Free Pretrial Order - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-CV-2018-RPM-MJW APARTMENT INVESTMENT AND MANAGEMENT COMPANY, a Maryland corporation, Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., a Pennsylvania corporation, SECURITY INSURANCE COMPANY OF HARTFORD, a Connecticut corporation, FIRST CAPITAL AGENCY, INC., d/b/a FIRST CAPITAL GROUP, a New York corporation, NATIONAL PROGRAM SERVICES, INC., a New Jersey corporation, VITO B. GRUPPUSO, a New Jersey resident, and ROGER METZGER ASSOCIATES, a New York corporation. Defendants, and RAY BALDWIN, a Texas resident; SWAIN & BALDWIN INSURANCE, INC., a Texas corporation; LOCKTON COMPANIES, INC., a Missouri corporation; and LOCKTON COMPANIES OF COLORADO, INC., a Colorado corporation, Additional Parties. ______________________________________________________________________________ FINAL PRETRIAL ORDER ______________________________________________________________________________

DATE AND APPEARANCES A pretrial conference was held on October 7, 2005. In preparation for the pretrial conference and to prepare this document, the parties have had extensive telephone conferences during which all parties, excluding counsel for Vito Gruppuso, participated. 1

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Because of the number of parties involved, the parties made great efforts to agree upon a proposed trial date acceptable to all. The proposed date is May 30, 2006. Counsel for the following parties appeared at the pretrial conference: For Plaintiff Apartment Investment and Management Company (" AIMCO" ): Jeffrey A. Hall Karma Giulianelli Thomas L. Roberts For Defendant and Third-Party Plaintiff National Union Fire Insurance Company of Pittsburgh, PA (National Union): John Martin Jeff Chase For Defendant and Third-Party Plaintiff Security Insurance Company of Hartford (" SOH" ): Charles Tuffley For Defendant and Third-Party Plaintiff First Capital Agency, Inc., d/b/a First Capital Group (" First Capital" ): John R. Trigg Julie Walker For Defendant and Third-Party Plaintiff Roger Metzger Associates (" RMA"or " Metzger" ): Paul Collins Robert Zavaglia For Defendant Vito B. Gruppuso: Jim Miletich John Wolak- can be reached by phone if required

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For Defendant National Program Services, Inc. (" NPS" ): No appearance. For Third-Party Defendant Ray Baldwin and Swain & Baldwin Insurance, Inc.: Joe Caldwell Nick Brady For Third-Party Defendants Lockton Companies, Inc. and Lockton Companies of Colorado, Inc.: Jed Reeg JURISDICTION This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332 because there is complete diversity of citizenship between Plaintiff and Defendants and the amount in controversy exceeds $75,000, exclusive of interest and costs. CLAIMS AND DEFENSES The following statements of claims and defenses were put together by each individual party. The fact that they each appear in this pre-trial order does not mean that the parties have agreed to one another' statements of claims and defenses. Further, the parties have made a s good faith effort to include their respective statements of claims and defenses. In light of the

extensive joint efforts that have gone into the preparation of this Order, the parties have agreed that, if done in good faith, they will not use the absence of a fact or theory from this Order as a basis for objection to any such argument being presented at trial.

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I.

AIMCO' AFFIRMATIVE CLAIMS AND DEFENSES TO COUNTERCLAIMS S A. Factual Background

This case arises out of a failed commercial property insurance program operated by defendants (" Program" Defendants SOH and National Union were Program insurers. the ). Defendants First Capital, RMA, and Gruppuso (and his brokerage, NPS) were insurance brokers who operated the Program. Plaintiff AIMCO was one of 50 or so insureds in the Program. Gruppuso, an insurance broker and owner of NPS, conceived the Program in 1999 to provide apartment ownership and management companies with $1 million primary property coverage for a three-year term under a single " master policy." Insureds would pre-pay the estimated full three-year premium. In the summer of 1999, Gruppuso recruited RMA, an entity with which Gruppuso had numerous, substantial dealings with for some 20 years, to market and administer the Program. RMA in turn recruited First Capital to work on the Program with RMA and Gruppuso. Gruppuso, RMA, and First Capital (collectively, " Broker Defendants" marketed the the ) Program to SOH. It became the Program insurer effective September 1999. At the outset, there were only a few Program insureds. AIMCO was not one of them. Yet SOH falsely identified AIMCO as a " named insured"effective September 1999. Under a series of agency agreements, the Broker Defendants operated the Program as agents of the insurer SOH. From the start, SOH had concerns about the Program and the Broker Defendants' operation of it and repeatedly questioned the identity and ownership of the insured entities. In response, RMA and First Capital repeatedly represented ­falsely ­that AIMCO was

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a Program insured and owned or was responsible for other insureds. As the Program grew, SOH expressed concerns about premium collections, the responsibility of the Broker Defendants. By March 2000, overdue premiums owed SOH exceeded $10 million. In early 2000, as Program problems were escalating, AIMCO was seeking property insurance coverage to replace its existing coverage due to expire on March 1, 2000. AIMCO, unaware of the Program problems, agreed to join the Program as an insured effective February 29, 2000. Ray Baldwin, an insurance agent and broker, acted as a risk manager consultant for AIMCO under a non-exclusive consulting agreement. Baldwin was also a consultant and broker for other clients, including many who became Program insureds. Unlike RMA and First Capital, Baldwin did not have a long history with Gruppuso. He first met Gruppuso in late 1998. In March 2000, AIMCO prepaid its entire three-year premium plus broker fees ($21 million) to SOH by delivery to SOH' agent, Gruppuso of NPS. As AIMCO joined the Program, s neither SOH nor any Broker Defendant advised AIMCO of the mounting Program problems. Within weeks after AIMCO joined the Program, the Broker Defendants marketed the Program to other insurers in an effort to replace SOH. Without AIMCO' knowledge or involvement, First Capital and RMA prepared a s submission reporting loss histories and property values of AIMCO and other insureds (" First the Capital/RMA submission" In mid-April 2000, First Capital provided this submission to ). National Union. Within days ­and without underwriting ­National Union agreed to replace

