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SPENCER Y. KOOK (SBN 205304)
skook@mail.hinshawlaw.com ELECTRONICALLY
HINSHAW & CULBERTSON LLP FILED
633 West 5th Street, 47th Floor
Los Angeles, CA 90071-2043 County of San Francisco”
Telephone: — 213-680-2800 01/20/2017
Facsimile: 213-614-7399 ols: of 42 Court
BY:ANNA TORRES
TRAVIS WALL (SBN 191662) ee
twall@mail.hinshawlaw.com
JARED W. MATHESON (SBN 275459)
jmatheson@hinshawlaw.com
HINSHAW & CULBERTSON LLP
One California Street, 18th Floor
San Francisco, CA 94111
Telephone: 415-362-6000
Facsimile: 415-834-9070
Attorneys for Defendants APPLIED UNDERWRITERS, INC., APPLIED UNDERWRITERS
CAPTIVE RISK ASSURANCE COMPANY, INC., CALIFORNIA INSURANCE COMPANY,
CONTINENTAL INDEMNITY COMPANY and APPLIED RISK SERVICES, INC.
SUPERIOR COURT OF THE STATE OF CALIFORNIA.
FOR THE COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION
WARWICK AMUSEMENTS CORPORATION, a
Delaware corporation, WARWICK CALIFORNIA
CORPORATION, a California corporation,
WARWICK DENVER CORPORATION, a
Delaware corporation, WSF BEVERAGE
CORPORATION, a California corporation,
WARWICK MELROSE DALLAS
CORPORATION, a Delaware corporation,
SILVER AUTUMN HOTEL (N.Y.)
CORPORATION, LTD., a Delaware corporation,
Plaintiffs,
Case No. CGC-16-551614
)
)
)
} DEFENDANTS APPLIED
j UNDERWRITERS, INC., APPLIED
j UNDERWRITERS CAPTIVE RISK
) ASSURANCE COMPANY, INC.,
j CALIFORNIA INSURANCE
j COMPANY, CONTINENTAL
) INDEMNITY COMPANY, AND
APPLIED RISK SERVICES, INC.’S
) MOTION TO STRIKE
a ) EXHIBIT 1 TO REQUEST FOR
APPLIED UNDERWRITERS, INC., a Nebraska ) JUDICIAL NOTICE
corporation, APPLIED UNDERWRITERS )
CAPTIVE RISK ASSURANCE COMPANY, }
INC., an Lowa corporation, CALIFORNIA )
INSURANCE COMPANY, a California )
corporation, CONTINENTAL INDEMNITY )
COMPANY, an Iowa corporation, APPLIED RISK )
SERVICES, INC., a New York corporation, and )
DOES | through 50, inclusive , 5
)
)
Defendants.
First Amended Complaint Filed:
May 19, 2016
Date: February 16, 2017
Time: 9:30 a.m.
Department: 302
Reservation No. 01190216-06
DEFENDANTS’ NOTICE OF MOTION AND MOTION TO STRIKE
Case No. CGC-16-551614EXHIBIT “1”Nicholas P. Roxborough, Esq. (SBN 113540)
Joseph C, Gjonola, Esq. (SBN 241955)
Ryan R, Salsig, Esq. (SBN 250830)
ROXBOROUGH, POMERANCE, NYE & ADREANI, LLP
5820 Canoga Avenue, Suite 250
Woodland Hills, California 91367
Telephone: (818) 992-9999
Facsimile: (818) 992-9991
Larry J. Lichtenegger, Esq. (SBN 48206)
THE LICHTENEGGER LAW OFFICE
3850 Rio Road, #58
Carmel, California 93923
Telephone: (831) 626-2801
Facsimile: (831) 886-1639
Attorneys for Plaintiffs
ELECTRONICALLY
FILED
Superior Court of Caltformia,
County of San Francisco
05/19/2016
Clerk of the Court
BYSJUDITH NUNEZ
Deputy Clerk
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
WARWICK AMUSEMENTS
CORPORATION, a Delaware corporation;
WARWICK CALIFORNIA CORPORATION,
a California corporation; WARWICK.
DENVER CORPORATION, a Delaware
corporation; WSF BEVERAGE
CORPORATION, a California corporation;
WARWICK MELROSE DALLAS
CORPORATION, a Delaware corporation;
SILVER AUTUMN HOTEL (N.Y.)
CORPORATION, LTD., a Delaware
corporation,
Plaintiffs,
Vv.
APPLIED UNDERWRITERS, INC., a
Nebraska corporation; APPLIED
UNDERWRITERS CAPTIVE
RISK ASSURANCE COMPANY, INC., an
lowa corporation, CALIFORNIA
INSURANCE COMPANY, a California
corporation; CONTINENTAL INDEMNITY
COMPANY, an Iowa corporation; APPLIED
RISK SERVICES, INC., a New York
corporation; WILLIS OF NEW YORK, INC.,
a New York corporation; and DOES 1 through
50, inclusive,
Defendants.
Case No. CGC-16-551614
FIRST AMENDED COMPLAINT FOR:
1. BREACH OF CONTRACT
2. TORTIOUS BREACH OF THE
IMPLIED COVENANT OF GOOD
FAITH AND FAIR DEALING
3, FRAUD AND
MISREPRESENTATION
4. NEGLIGENT
MISREPRESENTATION
PROFESSIONAL NEGLIGENCE
RESCISSION
CONVERSION
UNFAIR BUSINESS PRACTICES
DECLARATORY RELIEF
ge Sa ta
FIRST AMENDED COMPLAINTCOME NOW PLAINTIFFS, WARWICK AMUSEMENTS CORPORATION,
WARWICK CALIFORNIA CORPORATION, WARWICK DENVER CORPORATION, WSF
BEVERAGE CORPORATION, WARWICK MELROSE DALLAS CORPORATION, and
SILVER AUTUMN HOTEL (N.Y.) CORPORATION, LTD., allege this First Amended
Complaint naming WILLIS OF NEW YORK, INC. as an additional defendant, two additional
causes of action, and alleging additional acts as follows:
1. Plaintiff WARWICK AMUSEMENTS CORPORATION is a Delaware
corporation with its principal place of business in Denver, Colorado, and at all times herein was
doing business in the State of California, County of San Francisco.
2, Plaintiff WARWICK CALIFORNIA CORPORATION is a California corporation
with its principal place of business in San Francisco, California, and at all times hercin was doing
business in the State of California, County of San Francisco.
3. Plaintiff WARWICK DENVER CORPORATION is a Delaware corporation with
its principal place of business in Denver, Colorado,
4. Plaintiff WSF BEVERAGE CORPORATION is a California corporation with its
principal place of business in San Francisco, California, and at all times herein was doing
business in the State of California, County of San Francisco.
5. Plaintiff WARWICK MELROSE DALLAS CORPORATION is a Delaware
corporation with its principal place of business in Dallas, Texas.
6. Plaintiff SILVER AUTUMN HOTEL (N.Y.) CORPORATION, LTD. is a
Delaware corporation with its principal place of business in New York, New York.
7. All Plaintiffs will hereinafter be referred to collectively as “Plaintiffs” or
“Warwick.”
8. On information and belief, Defendant California Insurance Company (“CIC”) is a
California corporation with its principal place of business in Nebraska, which was authorized by
the California Department of Insurance (“DOT”) to do business in the State of California as an
insurance company that issues workers’ compensation policies to California businesses. On
information and belief, CIC is a member of the Berkshire Hathaway Group and is a corporate
2
FIRST AMENDED COMPLAINTOw ND
affiliate of Applied Underwriters Captive Risk Assurance Company, Inc. and other Berkshire
Hathaway affiliate defendants.
9. On information and belief, Defendant Applied Underwriters Captive Risk
Assurance Company, Inc. (“Applied Underwriters”) is a company organized under the laws of
Jowa, but with a principle place of business in Nebraska. At all times referenced herein, Applied
Underwriters was, and is, authorized to do business in the State of California as a property and
casualty insurer, including workers’ compensation insurance. On information and belief,
Applied Underwriters is a member of the Berkshire Hathaway Group and a corporate affiliate of
CIC and other Berkshire Hathaway affiliate defendants.
10. On information and belief, Defendant Applied Risk Services, Inc. (“Applied
Risk”) is a company organized under the laws of the State of New York, with a principal place of
business in Nebraska, At all times referenced herein, Applied Risk is, and was, authorized to do
business in the State of California, On information and belief, Applied Risk is a member of the
Berkshire Hathaway Group and is a corporate affiliate ofApplied Underwriters and other
Berkshire Hathaway affiliate defendants.
11. On information and belief, Defendant Continental Indemnity Company
(“Continental”) is a company organized under the laws of the State of lowa, with a principal
place of business in Nebraska. At all times referenced herein Continental is, and was, authorized.
to do business in the State of California. On information and belief, Continental is a member of
the Berkshire Hathaway Group and is a corporate affiliate of Applied Underwriters and other
Berkshire Hathaway affiliate defendants.
12. On information and belief, Defendant Applied Underwriters, Inc. (“AU”) is a
Nebraska corporation, with a principal place of business in Nebraska. At all times referenced
herein AU is and was authorized to do business in the State of California. On information and
belief, AU is a member of the Berkshire Hathaway Group and is a corporate affiliate of Applied
Underwriters and other Berkshire Hathaway affiliate defendants.
13. Defendant Willis of New York, Inc. (“Willis”) is, on information and belief, a
New York corporation with its principal place of business in New York, New York. At all times
3
FIRST AMENDED COMPLAINTnN
vA Rk ow
referenced herein, Willis is, and was, authorized to transact business in the State of California.
14. The true names and capacities, whether individual, corporate, associate or
otherwise, of the defendants named herein as Does 1 through 50, inclusive, are unknown to
Warwick which, therefore sues said defendants by fictitious names. Warwick will amend this
Complaint when their true names and capacities have been ascertained. Each of the defendants
named herein, whether their identities are known or unknowa, is in some manner responsible for
the acts, events, and occurrences described, either jointly or scverally, and is in some manner
liable for equitable relief to Warwick.
15. Warwick is informed and bclicves, and upon such information and belief alleges,
that all defendants in this action, including thosc Doe Defendants 1-50, inclusive, are
individuals, corporations or business associations which are and were at all times referenced
herein acting as agents, servants, contractors, partners, joint ventures, alter egos, successors in
interest, or employees of other defendants herein and were authorized to act for and/or on behalf.
of said defendants, and each of them, with the express and/or implied permission, knowledge,
consent and ratification of all said defendants.
16. For purposes of convenience and where appropriate, CIC, Applied Underwriters,
Applied Risk, AU, and Continental will be referred to collectively herein as “Berkshire” or “the
Berkshire Defendants.”
17. Venue is proper in this judicial district because the principal place of business for
Plaintiffs WARWICK CALIFORNIA CORPORATION and WSF BEVERAGE
CORPORATION is the City of San Francisco, County of San Francisco, and because the
Berkshire Defendants, Willis, and DOES 1-50’s were to perform under the alleged contract(s) in
San Francisco County, and their obligations and liability giving rise to these allegations arose in
San Francisco County. Venue is proper in this Court because the acts and omissions, including
tortious acts, which form the basis of this action, occurred within this County and this Court’s
jurisdiction. Furthermore, the amount in controversy in this action exceeds the jurisdictional
minimum as fully set forth herein.
