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WALTON RISK SERVICES, INC. v. CLARENDON AMERICA INS. CO.

January 11, 2005.

WALTON RISK SERVICES, INC., an Illinois corporation, Plaintiff,
v.
CLARENDON AMERICA INSURANCE COMPANY, a New Jersey corporation, Defendant. CLARENDON AMERICA INSURANCE COMPANY, Counter-Plaintiff, v. WALTON RISK SERVICES, INC., an Illinois corporation, ROGER A. MITCHELL, LAURENCE L. LACAILLADE, MILLER, HERBERS, LEHMAN & ASSOCIATES, JOSEPH A. HERBERS, and ROBERT WALLING, Counter-Defendants.



The opinion of the court was delivered by: MARTIN ASHMAN, Magistrate Judge

MEMORANDUM OPINION AND ORDER

Counter-Plaintiff Clarendon America Insurance Company's ("Clarendon") Fourth Amended Counterclaim contains a Count IV and a Count V that allege professional negligence and negligent misrepresentation, respectively, against Counter-Defendants Miller, Herbers, Lehman & Associates, Joseph A. Herbers and Robert Walling (collectively, "MHL"). MHL argues that, to the extent they purport to state claims for services rendered by MHL prior to 1999, Clarendon's Count IV and Count V claims are barred by the statute of limitations. MHL now moves this Court, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss Clarendon's Count IV and Count V to the extent they purport to state claims for services rendered by MHL prior to 1999. The parties have consented to have this Court conduct any and all proceedings in this case, including the entry of final judgment. See 28 U.S.C. § 636(c); Local R. 73.1(a). For the reasons that follow, MHL's motion to dismiss is denied.

  I. Background*fn1

  A. Clarendon

  Clarendon is a New Jersey insurance corporation with its principal place of business in New Jersey. (Clarendon's Countercl. ¶ 1.) On or about April 1, 1997, Clarendon entered into a Multiple Line Property and Casualty Quota Share Reinsurance Agreement with Agora Syndicate, Inc., an Illinois insurance corporation. (Id. ¶ 11.) Under this agreement, Clarendon purchased reinsurance from Agora, thereby transferring the insurance risk from itself, the insurer, to Agora, the reinsurer. (Id.) In accordance with their agreement, and in order to secure Agora's obligations pursuant to the Reinsurance Agreement, as of May 20, 1997, Clarendon and Agora entered into a Trust Agreement, pursuant to which a trust account was established. (Id. ¶ 12.) The Trust Agreement required Agora to maintain a balance in the Trust Account equal to at least 102% of Agora's obligations to Clarendon under the Reinsurance Agreement. (Id. ¶ 13.) According to Clarendon, in the event that Agora's held reserves were too low and Agora had not made a reasonable provision for all unpaid loss and loss adjustment expense obligations, Clarendon would be obligated to cover any shortfall if Agora were unable to do so. (Id. ¶ 56.)

  On or about April 1, 1997, Clarendon and Walton Risk Services, Inc. ("Walton"), an affiliate of Agora, entered into a General Agency Agreement pursuant to which Clarendon granted Walton authority to produce and administer insurance polices and renewals thereof for certain coverages in certain states, as specified in the Agency Agreement. (Id. ¶ 14.)

  During the Fall of 1999, a dispute arose between Clarendon and Agora regarding a shortfall in the funding of the Trust Account. (Id. ¶ 15.) Clarendon and Agora negotiated a resolution whereby Agora executed a Promissory Note in favor of Clarendon to secure Agora's obligations to Clarendon to fund the Trust Account. (Id. ¶ 16.) Under the terms of the Promissory Note, Agora was required to pay Clarendon $1.8 million plus accrued interest on the unpaid principal balance at the rate of five percent per annum on or before April 18, 2000. (Id.) The Promissory Note and a Guaranty executed on February 1, 2000, also stated that Walton would guarantee Agora's obligations by turning over all commissions due Walton under its General Agency Agreement with Clarendon for business written with an effective date on or after January 1, 2000. (Id. ¶ 16-18.) This obligation would end when Clarendon received its full $1.8 million with interest. (Id. ¶ 17.)

