SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES

Plaintiff Superior National Insurance Group, Inc. ("Superior National") complains against Defendants as follows:

1. This action arises from Defendants’ fraudulent misrepresentations and wrongful conduct, which induced Plaintiff Superior National to purchase the stock of Business Insurance Group, Inc. ("Business Insurance Group"), which Superior National would not have done but for Defendants’ promises and representations. In 1998, Superior National entered into a purchase agreement with Foundation Health Corporation ("FHC") to acquire from FHC the stock of Business Insurance Group. Business Insurance Group owned certain workers’ compensation insurance companies (the "Insurance Companies"). Plaintiff Superior National paid FHC $285,000,000 for the stock of Business Insurance Group. As a material condition precedent of the acquisition -- one without which the acquisition would not have closed -- Superior National required FHC to cause Business Insurance Group to obtain reinsurance in the amount of $175,000,000 to secure the adequacy of the Insurance Companies’ reserves.
2. Defendants, including American Re-Insurance Company and Inter-Ocean Reinsurance Company Ltd., anxious for this business, agreed to provide $175,000,000 of reinsurance coverage with full knowledge that such coverage was an essential condition precedent to Superior National’s purchase of Business Insurance Group from FHC. But for such reinsurance coverage, Superior National would not have purchased Business Insurance Group. As soon as Superior National gave notice to Defendants that the very risk reinsured against was likely to occur, and requested, on behalf of Business Insurance Group and the Insurance Companies, that Defendants honor their obligations under the reinsurance contracts and deposit the amount due thereunder with the California Department of Insurance in order to satisfy the reinsurance security requirements of the Insurance Companies, Defendants, including American Reinsurance Company and Inter-Ocean Reinsurance Company, Ltd., in conspiracy with each other, wrongfully refused to provide the essential reinsurance coverage and thus severely damaged a substantial part of Superior National’s assets. The Defendants’ reason for failing to honor their obligations was and is non-specific, vague, unfounded, and specious.
3. In this action, Superior National seeks recovery of at least $200,000,000 in compensatory damages, interest thereon, punitive damages, injunctive relief, attorneys’ fees, costs, and other relief from Defendants by reason of their tortious conduct.

THE PARTIES

4. Plaintiff, Superior National, at all times relevant to this action is a corporation organized pursuant to the laws of the State of Delaware, maintains its principal place of business within the County of Los Angeles, State of California, and transacts business as an insurance holding company. Superior National’s securities are publicly traded on the Nasdaq exchange.
5. Superior National is informed and believes, and thereupon alleges, that defendant American Re-Insurance Company (hereinafter, "American Re") at all times relevant to this action is a corporation organized pursuant to the laws of the State of Delaware, has its principal place of business in the City of Princeton, State of New Jersey, is licensed and admitted in and by the State of California to transact the business of insurance and reinsurance, and does in fact transact such business in the State of California. American Re committed the tortious acts described herein, directed its activities toward, and caused damage to Superior National within the State of California.
6. Superior National is informed and believes, and thereupon alleges, that defendant Inter-Ocean Reinsurance Company Ltd. (hereinafter, "Inter-Ocean") at all times material to this action is a corporation organized pursuant to the laws of the Nation of Bermuda, has its principal place of business in the City of Hamilton, Nation of Bermuda, is licensed and admitted in and by the Nation of Bermuda to transact the business of insurance and reinsurance, and is primarily engaged in the business of reinsurance. Inter-Ocean committed the tortious acts described herein, directed its activities toward, and caused damage to, Superior National within the State of California. Superior National is informed and believes, and thereupon alleges, that Inter-Ocean regularly solicits reinsurance business within the State of California, directs its officers and employees to conduct business that has an impact upon the State of California, and issues contracts, binders, or other agreements of insurance or reinsurance covering persons or property within the State of California. Superior National is informed and believes, and thereupon alleges, that Inter-Ocean is principally managed and controlled by American Re.
7. Plaintiff Superior National sues fictitiously named defendants Does 1 through 100, inclusive, pursuant to Section 474 of the California Code of Civil Procedure, because their names or capacities, or facts showing them to be liable, are not presently known to Superior National. Unless otherwise expressly stated herein, each Defendant is sued as the agent, employee, or joint venturer of every other Defendant acting within the course and scope of said agency, employment, or joint venture with the knowledge, consent, or ratification of every other Defendant.
8. Superior National is informed and believes, and on that basis alleges, that to the extent that Defendants were not acting in their individual capacities, they were acting as the agent, employee, and representative of the other Defendants, and that in engaging in the acts alleged below, each of the Defendants was acting within the authorized course and scope of his, her, or its agency and employment. Superior National is further informed and believes, and thereupon alleges, that each Defendant’s conduct was authorized and ratified by the remaining Defendants. To the extent that the alleged conduct was perpetrated by certain Defendants, the remaining Defendant or Defendants confirmed and ratified the other Defendants’ conduct.