MiGENERAL ALLEGATIONS
18. Willis, a national insurance brokerage firm, served as an insurance broker to
Warwick to procure workers’ compensation policies for Warwick. In or around early June 2013,
Willis provided Warwick with a quote and proposal for workers’ compensation insurance from
the Berkshire Defendants.Specifically, Willis and the Berkshire Defendants represented to
Warwick that the proposed EquityComp program was a loss sensitive program and that the lower
the loss claims, the lower the premium costs that could be achieved during the three-year term of
the agreement. The program was represented as a “profit sharing plan” whereby the insured
would receive back a portion of the premiums paid based on lower than expected losses.
19. Commencing with the date of June 2013, Warwick agreed to and did contract
with Berkshire for a three-year workers’ compensation insurance policy based upon Willis and
Berkshire’s representations. The three year policy was to run from June 14, 2013 through June
14, 2016.
THE REINSURANCE PARTICIPATION AGREEMENT (“RPA”)
20. On or around June 19, 2013,five days after policy inception, Warwick was
provided with a copy of Applied Underwriters’ “Reinsurance Participation Agreement”
(“RPA”). A true and correct copy of the RPA is attached hereto as Exhibit A, and by this
reference is incorporated herein. The RPA bore several hallmarks of an adhesion contract,
including the fact that it only required execution by the insured, Warwick, and was presented to
Warwick unilaterally, on a “take it or leave it” basis.
21. The RPA contains numerous requirements which unreasonably favor Applied
Underwriters and are otherwise adhesive and one-sided. Among these non-mutual provisions, the
RPA:
- Fails to fully disclose the Berkshire Defendants’ methods for calculating
premium, rates, any other factors to determine amounts due to Applied
Underwriters and the Berkshire Defendants;
- Limits the amounts Warwick may recover to the assets of Warwick’s segregated
protected cell (the amount of Warwick’s account) (Paragraph 2);
5
FIRST AMENDED COMPLAINT22.
Solely binds Warwick, and not Applied Underwriters, to the RPA’s “agreements
and obligations” (Paragraph 11(E)); and
Fails to fully disclose or explain the Berkshire Defendants’ methods for
calculating early cancellation fees (Paragraph 4 and Schedule I).
Furthermore, under the terms of cancellation, even if. policyholder such as
Warwick believes the computations being issued by the Berkshire Defendants are erroneous,
oppressive, or otherwise unreasonable, and Warwick seeks to cancel the agreement because of
this fraud, mismanagement and/or clearly erroneous or unexplained billing, Paragraph 4 of the
RPA imposes penalty type clauses such that a cancellation initiated by the Berkshire Defendants
results in higher profits for the Berkshire Defendants or higher costs to Warwick if they are the
party initiating the cancellation themselves. Specifically, paragraph 4 provides, in part:
If participant elects to cancel this Agreement, or if any of the Policies are
cancelled or non-renewed prior to the end of the Active Term (“Early
Cancellation”), the Participant shall abide by the Early Cancellation terms set
forth in Schedule 1.
As set forth in Schedule 1:
In the event of Early Cancellation whether by Participant or by the Company
(limited to non-pay or a material change in risk): (a) the Exposure Group
Adjustment Factor will by multiplied by 1.25; (b) the Cumulative Aggregate
Limit will be determined using Policy Payroll annualized to reflect the full term
of the Agreement; and (c) the following amounts will be immediately due and
payable to the Company: i) any remaining premium, including short rate
penalties, due under the Policies; ii) a capital deposit equal to the cell’s maximum
liability; and iii) a Cancellation Fee equal to 8% of the Estimated Annual Loss
Pick Containment Amount.
Schedule 1, at 6.
Schedule | further provides:
The Exposure Group Adjustment Factor is determined from Table B using the
Loss Ratio with intermediate values to be interpolated. The Exposure Group
Adjustment Factor has been determined using NCCI Expected Unlimited Loss
Group 26 and is subject to change without notice?) if Policy Payroll varies from
estimates made in preparing this Schedule 1
f NCCI Table M is revised; or
iii) to adjust for inflation or a change in claim severity not accounted for by Table
6
FIRST AMENDED COMPLAINTSchedule 1, at 1(d).
The Participant, through its cell account, will be responsible for an amount equal
to all losses under the Policies in aggregate up to the Cumulative Aggregate Limit
which equals 1.1900 multiplied by the Loss Pick Containment Amount. During
the Active Term, Participant’s liability limits will be estimated quarterly in
advance,
Schedule 1, at 2.
Policy Payroll is defined as compensable payroll occurring during the Effective
Period under the Policies subject to all customary limitations and caps.
Schedule 1 at 1.
The Loss Pick Containment Amount is defined as the amount equal to the product
of Policy Payroll and the respective Loss Pick Containment Rates listed in Table
C. These rates are per $100 of Policy Payroll and are fixed for the Effective
Period. Changes in experience modifiers and uther modification or differential
factors of the Policies will not affect these rates. If Policy Payroll occurs under a
classification not listed herein, the Company shall, in its sole discretion, determine
arate for that classification commensurate with the rates otherwise listed and with
the filed and approved rates of the issuing insurers.
Schedule J at 1. (Emphasis added)
THE INSURANCE POLICIES
23. Warwick was provided with a copy of a workers’ compensation policy issued by
CIC. A true and correct copy of the CIC policy is attached hereto as Exhibit B current year, and
by this reference is incorporated herein. This policy covered Warwick's employees in California
and Texas.
24. Warwick was also provided with a copy of a workers’ compensation policy issued
by Continental. A true and correct copy of the Continental policy is attached hereto as Exhibit C
current year, and by this reference is incorporated herein. This policy covered Warwick's
employees in New York and Colorado.
25, The Policies include Cancelation Endorsements, including Short Rate Cancelation
Notices,
26. Hereafter, references to the “Berkshire Program” shall be to the coverage
provided under, and the provisions of, the RPA and the Policies.
i
FIRST AMENDED COMPLAINTTHE BERKSHIRE DEFENDANTS’ CONDUCT
27. The Berkshire Defendants regularly use improper and undisclosed Loss
Development Factors (“LDFs”) that are not contained in the RPA, as multipliers of the claims’
values. This substantially raises the amount of Warwick’s required contribution. It can increase
that amount 200% or more.
28. The Berkshire Defendants also engage in claims mishandling which increases the
amount Warwick owes under the RPA. Even when the Berkshire Defendants acknowledge that
they are improperly managing claims, not following the terms of the RPA, and issuing egregious
inflated bills to Warwick, the Berkshire Defendants insists the Warwick pay those bills under the
threat of canceling Warwick’s workers’ compensation insurance, which the Berkshire
Defendants are poised to do.
29. Consistent with these allegations, on March 9, 2016 Warwick received a
statement of premium due for $214,029.59. Warwick inquired about the substantial increase in
premium and the adjuster said it was due to a reopened case and payment of a Scheduled Loss of
Use Claim (“SLU”). The adjuster admitted that he had received no medical support to reopen
the claim or assign a payment.
30. The adjuster admitted to applying a Loss Development Factors (“LDF”) to the
SLU, even though an SLU award is a lump sum final disposition of a permanent disability.
Therefore, application of an LDF is wholly inappropriate, as there should not be any further
development of the SLU award so it does not pose any legitimate future risks to Berkshire.
Based upon the egregious calculations and the application of an LDF, the Berkshire Defendants
put Warwick in a position where it could not possibly pay the amount demanded in the given
month. Additionally, the adjuster violated the RPA by applying an LDF that is not disclosed in
the RPA.
31. The Berkshire Defendants admitted that based on these factors and others, its
invoices are incorrect, but the Berkshire Defendants refuse to correct the invoices. Instead, the
Berkshire Defendants demanded that Warwick pay every dollar that was improperly billed or
sign a new promissory noterepresenting that all charges are correct, or else the Berkshire
8
FIRST AMENDED COMPLAINTDefendants will cancel Warwick’s workers’ compensation insurance, causing Warwick to be in
violation of law and leaving its employees unprotected in the event of injury.
32. Additionally, after cancelation the Berkshire Defendants will begin charging
Warwick enormous and unconscionable cancelation fees under the RPA.
FIRST CAUSE OF ACTION
(Breach of Contract - Against the Berkshire Defendants and Does 1 through 50, inclusive)
33... Plaintiffs incorporate by this reference each and every allegation contained in
paragraphs 1 through 32 of this Complaint, as though fully set forth herein.
34. A binding contract was negotiated and reached for consideration between the
Berkshire Defendants and Warwick by way of the Berkshire Program and policies. In return for
consideration, including payments by Warwick, under the Policies, the Berkshire Defendants had
various duties and obligations to Warwick. These included, but were not limited to the
following: (a) the BerkshireDefendants had both the right and contractual duty to defend
workers’ compensation claims against Warwick; (b) the Berkshire Defendants had the right and
contractual duty to investigate and settle workers” compensation claims against Warwick; and (c)
the Berkshire Defendants were obligated to and had the contractual duty to defendant Warwick
against those workers’ compensation claims made against Warwick covered under the policy.
35, Warwick is informed and believes, and based on such information and belief
further alleges that the Berkshire Defendants breached their duties, as alleged hereinabove,
including their contractual duties, to set appropriate premiums and reserves. Additionally, the
Berkshire Defendants have breached their duties by imposing hidden and/or secondary fees and
costs that were either not disclosed or are excessive and contrary to industry standard.
Additionally, the Berkshire Defendants have breached their duties by improperly threatening to
cancel, and taken steps to cancel, Warwick’s workers compensation insurance.
36. Warwick is informed and believes, and based upon such information and belief
alleges, that the Berkshire Defendants have committed additional breaches of their obligations
under the workers’ compensation policies. The nature of those breaches is presently unknown to
Warwick, but Warwick helieves it will discover the nature of those breaches during the course of
9
FIRST AMENDED COMPLAINTow oNs
this litigation, Thus, Warwick may request leave of court to amend this complaint to specifically
allege any additional breaches about which Warwick may learn through discovery in this
litigation following appropriate discovery of Defendants’ hidden policies and practices that form
the basis of their financial invoices.
37 Warwick performed all of its obligations under the Berkshire Program, except for
those obligations that were excused because of the Berkshire Defendants’ breach of their duties
and misconduct, or as was excused by law.
38 As a proximate result of the Berkshire Defendants’ breaches of their duties and
obligations under the Berkshire Program, Warwick has suffered and will continue to suffer
general and special damages as described above. In addition, the Berkshire Defendants”
breaches of their obligations under the Berkshire Program also, as alleged hereinabove,
artificially increased Warwick’s premiums with the Berkshire Defendants and with other
workers’ compensation carriers that are greater than they would otherwise have been, had the
Berkshire Defendants not breached their obligations and resulted in unnecessary and inflated fees
and costs, The amount of the damages that Warwick has suffered due to the Berkshire
Defendants’ breaches of their contractual obligations is in excess of the minimal jurisdictional
requirements of this Court and will be established at trial.
