United States District Court, D. South Carolina, Columbia Division
OPINION AND ORDER ON ACTUARIAL REPORT
CAMERON MCGOWAN CURRIE SENIOR UNITED STATES DISTRICT JUDGE.
matter is before the court for review of the actuarial report
of Matthew P. Merlino, F.C.A.S., M.A.A.A.
(“Merlino”). This report (“Merlino
Report”) addresses the amount of collateral needed to
be maintained, as of April 30, 2017, to cover potential
below-deductible liabilities that may arise on policies
issued to AMS Staff Leasing, Inc., Breckenridge Enterprises,
Inc., and/or AMS Staff Leasing II, Inc., pursuant to the 2006
Coverage Agreement (the “AMS Policies”). For
reasons explained below, the court adopts the Merlino Report
in full and finds the Total Reserves needed for AMS Policies
subject to a $1, 000, 000 deductible limit was $9, 519, 603
as of April 30, 2017.
figure shall be used in conjunction with the report of the
court-appointed accounting expert, Stephen Wolf, C.P.A.
(“Wolf”), to determine whether the collateral
account required under the agreement between the parties is
underfunded or overfunded. Pursuant to the parties' prior
agreement as adopted and ordered by the court, additional
funds shall be added or excess funds shall be refunded based
on the result of the combined reports. The adequacy of the
account shall continue to be reviewed on a quarterly basis
and similar adjustments shall be made based on the result of
the quarterly reports.
court has described the factual context of this case in
several prior orders. See, e.g., ECF No.
258 (summary judgment order); ECF No. 414 (order on non-jury
issues). In summary, Companion Property and Casualty
Insurance Company (“Companion”) and AMS Staff
Leasing, Breckenridge Enterprises, and AMS Staff Leasing II
(collectively “AMS”), as well as other entities,
are parties to the 2006 Coverage Agreement. That agreement
established a relationship through which Companion provided
certain forms of insurance to AMS, including workers'
compensation insurance for AMS employees. The insurance
provided is governed by separate policies.
the nature of the relationship (described by the parties as a
“fronting” arrangement), the 2006 Coverage
Agreement and other related agreements provided Companion a
variety of protections against risk of loss. One of those
protections is described in the following paragraph of the
2006 Coverage Agreement:
13. Claims Collateral. During the Coverage
Term of the Master Policies, CPCIC [i.e., Companion]
shall establish and maintain in its name with the Bank of
America an account to serve as a claims reserve fund (the
“Claims Reserve Fund”). At the commencement of
the Coverage Term the AMS Entities shall make an initial
deposit of $1, 000, 000 into the Claims Reserve Fund as the
initial “Required Reserve”. Thereafter, on a
quarterly basis, the Milliman consulting firm
(“Milliman”) shall audit the claims experience in
connection with the Policies and determine the appropriate
amount of the Required Reserve for the next quarter in
accordance with a methodology acceptable to CPCIC in its sole
discretion. As actual claims are incurred the AMS Entities
shall deposit into the Claims Reserve Fund the amount of such
claims on a monthly basis by the 10th day of the calendar
month so that the Required Reserve is maintained in the
Claims Reserve Fund at all times. CPCIC shall have the right
at any time during normal business hours to audit the records
of any AMS Entity with respect to claims and the Claims
Reserve Fund. All earnings on the Claims Reserve Fund shall
belong to CPCIC and no AMS Entity shall have any interests
therein. DN [i.e., Dallas National] will be
responsible for scheduling and paying for the Milliman audits
on a quarterly basis and providing CPCIC copies of these
reserve reports within 45 days of the close of the quarter.
All earnings on funds held within the Claims Reserve Fund
will inure to the benefit of CPCIC.
2006 Coverage Agreement ¶ 13 (Dkt. No. 340-1).
disputed issue in this litigation is whether the collateral
in the account addressed in paragraph 13 of the 2006 Coverage
Agreement is properly funded. Several of Companion's
claims either directly or indirectly assert the account is
underfunded. See ECF No. 88 (Second Am. Compl.) at
First Cause of Action (“Declaratory
Relief-Collateral”), Third Cause of Action
(“Breach of Contract-Failure to Pay Deductible”),
Fourth Cause of Action (“Breach of Contract-Failure to
Comply with Audit”). Defendants in contrast, assert
several counterclaims directly or indirectly alleging the
account is overfunded. See ECF No. 90 (First Am.
Ans. & Countercls.) at First Counterclaim (“Breach
of Contract-Collateral”), Second Counterclaim
(“Breach of Special Relationship”), Third
prior to the scheduled jury trial, the parties entered a
Joint Stipulation delineating four categories of issue: (1)
issues requiring pre-trial resolution (including motions in
limine); (2) issues for trial by jury; (3) issues for
non-jury resolution to be resolved after the jury trial with
issuance of “declaratory judgments as needed”;
and (4) “Issues for Independent Accountant/Actuarial
Review.” ECF No. 409-1. The Joint Stipulation
provided as follows regarding the actuarial review:
A. An independent actuarial firm agreed to by the parties
shall prepare an updated actuarial report as of April 30,
2017, using an actuarial methodology approved by the Court
and the independent actuarial firm. [footnote quoted below]
Companion shall furnish audited data to the independent
actuarial firm, whenever available, including for any prior
years, but shall not be required to audit any data other than
in the normal course of its business. All data provided to
the independent actuarial firm shall be simultaneously
provided to Defendants. The report shall state the Required
Reserve for below deductible liabilities under the AMS
Policies. Thereafter, the same agreed-upon actuarial firm
shall prepare quarterly actuarial audit reports using the
same methodology and advise the parties and Court of the
results of same, including updated Required Reserve. The
parties will abide by the Required Reserve determinations
made by the independent actuarial firm.
409-1 at 6. The footnote to this paragraph read as follows:
Prior to the preparation of the updated actuarial report, the
parties shall have an opportunity to comment on the potential
actuarial methodology or methodologies that may be utilized
by the independent actuarial firm and notify the Court of any
concerns regarding such methodology or methodologies.
Companion notes that it does not expressly or impliedly ...