Clausen Miller Partners Jacob Zissu and Serena Skala Obtain S.D.N.Y. Trial Decision in Favor of Underwriter, Dismissing Multi-Million Dollar Breach of Contract Action

In one of the first few trials to proceed remotely in the Southern District of New York during the COVID-19 pandemic, Clausen Miller partners Jacob Zissu and Serena Skala recently obtained a trial decision in favor of an underwriting managing general agent, dismissing a breach of contract action stemming from an alleged $47 million underwriting loss.

Plaintiffs were insurers who had engaged the services of our client to underwrite a program of taxi and limousine risks for a period of years. At the conclusion of the program, the aggregate amounts incurred for individual accident claims and allocated loss adjustment expenses greatly exceeded the premiums collected. Using post hoc ergo propter hoc logic, Plaintiffs concluded that fault must lie with their managing general agent underwriter, ignoring fortuity and a general downturn in commercial auto insurance profitability across the industry during the years at issue.

Without a true understanding of the cause of their unprofitability, Plaintiffs made various unsupported allegations against our client, including improper selection of risks, failures of due diligence, and intentional manipulation of loss histories, across approximately 1,500 taxi and limousine accounts and 2,400 policies in the program. Through years of discovery (including the exchange of over 1 million pages of documents), as well as the filing of partial summary judgment motions, the multitude of Plaintiffs’ malfeasance claims were eventually whittled away, leaving three discrete allegations affecting only 15 large taxi accounts.

In the end, Plaintiffs were left to claim at trial that the true source of their unprofitability was an algorithm error contained in their own internal system – but that our client had somehow failed to alert Plaintiffs to their own error. The effect of this algorithm error, as well as the correction of the error through manual overrides, was alleged to have underpriced policy premiums by approximately $30-40 million in the aggregate. Additional underpricing was also alleged to have occurred as a result of our client’s application of ISO Rules in regard to allocated loss adjustment expenses and loss histories for accounts with deductibles.

Several fact and expert witnesses testified in support of the parties’ respective claims and defenses, including actuarial and underwriting experts who assisted the Court in understanding the application of ISO Rules and state filings by insurers.  Having found that our client’s lead underwriter was credible, and that the testimony and written communications of two program managers formerly employed by Plaintiffs supported our client’s defenses, the Court held that our client had not breached its contract with Plaintiffs.

Partners Tyler Jay Lory, John DeFilippis, Don Sampen, and Joe Ferrini assisted in leading and coordinating a firm-wide team of attorneys to handle the volume and complexity of the allegations and discovery over the years. Clausen Miller support staff, including the firm’s IT department, were also integrally involved in remotely preparing the case for electronic trial, a testament to the firm’s ability to improvise, adapt and overcome the challenges presented by the coronavirus pandemic.