SECOND CAUSE OF ACTION
(Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing - Against the
Berkshire Defendants and Does 1 through 50, inclusive)
39. Warwick incorporates by this reference each and every allegation contained in
paragraphs 1 through 38 of this Complaint, as though fully set forth herein.
40. The covenant of good faith and fair dealing is implied by law in every contract to
protect each party’s right to receive the benefits of the contract. Here, the covenant of good faith
and fair dealing is implied by law, and is especially true in the workers’ compensation insurance
setting, to protect, among other things, Plaintiffs’ rights to a reasonable and adequate defense of
workers’ compensation claims made against it, and Plaintiffs’ rights to proper and timely
handling of workers’ compensation claims made against them.
10
FIRST AMENDED COMPLAINTID WwW sb
oO 0
41. Implied in the workers’ compensation policies, and the Berkshire Program, is a
covenant that the insurer will act in good faith and engage in fair dealing in connection with
claims made by its insured; that it will process claims and set reserves with good faith regard for
their impact on the insured’s premiums; that it will not abuse any discretionary power affecting
the rights of the insured; that it will give at least as much consideration to the rights of the
insured as it gives its own interests; that it will conduct its claims resolution and reserve
allocation processes in good faith; that it will not set unreasonably high reserves which the
Defendants know or should know will cause Warwick’s premiums to be artificially inflated; that
it will not modify and conceal its reserving practices to maximize its receipts at the expense of
the insured; that it will not misrepresent the nature or character of its proposed plan for providing
coverage to the insured (i.e. a profit-sharing plan); that it will comply with the laws and
regulations governing it and the industry and the market in which it participates; that it will not
misrepresent costs of coverage it provides; and that it will not deceive its insured concerning the
remedial and/or dispute resolution rights that are available to the insured under governing law.
42. The implied covenant of good faith and fair dealing obligated the Berkshire
Defendants to set premium rates and cancelation penalties fairly and take into consideration
adequate and accurate reserves and paid losses; to consider the fair and actual consequences to
Plaintiffs of any decision by the Berkshire Defendants not to renew Plaintiffs’ policy under the
Berkshire Program concerning Plaintiffs ability to obtain workers’ compensation quotes in the
open market; not to charge Plaintiffsa usurious or illegal penalty; not to misrepresent the nature
or character of its proposed plan for providing coverage to the insured (i.e., as a profit-sharing
plan); to give Plaintiffs reasonable notice and/or information concerning the anticipated monthly
premium amounts, including the methods by which they are calculated; to give Plaintiffs
requested information concerning the manner in which monthly premium amounts and/or
nonrenewal penalties are calculated; to comply with California laws and regulations prohibiting
illegal side agreements and governing the filing of rate plans; and to accurately and fairly advise
Plaintiffs of Plaintiffs’ remedial dispute resolution rights.
43. The Berkshire Defendants’ conduct, as alleged above and herein, has denied
1
FIRST AMENDED COMPLAINTPlaintiffs the benefits of the workers’ compensation policies. Thus, the BerkshireDefendants
have breached the implied covenant of good faith and fair dealing, by: (a) offering, presenting
and executing illegal side agreements with Plaintiffs; (b) refusing to provide Plaintiffs notice or
information concerning how premiums would be calculated; (c) misrepresenting the RPA and the
Berkshire Program as a profit-sharing plan; (d) charging an illegal non-renewal and/or
cancellation fee; (e) refusing to comply with California laws and regulations governing the filing,
of rate plans; (f) misrepresenting to Plaintiffs the anticipated cost of the Berkshire Program; (g)
setting Plaintiffs’ premium rates unfairly and without taking into consideration actual reserved
and paid losses; (h) knowingly billing Warwick for amounts not due under the policy; (i)
threatening Warwick with cancelation of its workers’ compensation insurance policy unless
Warwick pays or signs a promissory note for an amount of money that Berkshire acknowledges
it did not correctly calculate; and (j) taking steps to effect the wrongful cancelation.
44. Plaintiffs are informed and believe, and thereon allege, that the aforementioned
conduct by the Berkshire Defendants constitutes a common pattern and practice with regard to its
insureds of making mistakes on Plaintiffs claim files, not communicating adverse legal opinions,
and passing on the costs of these mistakes to Plaintiffs in the form of higher premiums and
LDFs.
45. Plaintiffs are informed and believe, and based on such information and belief
allege, that the primary reasons why the Berkshire Defendants breached the implied covenant of
good faith and fair dealing as outlined hereinabove, was to charge Plaintiffs additional and
unnecessary fees, costs, expenses and LDFs.
46. Plaintiffs are informed and believe, and based on such information and belief
allege, that the Berkshire Defendants intentionally, maliciously, egregiously, and without
remorse overcharged Plaintiffs for no other purpose but to enrich the Berkshire Defendants.
47. Plaintiffs are informed and believe, and based on such information and belief
allege, that the Berkshire Defendants intentionally, maliciously, egregiously, and without
remorse threatened Plaintiffs with cancelation of their workers’ compensation insurance, which
Berkshire knows would seriously injure Plaintiffs and their employees, and have taken steps to
12
FIRST AMENDED COMPLAINT.cancel that insurance, to improperly coerce Plaintiffs to pay Berkshire’s overcharges, for no
other purpose than to enrich the Berkshire Defendants.
48. Plaintiffs are informed and believe, and based on such information and belief
allege, that there have been other acts and omissions by the Berkshire Defendants that violated
the implied covenant of good faith and fair dealing implied in the workers’ compensation
policies, and that, though thase other acts and omissions are currently unknown to Plaintiffs, they
may be discovered during the course of discovery in this litigation.
49. As a proximate result of the Berkshire Defendants’ conduct, as alleged herein,
Plaintiffs have suffered both general and specific damages, as described herein. The Berkshire
Defendants’ conduct resulted in unnecessary and excessive fees, costs, and expenses. Further,
the Berkshire Defendants’ conduct has also increased Plaintiffs’ prior and subsequent premiums,
and it has caused Plaintiffs to hire outside consultants, experts, and attorneys to try to get the
Berkshire Defendants to meet their obligations under the Berkshire Program and policies.
Plaintiffs are therefore entitled to collect all costs and expenses, including attorneys’ fees
incurred in seeking to obtain the benefits owed to them under the Berkshire Program.
50. Plaintiffs allege that the Berkshire Defendants’ conduct, as alleged herein, was
undertaken in bad faith, was malicious, fraudulent, and oppressive, evidences a complete
disregard for Plaintiffs’ interests, and was intended to injure, harass, vex, and annoy Plaintiffs.
Thus, the Berkshire Defendants’ conduct was “despicable conduct” as that term is defined in
Civil Code section 3294 and under established common law, thereby entitling Plaintiffs to
recover punitive damages in an amount appropriate to punish, or to set an example of the
Berkshire Defendants. Plaintiffs are further informed and believe and on such information and
belief allege that what the Berkshire Defendants did to Plaintiffs, they have done to other
similarly situated policyholders. Indeed, Plaintiffs are informed and believe and on such
information and belief allege that the Berkshire Defendants have engaged in a pattern and a
practice of manipulating reserves, demanding excessive premium amounts on a short term basis
and then imposing unconscionable terms and promissory notes under threats of cancelation,
followed by cancelation for those who will not pay up, all of which amounts to conduct that
13
FIRST AMENDED COMPLAINT.borders on a scheme and practice to cause their own policyholders extreme economic hardship.
51. Plaintiffs are informed and believe, and based on such information and belief
allege, that at all relevant times: (a) the Berkshire Defendants acted through their officers,
directors, and employees; (b) the Berkshire Defendants’ officers, directors, and employees had
advance knowledge of the damage that would be caused to Plaintiffs by their actions; and (c) the
Berkshire Defendants approved, ordered, instructed, supervised, and controlled the conduct of
their officers, directors, and employees in such a fashion as to constitute a ratification of their
conduct. Thus, under the doctrine of respondeat superior, the Berkshire Defendants are liable for
punitive damages, as prayed herein.
52. The amount of damages that Plaintiffs have suffered due to the Berkshire
Defendants’ breach of the covenant of good faith and fair dealing is in excess of the minimal
jurisdictional requirements of this Court and will be established at trial
THIRD CAUSE OF ACTION
(Fraud and Misrepresentation - Against All Defendants)
53. Plaintiffs incorporate by reference herein and reallege each and every allegation
contained in Paragraphs 1 through 52 of this Complaint, as though fully set forth herein.
54, In presenting the RPAs and the EquityComp Program to Warwick, the Berkshire
Defendants and Willis represented that the RPA and the EquityComp Program complied with
California law, including the relevant applicable statutes and regulations. Further, the Berkshire
Defendants and Willis misrepresented the nature of the RPA and EquityComp Program as a
profit-sharing loss sensitive plan, and that payments during the plan period would reflect lower
payments if losses were low.
55 At the time the Berkshire Defendants and Willis made these representations,
Warwick believed them to be true and, in reasonable reliance on them, was induced to enter the
EquityComp Program. Had Warwick known the full and complete facts, it would not have
agreed to the EquityComp Program or to obtaining coverage from the Berkshire Defendants,
56. These representations by the Berkshire Defendants and Willis were false. At the
time of making them, the Berkshire Defendants knew or should have known that they were false.
14
FIRST AMENDED COMPLAINTThe true facts were as follows: (a) the EquityComp Program was not, nor was it ever intended to
be, a “profit-sharing” plan; (b) the premiums AUCRA charged Warwick were constantly
increasing, and the Berkshire Defendants and Willis knew or should have known that the
premiums were, in fact, higher than the premiums Applied Underwriters represented as the
applicable range of premiums before the inception of the policy; (c) the RPA and the
EquityComp Program contained unfiled rate plans and illegal side agreements which violated
California law; (d) the EquityComp Program had unforgiving and illegal penalty provisions for
cancellation and/or non-renewal; and (e) the RPA, the EquityComp Program, and Applied
Underwriters’ workers’ compensation policies were unfair, non-mutual, inequitable, contain
unconscionable provisions and thereby imposed excessive premiums and penalties on Warwick.
57. At the time the Berkshire Defendants and Willis made these misrepresentations or
omissions, they acted with a gross disregard for the truth, all the while knowing their false
representations were likely to induce Warwick to act in reliance on the misrepresentations or
omissions by agreeing to the RPA and the EquityComp Program.
58. Warwick reasonably relied upon these misrepresentations and omissions by
entering into the RPAs and the EquityComp Program.
59. Warwick is informed and believes, and thereon alleges, that as a result of the
above-described misrepresentations and omissions by the Berkshire Defendants and Willis,
Warwick incurred costs, expenses, fees, and premiums far greater than what it should have
incurred, entitling it to both general and specific damages as well as punitive damages for the
reasons cited, supra.
FOURTH CAUSE OF ACTION
(Negligent Misrepresentation - Against All Defendants)
60. Plaintiffs incorporate by this reference each and every allegation contained in
paragraphs 1 through 59 of this Complaint, as though fully set forth herein. This is pleaded in
the alternative to the cause of action for fraud.
