Party Statement: WARWICK AMUSEMENTS CORPORATION, ET AL VS. APPLIED UNDERWRITERS, INC., A NEBRASKA CORPORATION ET AL

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                                Larry J. Lichtenegger, Esq. [CSB #048206]
The Lichtenegger Law Office

3850 Rio Road, #58

Carmel, CA 93923

Telephone: (831) 626-2801

Facsimile: (831) 886-1639
lawyer@mbay.net

Attorneys for Plaintiffs

ELECTRONICALLY

FILED

Superior Court of California,
County of San Francisco

08/07/2018
Clerk of the Court
BY: VANESSA WU
Deputy Clerk

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA

IN AND FOR THE COUNTY OF SAN FRANCISCO

WARWICK CALIFORNIA
CORPORATION, a California corporation,
WSF BEVERAGE CORPORATION, a
California corporation,

Plaintiffs,
v.

APPLIED UNDERWRITERS, INC., a
Nebraska corporation, APPLIED
UNDERWRITERS CAPTIVE

RISK ASSURANCE COMPANY, INC.,
an lowa corporation, CALIFORNIA
INSURANCE COMPANY, a California
corporation, CONTINENTAL
INDEMINTY COMPANY, an Iowa
Corporation; APPLIED RISK SERVICES,
INC., a New York corporation and DOES I
through 50, inclusive,

Defendants.

APPLIED UNDERWRITERS, INC., et. al.

Cross-Complainants,
v.

WARWICK CALIFORNIA
CORPORATION, a California corporation,
WSF BEVERAGE CORPORATION, a
California corporation,

Cross-Defendants.

Hf

Case No. GCG-16-551614

PLAINTIFFS’ OBJECTION TO PROPOSED
STATEMENT OF DECISION

Date: August 17, 2018
Time: 2:30 p.m.
Dept: Dept. 306INTRODUCTION

First, Plaintiffs do object to the Proposed Statement of Decision declaring that Warwick
California Corporation and WSF Beverage Corporation have not proven any damages. As this is
the only chance these Plaintiffs will be in court on this issue, this ruling leaves Plaintiffs without a)
remedy as they only have one chance to prove their damages - and this was it. In further
litigation, Defendants will raise this decision as a res judicata ruling on the merits to foreclose the
California entities from recovering anything in future litigation.

However, the Applied Defendants have filed Objections with this Court requesting the
Court set aside its Proposed Statement of Decision and try its “national” case on the merits, and
we wish to address that issue. The Court is correct in its Statement of Decision that the Applied
Defendants have not proven up its claims against all the Warwick hotels, principally because the
non-California Warwick hotels were not entitled to put on evidence of their claims and defenses
against Applied’s claims in its Cross-Complaint.

If the Warwick entities were able to present their evidence and theories of the case, the
national Warwick entities would not be pursuing a breach of contract case but defend Applied’s
claim based on the illegality of the RPA. Warwick would pursue restitution remedies for breach
of the Covenant of Good Faith and Fair Dealing for the Applied Defendants’ mis-handling of its
employee claims, as well as restitution based on the illegality of the RPA as it was not filed for
approval in any of the states where the insured entities were located.

The restitution approach would apply for each of the national Warwick entities just on the
illegality issue. In each effected state, the failure to file a policy of insurance, or an endorsement
or collateral agreement that modifies the terms of a filed policy, here the RPA, is subject to
rescission solely because of its non-filing, and while California’s Ins. Code 11658 and Reg. 2268
are specific statutory violations which in combination of Civil Code §1598 and Civil Code
§1689(b)(5) make the illegal RPA unenforceable, each of the other states involved reach similar
results based on their own, but different statutes. In Texas, unfiled insurance documents are
specifically void by statute [Texas Ins. Code Sec. 2052.003] while in New York and Colorado the

unenforceability of the unfiled agreements are subject to those states’ Unfair Business Practices
-2-Acts” [NY GBL Sec. 349 & the Colorado Consumer Protection Act, 6-1-101 et. seq.] similar to
Cal. Bus. & Prof. Code 17200 which allows for rescission for violation of statutes which are in
place to protect California’s public policies.

Warwick would request this court to impose a restitution remedy for this violation. As this
court read in the Shasta Linen’s Decision by the California Insurance Commissioner [Exhibit P2],
one restitution remedy as a consequence of the sale of the illegal RPA would be for the insured to
pay for the insurance it actually received by paying the premiums under the filed and approved
guaranteed cost policies. If the insured has overpaid the premiums under the guaranteed cost
policies, it gets a refund of that overpayment. If Warwick were to defend the “national” case, it
would take this approach and seek a resolution of its obligations to the Applied entities by paying
only for the costs of the guaranteed cost policies and obtain a refund of the excess.

THE SOLUTION THE WARWICK ENTITIES
WERE NOT ALLOWED TO LITIGATE

Here, the Applied Defendants cross-complained against Plaintiffs, and although not
alleged in the cross-complaint, they sought a ruling that Plaintiffs were responsible to the Applied
entities under either of two Causes of Action: the First Cause of Action for enforcement of their
claims under the illegal RPA, and the Second Cause of Action, alternatively seeking if the RPA is
declared illegal and unenforceable (which it is), the amounts due under the guaranteed cost
policies. Because the RPA is illegal and unenforceable in all the effected states, the Applied
entities only possible remedy would be under this Second Cause of Action.

