AmTrust Financial is suing former policyholder Unified Grocers over its decision to reject the beleaguered insurer's proposal for workers’ compensation and general liability coverage and use an alternative provider instead.
AmTrust alleges Unified Grocers, also known as Supervalu, breached a master services agreement (MSA) struck in 2015 as part of an acquisition of the wholesaler’s insurance subsidiaries, Springfield Insurance Company and Unified Grocers Insurance Services.
The contract gave AmTrust an exclusive right to provide coverage to the grocery wholesaler and its affiliates for three years, and the right to provide coverage “substantially similar” to competing bids for two additional years, according to a complaint filed Thursday in Manhattan state court.
Unified Grocers notified AmTrust on 21 November of a proposal from Old Republic Risk Management, and opted to obtain coverage from that insurer even though AmTrust countered with a proposal that was “substantially similar, if not nearly identical”, according to the complaint.
“Unified then breached the MSA by rejecting AmTrust’s substantially similar proposal in bad-faith and for spurious reasons and, instead, accepted Old Republic’s proposal, thus denying AmTrust its rightful commissions and profits,” AmTrust said in the filing.
As described in the lawsuit, both insurers offered statutory workers comp limits and employer liability limits of $1mn in excess of a $1mn deductible. The estimated premium for Old Republic was $529,479, with a policy surcharge of $84,987. AmTrust’s estimated premium was $525,756, with a policy surcharge that was yet to be determined.
AmTrust is seeking $700,000 in damages for breach of contract and a ruling requiring Unified Grocers “to accept insurance coverage with AmTrust as outlined in the AmTrust proposal".
AmTrust has faced significant financial challenges in recent years, including multiple accounting controversies, leading to an admission of material weakness in financial controls and a restatement of prior financial statements. The insurer has also recognised hundreds of millions of dollars of adverse reserve development.
The challenges led to a go-private transaction, with investment fund Stone Point Capital and the controlling Karfunkel-Zyskind family buying out the 45 percent shares controlled by minority investors.
Representatives for Unified Grocers did not respond to a request for comment. A representative for AmTrust did not provide an immediate comment.