61. In presenting the RPA and the Berkshire Program to Warwick, the Berkshire
Defendants represented to Warwickthat the RPA and the Berkshire Program complied with
15
FIRST AMENDED COMPLAINTCalifornia law, including the relevant applicable statutes and regulations. Additionally, the
Berkshire Defendants misrepresented the nature of the RPA and Berkshire Program as a profit-
sharing plan. The Berkshire Defendants also represented that Warwick’s premiums would fall
within a certain range and be calculated in a certain way.
62. Prior to placing Warwick with Berkshire Program, Willis held itself out to be, and
represented to Warwick that it was, sufficiently knowledgeable and qualified to assist Warwick
in obtaining workers’ compensation policies, and to advise Warwick regarding such coverage.
More specifically, Willis and its representatives held themselves to have specialized expertise in
assisting and advising clients, such as Warwick, in obtaining and maintaining workers’
compensation coverage.
63. Willis told Warwick that the Berkshire Defendants’ program provided among the
lowest rates for Warwick to insure its workers’ compensation liabilities and further represented
that the cost of such coverage would fall within a specified range.
64. At the time the Berkshire Defendants and Willis made these representations,
Warwick believed them to be true, and in reliance on them was induced to enter the Berkshire
Program. Had Warwick known the full and complete facts, it would not have agreed to the
Berkshire Program or to obtaining coverage from the Berkshire Defendants.
65. These representations by the Berkshire Defendants and Willis were false. At the
time of making them, the Berkshire Defendants and Willis knew or should have known they
were false. The true facts were as follows: (a) the Berkshire Program was not, nor was it ever
intended to be a “profit-sharing” plan; (b) the premiums the Berkshire Defendants charged
Warwick were constantly increasing, and the Berkshire Defendants and Willis knew or should
have known that the premiums were, in fact, higher than the premiums the Berkshire Defendants
and Willis represented as the applicable range of premiums before the inception of the policy; (c)
the premiums and other charges under the program would be and were calculated using formulas
that were not disclosed to Warwick; (d) the RPA and the Berkshire Program contained unfiled
rate plans and illegal side agreements which violated California law; (e) the RPA and the
Berkshire Program had unforgiving and usurious penalty provisions for cancellation and/or non-
16
FIRST AMENDED COMPLAINTQa wor
renewal; and (f) the RPA, the Berkshire Program, and the Berkshire Defendants’ workers’
compensation policies were unfair, non-mutual, and inequitable and imposed excessive
premiums and penalties on insured.
66. At the time the Berkshire Defendants and Willis made these misrepresentations or
omissions, they failed to act reasonably or exercise due care as to whether the representations
were true and were likely to induce Warwick to act in reliance on the misrepresentations or
omissions by agreeing to the RPA and the Berkshire Program.
67. Warwick reasonably relied upon these misrepresentations and omissions by
entering into the RPA and the Berkshire Program.
68. Warwick is informed and believes and thereon alleges that as a result Warwick
incurred costs, expenses, fees, and premiums far greater than what it should have incurred under
the Berkshire Program.
69. As a proximate result of the Berkshire Defendants’ conduct, as alleged herein,
Plaintiff has suffered both general and specific damages. The Berkshire Defendants’ conduct
also resulted in unnecessary and excessive fees, costs, and expenses, and increased Plaintiffs”
premiums,
70. The amount of damages that Plaintiffs have suffered due to the Berkshire
Defendants’ and Willis’ negligent misrepresentation is in excess of the jurisdictional minimum
requirements of this Court and will be established at trial.
FIFTH CAUSE OF ACTION
(Professional Negligence - Against Willis, and Does 1 through 50, inclusive)
71. Plaintiffs incorporate by reference herein and reallege each and every allegation
contained in Paragraphs 1 through 70 of this Complaint, as though fully set forth herein,
72. As Warwick’s insurance broker, Willis owed Warwick a duty of care in procuring
its workers’ compensation insurance coverage, in determining and ensuring that such coverage
was appropriate for the type of business Warwick has been engaged in, and in providing
professional advice to Warwick concerning its rights and obligations in connection with its
workers’ compensation insurance coverage.
17
FIRST AMENDED COMPLAINT73. In or about May - June 2013, Willis represented to Warwick that it was
sufficiently qualified and experienced to obtain workers’ compensation insurance coverage for
Warwick and could sufficiently advise Warwick on such policies, and Willis held itself out as
having specialized expertise in obtaining and advising on such workers’ compensation coverage
to insureds like Warwick. Warwick relied upon Willis’s expertise by contracting with Willis to
procure workers’ compensation for Warwick’s business, and more specifically, in obtaining
coverage for Warwick with the Berkshire Program, and in consulting with Willis for its
professional advice regarding the Berkshire Program.
74 Willis breached its professional duties to Warwick in recommending the
Berkshire Program to Warwick even though Willis knew or should have known that the
Berkshire Defendants’ workers’ compensation policies and the Berkshire Program were, or were
likely to be unfair, non-mutual, unconscionable, and unreasonable, in bad faith and/or fraudulent.
Additionally, Willis advised Warwick that under the Berkshire Program its workers’
compensation premiums would be within a specified range. Willis was unable and/or refused to
provide Warwick with answers when Warwick incurred increasingly higher premiums, and
additional charges and requested explanations for the increase of premiums and other charges.
75. Willis’s negligent procurement of insurance and its negligent professional advice
has damaged Warwick based upon the excessive and unlawful premiums the Berkshire
Defendants forced upon Warwick, the non-renewal penalties and other fees the Berkshire
Defendants charged Warwick, requiring that Warwick bring this action and incur substantial
expense to obtain an adjudication of the correct amount, if any, that Warwick may owe the
Berkshire Defendants. Thus, to the extent that Warwick incurs defense and indemnity costs,
Warwick alleges that Willis is responsible for such costs.
SIXTH CAUSE OF ACTION
(Rescission - Against the Berkshire Defendants, and Does 1 through 50, inclusive)
76. Plaintiffs incorporate by reference herein and reallege each and every allegation
contained in Paragraphs 1 through75 of this Complaint, as though fully set forth herein.
77. By offering the RPA and the Berkshire Program to Warwick, the Berkshire
18
FIRST AMENDED COMPLAINTDefendants represented to Warwick that the RPA and the Berkshire Program complied with
California law, including the relevant applicable statutes and regulations. Additionally, the
Berkshire Defendants misrepresented the nature of the RPA and Berkshire Program as a profit-
sharing plan. The Berkshire Defendants also represented that Warwick’s premiums would fall
within a certain range and be calculated in a certain way.
78. Warwick, at the time the representations were made, believed them to be to true,
and upon such reliance, was induced to, and entered into the Berkshire Program. Had Warwick
known the full and complete facts, it would not have entered into the Berkshire Program.
79. These representations by the Berkshire Defendants were false. At the time of
making them, the Berkshire Defendants knew or should have known they were false. The true
facts were as follows: (a) the Berkshire Program was not, nor was it ever intended to be a “profit-
sharing” plan; (b) the premiums the Berkshire Defendants charged Warwick were constantly
increasing, aud the Berkshire Defendants knew or should have known that the premiums were, in
fact, higher than the premiums the Berkshire Defendants represented as the applicable range of
premiums before the inception of the policy; (c) the premiums and other charges under the
program would be and were calculated using formulas that were not disclosed to Warwick; (d)
the RPA and the Berkshire Program contained unfiled rate plans and illegal side agreements
which violated California law; (e) the RPA and the Berkshire Program had unforgiving and
usurious penalty provisions for cancellation and/or non-renewal; and (f) the RPA, the Berkshire
Program, and the Berkshire Defendants’ workers’ compensation policies were unfair, non-
mutual, and inequitable and imposed excessive premiums and penalties on insured.
80. At the time the Berkshire Defendants made these misrepresentations and
omissions, the Berkshire Defendants intended to induce Warwick to act in reliance on the
misrepresentations and omissions by entering into the RPA and the Berkshire Program.
Warwick reasonably relied upon these misrepresentations by entering into the RPA and the
Berkshire Program.
81. Warwick will suffer substantial harm and injury under the Berkshire Program if
the RPA and the other agreements which compromise the program are not rescinded as
19
FIRST AMENDED COMPLAINTCom YN A uw
Warwickwould be deprived of the benefit of the bargain and would be forced to remain in an
unfair, unconscionable and non-mutual Berkshire Program and agreements that solely benefit the
Berkshire Defendants at the expense of Warwick.
82. | Warwick intends for the service of the summons and complaint in this action to
serve as notice of rescission of the Berkshire Program, the RPA, and any other applicable
agreements under the Berkshire Program. Warwick hereby offers to return all consideration
furnished by the Berkshire Defendants to Warwick under those agreements on the condition that
the Berkshire Defendants restore Warwickthe consideration that it provided the Berkshire
Defendants under the agreements.
SEVENTH CAUSE OF ACTION
(Conversion - Against the Berkshire Defendants, and Does 1 through 50, inclusive)
83. Plaintiffs incorporate by reference herein and reallege each and every allegation
contained in Paragraphs | through 82 of this Complaint, as though fully set forth herein.
84. The Berkshire Defendants have wrongfully misappropriated and converted
monies paid by Warwick, which was billed excessive and miscalculated premiums and pay-in
amounts.
85. As a result of the above, Warwick has been substantially damaged.
86. Plaintiffs allege that the Berkshire Defendants’ conduct, as alleged herein, was
undertaken in bad faith, was malicious, fraudulent, oppressive, and evidences a complete
disregard for Plaintiffs’ interests, and was intended to harass, injure, vex, and annoy Plaintiffs.
Thus, the Berkshire Defendants’ conduct was “despicable conduct”, as that term is defined in
Civil Code section 3294 and under established common law, thereby entitling Plaintiffs to
recover punitive damages in an amount appropriate to punish, or to set an example of the
Berkshire Defendants. Plaintiffs are informed and believe, and based on such information and
belief, allege, that at all relevant times: (a) the Berkshire Defendants acted through their officers,
directors and employees; (b) the Berkshire Defendants’ officers, directors, and employees had
advanced knowledge of the damage that would be caused to Plaintiffs by their actions; and (c)
the Berkshire Defendants approved, ordered, instructed, supervised, and controlled the conduct
20
FIRST AMENDED COMPLAINTof their officers, directors, and employees in such a way as to constitute a ratification of their
conduct. Thus, under the doctrine of respondeat superior, the Berkshire Defendants are liable for
punitive damages, as prayed herein.
87. The amount of damages that Plaintiffs have suffered due to the Berkshire
Defendants’ intentional misconduct is in excess of the jurisdictional minimum requirements of
this Court and will be established at trial.
EIGHTH CAUSE OF ACTION
(Unfair Business Practices - Against the Berkshire Defendants, and Does 1 through 50,
inclusive)
88. Plaintiffs incorporate by reference herein and reallege each and every allegation
contained in Paragraphs 1 through 87 of this Complaint, as though fully set forth herein.
89. The conduct alleged above is an unfair, unlawful, fraudulent, or deceptive
business practice. California Business & Professions Code section 17200 et seq. prohibits acts of
unfair competition, which includes any unlawful, unfair or fraudulent business practice.