BACKGROUND FACTS

A. FHC DECIDES TO SELL BUSINESS INSURANCE GROUP

9. FHC is a Delaware corporation with its principal place of business in the County of Los Angeles, State of California. In or about early 1998, FHC wholly owned Business Insurance Group, a holding company which, in turn, wholly owned four insurer subsidiaries: California Compensation Insurance Company, Business Insurance Company, Combined Benefits Insurance Company, and Commercial Compensation Insurance Company (previously defined as the "Insurance Companies"). Business Insurance Group and the Insurance Companies shall hereinafter be referred to collectively as "the Business Insurance Group Companies." At all times relevant herein, the principal business of the Insurance Companies was to provide workers’ compensation insurance throughout the United States where they are licensed, but primarily in the State of California.
10. During the latter part of 1997, FHC determined that it wanted to exit the workers’ compensation insurance business. To that end, FHC decided to sell the Business Insurance Group Companies.
11. Every insurer, including the Insurance Companies, is required to maintain "reserves." "Reserves" are an estimate that every insurer is required by law to make of the total amount of that insurer’s anticipated liabilities for unpaid claims arising under insurance policies issued by that insurer, and of anticipated expenses related to those unpaid claims. "Reserves" consist of two components: "loss reserves," which are an estimate of the insurer’s total anticipated liability for unpaid claims; and "loss adjustment expense reserves," which are an estimate of the insurer’s total anticipated liability for unpaid loss adjustment expenses, i.e., the expenses the insurer will have to pay to adjust unpaid claims. The Insurance Companies, as workers’ compensation insurance providers, are required by California law to maintain sufficient reserves to cover anticipated claims under the workers’ compensation insurance policies they have issued to employers to cover workers for job-related injuries.
12. In early 1998, in the normal course of its business operations, FHC or the Business Insurance Group Companies caused Milliman & Robertson, Inc. ("M&R"), actuaries, to perform an actuarial analysis of the loss and loss adjustment expense reserves (i.e., all reserves) of the Insurance Companies. On or about February 17, 1998, M&R issued the draft actuarial analysis for the Insurance Companies, assessing their reserves as of December 31, 1997. M&R issued its final report on or about March 4, 1998. Together, M&R’s draft and final actuarial analyses of the Insurance Companies will be referenced hereinafter as the "1997 M&R Report."
13. As a result of the 1997 M&R Report, and FHC’s own analysis of the adequacy of the Insurance Companies’ reserves, FHC determined that an increase in the Insurance Companies’ reserves was necessary before it could sell the Business Insurance Group Companies. Accordingly, on or about February 17, 1998, FHC increased by $75,000,000 the Insurance Companies’ reserves, raising total reserves to approximately $522,000,000. After the $75,000,000 reserve increase, M&R projected that the Insurance Companies’ reserves were correctly stated and adequate at $522,000,000, and FHC proceeded to solicit purchasers for the Business Insurance Group Companies.
14. The 1997 M&R Report indicated that, depending upon the method of analysis and calculation utilized, it was possible that the Insurance Companies were either over-reserved or under-reserved after the $75,000,000 addition to the reserves. The ten (10) actuarial methods utilized in the 1997 M&R Report revealed a range of ten conclusions concerning the appropriate estimate for the Insurance Companies’ reserves. The range spanned from the estimate that they were over-reserved by $51,000,000, i.e., that the insurers had posted too high an amount as liabilities for claim reserves, to the estimate that they were under-reserved by $274,800,000, i.e., that the insurers had posted too low an amount as liabilities for claim reserves; a spread or range of $325,800,000. The 1997 M&R Report also contained provisions alerting the reader to the uncertainties in the assumptions and estimates in the report and recommending to any third party reviewing the report to have its own actuary review the report to assure that the inherent uncertainties and wide degree of variability be fully understood.