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SOH as the Program insurer. The Program had grown to involve some 50 insureds and more than $40 million in prepaid premiums. National Union is a wholly-owned subsidiary of the American International Group (" AIG" In 2000, AIG had an aggressive plan to generate premium revenues due to growing ). concerns about the adequacy of its reserves. Effective April 28, 2000, National Union succeeded as the Program insurer, and the Broker Defendants continued to operate the Program as before. AIMCO received no invoice from National Union and understood that the unearned portion of its March prepaid Program premium payment to Gruppuso, which was not returned to AIMCO, had been applied for its benefit. As AIMCO would learn some two years later, its prepaid premium payment was apparently not properly transferred from SOH to National Union. After Gruppuso received AIMCO' payment in March 2000 as SOH' agent, the documented money trail is unclear. s s From the outset of its involvement, National Union knew that the Broker Defendants, including Gruppuso, were involved and operating the Program. National Union' chief s underwriter, Jack Graham, also knew ­based on his own first-hand experience ­that Gruppuso was " very dishonest." Yet National Union accepted Gruppuso' participation, never told s AIMCO of Graham' experience with and view of Gruppuso, and continued the Program as it s had been operated under SOH. Soon into the policy term, National Union complained that AIMCO' losses were higher s than expected. In August and September 2000, National Union threatened AIMCO with a

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unilateral, 20-fold increase in its deductible (from $5,000 to $100,000). In October 2000, National Union charged AIMCO an additional premium of $10 million. Faced with the prospect of losing property insurance in a hardening market, AIMCO was forced to pay this additional premium. In exchange, National Union promised to provide a renewal quote under an agreed formula for the second year of coverage, April 2001-2002. In January 2001, National Union claimed it had " recently learned"that AIMCO' loss s history and property values in the First Capital/RMA submission were understated ­because they were lower than AIMCO loss history and property values in another submission that National Union' underwriters had had in their files since February 2000. National Union, had s this information in its own records before binding the risk. After this " discovery,"National Union charged another additional premium ($5.15 million) and threatened to cancel AIMCO' policy if it were not paid. Upon receipt of the s additional $5.15 million, National Union continued coverage and reiterated its promise to provide a second-year renewal quote. But National Union never offered a second-year renewal quote and cancelled AIMCO' s coverage at the end of the first year, April 28, 2001. National Union also refused to return any of AIMCO' unearned prepaid premiums, which National Union had commingled with the funds of s other insureds. A year later, in May 2002, Gruppuso ­the insurers'agent whom National Union knew to be " very dishonest"­was arrested and later admitted guilt to criminal charges of premium theft. AIMCO paid more than $31 million in premiums and commissions for three years of

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property insurance. After only 14 months, AIMCO' coverage was canceled, and defendants s refused to refund AIMCO' unearned premiums and commissions, which defendants had s commingled with the funds of other insureds. Throughout the Program' life, defendants failed to act with the prudence and care s required of licensed insurance professionals. In the pursuit of large premiums and broker fees, each defendant disregarded its duties to AIMCO and the repeated signs that the Program was doomed to failure. B. Legal Claims and Theories 1. First Claim: Breach of Contract and Fiduciary Duties ­SOH

As AIMCO' insurer, SOH owed AIMCO contractual and fiduciary duties, including the s duty to return to AIMCO all unearned premiums. AIMCO prepaid in full its premiums for the three-year Security of Hartford policy. SOH provided coverage for two months of the three-year term but failed to refund any of AIMCO' s unearned premiums. SOH claims that it never actually received any premium payment for AIMCO, but NPS had both actual and apparent authority to collect premiums on its behalf. The law provides that SOH received the premiums collected by NPS. AIMCO' premium payment s to NPS constituted payment to SOH. See, e.g., Northglenn v. Chevron U.S.A., Inc., 634 F. Supp. 217, 225-26 (D. Colo. 1986); Polar Int' Brokerage Corp. v. Investors Ins. Co., 967 F. Supp. l 135, 140-42 (D.N.J. 1977) (applying both New Jersey and New York law); Global Am. Ins. Managers v. Perera Co., 349 A.2d 108, 112-13 (N.J. Super. 1975), aff' 364 A.2d 546 (N.J. d, Super. 1976); Bohlinger v. Zanger, 306 N.Y. 228, 230-32, 117 N.E.2d 338 (N.Y. 1954);

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C.R.S. § 10-2-704(d)(4). 2. Second Claim: Negligence ­SOH

As AIMCO' insurer, SOH owed AIMCO duties of care. SOH breached its duties and s failed to meet standards of due care including: # SOH' knowing or reckless participation in the misappropriation of AIMCO' s s name by falsely identifying AIMCO as a " named insured"effective September 1999; SOH' participation, without contacting AIMCO, in creating and running a s Program designating " AIMCO"as the " Named Insured,"even in the face of numerous questions regarding AIMCO' relationship with the other insureds, s leading to problems with the coverage that AIMCO ultimately received from both SOH and National Union; SOH' commingling of premiums of unrelated insureds; s SOH' adding AIMCO as an insured, effective March 1, 2000, without advising s AIMCO of the numerous problems with the Program of which SOH was aware. Those known problems included delinquent premium payments, discrepancies between the issued and represented coverage, and inconsistent information regarding the various insureds and their interests. SOH' failure to oversee and control the conduct of the Broker Defendants, who s were SOH' appointed agents. s

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SOH' negligence resulted in the continued administration of a Program that caused s AIMCO foreseeable harm and damages. Had SOH contacted AIMCO about its concerns, or further investigated its various questions, the problems with the Program would have been uncovered well before AIMCO paid for coverage that it never received. 3. Third Claim: Breach of Contract and Fiduciary Duties ­National Union

National Union breached its contractual and fiduciary duties to AIMCO. National Union

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owed contractual and fiduciary obligations to return to AIMCO all unearned premiums. National Union failed to return to AIMCO its return prepaid premiums for the second and third years of coverage, even though National Union provided coverage for only one year. National Union breached its contractual obligation to give AIMCO a renewal quotation. AIMCO paid an additional premium of $10 million for that promise. National Union breached its promise and kept the $10 million, and has improperly treated this as " fully earned." National Union cannot justify its breach based on its claim of " misrepresentations"in underwriting information. First, AIMCO did not provide incorrect information to National Union. The submission that National Union complains about is the RMA/First Capital submission that Kelly and Reilly prepared. Second, to the extent that National Union claims that the information was understated, National Union had inquiry notice of that possibility on the face of the document. Third, National Union had in its possession the complete loss and value information. It just neglected to look at it until some eight months into the policy period. But as a matter of law, AIG' knowledge is imputed to National Union. Fourth, even after National s Union complained of the inaccuracies in the RMA/First Capital submission, it continued as the Program insurer. In early 2001, National Union charged and received an additional $5.15 million " consideration of changes in the Underwriting information." National Union in continued coverage, ratifying its contract with AIMCO. National Union cannot now claim to rescind. See, e.g., Alfred Brown Co. v. Johnson-Gibbons & Reed W. Paving-Kemper, 695 P.2d 746, 749 (Colo. Ct. App. 1984); Gladden v. Guyer, 426 P.2d 953, 956 (Colo. 1967).

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4.