90. The Berkshire Defendants’ conduct, as alleged above and herein, has denied
Plaintiffs the benefits of the workers’ compensation policies. Further the Berkshire Defendants
conduct by: (a) offering, presenting and executing illegal side agreements with Plaintiffs; (b)
refusing to provide Plaintiffs notice or information concerning how premiums would be
calculated; (c) misrepresenting the RPA and the Berkshire Program as a profit-sharing plan; (d)
charging an illegal non-renewal and/or cancellation fee; (e) refusing to comply with California
laws and regulations governing the filing of rate plans; (f) misrepresenting to Plaintiffs the
anticipated cost of the Berkshire Program; and (g) setting Plaintiffs’ premium rates unfairly and
without taking into consideration actual reserved and paid losses, as well as their own adjusters
and/or workers’ compensation defense attorneys’ negligence, constitutes unfair, unlawful,
fraudulent, or deceptive business practices. Thus, the Berkshire Defendants’ conduct as alleged
above const
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SPENCER Y. KOOK (SBN 205304) skook@mail.hinshawlaw.com ELECTRONICALLY HINSHAW & CULBERTSON LLP FILED 633 West 5th Street, 47th Floor Los Angeles, CA 90071-2043 County of San Francisco” Telephone: — 213-680-2800 01/20/2017 Facsimile: 213-614-7399 ols: of 42 Court BY:ANNA TORRES TRAVIS WALL (SBN 191662) ee twall@mail.hinshawlaw.com JARED W. MATHESON (SBN 275459) jmatheson@hinshawlaw.com HINSHAW & CULBERTSON LLP One California Street, 18th Floor San Francisco, CA 94111 Telephone: 415-362-6000 Facsimile: 415-834-9070 Attorneys for Defendants APPLIED UNDERWRITERS, INC., APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC., CALIFORNIA INSURANCE COMPANY, CONTINENTAL INDEMNITY COMPANY and APPLIED RISK SERVICES, INC. SUPERIOR COURT OF THE STATE OF CALIFORNIA. FOR THE COUNTY OF SAN FRANCISCO UNLIMITED JURISDICTION WARWICK AMUSEMENTS CORPORATION, a Delaware corporation, WARWICK CALIFORNIA CORPORATION, a California corporation, WARWICK DENVER CORPORATION, a Delaware corporation, WSF BEVERAGE CORPORATION, a California corporation, WARWICK MELROSE DALLAS CORPORATION, a Delaware corporation, SILVER AUTUMN HOTEL (N.Y.) CORPORATION, LTD., a Delaware corporation, Plaintiffs, Case No. CGC-16-551614 ) ) ) } DEFENDANTS APPLIED j UNDERWRITERS, INC., APPLIED j UNDERWRITERS CAPTIVE RISK ) ASSURANCE COMPANY, INC., j CALIFORNIA INSURANCE j COMPANY, CONTINENTAL ) INDEMNITY COMPANY, AND APPLIED RISK SERVICES, INC.’S ) MOTION TO STRIKE a ) EXHIBIT 1 TO REQUEST FOR APPLIED UNDERWRITERS, INC., a Nebraska ) JUDICIAL NOTICE corporation, APPLIED UNDERWRITERS ) CAPTIVE RISK ASSURANCE COMPANY, } INC., an Lowa corporation, CALIFORNIA ) INSURANCE COMPANY, a California ) corporation, CONTINENTAL INDEMNITY ) COMPANY, an Iowa corporation, APPLIED RISK ) SERVICES, INC., a New York corporation, and ) DOES | through 50, inclusive , 5 ) ) Defendants. First Amended Complaint Filed: May 19, 2016 Date: February 16, 2017 Time: 9:30 a.m. Department: 302 Reservation No. 01190216-06 DEFENDANTS’ NOTICE OF MOTION AND MOTION TO STRIKE Case No. CGC-16-551614EXHIBIT “1”Nicholas P. Roxborough, Esq. (SBN 113540) Joseph C, Gjonola, Esq. (SBN 241955) Ryan R, Salsig, Esq. (SBN 250830) ROXBOROUGH, POMERANCE, NYE & ADREANI, LLP 5820 Canoga Avenue, Suite 250 Woodland Hills, California 91367 Telephone: (818) 992-9999 Facsimile: (818) 992-9991 Larry J. Lichtenegger, Esq. (SBN 48206) THE LICHTENEGGER LAW OFFICE 3850 Rio Road, #58 Carmel, California 93923 Telephone: (831) 626-2801 Facsimile: (831) 886-1639 Attorneys for Plaintiffs ELECTRONICALLY FILED Superior Court of Caltformia, County of San Francisco 05/19/2016 Clerk of the Court BYSJUDITH NUNEZ Deputy Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO WARWICK AMUSEMENTS CORPORATION, a Delaware corporation; WARWICK CALIFORNIA CORPORATION, a California corporation; WARWICK. DENVER CORPORATION, a Delaware corporation; WSF BEVERAGE CORPORATION, a California corporation; WARWICK MELROSE DALLAS CORPORATION, a Delaware corporation; SILVER AUTUMN HOTEL (N.Y.) CORPORATION, LTD., a Delaware corporation, Plaintiffs, Vv. APPLIED UNDERWRITERS, INC., a Nebraska corporation; APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC., an lowa corporation, CALIFORNIA INSURANCE COMPANY, a California corporation; CONTINENTAL INDEMNITY COMPANY, an Iowa corporation; APPLIED RISK SERVICES, INC., a New York corporation; WILLIS OF NEW YORK, INC., a New York corporation; and DOES 1 through 50, inclusive, Defendants. Case No. CGC-16-551614 FIRST AMENDED COMPLAINT FOR: 1. BREACH OF CONTRACT 2. TORTIOUS BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING 3, FRAUD AND MISREPRESENTATION 4. NEGLIGENT MISREPRESENTATION PROFESSIONAL NEGLIGENCE RESCISSION CONVERSION UNFAIR BUSINESS PRACTICES DECLARATORY RELIEF ge Sa ta FIRST AMENDED COMPLAINTCOME NOW PLAINTIFFS, WARWICK AMUSEMENTS CORPORATION, WARWICK CALIFORNIA CORPORATION, WARWICK DENVER CORPORATION, WSF BEVERAGE CORPORATION, WARWICK MELROSE DALLAS CORPORATION, and SILVER AUTUMN HOTEL (N.Y.) CORPORATION, LTD., allege this First Amended Complaint naming WILLIS OF NEW YORK, INC. as an additional defendant, two additional causes of action, and alleging additional acts as follows: 1. Plaintiff WARWICK AMUSEMENTS CORPORATION is a Delaware corporation with its principal place of business in Denver, Colorado, and at all times herein was doing business in the State of California, County of San Francisco. 2, Plaintiff WARWICK CALIFORNIA CORPORATION is a California corporation with its principal place of business in San Francisco, California, and at all times hercin was doing business in the State of California, County of San Francisco. 3. Plaintiff WARWICK DENVER CORPORATION is a Delaware corporation with its principal place of business in Denver, Colorado, 4. Plaintiff WSF BEVERAGE CORPORATION is a California corporation with its principal place of business in San Francisco, California, and at all times herein was doing business in the State of California, County of San Francisco. 5. Plaintiff WARWICK MELROSE DALLAS CORPORATION is a Delaware corporation with its principal place of business in Dallas, Texas. 6. Plaintiff SILVER AUTUMN HOTEL (N.Y.) CORPORATION, LTD. is a Delaware corporation with its principal place of business in New York, New York. 7. All Plaintiffs will hereinafter be referred to collectively as “Plaintiffs” or “Warwick.” 8. On information and belief, Defendant California Insurance Company (“CIC”) is a California corporation with its principal place of business in Nebraska, which was authorized by the California Department of Insurance (“DOT”) to do business in the State of California as an insurance company that issues workers’ compensation policies to California businesses. On information and belief, CIC is a member of the Berkshire Hathaway Group and is a corporate 2 FIRST AMENDED COMPLAINTOw ND affiliate of Applied Underwriters Captive Risk Assurance Company, Inc. and other Berkshire Hathaway affiliate defendants. 9. On information and belief, Defendant Applied Underwriters Captive Risk Assurance Company, Inc. (“Applied Underwriters”) is a company organized under the laws of Jowa, but with a principle place of business in Nebraska. At all times referenced herein, Applied Underwriters was, and is, authorized to do business in the State of California as a property and casualty insurer, including workers’ compensation insurance. On information and belief, Applied Underwriters is a member of the Berkshire Hathaway Group and a corporate affiliate of CIC and other Berkshire Hathaway affiliate defendants. 10. On information and belief, Defendant Applied Risk Services, Inc. (“Applied Risk”) is a company organized under the laws of the State of New York, with a principal place of business in Nebraska, At all times referenced herein, Applied Risk is, and was, authorized to do business in the State of California, On information and belief, Applied Risk is a member of the Berkshire Hathaway Group and is a corporate affiliate ofApplied Underwriters and other Berkshire Hathaway affiliate defendants. 11. On information and belief, Defendant Continental Indemnity Company (“Continental”) is a company organized under the laws of the State of lowa, with a principal place of business in Nebraska. At all times referenced herein Continental is, and was, authorized. to do business in the State of California. On information and belief, Continental is a member of the Berkshire Hathaway Group and is a corporate affiliate of Applied Underwriters and other Berkshire Hathaway affiliate defendants. 12. On information and belief, Defendant Applied Underwriters, Inc. (“AU”) is a Nebraska corporation, with a principal place of business in Nebraska. At all times referenced herein AU is and was authorized to do business in the State of California. On information and belief, AU is a member of the Berkshire Hathaway Group and is a corporate affiliate of Applied Underwriters and other Berkshire Hathaway affiliate defendants. 13. Defendant Willis of New York, Inc. (“Willis”) is, on information and belief, a New York corporation with its principal place of business in New York, New York. At all times 3 FIRST AMENDED COMPLAINTnN vA Rk ow referenced herein, Willis is, and was, authorized to transact business in the State of California. 14. The true names and capacities, whether individual, corporate, associate or otherwise, of the defendants named herein as Does 1 through 50, inclusive, are unknown to Warwick which, therefore sues said defendants by fictitious names. Warwick will amend this Complaint when their true names and capacities have been ascertained. Each of the defendants named herein, whether their identities are known or unknowa, is in some manner responsible for the acts, events, and occurrences described, either jointly or scverally, and is in some manner liable for equitable relief to Warwick. 15. Warwick is informed and bclicves, and upon such information and belief alleges, that all defendants in this action, including thosc Doe Defendants 1-50, inclusive, are individuals, corporations or business associations which are and were at all times referenced herein acting as agents, servants, contractors, partners, joint ventures, alter egos, successors in interest, or employees of other defendants herein and were authorized to act for and/or on behalf. of said defendants, and each of them, with the express and/or implied permission, knowledge, consent and ratification of all said defendants. 16. For purposes of convenience and where appropriate, CIC, Applied Underwriters, Applied Risk, AU, and Continental will be referred to collectively herein as “Berkshire” or “the Berkshire Defendants.” 17. Venue is proper in this judicial district because the principal place of business for Plaintiffs WARWICK CALIFORNIA CORPORATION and WSF BEVERAGE CORPORATION is the City of San Francisco, County of San Francisco, and because the Berkshire Defendants, Willis, and DOES 1-50’s were to perform under the alleged contract(s) in San Francisco County, and their obligations and liability giving rise to these allegations arose in San Francisco County. Venue is proper in this Court because the acts and omissions, including tortious acts, which form the basis of this action, occurred within this County and this Court’s jurisdiction. Furthermore, the amount in controversy in this action exceeds the jurisdictional minimum as fully set forth herein. MiGENERAL ALLEGATIONS 18. Willis, a national insurance brokerage firm, served as an insurance broker to Warwick to procure workers’ compensation policies for Warwick. In or around early June 2013, Willis provided Warwick with a quote and proposal for workers’ compensation insurance from the Berkshire Defendants.Specifically, Willis and the Berkshire Defendants represented to Warwick that the proposed EquityComp program was a loss sensitive program and that the lower the loss claims, the lower the premium costs that could be achieved during the three-year term of the agreement. The program was represented as a “profit sharing plan” whereby the insured would receive back a portion of the premiums paid based on lower than expected losses. 19. Commencing with the date of June 2013, Warwick agreed to and did contract with Berkshire for a three-year workers’ compensation insurance policy based upon Willis and Berkshire’s representations. The three year policy was to run from June 14, 2013 through June 14, 2016. THE REINSURANCE PARTICIPATION AGREEMENT (“RPA”) 20. On or around June 19, 2013,five days after policy inception, Warwick was provided with a copy of Applied Underwriters’ “Reinsurance Participation Agreement” (“RPA”). A true and correct copy of the RPA is attached hereto as Exhibit A, and by this reference is incorporated herein. The RPA bore several hallmarks of an adhesion contract, including the fact that it only required execution by the insured, Warwick, and was presented to Warwick unilaterally, on a “take it or leave it” basis. 