B. SUPERIOR NATIONAL NEGOTIATES TO PURCHASE THE BUSINESS INSURANCE GROUP COMPANIES BUT DEMANDS A REINSURANCE CONTRACT AS A CONDITION PRECEDENT TO SUCH A PURCHASE

15. In early 1998, Superior National entered into discussions with FHC concerning Superior National’s interest in purchasing the Business Insurance Group Companies from FHC. To that end, Superior National conducted "due diligence" of, inter alia, the financial condition of the Business Insurance Group Companies and the adequacy of the Insurance Companies’ loss and loss adjustment expense reserves.
16. Superior National recognized the potential risk that, notwithstanding the additional $75,000,000 in reserves posted by FHC, the Insurance Companies’ reserves of $522,000,000 might be inadequate if claims developed to one of the higher levels predicted by several of the actuarial projection methods employed by M&R.
17. As a result, a material part of Superior National’s negotiations with FHC regarding the purchase of the Business Insurance Group Companies concerned the risk that the Insurance Companies had insufficient reserves to cover anticipated liabilities, i.e., unpaid claims and claim-related expenses. As the buyer acquiring insurers it did not own or control prior to the acquisition, Superior National sought protection against the risk that the Insurance Companies’ claim reserves would develop in excess of those established at the acquisition date. At the same time, as the seller, FHC sought to limit its potential future liability if it were to give a warranty on the adequacy of the Insurance Companies’ claim reserves. Therefore, Superior National and FHC agreed that FHC, as the seller of the Business Insurance Group Companies, would cause Business Insurance Group to purchase reinsurance for the Insurance Companies to protect Superior National against unknown or potentially greater claims related liabilities. Such reinsurance would give Superior National, as the buyer of the Business Insurance Group Companies, protection against adverse claim development. At the same time it would allow FHC, as the seller, to pay a fixed cost (the reinsurance premium) to reinsurers to accept the risk of such adverse claim development such that FHC would not be exposed to unknown or potentially greater claims costs over an extended period of time.
18. Accordingly, Superior National demanded that, as a condition precedent to closing Superior National’s purchase of the Business Insurance Group Companies from FHC, FHC would have to obtain a reinsurance contract for the Insurance Companies in the amount of at least $150,000,000, but no greater than $175,000,000, insuring against the possibility that the Insurance Companies were under-reserved. In other words, Superior National would be insured against the risk that, after Superior National purchased the Business Insurance Group Companies, the Insurance Companies would not have sufficient reserves to cover the workers’ compensation claims they received after the acquisition that were attributable to policies issued during FHC’s period of ownership.

C. AMERICAN RE AND INTER-OCEAN MAKE A SUCCESSFUL BID FOR THE REINSURANCE CONTRACT

19. Desiring to sell the Business Insurance Group Companies to Superior National, FHC solicited bids for a reinsurance contract to cover the risk of potential shortfalls in the Insurance Companies’ reserves up to $175,000,000. Ultimately, in March and April 1998, at least three reinsurance companies, including American Re, acting for itself and Inter-Ocean, came to FHC’s offices in order to conduct "due diligence" before deciding whether to bid on the reinsurance contract. The reinsurers, including American Re and Inter-Ocean, were all made aware of the negotiations between FHC and Superior National, and were specifically informed of the fact that securing a contract of reinsurance for $150,000,000 or more was a condition precedent to Superior National’s purchase of the Business Insurance Group Companies.
20. In conducting their due diligence, in or about early March 1998, American Re and Inter-Ocean and the other re-insurers also received the 1997 M&R Report. In the course of their due diligence, American Re and Inter-Ocean, like the other reinsurers, were given every opportunity to evaluate, test, and determine the basis for each and every finding contained in the 1997 M&R Report, to interview and question M&R’s actuaries, and to compare M&R’s findings and opinions with their own. In April 1998, representatives of American Re and Inter-Ocean then spent 3 to 4 days at FHC’s offices. All pertinent records of the Business Insurance Group Companies were made available to American Re’s and Inter-Ocean’s representatives, as well as to the other re-insurers, along with adequate time and facilities in which to review them. Among other things, American Re’s and Inter-Ocean’s representatives inspected the Business Insurance Group Companies’ computerized records of the insurers’ claims and claims reserves, in addition to individual claim files. Moreover, during the investigation, every request American Re and Inter-Ocean made to see any and all additional records was satisfied completely and expeditiously.
21. After conducting due diligence, American Re made a bid to underwrite the reinsurance contract through Inter-Ocean with American Re retaining the ultimate liability. Superior National is informed and believes that American Re and Inter-Ocean were extremely desirous of acquiring this business and establishing new business relationships, and accordingly, ignored the advice of their own personnel and actuaries as to the appropriate premium, and intentionally underbid competitor companies without regard to the underwriting risk being insured. Thus, American Re, through Inter-Ocean, offered to reinsure up to $175,000,000 in potential Insurance Companies claims for a premium of $28,500,000. FHC accepted the bid and, on or around May 5, 1998, American Re, through Inter-Ocean, issued a binder for the reinsurance contract and began preparing the long-form reinsurance agreement. The binder is a contract which became effective upon its issuance on May 5, 1998, specifically subject to Superior National’s completion of the acquisition of the Business Insurance Group Companies.