Fourth Claim: Negligent Misrepresentation ­National Union and the Broker Defendants

National Union and the Broker Defendants falsely represented to AIMCO the scope, terms, and duration of the Program coverage. Contrary to their representations, AIMCO did not receive a three-year insurance policy. Nor did AIMCO receive the promised renewal quotation for the second year of coverage, as required by Endorsement 4. National Union and the Broker Defendants were negligent in making such representations of coverage, without adequate investigation into whether the coverage would be provided as promised. They provided the information regarding AIMCO' promised coverage s with the intent that AIMCO would reasonably rely on it when it paid millions of dollars in premiums. 5. Fifth Claim: Bad Faith Breach of Insurance Contract ­National Union

National Union acted unreasonably, knowingly or in reckless indifference to the unreasonableness of its conduct, breaching its policy' implied covenant of good faith and fair s dealing. National Union' bad faith conduct included: s # # # # Failing to underwrite AIMCO' promised coverage until after the coverage s began, and then seeking to change the agreed-upon terms; Employing unwarranted threats and accusations in an attempt to force AIMCO to pay additional premiums; Issuing improper endorsements for additional premiums, with knowledge that National Union was not entitled to any such amounts; Commingling AIMCO' insurance premiums, and refusing to properly account s for and return unearned premiums;

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Leading AIMCO to believe that National Union would issue the promised renewal quotation, with no intent of doing so.

National Union' bad faith conduct caused AIMCO harm and damages and provides the s basis for an award of punitive damages. See Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo. 1984); Travelers Ins. Co. v. Savio, 706 P.2d 1258, (Colo. 1985); Ballow v. PHICO Ins. Co., 875 P.2d 1354, (Colo. 1993); C.R.S. § 10-1-101 & 10-3-1104(1)(h). 6. Sixth Claim: Colorado Consumer Protection Act ­National Union and Broker Defendants

Over AIMCO' objections, the Court granted summary judgment for defendants with s respect to AIMCO' Sixth Claim for Relief under the Colorado Consumer Protection Act, and s AIMCO reserves its rights to seek relief from that order. 7. Seventh Claim: Negligence ­Broker Defendants

As compensated, licensed insurance professionals, Broker Defendants owed AIMCO duties of care, including duties to procure the promised coverage for AIMCO and to exercise due care in their provision of information to the insurance companies and in the creation and operation of the Program, and the handling of AIMCO' premiums. s Broker Defendants breached their duties of due care, including in the following ways: # # # # They failed to heed or to disclose Program problems and warning signs, including continued questions about AIMCO' role and the relationship, or lack thereof, s among insureds; They repeatedly misrepresented AIMCO' role in the Program; s They commingled AIMCO' funds and failed to account for and ensure the return s of AIMCO' unearned premiums; s First Capital and RMA failed to ensure that their sub-agent NPS properly accounted for AIMCO' prepaid premium; s 12

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They failed to advise AIMCO that (contrary to the coverage AIMCO actually requested) the coverage issued by SOH and, later National Union, combined AIMCO' coverage limits with those of unrelated insureds; s They provided incomplete loss information to National Union, even though they had complete, accurate loss information in their possession or available to them; and They failed to advise AIMCO of Program discrepancies and problems, including the non-payment of premiums and reports of coverage differing from that which was represented.

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The Broker Defendants' lack of care allowed the Program to operate and to continue in existence. Had they disclosed to AIMCO the various problems and irregularities, AIMCO would not have entrusted the Broker Defendants and insurers with its premium payments and coverage. The Broker Defendants' conduct also contributed to depriving AIMCO of its unearned premiums. Aware of the substantial premium payment problems and other Program problems before they helped to add AIMCO to the Program, the Broker Defendants did nothing to warn AIMCO of the problems, or to ensure that AIMCO' premiums actually made it to SOH after s AIMCO paid the premiums to NPS, which was the agent of SOH and the sub-agent of First Capital and RMA. The Broker Defendants are responsible for AIMCO' unearned premiums for another s reason: First Capital and RMA were appointed agents of SOH. Their agency and sub-agency agreements specifically provide that they are responsible for the collection of premiums. They worked with NPS to collect Program premiums and, to the extent that SOH (or National Union) claims it never actually received AIMCO' premium payments, the Broker Defendants are s

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responsible for the return of AIMCO' premiums, just as are SOH and National Union. s The Broker Defendants failed to procure the promised coverage. AIMCO was placed in a" Program"where the insurance companies treated it as if it had responsibility for some 50 other entities, many of whom were its competitors. AIMCO' limits of coverage were combined s with those of the other entities over whom it had no control. AIMCO was charged additional premiums over those that were promised at the outset of coverage. AIMCO' promised threes year coverage was canceled after one year. While National Union itself had all necessary information to reasonably underwrite AIMCO' coverage, to the extent that Broker Defendants provided inadequate or inaccurate s information to National Union, and to the extent that that information led to additional premium charges and the cancellation of coverage, they breached duties of care owed to AIMCO. See, e.g., Golden Rule Ins. Corp. v. Greenfield, 786 F. Supp. 914, 916 (D.Colo. 1992); Lowitt v. Pearsall Chemical Corporation of Maryland, 219 A.2d 67 (Md. 1966) (verdict against a broker who passed along information without knowing whether it was true); St. Paul Surplus Lines Ins. Co. v. Feingold & Feingold Ins. Agency, Inc., 693 N.E. 2d 669 (Mass. 1998) (broker liable to insurer for negligent or reckless provision of false information in an application). 8. Eighth Claim: C.R.S. § 13-21-111.5(4) Common Plan or Design ­All Defendants

The causes of action stated against Defendants caused tortious harm to AIMCO. Defendants willingly participated in the Program' creation and operation. They engaged in a s course of conduct in breach of fiduciary duties and duties of due care to AIMCO. Through their deliberate participation in the insurance Program, all Defendants are 14

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jointly and severally liable under C.R.S. § 13-21-111.5(4); Pierce v. Wiglesworth, 903 P.2d 656, 657-58 (Colo. App. 1994), cert. denied (1995). No proof of an express agreement to commit an injury-causing tortious act is required under C.R.S. 13-21-111.5(4). Nor must the tortious conduct be intentional. Negligence suffices. See, e.g., RTC v. Heiserman, 898 P.2d 1049 (Colo. 1995), Schneider v. Midtown Motor Co., 854 P.2d 1322 (Colo. App. 1992), cert. denied (1993). C. Relief Sought

As a result of defendants' breaches of their obligations to AIMCO, AIMCO has suffered damages, including pre-judgment interest, of approximately $23 million (as of September 2004). AIMCO seeks all recoverable compensatory damages, attorneys' fees and costs, and punitive damages. D. Counterclaims and Defenses 1. National Union' Counterclaim s