21. The RPA contains numerous requirements which unreasonably favor Applied Underwriters and are otherwise adhesive and one-sided. Among these non-mutual provisions, the RPA: - Fails to fully disclose the Berkshire Defendants’ methods for calculating premium, rates, any other factors to determine amounts due to Applied Underwriters and the Berkshire Defendants; - Limits the amounts Warwick may recover to the assets of Warwick’s segregated protected cell (the amount of Warwick’s account) (Paragraph 2); 5 FIRST AMENDED COMPLAINT22. Solely binds Warwick, and not Applied Underwriters, to the RPA’s “agreements and obligations” (Paragraph 11(E)); and Fails to fully disclose or explain the Berkshire Defendants’ methods for calculating early cancellation fees (Paragraph 4 and Schedule I). Furthermore, under the terms of cancellation, even if. policyholder such as Warwick believes the computations being issued by the Berkshire Defendants are erroneous, oppressive, or otherwise unreasonable, and Warwick seeks to cancel the agreement because of this fraud, mismanagement and/or clearly erroneous or unexplained billing, Paragraph 4 of the RPA imposes penalty type clauses such that a cancellation initiated by the Berkshire Defendants results in higher profits for the Berkshire Defendants or higher costs to Warwick if they are the party initiating the cancellation themselves. Specifically, paragraph 4 provides, in part: If participant elects to cancel this Agreement, or if any of the Policies are cancelled or non-renewed prior to the end of the Active Term (“Early Cancellation”), the Participant shall abide by the Early Cancellation terms set forth in Schedule 1. As set forth in Schedule 1: In the event of Early Cancellation whether by Participant or by the Company (limited to non-pay or a material change in risk): (a) the Exposure Group Adjustment Factor will by multiplied by 1.25; (b) the Cumulative Aggregate Limit will be determined using Policy Payroll annualized to reflect the full term of the Agreement; and (c) the following amounts will be immediately due and payable to the Company: i) any remaining premium, including short rate penalties, due under the Policies; ii) a capital deposit equal to the cell’s maximum liability; and iii) a Cancellation Fee equal to 8% of the Estimated Annual Loss Pick Containment Amount. Schedule 1, at 6. Schedule | further provides: The Exposure Group Adjustment Factor is determined from Table B using the Loss Ratio with intermediate values to be interpolated. The Exposure Group Adjustment Factor has been determined using NCCI Expected Unlimited Loss Group 26 and is subject to change without notice?) if Policy Payroll varies from estimates made in preparing this Schedule 1 f NCCI Table M is revised; or iii) to adjust for inflation or a change in claim severity not accounted for by Table 6 FIRST AMENDED COMPLAINTSchedule 1, at 1(d). The Participant, through its cell account, will be responsible for an amount equal to all losses under the Policies in aggregate up to the Cumulative Aggregate Limit which equals 1.1900 multiplied by the Loss Pick Containment Amount. During the Active Term, Participant’s liability limits will be estimated quarterly in advance, Schedule 1, at 2. Policy Payroll is defined as compensable payroll occurring during the Effective Period under the Policies subject to all customary limitations and caps. Schedule 1 at 1. The Loss Pick Containment Amount is defined as the amount equal to the product of Policy Payroll and the respective Loss Pick Containment Rates listed in Table C. These rates are per $100 of Policy Payroll and are fixed for the Effective Period. Changes in experience modifiers and uther modification or differential factors of the Policies will not affect these rates. If Policy Payroll occurs under a classification not listed herein, the Company shall, in its sole discretion, determine arate for that classification commensurate with the rates otherwise listed and with the filed and approved rates of the issuing insurers. Schedule J at 1. (Emphasis added) THE INSURANCE POLICIES 23. Warwick was provided with a copy of a workers’ compensation policy issued by CIC. A true and correct copy of the CIC policy is attached hereto as Exhibit B current year, and by this reference is incorporated herein. This policy covered Warwick's employees in California and Texas. 24. Warwick was also provided with a copy of a workers’ compensation policy issued by Continental. A true and correct copy of the Continental policy is attached hereto as Exhibit C current year, and by this reference is incorporated herein. This policy covered Warwick's employees in New York and Colorado. 25, The Policies include Cancelation Endorsements, including Short Rate Cancelation Notices, 26. Hereafter, references to the “Berkshire Program” shall be to the coverage provided under, and the provisions of, the RPA and the Policies. i FIRST AMENDED COMPLAINTTHE BERKSHIRE DEFENDANTS’ CONDUCT 27. The Berkshire Defendants regularly use improper and undisclosed Loss Development Factors (“LDFs”) that are not contained in the RPA, as multipliers of the claims’ values. This substantially raises the amount of Warwick’s required contribution. It can increase that amount 200% or more. 28. The Berkshire Defendants also engage in claims mishandling which increases the amount Warwick owes under the RPA. Even when the Berkshire Defendants acknowledge that they are improperly managing claims, not following the terms of the RPA, and issuing egregious inflated bills to Warwick, the Berkshire Defendants insists the Warwick pay those bills under the threat of canceling Warwick’s workers’ compensation insurance, which the Berkshire Defendants are poised to do. 29. Consistent with these allegations, on March 9, 2016 Warwick received a statement of premium due for $214,029.59. Warwick inquired about the substantial increase in premium and the adjuster said it was due to a reopened case and payment of a Scheduled Loss of Use Claim (“SLU”). The adjuster admitted that he had received no medical support to reopen the claim or assign a payment. 30. The adjuster admitted to applying a Loss Development Factors (“LDF”) to the SLU, even though an SLU award is a lump sum final disposition of a permanent disability. Therefore, application of an LDF is wholly inappropriate, as there should not be any further development of the SLU award so it does not pose any legitimate future risks to Berkshire. Based upon the egregious calculations and the application of an LDF, the Berkshire Defendants put Warwick in a position where it could not possibly pay the amount demanded in the given month. Additionally, the adjuster violated the RPA by applying an LDF that is not disclosed in the RPA. 31. The Berkshire Defendants admitted that based on these factors and others, its invoices are incorrect, but the Berkshire Defendants refuse to correct the invoices. Instead, the Berkshire Defendants demanded that Warwick pay every dollar that was improperly billed or sign a new promissory noterepresenting that all charges are correct, or else the Berkshire 8 FIRST AMENDED COMPLAINTDefendants will cancel Warwick’s workers’ compensation insurance, causing Warwick to be in violation of law and leaving its employees unprotected in the event of injury. 32. Additionally, after cancelation the Berkshire Defendants will begin charging Warwick enormous and unconscionable cancelation fees under the RPA. FIRST CAUSE OF ACTION (Breach of Contract - Against the Berkshire Defendants and Does 1 through 50, inclusive) 33... Plaintiffs incorporate by this reference each and every allegation contained in paragraphs 1 through 32 of this Complaint, as though fully set forth herein. 34. A binding contract was negotiated and reached for consideration between the Berkshire Defendants and Warwick by way of the Berkshire Program and policies. In return for consideration, including payments by Warwick, under the Policies, the Berkshire Defendants had various duties and obligations to Warwick. These included, but were not limited to the following: (a) the BerkshireDefendants had both the right and contractual duty to defend workers’ compensation claims against Warwick; (b) the Berkshire Defendants had the right and contractual duty to investigate and settle workers” compensation claims against Warwick; and (c) the Berkshire Defendants were obligated to and had the contractual duty to defendant Warwick against those workers’ compensation claims made against Warwick covered under the policy. 35, Warwick is informed and believes, and based on such information and belief further alleges that the Berkshire Defendants breached their duties, as alleged hereinabove, including their contractual duties, to set appropriate premiums and reserves. Additionally, the Berkshire Defendants have breached their duties by imposing hidden and/or secondary fees and costs that were either not disclosed or are excessive and contrary to industry standard. Additionally, the Berkshire Defendants have breached their duties by improperly threatening to cancel, and taken steps to cancel, Warwick’s workers compensation insurance. 36. Warwick is informed and believes, and based upon such information and belief alleges, that the Berkshire Defendants have committed additional breaches of their obligations under the workers’ compensation policies. The nature of those breaches is presently unknown to Warwick, but Warwick helieves it will discover the nature of those breaches during the course of 9 FIRST AMENDED COMPLAINTow oNs this litigation, Thus, Warwick may request leave of court to amend this complaint to specifically allege any additional breaches about which Warwick may learn through discovery in this litigation following appropriate discovery of Defendants’ hidden policies and practices that form the basis of their financial invoices. 37 Warwick performed all of its obligations under the Berkshire Program, except for those obligations that were excused because of the Berkshire Defendants’ breach of their duties and misconduct, or as was excused by law. 38 As a proximate result of the Berkshire Defendants’ breaches of their duties and obligations under the Berkshire Program, Warwick has suffered and will continue to suffer general and special damages as described above. In addition, the Berkshire Defendants” breaches of their obligations under the Berkshire Program also, as alleged hereinabove, artificially increased Warwick’s premiums with the Berkshire Defendants and with other workers’ compensation carriers that are greater than they would otherwise have been, had the Berkshire Defendants not breached their obligations and resulted in unnecessary and inflated fees and costs, The amount of the damages that Warwick has suffered due to the Berkshire Defendants’ breaches of their contractual obligations is in excess of the minimal jurisdictional requirements of this Court and will be established at trial. SECOND CAUSE OF ACTION (Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing - Against the Berkshire Defendants and Does 1 through 50, inclusive) 39. Warwick incorporates by this reference each and every allegation contained in paragraphs 1 through 38 of this Complaint, as though fully set forth herein. 