D. SUPERIOR NATIONAL PURCHASES THE BUSINESS INSURANCE GROUP COMPANIES AND AMERICAN RE AND INTER-OCEAN ISSUE THE REINSURANCE CONTRACT

22. On or about May 5, 1998, when Superior National was assured that reinsurance coverage was fully in place, and only because such reinsurance coverage was in place, Superior National proceeded with the acquisition of the Business Insurance Group Companies. In fact, the relevant purchase agreement was made effective the same day American Re and Inter-Ocean issued the reinsurance binder and the reinsurance binder was made an exhibit to the purchase agreement. Upon Superior National’s receipt of the binder of insurance from American Re and Inter-Ocean (and verification of the signing of the retrocession agreement from American Re described below), then and only then did Superior National agree to enter into a purchase agreement by which Superior National agreed to purchase and FHC agreed to sell the Business Insurance Group Companies for the sum of $285,000,000 (the "Purchase Agreement").
23. In or about September, 1998, prior to the close of the transaction reflected in the Purchase Agreement, FHC caused the Business Insurance Group Companies and American Re caused Inter-Ocean to enter into the long-form reinsurance agreement, entitled "Aggregate Excess of Loss Reinsurance Agreement" (the "Inter-Ocean Reinsurance Agreement"). At or about the same time, Inter-Ocean and American Re entered into a Retrocession Agreement under which American Re assumed the entire risk (100%) of the Inter-Ocean Reinsurance Agreement. At or about the same time, Inter-Ocean entered into a Reinsurance Assignment Agreement under which it assigned to the Business Insurance Group Companies all rights to enforce the Retrocession Agreement against American Re, and American Re consented to the assignment.
24. The Retrocession Agreement and the Reinsurance Assignment Agreement essentially provide that American Re is acting as the reinsurer for the Insurance Companies, in addition to Inter-Ocean. Together, the Inter-Ocean Reinsurance Agreement, the Retrocession Agreement and the Reinsurance Assignment Agreement will hereinafter be referenced as the "Reinsurance Agreements."
25. Pursuant to the terms of the Reinsurance Agreements and the Purchase Agreement, FHC paid the reinsurance premium of $28,500,000 to American Re and Inter-Ocean. The last payment, in the form of a wire transfer in the amount of $27,850,000, was made by FHC on or about December 10, 1998.
26. Because FHC had procured the reinsurance coverage described above, and only because such reinsurance coverage was in place, Superior National’s purchase of the Business Insurance Group Companies from FHC was consummated on or about December 10, 1998.
27. All parties -- i.e. FHC, Superior National, the Business Insurance Group Companies, American Re and Inter-Ocean -- understood that the Purchase Agreement and the Reinsurance Agreements were all parts of the same transaction and had the same ultimate purpose, to effect the consummation of Superior National’s purchase of the Business Insurance Group Companies, with FHC paying $28,500,000 to American Re and Inter-Ocean to bear the risk that the Insurance Companies’ reserves would be inadequate to cover ultimate losses up to $175,000,000, and with Superior National bearing the risk of any reserve inadequacy greater than $175,000,000. Both the Reinsurance Agreements and the Purchase Agreement were executed in the course of the same transaction. Moreover, the Purchase Agreement specifically references the Reinsurance Agreements, and specifically provides that the existence of reinsurance coverage is a condition precedent to Superior National’s obligations to close the transaction, and American Re and Inter-Ocean were, at all relevant times, aware of that fact.