National Union has asserted a counterclaim against AIMCO for fraud. AIMCO denies National Union' allegations and will defend against the counterclaim on numerous grounds, s including: neither AIMCO nor any representative acting on its behalf made misrepresentations to National Union; that National Union did not rely nor reasonably rely on any claimed misrepresentations made by AIMCO or any representative acting on behalf of AIMCO; that the alleged misrepresentations were not material to National Union' decision to enter into the s contract; that neither AIMCO nor any representative acting on behalf of AIMCO had an intent to defraud National Union; and the alleged misrepresentations were not a direct and proximate

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result of National Union' claimed injuries. s Further, National Union has waived any right to rescind the policy because it waited almost three years to claim such a right, and because it engaged in an affirmative course of conduct precluding rescission. National Union is also precluded from claiming damages after knowingly ratifying the contract in the face of claimed fraud. Finally, to the extent not described above, AIMCO states as affirmative defenses: failure to state a claim, damages caused by the conduct of third parties, contributory and comparative fault, C.R.S. 13-21-111.5, assumption of risk, C.R.S. 13-80-111.7, counter-claimant's own fraud, failure to mitigate, laches, statutes of limitation, C.R.S. 13-8-101 & -102, waiver, estoppel, unclean hands, collateral source, and contribution, C.R.S. 13-50.5-103 & -105. 2. First Capital' Counterclaims s

First Capital filed counterclaims against AIMCO alleging negligence, negligent misrepresentation and conversion. AIMCO denies First Capital' allegations. AIMCO expects s to defend against these counterclaims on numerous grounds, including: that neither AIMCO nor any representative acting on its behalf made misrepresentations to First Capital; that First Capital did not rely nor reasonably rely on any of the claimed misrepresentations; that First Capital had in its possession or available to it AIMCO' complete and accurate information; that AIMCO s owed no duties to First Capital; that First Capital has not suffered any damages as a result of the AIMCO' alleged conduct; that AIMCO did not convert anything belonging to First Capital, and s therefore First Capital has no standing to bring a claim for conversion against AIMCO; and that First Capital has suffered no cognizable damage.

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To the extent not described above, AIMCO states as affirmative defenses: failure to state a claim, damages caused by a third party, comparative fault, C.R.S. 13-21-111.5, assumption of risk, C.R.S. 13-21-111.7, counterclaimant's own fraud, failure to mitigate, laches, statutes of limitation, C.R.S. 13-80-101 & -102, waiver, estoppel, unclean hands, offset by collateral sources, lack of standing, ratification, and contribution, C.R.S. 13-50.5-103 & -105. 3. Roger Metzger Associates'Counterclaims

RMA filed counterclaims against AIMCO alleging negligent misrepresentation, fraud and violation of the Colorado Consumer Protection Act. AIMCO denies RMA' allegations. s RMA' CCPA claim has been dismissed. AIMCO will defend against the negligent s misrepresentation counterclaim on the same grounds as its defense against the First Capital counterclaims. RMA' fraud counterclaim must fail because AIMCO made no s misrepresentations of any material fact to RMA with intent to deceive RMA. RMA was on notice inquiry of the actual facts it claims AIMCO has represented, and RMA did not rely or rely reasonably to its detriment on any information provided by AIMCO. AIMCO further notes that RMA was never granted leave to amend to assert its counterclaims. AIMCO opposed RMA' untimely assertion of its claims. s To the extent not described above, AIMCO states as affirmative defenses: failure to state a claim, damages caused by a third party, comparative fault, C.R.S. 13-21-111.5, assumption of risk, C.R.S. 13-21-111.7, counterclaimant's own fraud, failure to mitigate, laches, statutes of limitation, C.R.S. 13-80-101 & -102, waiver, estoppel, unclean hands, offset by collateral sources, lack of standing, ratification, and contribution, C.R.S. 13-50.5-103 & -105.

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II.

NATIONAL UNION'S CLAIMS AND DEFENSES A. Factual Background

This is a case of insurance fraud. Through a series of knowing misrepresentations to National Union, AIMCO was able to obtain a policy of property insurance at a cost that was dramatically below what it would have cost had National Union been told the truth. Specifically, AIMCO represented that the approximately 51 entities covered by the policy were related to AIMCO. This case has revealed that to be false. Virtually all of the 51 entities had nothing to do with AIMCO. AIMCO also materially misrepresented the total insured value ("TIV") of the properties covered by the policy and the historical losses such that National Union was presented with a completely false picture of the risk it was asked to insure. As a direct and proximate result of this fraud, AIMCO obtained from National Union an insurance policy that was priced at millions of dollars below what it should have been. Prior to April of 2000, National Union had no involvement in the events at issue in this case. All the parties except National Union had assumed their respective places and roles in this case long before April of 2000. On or about April 7, 2000, National Union received an insurance submission that contained, among other things, a company history of AIMCO, loss histories for approximately 51 of "AIMCO's entities," and total insured values ("TIVs") for approximately 51 of "AIMCO's entities" (the "AIMCO submission"). The AIMCO submission was prepared by First Capital and was based on information provided by, among others, Baldwin, AIMCO's Risk Manager, as well as Swain & Baldwin, Gruppuso, NPS and Metzger. In his capacity as AIMCO's Risk Manager, Baldwin was an agent of AIMCO. Swain & Baldwin

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acted as a risk management firm and/or broker for AIMCO and was an agent of AIMCO. NPS, Gruppuso, Metzger and First Capital acted as insurance brokers and as agents of AIMCO. National Union agreed to provide a $1 million primary property policy for AIMCO and approximately 51 entities allegedly affiliated with AIMCO. The $1 million primary property policy was assigned policy number 4547937 (the "'37 Policy") and became effective April 28, 2000. The '37 Policy was to be in effect from April 28, 2000 through April 28, 2003. National Union had the right, however, at each of the annual anniversary dates of the '37 Policy, i.e. April 28, 2001 and April 28, 2002, to re-rate or cancel the '37 Policy under certain circumstances. In agreeing to enter into the '37 Policy with AIMCO, National relied on the following material representations made by AIMCO's brokers and agents: (i) the historical losses suffered by the AIMCO entities for the three years preceding April 28, 2000 were $23,864,337; (ii) the total TIVs for the AIMCO entities was $11,423,838,902; and (iii) each of the 51 AIMCO entities that sought property insurance from National Union was related to or affiliated with AIMCO. This case has revealed that each of those representations was false. These misrepresentations were communicated not only in the AIMCO submission, but by AIMCO's brokers both prior to and subsequent to the binding of the '37 Policy. At the time Jack Graham, on behalf of National Union, agreed to bind the '37 Policy, he had no knowledge that Gruppuso was a broker on the account or that the information provided to National Union was false. Consistent with the practices of the insurance industry in underwriting a risk of the size involved here, National Union relied on the historical loss information, among other things, to