40. The covenant of good faith and fair dealing is implied by law in every contract to protect each party’s right to receive the benefits of the contract. Here, the covenant of good faith and fair dealing is implied by law, and is especially true in the workers’ compensation insurance setting, to protect, among other things, Plaintiffs’ rights to a reasonable and adequate defense of workers’ compensation claims made against it, and Plaintiffs’ rights to proper and timely handling of workers’ compensation claims made against them. 10 FIRST AMENDED COMPLAINTID WwW sb oO 0 41. Implied in the workers’ compensation policies, and the Berkshire Program, is a covenant that the insurer will act in good faith and engage in fair dealing in connection with claims made by its insured; that it will process claims and set reserves with good faith regard for their impact on the insured’s premiums; that it will not abuse any discretionary power affecting the rights of the insured; that it will give at least as much consideration to the rights of the insured as it gives its own interests; that it will conduct its claims resolution and reserve allocation processes in good faith; that it will not set unreasonably high reserves which the Defendants know or should know will cause Warwick’s premiums to be artificially inflated; that it will not modify and conceal its reserving practices to maximize its receipts at the expense of the insured; that it will not misrepresent the nature or character of its proposed plan for providing coverage to the insured (i.e. a profit-sharing plan); that it will comply with the laws and regulations governing it and the industry and the market in which it participates; that it will not misrepresent costs of coverage it provides; and that it will not deceive its insured concerning the remedial and/or dispute resolution rights that are available to the insured under governing law. 42. The implied covenant of good faith and fair dealing obligated the Berkshire Defendants to set premium rates and cancelation penalties fairly and take into consideration adequate and accurate reserves and paid losses; to consider the fair and actual consequences to Plaintiffs of any decision by the Berkshire Defendants not to renew Plaintiffs’ policy under the Berkshire Program concerning Plaintiffs ability to obtain workers’ compensation quotes in the open market; not to charge Plaintiffsa usurious or illegal penalty; not to misrepresent the nature or character of its proposed plan for providing coverage to the insured (i.e., as a profit-sharing plan); to give Plaintiffs reasonable notice and/or information concerning the anticipated monthly premium amounts, including the methods by which they are calculated; to give Plaintiffs requested information concerning the manner in which monthly premium amounts and/or nonrenewal penalties are calculated; to comply with California laws and regulations prohibiting illegal side agreements and governing the filing of rate plans; and to accurately and fairly advise Plaintiffs of Plaintiffs’ remedial dispute resolution rights. 43. The Berkshire Defendants’ conduct, as alleged above and herein, has denied 1 FIRST AMENDED COMPLAINTPlaintiffs the benefits of the workers’ compensation policies. Thus, the BerkshireDefendants have breached the implied covenant of good faith and fair dealing, by: (a) offering, presenting and executing illegal side agreements with Plaintiffs; (b) refusing to provide Plaintiffs notice or information concerning how premiums would be calculated; (c) misrepresenting the RPA and the Berkshire Program as a profit-sharing plan; (d) charging an illegal non-renewal and/or cancellation fee; (e) refusing to comply with California laws and regulations governing the filing, of rate plans; (f) misrepresenting to Plaintiffs the anticipated cost of the Berkshire Program; (g) setting Plaintiffs’ premium rates unfairly and without taking into consideration actual reserved and paid losses; (h) knowingly billing Warwick for amounts not due under the policy; (i) threatening Warwick with cancelation of its workers’ compensation insurance policy unless Warwick pays or signs a promissory note for an amount of money that Berkshire acknowledges it did not correctly calculate; and (j) taking steps to effect the wrongful cancelation. 44. Plaintiffs are informed and believe, and thereon allege, that the aforementioned conduct by the Berkshire Defendants constitutes a common pattern and practice with regard to its insureds of making mistakes on Plaintiffs claim files, not communicating adverse legal opinions, and passing on the costs of these mistakes to Plaintiffs in the form of higher premiums and LDFs. 45. Plaintiffs are informed and believe, and based on such information and belief allege, that the primary reasons why the Berkshire Defendants breached the implied covenant of good faith and fair dealing as outlined hereinabove, was to charge Plaintiffs additional and unnecessary fees, costs, expenses and LDFs. 46. Plaintiffs are informed and believe, and based on such information and belief allege, that the Berkshire Defendants intentionally, maliciously, egregiously, and without remorse overcharged Plaintiffs for no other purpose but to enrich the Berkshire Defendants. 47. Plaintiffs are informed and believe, and based on such information and belief allege, that the Berkshire Defendants intentionally, maliciously, egregiously, and without remorse threatened Plaintiffs with cancelation of their workers’ compensation insurance, which Berkshire knows would seriously injure Plaintiffs and their employees, and have taken steps to 12 FIRST AMENDED COMPLAINT.cancel that insurance, to improperly coerce Plaintiffs to pay Berkshire’s overcharges, for no other purpose than to enrich the Berkshire Defendants. 48. Plaintiffs are informed and believe, and based on such information and belief allege, that there have been other acts and omissions by the Berkshire Defendants that violated the implied covenant of good faith and fair dealing implied in the workers’ compensation policies, and that, though thase other acts and omissions are currently unknown to Plaintiffs, they may be discovered during the course of discovery in this litigation. 49. As a proximate result of the Berkshire Defendants’ conduct, as alleged herein, Plaintiffs have suffered both general and specific damages, as described herein. The Berkshire Defendants’ conduct resulted in unnecessary and excessive fees, costs, and expenses. Further, the Berkshire Defendants’ conduct has also increased Plaintiffs’ prior and subsequent premiums, and it has caused Plaintiffs to hire outside consultants, experts, and attorneys to try to get the Berkshire Defendants to meet their obligations under the Berkshire Program and policies. Plaintiffs are therefore entitled to collect all costs and expenses, including attorneys’ fees incurred in seeking to obtain the benefits owed to them under the Berkshire Program. 50. Plaintiffs allege that the Berkshire Defendants’ conduct, as alleged herein, was undertaken in bad faith, was malicious, fraudulent, and oppressive, evidences a complete disregard for Plaintiffs’ interests, and was intended to injure, harass, vex, and annoy Plaintiffs. Thus, the Berkshire Defendants’ conduct was “despicable conduct” as that term is defined in Civil Code section 3294 and under established common law, thereby entitling Plaintiffs to recover punitive damages in an amount appropriate to punish, or to set an example of the Berkshire Defendants. Plaintiffs are further informed and believe and on such information and belief allege that what the Berkshire Defendants did to Plaintiffs, they have done to other similarly situated policyholders. Indeed, Plaintiffs are informed and believe and on such information and belief allege that the Berkshire Defendants have engaged in a pattern and a practice of manipulating reserves, demanding excessive premium amounts on a short term basis and then imposing unconscionable terms and promissory notes under threats of cancelation, followed by cancelation for those who will not pay up, all of which amounts to conduct that 13 FIRST AMENDED COMPLAINT.borders on a scheme and practice to cause their own policyholders extreme economic hardship. 51. Plaintiffs are informed and believe, and based on such information and belief allege, that at all relevant times: (a) the Berkshire Defendants acted through their officers, directors, and employees; (b) the Berkshire Defendants’ officers, directors, and employees had advance knowledge of the damage that would be caused to Plaintiffs by their actions; and (c) the Berkshire Defendants approved, ordered, instructed, supervised, and controlled the conduct of their officers, directors, and employees in such a fashion as to constitute a ratification of their conduct. Thus, under the doctrine of respondeat superior, the Berkshire Defendants are liable for punitive damages, as prayed herein. 52. The amount of damages that Plaintiffs have suffered due to the Berkshire Defendants’ breach of the covenant of good faith and fair dealing is in excess of the minimal jurisdictional requirements of this Court and will be established at trial THIRD CAUSE OF ACTION (Fraud and Misrepresentation - Against All Defendants) 53. Plaintiffs incorporate by reference herein and reallege each and every allegation contained in Paragraphs 1 through 52 of this Complaint, as though fully set forth herein. 54, In presenting the RPAs and the EquityComp Program to Warwick, the Berkshire Defendants and Willis represented that the RPA and the EquityComp Program complied with California law, including the relevant applicable statutes and regulations. Further, the Berkshire Defendants and Willis misrepresented the nature of the RPA and EquityComp Program as a profit-sharing loss sensitive plan, and that payments during the plan period would reflect lower payments if losses were low. 55 At the time the Berkshire Defendants and Willis made these representations, Warwick believed them to be true and, in reasonable reliance on them, was induced to enter the EquityComp Program. Had Warwick known the full and complete facts, it would not have agreed to the EquityComp Program or to obtaining coverage from the Berkshire Defendants, 56. These representations by the Berkshire Defendants and Willis were false. At the time of making them, the Berkshire Defendants knew or should have known that they were false. 14 FIRST AMENDED COMPLAINTThe true facts were as follows: (a) the EquityComp Program was not, nor was it ever intended to be, a “profit-sharing” plan; (b) the premiums AUCRA charged Warwick were constantly increasing, and the Berkshire Defendants and Willis knew or should have known that the premiums were, in fact, higher than the premiums Applied Underwriters represented as the applicable range of premiums before the inception of the policy; (c) the RPA and the EquityComp Program contained unfiled rate plans and illegal side agreements which violated California law; (d) the EquityComp Program had unforgiving and illegal penalty provisions for cancellation and/or non-renewal; and (e) the RPA, the EquityComp Program, and Applied Underwriters’ workers’ compensation policies were unfair, non-mutual, inequitable, contain unconscionable provisions and thereby imposed excessive premiums and penalties on Warwick. 57. At the time the Berkshire Defendants and Willis made these misrepresentations or omissions, they acted with a gross disregard for the truth, all the while knowing their false representations were likely to induce Warwick to act in reliance on the misrepresentations or omissions by agreeing to the RPA and the EquityComp Program. 58. Warwick reasonably relied upon these misrepresentations and omissions by entering into the RPAs and the EquityComp Program. 59. Warwick is informed and believes, and thereon alleges, that as a result of the above-described misrepresentations and omissions by the Berkshire Defendants and Willis, Warwick incurred costs, expenses, fees, and premiums far greater than what it should have incurred, entitling it to both general and specific damages as well as punitive damages for the reasons cited, supra. FOURTH CAUSE OF ACTION (Negligent Misrepresentation - Against All Defendants) 60. Plaintiffs incorporate by this reference each and every allegation contained in paragraphs 1 through 59 of this Complaint, as though fully set forth herein. This is pleaded in the alternative to the cause of action for fraud. 61. In presenting the RPA and the Berkshire Program to Warwick, the Berkshire Defendants represented to Warwickthat the RPA and the Berkshire Program complied with 15 FIRST AMENDED COMPLAINTCalifornia law, including the relevant applicable statutes and regulations. Additionally, the Berkshire Defendants misrepresented the nature of the RPA and Berkshire Program as a profit- sharing plan. The Berkshire Defendants also represented that Warwick’s premiums would fall within a certain range and be calculated in a certain way. 62. Prior to placing Warwick with Berkshire Program, Willis held itself out to be, and represented to Warwick that it was, sufficiently knowledgeable and qualified to assist Warwick in obtaining workers’ compensation policies, and to advise Warwick regarding such coverage. More specifically, Willis and its representatives held themselves to have specialized expertise in assisting and advising clients, such as Warwick, in obtaining and maintaining workers’ compensation coverage. 