E. THE 1998 M&R REPORT INDICATES THAT THE INSURANCE COMPANIES SHOULD INCREASE CLAIM RESERVES

28. Sometime in February 1999, one year after the preparation of the 1997 M&R Report, M&R prepared its actuarial analysis of the Insurance Companies’ reserves for the year ending December 31, 1998 (the "1998 M&R Report"). The 1998 M&R Report concluded that the Insurance Companies should increase claim reserves in an amount that would equal or exceed $175,000,000 for the period ending December 31, 1997, the potential of which had been recognized in the 1997 M&R Report. Accordingly, the Insurance Companies communicated these facts to American Re and Inter-Ocean so that they could then meet their obligations under the Reinsurance Agreements and provide a trust account deposit, letter of credit or other financial statutory security, in the amount of $175,000,000.
29. Thereafter, in June, 1999, Superior National contacted American Re and Inter-Ocean and demanded, on behalf of the Insurance Companies, that American Re and Inter-Ocean honor their obligations under the Reinsurance Agreements to deposit the amount due under the Reinsurance Agreements in an amount of at least $150,000,000, with the California Department of Insurance in order to satisfy the reinsurance security requirements of the Insurance Companies. That deposit was due on July 1, 1999, but has not been made.
30. American Re and Inter-Ocean failed and refused, and continue to fail and refuse, to honor their obligations under the Reinsurance Agreements and to place on deposit or provide a letter of credit or other financial statutory security for the amounts due and owing under the Reinsurance Agreements.

F. INSTEAD OF FULFILLING THEIR OBLIGATIONS UNDER THE REINSURANCE AGREEMENTS, AMERICAN RE AND INTER-OCEAN HAVE BREACHED AND REPUDIATED THE REINSURANCE AGREEMENTS

31. Instead of fulfilling their obligations under the Reinsurance Agreements, American Re and Inter-Ocean engaged in a bad faith effort to avoid and repudiate their obligations by making wholly unfounded assertions that the Reinsurance Agreements should be "rescinded."
32. On or about July 14, 1999, Inter-Ocean demanded rescission and claimed that the basis for rescission is an alleged failure to disclose to Inter-Ocean "all material facts about the risk to be reinsured." American Re has made similar vague and non-specific assertions.
33. Inter-Ocean and American Re make these unsupported assertions notwithstanding the facts that:

1. Inter-Ocean and American Re knew that the entire purpose of the Reinsurance Agreements was to address the concerns of Superior National, a sophisticated and knowledgeable buyer, about the level of the Insurance Companies’ reserves and Superior National’s insistence upon reinsurance as a condition precedent to its purchase of the Business Insurance Group Companies;
2. Inter-Ocean and American Re had access to all public documents reflecting the financial condition of the Business Insurance Group Companies and the California workers’ compensation industry as a whole;
3. American Re and Inter-Ocean knew and understood from the material made available to them, the full scope of the risk and knowingly chose to proceed with a bid of $28,500,000;
4. American Re and Inter-Ocean ignored the advice of its own personnel as to the appropriate premium and level of risk;
5. Superior National is informed and believes that American Re’s and Inter-Ocean’s own actuaries reviewed the 1997 M&R Report and concluded that the Insurance Companies’ reserves were inadequate;
6. American Re and Inter-Ocean had access to M&R’s actuaries to question their assumptions and failed to take advantage of this access; and
7. American Re and Inter-Ocean have been unable to specify a single material fact allegedly not disclosed by the Business Insurance Group Companies regarding the risks to be reinsured.

1. In short, American Re and Inter-Ocean’s assertions represent nothing more than a specious and bad faith effort to avoid their reinsurance obligations.
2. Superior National is informed and believes that American Re and Inter-Ocean have engaged in a pattern and practice of aggressively underbidding to acquire reinsurance contracts and then failing to honor reinsurance agreements in the event the reinsured risk occurs.

FIRST CAUSE OF ACTION

(Fraud against Defendants American Re and Inter-Ocean)