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determine the appropriate premium to charge for the '37 Policy. In particular, the Policy was "loss rated" such that the expected loss ratio, a figure arrived at through reliance on the historical loss data in the submission, would be approximately 55 percent. In addition to the historical losses, one of the reasons that National Union was confident the '37 Policy would continue to experience an approximately 55% loss ratio was that, based on AIMCO's size and experience, AIMCO could properly manage the 51 entities allegedly related to AIMCO. Contrary to National Union's expectations, the account experienced a loss ratio much greater than 55 percent. In fact, the account yielded a loss ratio consistent with the true facts that had been concealed from National Union. Within several months of binding the '37 Policy, the Policy was running a loss ratio of 134 percent. This loss ratio was completely at odds with the historical losses provided by AIMCO and its brokers. In August of 2000, a meeting occurred to discuss, among other things, the extraordinary losses on the '37 Policy. AIMCO had a number of representatives present at the August 23, 2000 meeting including Baldwin, Gruppuso and Dennis Reilly of First Capital. Also at the meeting were Richard Rooney and John Murphy, representatives of National Union. At the meeting, Murphy expressed concern regarding the losses being experienced on the '37 Policy. Although National Union had concerns about the losses, it was not National Union's desire or intention to cancel the '37 Policy. Rather, National Union was trying to understand the reasons for the extraordinary losses and work with AIMCO and its brokers to assure coverage would continue into years two and three. During the August 2000 meeting, Gruppuso, on behalf of AIMCO, volunteered to pay an

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additional premium on the '37 Policy to, among other things, address the extraordinary loss experienced on the '37 Policy. Baldwin, AIMCO's Risk Manager, did not object to Gruppuso's offer to pay an additional premium. Likewise, none of AIMCO's other brokers and agents at the meeting objected to the offer to pay National Union an additional premium. AIMCO's Risk Manager and brokers also had a number of concerns that they raised at the August 2000 meeting and in the weeks that followed. AIMCO's concerns included, among others, AIMCO's need for dramatically increased wind coverages for the 51 AIMCO entities and a desire to agree on a formula that would be used to provide a quote for the second year premium for one of the 51 AIMCO entities known as AIMCO Properties ­(Owned). In the weeks following the August 2000 meeting, discussions continued between National Union and AIMCO and its agents and brokers. Ultimately, National Union and AIMCO agreed to certain changes to the '37 Policy. AIMCO, consistent with its offer to pay an additional premium at the August 2000 meeting, agreed to pay a $10 million fully earned additional premium. National Union agreed to provide substantially increased wind coverages for all 51 AIMCO entities. The parties agreed on a formula to calculate the second year premium quote for the AIMCO entity known as AIMCO Properties ­(Owned). Finally, the parties agreed to change the notice period for cancellation of the '37 Policy from 180 days to 90 days. Baldwin, AIMCO's Risk Manager, agreed to each of these changes. The changes were made part of the '37 Policy by incorporation of Endorsements 3, 4, 5, 6 and 7 to the '37 Policy. At no time during the discussions leading up to the changes to the '37 Policy did AIMCO or any of its brokers or representatives, including Baldwin, indicate that the losses or TIVs

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provided to National Union as part of the AIMCO submission were false. This is true despite the fact that the second year premium quote formula agreed to by AIMCO and National Union for the AIMCO Properties ­(Owned) entity was based on the same false losses and TIVs provided in the original AIMCO submission. When Baldwin, acting as AIMCO's Risk Manager, executed a letter that contained the formula for determining the second year premium quote for the AIMCO Properties ­(Owned) entity, he never indicated that the losses or TIVs that were part of the AIMCO submission, and that were now being used as part of a formula to calculate a year two premium, were false. Subsequent to the agreement of the parties to amend the '37 Policy by incorporating Endorsements 3-7, National Union learned that the historical losses and TIVs relating to the AIMCO Properties ­(Owned) entity were inaccurate. National Union requested a meeting with Baldwin and First Capital. In early January 2001, Jack Graham and John Murphy, among others, representing National Union, met with Dennis Reilly and Al Moss of First Capital, as well as Ray Baldwin, AIMCO's Risk Manager. At the January 2001 meeting, Graham expressed concern regarding the inaccurate information provided by AIMCO and its brokers relating to the AIMCO Properties ­(Owned) entity, one of the 51 entities in the AIMCO submission and on the '37 Policy. Graham noted that National Union had relied on the loss histories and TIVs, among other things, in reaching a decision to bind the '37 Policy. Moreover, the premium charged for the '37 Policy was based, in part, on the loss histories and TIVs provided by AIMCO and its brokers.

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Although Graham expressed a willingness to work with First Capital and Baldwin to resolve the issues on the '37 Policy, he made clear that there would need to be an additional premium paid by AIMCO that took into account the true losses and TIVs for the AIMCO Properties ­(Owned) entity and eventually, for the other entities as well. Following the January, 2001 meeting, National Union calculated an additional premium based on a 55% loss ratio, the same loss ratio that had been used to calculate the original premium on the '37 Policy, but utilizing the new historical loss data and TIVs relating to the AIMCO Properties ­(Owned) entity. National Union calculated that AIMCO owed, based on the discrepancy with the AIMCO Properties ­(Owned) entity only, approximately $21,453,768 in additional premium over the three year term of the '37 Policy. AIMCO refused to pay the premium. Given AIMCO's refusal to pay the $21,453,768 additional premium, National Union calculated an additional premium for the first year of the '37 Policy only, again utilizing the newly discovered information relating to the AIMCO Properties ­(Owned) entity. This new calculation yielded an additional premium of approximately $5,150,000. National Union did receive payment of the $5,150,000 additional premium. This premium was paid by Gruppuso. Although National Union calculated an additional premium utilizing the new information that came to its attention in late 2000, this new information pertained only to one of the 51 AIMCO entities on the '37 Policy. National Union was unable to determine whether the losses and TIVs for the remaining AIMCO entities were accurate. Starting in January of 2001, National Union devoted substantial time and attention to calculating a second year premium quote for the AIMCO entities. By now, it was clear that the