63. Willis told Warwick that the Berkshire Defendants’ program provided among the lowest rates for Warwick to insure its workers’ compensation liabilities and further represented that the cost of such coverage would fall within a specified range. 64. At the time the Berkshire Defendants and Willis made these representations, Warwick believed them to be true, and in reliance on them was induced to enter the Berkshire Program. Had Warwick known the full and complete facts, it would not have agreed to the Berkshire Program or to obtaining coverage from the Berkshire Defendants. 65. These representations by the Berkshire Defendants and Willis were false. At the time of making them, the Berkshire Defendants and Willis knew or should have known they were false. The true facts were as follows: (a) the Berkshire Program was not, nor was it ever intended to be a “profit-sharing” plan; (b) the premiums the Berkshire Defendants charged Warwick were constantly increasing, and the Berkshire Defendants and Willis knew or should have known that the premiums were, in fact, higher than the premiums the Berkshire Defendants and Willis represented as the applicable range of premiums before the inception of the policy; (c) the premiums and other charges under the program would be and were calculated using formulas that were not disclosed to Warwick; (d) the RPA and the Berkshire Program contained unfiled rate plans and illegal side agreements which violated California law; (e) the RPA and the Berkshire Program had unforgiving and usurious penalty provisions for cancellation and/or non- 16 FIRST AMENDED COMPLAINTQa wor renewal; and (f) the RPA, the Berkshire Program, and the Berkshire Defendants’ workers’ compensation policies were unfair, non-mutual, and inequitable and imposed excessive premiums and penalties on insured. 66. At the time the Berkshire Defendants and Willis made these misrepresentations or omissions, they failed to act reasonably or exercise due care as to whether the representations were true and were likely to induce Warwick to act in reliance on the misrepresentations or omissions by agreeing to the RPA and the Berkshire Program. 67. Warwick reasonably relied upon these misrepresentations and omissions by entering into the RPA and the Berkshire Program. 68. Warwick is informed and believes and thereon alleges that as a result Warwick incurred costs, expenses, fees, and premiums far greater than what it should have incurred under the Berkshire Program. 69. As a proximate result of the Berkshire Defendants’ conduct, as alleged herein, Plaintiff has suffered both general and specific damages. The Berkshire Defendants’ conduct also resulted in unnecessary and excessive fees, costs, and expenses, and increased Plaintiffs” premiums, 70. The amount of damages that Plaintiffs have suffered due to the Berkshire Defendants’ and Willis’ negligent misrepresentation is in excess of the jurisdictional minimum requirements of this Court and will be established at trial. FIFTH CAUSE OF ACTION (Professional Negligence - Against Willis, and Does 1 through 50, inclusive) 71. Plaintiffs incorporate by reference herein and reallege each and every allegation contained in Paragraphs 1 through 70 of this Complaint, as though fully set forth herein, 72. As Warwick’s insurance broker, Willis owed Warwick a duty of care in procuring its workers’ compensation insurance coverage, in determining and ensuring that such coverage was appropriate for the type of business Warwick has been engaged in, and in providing professional advice to Warwick concerning its rights and obligations in connection with its workers’ compensation insurance coverage. 17 FIRST AMENDED COMPLAINT73. In or about May - June 2013, Willis represented to Warwick that it was sufficiently qualified and experienced to obtain workers’ compensation insurance coverage for Warwick and could sufficiently advise Warwick on such policies, and Willis held itself out as having specialized expertise in obtaining and advising on such workers’ compensation coverage to insureds like Warwick. Warwick relied upon Willis’s expertise by contracting with Willis to procure workers’ compensation for Warwick’s business, and more specifically, in obtaining coverage for Warwick with the Berkshire Program, and in consulting with Willis for its professional advice regarding the Berkshire Program. 74 Willis breached its professional duties to Warwick in recommending the Berkshire Program to Warwick even though Willis knew or should have known that the Berkshire Defendants’ workers’ compensation policies and the Berkshire Program were, or were likely to be unfair, non-mutual, unconscionable, and unreasonable, in bad faith and/or fraudulent. Additionally, Willis advised Warwick that under the Berkshire Program its workers’ compensation premiums would be within a specified range. Willis was unable and/or refused to provide Warwick with answers when Warwick incurred increasingly higher premiums, and additional charges and requested explanations for the increase of premiums and other charges. 75. Willis’s negligent procurement of insurance and its negligent professional advice has damaged Warwick based upon the excessive and unlawful premiums the Berkshire Defendants forced upon Warwick, the non-renewal penalties and other fees the Berkshire Defendants charged Warwick, requiring that Warwick bring this action and incur substantial expense to obtain an adjudication of the correct amount, if any, that Warwick may owe the Berkshire Defendants. Thus, to the extent that Warwick incurs defense and indemnity costs, Warwick alleges that Willis is responsible for such costs. SIXTH CAUSE OF ACTION (Rescission - Against the Berkshire Defendants, and Does 1 through 50, inclusive) 76. Plaintiffs incorporate by reference herein and reallege each and every allegation contained in Paragraphs 1 through75 of this Complaint, as though fully set forth herein. 77. By offering the RPA and the Berkshire Program to Warwick, the Berkshire 18 FIRST AMENDED COMPLAINTDefendants represented to Warwick that the RPA and the Berkshire Program complied with California law, including the relevant applicable statutes and regulations. Additionally, the Berkshire Defendants misrepresented the nature of the RPA and Berkshire Program as a profit- sharing plan. The Berkshire Defendants also represented that Warwick’s premiums would fall within a certain range and be calculated in a certain way. 78. Warwick, at the time the representations were made, believed them to be to true, and upon such reliance, was induced to, and entered into the Berkshire Program. Had Warwick known the full and complete facts, it would not have entered into the Berkshire Program. 79. These representations by the Berkshire Defendants were false. At the time of making them, the Berkshire Defendants knew or should have known they were false. The true facts were as follows: (a) the Berkshire Program was not, nor was it ever intended to be a “profit- sharing” plan; (b) the premiums the Berkshire Defendants charged Warwick were constantly increasing, aud the Berkshire Defendants knew or should have known that the premiums were, in fact, higher than the premiums the Berkshire Defendants represented as the applicable range of premiums before the inception of the policy; (c) the premiums and other charges under the program would be and were calculated using formulas that were not disclosed to Warwick; (d) the RPA and the Berkshire Program contained unfiled rate plans and illegal side agreements which violated California law; (e) the RPA and the Berkshire Program had unforgiving and usurious penalty provisions for cancellation and/or non-renewal; and (f) the RPA, the Berkshire Program, and the Berkshire Defendants’ workers’ compensation policies were unfair, non- mutual, and inequitable and imposed excessive premiums and penalties on insured. 80. At the time the Berkshire Defendants made these misrepresentations and omissions, the Berkshire Defendants intended to induce Warwick to act in reliance on the misrepresentations and omissions by entering into the RPA and the Berkshire Program. Warwick reasonably relied upon these misrepresentations by entering into the RPA and the Berkshire Program. 81. Warwick will suffer substantial harm and injury under the Berkshire Program if the RPA and the other agreements which compromise the program are not rescinded as 19 FIRST AMENDED COMPLAINTCom YN A uw Warwickwould be deprived of the benefit of the bargain and would be forced to remain in an unfair, unconscionable and non-mutual Berkshire Program and agreements that solely benefit the Berkshire Defendants at the expense of Warwick. 82. | Warwick intends for the service of the summons and complaint in this action to serve as notice of rescission of the Berkshire Program, the RPA, and any other applicable agreements under the Berkshire Program. Warwick hereby offers to return all consideration furnished by the Berkshire Defendants to Warwick under those agreements on the condition that the Berkshire Defendants restore Warwickthe consideration that it provided the Berkshire Defendants under the agreements. SEVENTH CAUSE OF ACTION (Conversion - Against the Berkshire Defendants, and Does 1 through 50, inclusive) 83. Plaintiffs incorporate by reference herein and reallege each and every allegation contained in Paragraphs | through 82 of this Complaint, as though fully set forth herein. 84. The Berkshire Defendants have wrongfully misappropriated and converted monies paid by Warwick, which was billed excessive and miscalculated premiums and pay-in amounts. 85. As a result of the above, Warwick has been substantially damaged. 86. Plaintiffs allege that the Berkshire Defendants’ conduct, as alleged herein, was undertaken in bad faith, was malicious, fraudulent, oppressive, and evidences a complete disregard for Plaintiffs’ interests, and was intended to harass, injure, vex, and annoy Plaintiffs. Thus, the Berkshire Defendants’ conduct was “despicable conduct”, as that term is defined in Civil Code section 3294 and under established common law, thereby entitling Plaintiffs to recover punitive damages in an amount appropriate to punish, or to set an example of the Berkshire Defendants. Plaintiffs are informed and believe, and based on such information and belief, allege, that at all relevant times: (a) the Berkshire Defendants acted through their officers, directors and employees; (b) the Berkshire Defendants’ officers, directors, and employees had advanced knowledge of the damage that would be caused to Plaintiffs by their actions; and (c) the Berkshire Defendants approved, ordered, instructed, supervised, and controlled the conduct 20 FIRST AMENDED COMPLAINTof their officers, directors, and employees in such a way as to constitute a ratification of their conduct. Thus, under the doctrine of respondeat superior, the Berkshire Defendants are liable for punitive damages, as prayed herein. 87. The amount of damages that Plaintiffs have suffered due to the Berkshire Defendants’ intentional misconduct is in excess of the jurisdictional minimum requirements of this Court and will be established at trial. EIGHTH CAUSE OF ACTION (Unfair Business Practices - Against the Berkshire Defendants, and Does 1 through 50, inclusive) 88. Plaintiffs incorporate by reference herein and reallege each and every allegation contained in Paragraphs 1 through 87 of this Complaint, as though fully set forth herein. 89. The conduct alleged above is an unfair, unlawful, fraudulent, or deceptive business practice. California Business & Professions Code section 17200 et seq. prohibits acts of unfair competition, which includes any unlawful, unfair or fraudulent business practice. 90. The Berkshire Defendants’ conduct, as alleged above and herein, has denied Plaintiffs the benefits of the workers’ compensation policies. Further the Berkshire Defendants conduct by: (a) offering, presenting and executing illegal side agreements with Plaintiffs; (b) refusing to provide Plaintiffs notice or information concerning how premiums would be calculated; (c) misrepresenting the RPA and the Berkshire Program as a profit-sharing plan; (d) charging an illegal non-renewal and/or cancellation fee; (e) refusing to comply with California laws and regulations governing the filing of rate plans; (f) misrepresenting to Plaintiffs the anticipated cost of the Berkshire Program; and (g) setting Plaintiffs’ premium rates unfairly and without taking into consideration actual reserved and paid losses, as well as their own adjusters and/or workers’ compensation defense attorneys’ negligence, constitutes unfair, unlawful, fraudulent, or deceptive business practices. Thus, the Berkshire Defendants’ conduct as alleged above const