter of law, the fronting company will be primarily liable for the risk. However, the reinsurance agreement with the rent-a-captive will invariably require the latter to provide the fronting company with a clean, irrevocable letter of credit. The letter of credit is ultimately paid for a backed by the program participant, typically as a one time charge of 1/2% of premium, or an annual fee of 3/8% of the premium deducted from the dividend. The guarantee for the letter of credit is the program participant’s own funds held by the rent-a-captive. In addition, the rent-a-captive itself wil] Charge an underwriting fee of perhaps 2%-3 1/2% of premiums. 5. Capital Requirements In order to meet the Bermuda premium underwriting requirements (i.e. the ratio of premium to capital and surplus), 4 program participant must itself either provide or “rent” the necessary capital. If the program participant elects to rent, the rent-a-captive will often supply such funds from its own common share capital (usually for a fee of 1%). Where capital is pro: ided by the program participant, this is generally accomplished through the purchase of the rent-a- Captive’s prefereed non-voting shares, in an amount equal to 1/5th of the first year’s net premuum. Purchasing the shares acchieves two purposes. First, it 36a provides the rent-a-captive with adequate capital for regulatory purposes. Second, as ownership of the shares constitiutes beneficial ownership of the rent-a-captive, it may provide a basis for the taxable transfer of income back to the program participant through deemed dividends. 6. Rent-a-Captive Account Expenses Rent-a-captive account expenses are typically 25%-35% of Original gross premium (“OG?”"), although they can be higher. These include boards, bureaus, taxes and assessments (3%-4%), claims handing (3%-4%), onshore broker commission (4%-5%) federal excise tax (1%), cost of specific excess (3%-6%), cost of aggregate excess (2 1/2%- 4%), fronting company fees (5%-9%), rent-a-captive’s underwriting fee (2%-3 1/2%) and use of rent-a-captive's capital and what is left after fees and commissions (generally 60%-70% of OGP) and loss reserves may be temporarily available to the program participant. Meanwhile, the rent-a- captive will invest these funds (typically through a professional investment adviser in order to maximize investment portfolio performance) and return investment income to the program participant through dividends on the prefeered shares, less a service income fee to the rent-a- captive (generally 1% of the value of the portfolio). Provided that the rent-a-captive complies with applicable minimum solvency and liquidity ratio requirements (or, where there are segregated accounts pursuant to a private Act, where each program for which a separate account is maintained complies with such requirements), Bermuda law permits complete freedom of investment managemient with regard to selection of asset classes. 37a 7. Profile of a Prospective Program Participant A prospective program participant will generally: - be too small for, or not interested in, establishing and operating a wholly-owned captive for itself: and ~ generate at least $750, 000 of annual premium onshore (be it a single-owner or association program of insurance). (Workers’ compensation programs in California, which may be underwritten with less premium, are an exception to this) - In the case of association programs (which are thought to account for about one third of total rent-a-captive premium income in the Bermuda market), association members are typically characterized by: - similar exposures; - a willingness to share risk within the mutual account: ~ a combined loss ratio of 50% or less; - a single or related exposure such as_ workers’ compensation, general liability or automobile liability; and ~ a consensus on the allocation of underwriting profit and investment income. 8. Does the Rent-a-C, aptive Itself Assume Risk? Many of the rent-a-captives formed in Bermuda do not assume substantial risk in respect of the insurance programs of their program Participants. Rather, these rent-a-captives view themselves as service companies and in fact require ageregate excess protection in some form as a condition of accepting a particular program. All financial agreements are typically backed up with letter of credit ultimately guaranteed and paid for by the program participant. In recent years, the Registrar of Companies of Bermuda has made it clear that his office is prepared to consider applications to establish rent-a-captives which wil] accept 38a risk for their own account, subject always to meeting relevant solvency and liquidity requirements.3 1. 1995 Captive Insurance Company Reports. 2. 1986 Captive Insurance Company Reports. 3. The use of rent-a-captives can provide a number of business advantages. However, achieving the desired tax results requires careful tax planning. The above discussion is not intended to, and does not, constitute tax advice. Accordingly, readers should consult their own tax a [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/brief%3Amicro_IA40386003_1060%3A1. Public record. Not legal advice.