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losses that had been incorporated into Endorsement 4 for purposes of calculating a second year renewal for one of the AIMCO entities - - the AIMCO Properties ­(Owned) Entity - - were false. Endorsement 4 would yield an enormous premium to be paid by AIMCO for this one entity only, not to mention the approximately 51 other entities allegedly related to AIMCO. Having discovered that Endorsement 4 was based on false loss and TIV information, National Union, in concert with AIMCO's broker of record, First Capital, attempted to provide a second year premium quote that would be acceptable to both National Union and AIMCO. However, in contrast to the false information upon which Endorsement 4 was based, the process undertaken by National Union to provide a renewal quote was based on true losses and TIVs. The second year renewal quote provided to AIMCO was designed to provide insurance at a reasonable cost for AIMCO while addressing National Union's concerns regarding the historical losses and TIVs that had begun to arise during the first year of the '37 Policy. Following the release of the second year quote, conversations ensued between First Capital, Baldwin and National Union in an attempt to arrive at a renewal quote that was acceptable to both AIMCO and National Union. AIMCO chose not to renew its $1 million primary property insurance policy. The '37 Policy expired on April 28, 2001. Since April 28, 2001, National Union has learned that Gruppuso, one of AIMCO's brokers, pled guilty both to state and federal charges relating to insurance fraud and bank fraud. These charges relate, among other things, to Gruppuso's wrongdoing in obtaining coverage for AIMCO and the payment and funding of insurance premiums. The lack of relationship between AIMCO and the entities that were part of the AIMCO

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submission, and the investigation of Gruppuso, coupled with the issues that emerged regarding loss histories and TIVs, reveal that the entire process through which AIMCO and its brokers persuaded National Union to enter into the '37 Policy and to continue working with AIMCO during the first year of the '37 Policy was fraught with misrepresentations. Discovery in this case revealed that serious issues regarding the relationship between the AIMCO entities, the historical losses and the TIVs were first raised and repeatedly discussed well before April of 2000 when AIMCO was insured by Hartford, the insurance company that provided coverage immediately prior to National Union. Discovery revealed that neither AIMCO nor any of its brokers and agents elected to bring these concerns to National Union's attention at the time of binding. Rather, National Union was left to learn of these issues after binding the '37 Policy and during the course of this litigation. B. Legal Claims and Theories 1. First Claim: Fraud ­AIMCO, Ray Baldwin and Swain & Baldwin

Based on the misrepresentations outlined above, National Union alleges fraud against AIMCO, Ray Baldwin and Swain & Baldwin. AIMCO's, Ray Baldwin's and Swain & Baldwin's conduct was attended by circumstances of malice and willful and wanton conduct, entitling National Union to recover exemplary damages pursuant to C.R.S. § 13-21-102. 2. Second Claim: Negligent Misrepresentation ­Swain & Baldwin, Gruppuso and NPS

Swain & Baldwin, Gruppuso and NPS, acting on AIMCO's behalf, were negligent in obtaining, evaluating and/or communicating information that was necessary for National Union to properly assess the AIMCO risk that National Union was asked to insure, and did insure, 25

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under the '37 Policy. This information included, as outlined above, the historical losses relating to AIMCO, the TIVs for AIMCO, and the relationship between AIMCO and the "AIMCO entities." 3. Third Claim: Negligence ­Swain & Baldwin, Gruppuso and NPS

Remarkably, AIMCO asserts that Swain & Baldwin, Gruppuso and NPS (as well as Metzger and First Capital) were acting as agents of National Union at the time the decision to bind the '37 Policy was made and, apparently, subsequent to that time. This is false. It was AIMCO, through Baldwin, Swain & Baldwin, Gruppuso and NPS (as well as Metzger and First Capital) that approached National Union in April of 2000 seeking property insurance. These individuals and entities were acting as agents and/or representatives of AIMCO. However, if contrary to the evidence, Swain & Baldwin, Gruppuso or NPS are deemed to be agents of National Union, then those broker defendants owed duties, as agents, to National Union. The duties owed to National Union include, among other things, providing National Union with accurate information concerning loss histories, TIVs and the relationship between AIMCO and the insured entities. To the extent those duties were breached, National Union is entitled to damages. 4. Fourth Claim: Indemnification ­Swain & Baldwin, Gruppuso and NPS

Pursuant to Colorado's pro rata liability statute, a jury, even it deems Swain & Baldwin, Gruppuso and/or NPS to be agents of National Union, should apportion fault, if any, among the parties in this case. However, if Swain & Baldwin, Gruppuso or NPS are deemed to be agents of National Union, and if National Union is held liable on a theory of vicarious liability, then 26

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National Union demands that those parties indemnify National Union for any damages assessed against it on a theory of vicarious liability. C. Relief Sought by National Union

National Union seeks damages resulting from its reliance on misrepresentations made by AIMCO and its agents and representatives, including Ray Baldwin, Swain & Baldwin, Vito Gruppuso and NPS. National Union's reasonable reliance upon these misrepresentations resulted in National Union not only being unable to properly assess a premium on the '37 Policy sufficient to cover claims and expenses incurred on the '37 Policy, but deprived National Union of the full benefit of its bargain with AIMCO. National Union has incurred losses and expenses on the '37 Policy of approximately $41.7 million. National Union collected approximately $28.8 million in premiums. National Union collected $12.9 million less in premiums than necessary to cover claims, not including certain expenses associated with those claims. National Union is entitled to the full benefit of the insurance contract between AIMCO and National Union. The premium for the '37 Policy was negotiated and agreed upon with the understanding that the premium, when measured against historical losses, would yield approximately a 55% loss ratio. It has now been determined that the historical losses, values and relationship between the entities utilized to calculate the premium were misrepresented. As of June 3, 2003, the total losses and expenses incurred on the '37 Policy are approximately $41.7 million. The premium necessary to maintain a 55% loss ratio given this level of losses and expenses is approximately $75.9 million. Due to the misrepresentations made by AIMCO and its representatives, National Union only collected premiums of $28.8 million. Therefore, in

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order to provide National Union with the full benefit of the insurance contract negotiated between AIMCO and its representatives, on the one hand, and National Union on the other hand, National Union is entitled to damages of approximately $47.1 million. In the event of the rescission of the '37 Policy, National Union demands that AIMCO return all money paid for claims submitted pursuant to the '37 Policy. This would require that AIMCO return approximately $41.7 million. National Union would be required to return the premiums earned on the '37 Policy, totaling approximately $28.8 million. D. AIMCO's Claims and National Union's Defenses

As a general matter, AIMCO's recitation of the facts relevant to this case is inaccurate. The entire sequence of events as perceived by AIMCO at the outset of this litigation have been revealed through discovery to be false. The brokers did not approach AIMCO regarding an insurance program being offered by National Union. On the contrary, AIMCO and its agents and brokers approached National Union requesting coverage for AIMCO and entities related to AIMCO. To the extent that there are discrepancies between AIMCO's and National Union's recitation of the facts, National Union remains confident that its version of the facts is accurate and that the true facts, separate and apart from any legal theories or defenses, will defeat AIMCO's claims. 1. AIMCO's Claim for Breach of Contract and Fiduciary Duty