In support of that Cause of Action, the Applied entities proffered Exhibits 142 through
147, summarized in Exhibit 151, to document their claims for the amounts due under these
policies. They reveal total premiums of $3,312,121.45, an amount which the Applied entities
claim would satisfy the obligations of the “national” hotels under the guaranteed cost policies.
While Plaintiffs do have a slight disagreement with this calculation,' for the purposes of this

briefing, no objection is made to that calculation. But that calculation also assumes that the policy

Plaintiffs calculated the amounts due under the policies, using the changing rates for the three
years at $3,311,424.32, but the evidence is neither before this court nor is the difference of
$697.13 worth arguing about.

-3-insurers were entitled to alter those rates over the three years at their whim, which Plaintiffs
contend they were not (see below). Using only this calculation, since Warwick paid a total of
$3,292,761 to the Applied entities [Exhibit 149; Billing Register], that calculation would require
Warwick to pay an additional $19,360.73 to the guaranteed policy insurers to cover the national
policy premiums.

However, that assumption, that the guaranteed cost insurers would be entitled to change
the rates and modifiers without Warwick’s approval, runs contrary to legal standards relating to
contract formation and mutuality of obligations (to be briefed if necessary). But that mutuality
does not factually exist, for as the evidence showed, Warwick never agreed to the changing of the
rates and modifiers and therefore the rates and modifiers used in the second and third policy years
lack that mutuality, an essential element of contract formation. [See, Sheh Testimony, May 24,
2018 Tx, p. 38:9-50:22]. In that testimony, Mr. Sheh testified that Warwick never had an
opportunity to see, review, negotiate or approve any of the rates or modifiers in those policies. As
well, the changing of the rates and modifiers run directly contrary to Applied’s promise in the
Scenarios [Exhibit 134, page 3, bullet point 5] that “rates and terms are fixed for three years”.
Applied’s unilateral changing of the rates was without the required mutuality but also was a
breach of its solicitation representations.

Ignoring the increased rates and modifiers, using simple math and drawing from the trial
exhibits (so that new evidence is not necessary to prove the point), the correct calculation reveals
that if the rates and modifiers were to remain the same for the entire three years, the premiums
due under the guaranteed cost policies would only have been $2,511,923.32. Since the evidence
showed that the second and third year policies were different than the first year, and Warwick
never approved those increased rates and modifiers, Warwick’s payments totaling $3,292,761
would have overpaid the guaranteed cost policies by $780,837.40. On this basis, had Warwick
been entitled to present the national entities case, Warwick would be entitled to a return in that
amount.

Hl

i
-4.CONCLUSION

Warwick wants to put Cross-Defendants on notice of how this case will be tried if done on
a “national” basis. While Warwick certainly wants an end to this litigation, and while further
lawsuits are on the horizon if this case is not resolved here, this Court needs to be aware of these
facts so that it does not fall into Applied’s trap it is laying in its objection to the Proposed
Statement of Decision. The Applied entities are seeking a recovery not supported by the evidence,
nor should that be held against Plaintiffs as they were not entitled to enter their evidence because
of Applied original Motion to Stay the Action involving the non-California entities.

However, the California entities really do not want to go to another state and spend.
another seven days in trial over the same factual issues. This court already has that evidence, but
because of prior court rulings has been unable to decide the national case. Warwick will agree,
subject to this court’s and Applied’s consent, to litigate the national issues in this court. No
additional evidence would be necessary, just a re-briefing of the issues the court would have to
decide.

We await the hearing of these matters on August 19, 2018.

Dated: August 7, 2018

Larry J. Lichtenegger

Attorney for Plaintiffs/Cross-DefendantsPROOF OF SERVICE

STATE OF CALIFORNIA )

1 ss

COUNTY OF MONTEREY )

I, the undersigned, declare that I am employed in the County of Monterey, State of|

California; I am over the age of 18 years and not a party to the within action; my business address!
is 3850 Rio Road, #58, Carmel, California 93923.

On August 7, 2018, I served PLAINTIFFS’ OBJECTION TO PROPOSED
STATEMENT OF DECISION on the parties in this action by:

personal service on the below-named party(ies) at the address(es) given.

x E-Mail by agreement. The e-mail address I used is indicated below the name of the
person served.

placing a true copy thereof enclosed in a postage prepaid and sealed envelope for|
deposit, collection and mailing on the date and at the place shown above following
this firm’s ordinary business practices. I am readily familiar with this firm’s|
business practice for collecting and processing correspondence for mailing. On
the same day that the correspondence is placed for collection and mailing, it is
deposited in the ordinary course of business with the United States Postal Service
at Monterey, California, and it was addressed as follows:

SPENCER Y. KOOK (SBN 205304) TRAVIS WALL (SBN 191662)
skook@hinshawlaw.com twall@hinshawlaw.com

HINSHAW & CULBERTSON LLP HINSHAW & CULBERTSON LLP

633 West Sth Street, 47th Floor One California Street, 18th Floor San Francisco,
Los Angeles, CA 90071-2043 CA 94111

Telephone: 213-680-2800 Telephone: 415-362-6000

Facsimile: 213-614-7399 Facsimile: 415-834-9070

I declare under penalty of perjury that the foregoing is true and correct and that this}
declaration was executed in Carmel, California, on the date written above.

gle” Rai
AG laid fe

Larry J. Lichtenegger