  On September 14, 2000, the Circuit Court of Cook Count, Chancery Division, entered an Order of Conservation, pursuant to which that court found Agora was insolvent. (Id. ¶ 20.) To date, Agora had made no payments under the Promissory Note. (Id. ¶ 19.) B. MHL

  MHL is an Illinois corporation with its principal place of business in Bloomington, Illinois. (Id. ¶ 53.) MHL is an actuarial firm and provided actuarial services to Agora since 1996. (Id. ¶ 54.) According to Clarendon, MHL periodically performed loss reserve analysis of Agora to review the reasonableness of held loss and loss adjustment expense reserves and to render a statement of actuarial opinion. (Id. ¶ 59.) Specifically, for the years 1996, 1997, 1998 and 1999, MHL prepared the Statements of Actuarial Opinion for Agora's Annual Report and Agora's Loss Reserve Reports and assisted in the preparation of Agora's Annual Statements. (Id. ¶ 64-75.) MHL's Statements of Actuarial Opinion for Agora's Annual Statements were filed with the Insurance Department of the State of Illinois. (Id. ¶ 57.) Clarendon alleges that MHL's statements from 1996 to 1999 stated that unpaid loss and loss adjustment expenses contained in the Annual Statements reconciled. (Id.)

  C. Grievance Between Clarendon and MHL

  In early 2000, the Illinois Director of Insurance, retained the accounting firm KPMG to audit Agora's financial condition. (Id. ¶ 85.) KPMG reviewed Agora's loss and loss adjustment expense reserves as of June 30, 2000, and issued an actuarial report. (Id.) The report concluded that Agora's held reserves were deficient by at least $15,392,040. (Id.)

  Clarendon claims that it maintained its relationship with Agora for as long as it did because of MHL's failure to disclose Agora's financial problems. (Id. ¶ 87.) According to Clarendon, the Loss Reserve Reports produced by MHL were important for evaluating whether Agora's held reserves made a reasonable provision for all unpaid loss and loss adjustment expense obligations. (Id. ¶ 86.) Clarendon alleges that MHL's Statement of Actuarial Opinion for Agora's Annual Statement signaled to those reviewing the Loss Reserve Reports that Agora was complying with relevant standards and Illinois law in preparing its Annual Statements for the Illinois Insurance Department and that Agora was statutorily solvent. (Id.) Clarendon claims that it relied on the Loss Reserve Reports when it: (1) gauged Agora's financial wherewithal to meet its reinsurance obligations, (2) determined that Agora had placed sufficient funds in the Trust Account (a balance equal to at least 102% of Agora's obligations to Clarendon), and (3) generally determined Agora's status. (Id. ¶ 87-88.)

  According to Clarendon, the Annual Statements for 1996, 1997, 1998 and 1999 contained errors and improprieties that MHL should have identified and reported. (Id. ¶ 76.) Clarendon alleges that the unpaid losses and loss adjustments did not reconcile and that Agora should have been required to book significant additional liabilities. (Id. ¶ 58.) Clarendon accuses MHL of relying on unreasonable assumptions with regard to Agora's finances and never taking appropriate and available steps to verify the accuracy of those assumptions. (Id. ¶ 79-82.) Clarendon also accuses MHL of making false statements of fact in the various reports, thereby giving the false impression that Agora was statutorily solvent and had adequate reserves. (Id. ¶ 92-93, 95.) Clarendon concludes that MHL failed to act with reasonable care and competence required of an actuary. (Id. ¶ 86.)

  Clarendon further alleges that MHL understood the relationship between Clarendon, Agora and Walton, and that MHL therefore owed Clarendon a duty of reasonable care and competence required of an actuary. (Id. ¶ 81-82, 86, 91.) Clarendon alleges that MHL has always known that Walton was an affiliate of Agora and that, pursuant to the Agency Agreement, Walton produced and administered insurance policies as an agent of Clarendon, and that Agora in turn reinsured these policies pursuant to the Reinsurance Agreement. (Id. ¶ 56.) Clarendon alleges that MHL knew that if Agora could not ...


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