AIMCO asserts that National Union breached contractual and fiduciary duties owed to AIMCO by failing to refund unearned premiums from two separate insurance policies: (1) the short-lived policy AIMCO obtained from Hartford before National Union became involved that

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was funded through AFCO; and (2) the National Union '37 Policy. National Union never received any of the $31.7 million that AIMCO financed through AFCO for premium payments of the Hartford policy (and certain excess policies) that preceded the National Union policy. AIMCO admits the AFCO Premium Finance Agreement ("PFA") relates solely to the Hartford policy (and excess policies above the Hartford policy), and that the proceeds from the AFCO loan were never intended for National Union. In fact, the AFCO PFA specifically identifies the Hartford policy as the intended purpose for the loan proceeds. As of the March 2000 date of the AFCO PFA, National Union had no involvement with AIMCO. Under the AFCO PFA, AIMCO granted a security interest to AFCO for any unearned premiums held by Hartford. Thus, any unearned premiums due under the Hartford policy were required to be returned to AFCO ­not AIMCO, pursuant to AFCO's security interest in those premiums. AIMCO concedes to having no evidence that National Union ever received any of the money AIMCO borrowed from AFCO to pay premiums on the Hartford policy. AIMCO's own damages expert can find no evidence that National Union received any AFCO money. AIMCO contends that National Union is responsible for the missing AFCO premiums because Gruppuso told Baldwin the unearned AFCO return premiums would be forwarded to National Union to pay the premiums due on the '37 Policy. However, the plain language of the AFCO PFA identifies the intended purpose of the financed premiums and dictates how unearned premiums must be handled. There is no set of facts and no credible legal argument that could render National Union responsible for the return of unearned premiums AIMCO now alleges are missing.

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Alleged representations by Gruppuso, regardless of the capacity in which AIMCO claims he was operating, cannot serve to amend the plain terms of the AFCO PFA. Under both Colorado and New York law, an insurance broker generally acts as the agent of the insured. AIMCO hopes to ignore this generally accepted proposition of law and argue that, under certain circumstances, Gruppuso could be acting as an agent of National Union for purposes of receiving premiums, including return premiums for the Hartford policy that Gruppuso allegedly stated were forwarded to National Union. AIMCO's position is not supported by the applicable law. National Union received payment for the '37 Policy from Cananwill (not AFCO), a wellknown premium financing company. When the '37 Policy terminated at the end of year one, the unearned premiums for years two and three were returned to Cananwill, as required by the Cananwill PFA. National Union never received any AFCO money from AIMCO, Gruppuso or anyone. The other component of AIMCO's breach of contract and fiduciary duty claim relates to National Union's alleged "refusal" to return a $10 million fully earned additional premium AIMCO paid in October 2000. This premium was "fully earned" at the time National Union received it and was identified as fully earned in Endorsement 3 to the '37 Policy. Because it was fully earned, the $10 million additional premium cannot be characterized as an "unearned" premium that should have been returned. National Union had no contractual or fiduciary obligation to return what the parties agreed would be a fully earned (i.e. nonrefundable) premium. The $10 million was earned during the first year of the policy and, even if it had not

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been deemed as fully earned by the parties and designated as such in the '37 Policy, there would be no unearned premium to return to AIMCO. 2. AIMCO's Claim for Negligent Misrepresentation

AIMCO's negligent misrepresentation claim is premised on the assertion that National Union gave false information to AIMCO with respect to the property insurance coverage that AIMCO purchased from National Union. AIMCO asserts that the inaccurate information includes misrepresentations about the "scope, terms and duration of coverage being provided to AIMCO, and about the re-rating formula that was to be applied to determine the premium for the promised second year of coverage." AIMCO's claim fails factually because the '37 Policy clearly stated the scope, terms and duration of coverage being provided by National Union to AIMCO. With regard to the re-rating formula, the formula was procured through fraud by AIMCO and its agents and, when the misrepresentations on which Endorsement 4 was based were discovered, the parties recognized that a new renewal formula for the second year of coverage would be necessary. In addition to these fatal factual shortcomings, AIMCO's negligent misrepresentation claim is legally flawed. First, it is predicated upon the mere non-performance of a contractual obligation. AIMCO's allegations regarding the scope, term, duration of coverage and re-rating formula are nothing more than a repackaged breach of contract claim; they are predicated upon the mere non-performance of a promise or contractual obligation and, thus, they cannot be brought under the guise of negligent misrepresentation. Second, the alleged misrepresentations were not made for use in a business transaction

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with a third party. A claim for negligent misrepresentation may arise only in a situation where the defendant has given information to the plaintiff for plaintiff's use in a business transaction with a third party. Third, the claim runs afoul of the economic loss rule. Fourth, the claim is based upon inadmissible parol evidence. AIMCO can succeed in proving its negligent misrepresentation claim only if this Court finds the '37 Policy to be ambiguous about the scope, terms, duration and re-rating formula being provided to AIMCO and if extrinsic evidence demonstrates that the precise scope, terms, duration of coverage and rerating formula provided in the '37 Policy varied from some prior verbal promise. Because the '37 Policy unambiguously prescribes the scope, terms and duration of coverage, as well as the rerating formula, evidence of so-called negligent misrepresentations should not be admitted under the parol evidence rule. 3. AIMCO's Claim of Bad Faith Breach of Insurance Contract

AIMCO asserts that virtually every action taken by National Union supports AIMCO's claim for bad faith breach of insurance contract. As outlined above, National Union acted reasonably at all times. National Union had the right to and could have elected to cancel the '37 Policy at various points in time and chose instead to work with AIMCO to provide coverage. There are approximately seven unresolved claims, allegedly totaling $600,000, that remain unresolved between the parties. AIMCO and National Union have each retained experts who have differing views as to whether the failure of these claims to be resolved in the precise way that AIMCO demands constitutes bad faith. National Union did pay money on each of the

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contested claims and, as noted, paid over $41 million in claims under the '37 Policy. The only issue here is that AIMCO did not receive the full amount it demanded on this handful of claims and therefore deems National Union to have acted in bad faith. 4. AIMCO's Claim of a Common Plan or Design

AIMCO asserts that each of the "defendants" acted together in pursuing a common plan or design, including tortuous conduct that caused AIMCO to suffer losses and damages. As outlined above, National Union was not acting together with any of the other parties in this case. On the contrary, National Union was approached by AIMCO and the other parties to provide insurance to AIMCO. All of the parties in this case had extensive dealings with one another long before April of 2000, the date when National Union first became involved in the events at issue in this case. If anything, National Union was a victim of a common plan and design by AIMCO and its brokers and agents that resulted in an insurance fraud being perpetrated by AIMCO and its agents on National Union. National Union disagrees that AIMCO can assert a separate claim for common plan or design. The apportionment of damages, if any, will be determined by a jury or judge and AIMCO's assertion of a common plan or design does not constitute a separate claim. 5. Affirmative Defenses to AIMCO's Claims

AIMCO's damages, if any, are the result of its own fraud and the fraud of its agents and representatives and are the sole and proximate result of the conduct of parties in this case over whom National Union had no control or right of control. AIMCO's damages, if any, must be barred or reduced by AIMCO's own contributory and comparative negligence or fault. If

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AIMCO had appropriate accounting and fiscal oversight procedures, it would not have lost track of $31.7 million nor failed to understand the true process through which the '37 Policy was financed. Likewise, had AIMCO, the largest real estate investment trust in the country, bothered to read its own policy, it would not be confused as to the scope, terms, duration and re-rating formula contained in the policy. AIMCO still refuses to assert claims or seek damages from certain parties it knows to be responsible for its losses including Baldwin, Swain & Baldwin, Gruppuso and NPS. AIMCO fails to acknowledge that the AFCO PFA was repaid in full, in large part by Gruppuso, and continues to seek a full recovery from National Union and the other parties without any acknowledgement of applicable setoffs, credits or collateral source payments, including payment by Lockton and Lumberman's (a bonding company). Finally, any recovery by AIMCO is barred by its unclean hands. AIMCO substantially benefited by enjoying an artificially low insurance rate subsidized by the other entities on the '37 Policy that were allegedly related to AIMCO and which paid higher rates of insurance to secure a lower rate for AIMCO. 6. AIMCO Is Entitled to No Relief

AIMCO asserts numerous damage claims, several of which are repetitive and all of which are factually unsupported and, in certain cases, premised on theories that are not supported by the law. AIMCO asserts that it is entitled to the return of the $10 million fully earned additional premium that it paid to National Union in October of 2000. As noted above, the parties agreed

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that the $10 million additional premium was a fully earned premium and there is no basis for AIMCO's demanding the return of the premium. In addition, a return of the $10 million is appropriate only as part of rescinding the entire '37 Policy. AIMCO has never sought rescission. AIMCO asserts that it is entitled to the unearned portion of AIMCO's three year pre-paid premiums for its policies with Hartford and National Union. AIMCO estimates this unearned pre-paid premium total to be approximately $10 million. As noted above, National Union has nothing to do with the Hartford policy, a policy which preceded the National Union policy. With regard to the National Union policy, i.e. the '37 Policy, National Union calculated the unearned premiums for years two and three of the '37 Policy and returned that money directly to Cananwill, the company that financed AIMCO's premiums for the '37 Policy. Notably, National Union returned more than $10 million to Cananwill. AIMCO claims as damages the increased cost of property insurance for the second year of the '37 Policy, April 28, 2001 through April 28, 2002. AIMCO estimates it cost approximately $32 million for AIMCO to secure coverage for April 28, 2001 through April 28, 2002 and that the re-rating formula promised by National Union would have yielded a premium of $27.3 million. Thus, AIMCO alleges damages of at least $4.8 million. AIMCO's measurement of contract damages is contrary to the law of all 50 states. AIMCO calculates that the re-rating formula would have yielded a premium of $27.3 million not by using the numbers contained in the re-rating formula (Endorsement 4), but by substituting the losses and TIVs that AIMCO asserts should have been provided to National Union in April of 2000, i.e. the true losses and TIVs that were not provided to National Union. The contract

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speaks for itself. The re-rating formula, as embodied in Endorsement 4, identifies the numbers and formula for calculating a second year premium. AIMCO has no right to rewrite the contract and substitute new numbers to support its damage claim. Performing the calculation contained in Endorsement 4, utilizing the numbers in Endorsement 4, reveals that AIMCO saved many millions of dollars by obtaining insurance through its own captive program rather than from National Union. Only by asserting a damage theory that is contrary to law can AIMCO assert that it is entitled to damages resulting from the alleged failure of National Union to provide a second year of coverage. AIMCO asserts that it is entitled to over $600,000 in unpaid claims in addition to consequential damages that include an interest expense of $117,162 on a loan allegedly necessitated by National Union's failure to pay an outstanding claim. As outlined above, National Union has paid in excess of $41 million in claims which exceeds by more than $13 million the premiums collected by National Union. National Union paid money on each of the claims that AIMCO characterizes as "unpaid," but AIMCO feels it is entitled to more money. National Union disagrees and believes its facts will prevail. Finally, AIMCO asserts that it is entitled to undefined monies it identifies as "unearned commissions, fees and other forms of compensation or unjust enrichment and any other monies wrongfully withheld by defendants." AIMCO asserts that these numbers include money retained by NPS totaling $6 million, of which AIMCO asserts $4 million is unearned. Factually, National Union denies that NPS ever operated as National Union's agent. Moreover, National Union had no involvement in any fees being paid to NPS. As noted above, National Union received

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payment for the '37 Policy premiums from Cananwill. The only money that National Union paid in commissions was to AIMCO's broker of record, First Capital, and those commissions were calculated according to a percentage outlined in the original binder of insurance. AIMCO is entitled to no damages. III. FIRST CAPITAL' CLAIMS AND DEFENSES S A. Factual Background.

Plaintiff AIMCO filed this lawsuit over a contract dispute between AIMCO and Defendant National Union, wherein AIMCO alleges, inter alia, that National Union failed to honor a heavily negotiated contract of insurance between itself and AIMCO. In response, National Union argues that this is a case of insurance fraud, and that through a series of " knowing misrepresentations"to National Union, AIMCO was able to obtain a property insurance policy at a cost that was dramatically below what it would have cost had National Union been " the truth." told In reality, this case arises from a cooperative effort between AIMCO and its own Risk Manager and authorized agent, Ray Baldwin of Swain & Baldwin, Inc., to secure lower premiums for AIMCO' colossal property insurance requirements. Together, AIMCO, Mr. s Baldwin, and AIMCO' retail agent, Lockton, devised a program of insurance that included not s only non-AIMCO properties, but also understated AIMCO' historical loss experience, and s undervalued AIMCO' property holdings. With a complete lack of accounting procedures and s control, AIMCO' officers were able to delegate all of the authority for AIMCO' insurance s s program to AIMCO' authorized agent and Risk Manager, Mr. Baldwin, while turning a blind s

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eye to Mr. Baldwin' methods so long as he produced the desired result ­lower insurance s premiums. In the end, AIMCO and its agent, Mr. Baldwin, underestimated the ability of the insurance carriers to see through the scheme, and AIMCO' property insurance program fell flat. s Having deceived the carriers, and the wholesale brokers who placed the risk with the carriers, and having its money stolen by its own agents, Mr. Baldwin and his co-conspirator, Vito Gr