3. Superior National incorporates by this reference the allegations set forth in paragraphs 1 through 35, inclusive, of this Complaint as though set forth fully herein.
4. To induce Superior National to enter into the Purchase Agreement, officers and representatives of American Re and Inter-Ocean, made representations to the Business Insurance Group Companies and FHC and indirectly to Superior National as set forth below, to the effect that, inter alia, they had conducted adequate "due diligence" of the Insurance Companies to agree to provide reinsurance coverage for a certain premium; that they would issue a contract of reinsurance covering up to $175,000,000 in reserve shortfalls for a designated premium; that they would honor their obligations under the terms of that contract; and that Superior National could rely upon the existence of reinsurance coverage in deciding to consummate the acquisition of the Business Insurance Group Companies.
5. American Re and Inter-Ocean made these representations with the full knowledge and intent that these representations would be, and in fact were, communicated to Superior National. Moreover, in the reinsurance binder issued on or about May 5, 1998, and in the Reinsurance Agreements, defendants made the same representations directly to Superior National.
6. American Re and Inter-Ocean further made these representations with the full knowledge and intent that Superior National would rely upon those representations in entering into the Purchase Agreement with FHC to purchase the Business Insurance Group Companies. American Re and Inter-Ocean had full knowledge that the Reinsurance Agreements were a condition precedent to the closing of the Purchase Agreement and that, but for the representations by American Re and Inter-Ocean, Superior National would not have consummated the Purchase Agreement. American Re and Inter-Ocean fully intended for Superior National to rely upon their representations in deciding to consummate the acquisition of the Business Insurance Group Companies.
7. At all times relevant to this action, American Re and Inter-Ocean knew that the express purpose for which the Reinsurance Agreements were obtained was to provide Superior National with security and protection of up to $175,000,000 in adverse development in claim reserves of the Insurance Companies which Superior National was purchasing. But for the Reinsurance Agreements provided by American Re and Inter-Ocean, Superior National would not have purchased the Business Insurance Group Companies from FHC.
8. At the times American Re and Inter-Ocean made the representations described above, the representations were false and American Re and Inter-Ocean made the representations knowing they were false or made them recklessly, without knowing whether they were true or false. American Re and Inter-Ocean purposely or recklessly ignored publicly available information regarding the adequacy of the reserves of the Insurance Companies and the advice of their own personnel and actuaries. In fact, at the time the representations were made, American Re and Inter-Ocean had no intention of paying claims or posting the required security or providing a letter of credit under the Reinsurance Agreements upon the occurrence of the contingencies set forth therein. Rather, defendants made the representations for the express purpose of securing the business and inducing the payment of a reinsurance premium of $28,500,000 with no intention of honoring their obligations in the event the Insurance Companies’ claims reserves suffered adverse development.
9. Superior National is informed and believes, and thereupon alleges, that the true facts were that American Re and Inter-Ocean had not conducted adequate due diligence; had failed to adequately assess the risk; did not intend to honor their obligations under the Reinsurance Agreements; and Superior National could not rely upon the existence of reinsurance coverage in deciding to consummate the acquisition of the Business Insurance Group Companies.
10. Superior National did in fact rely on the representations of American Re and Inter-Ocean described herein, and relying on those representations consummated the purchase of the Business Insurance Group Companies, paying consideration therefor of $285,000,000. Superior National’s reliance upon the representations of American Re and Inter-Ocean was reasonable and justified under the circumstances as alleged herein.
11. Superior National was unaware of the falsity of American Re’s and Inter-Ocean’s representations at the time they were made, and at the time that Superior National relied upon the truth of those representations to consummate the Purchase Agreement and acquire the Business Insurance Group Companies. Had Superior National known of the falsity of American Re’s and Inter-Ocean’s representations, Superior National would not have consummated the Purchase Agreement and would not have acquired the Business Insurance Group Companies.
12. As a result of Superior National’s reliance upon the false representations and the actions described herein, Superior National has sustained damages in an amount at least equal to:

(a) the $175,000,000 deposit or other security now due under the Reinsurance Agreements;

(b) the sums that Superior National has expended and will continue to expend in attempting to gain the benefits due to the Business Insurance Group Companies under the Reinsurance Agreements; and

(c) additional damages in an amount to be proven at trial, but presently believed to be in excess of $200,000,000.

13. The actions described herein were intentional, done with conscious disregard for the rights of Superior National, and were fraudulent, malicious and oppressive, and designed to injure Superior National. Accordingly, Superior National is entitled to punitive and exemplary damages in an amount sufficient to punish American Re and Inter-Ocean for their wrongdoing and to deter similar conduct in the future as well as actual damages for the detriment caused by the conduct of American Re and Inter-Ocean.

SECOND CAUSE OF ACTION

(Negligent Misrepresentation

against Defendants American Re and Inter-Ocean)

14. Superior National incorporates by this reference the allegations set forth in paragraphs 1 through 35,and 37 through 40 inclusive, of this Complaint as though set forth fully herein.
15. At the time American Re and Inter-Ocean made the representations described above, the representations were false and American Re and Inter-Ocean made the representations without any reasonable basis for believing that they were true.
16. Superior National is informed and believes, and thereupon alleges, that the true facts were that American Re and Inter-Ocean had not conducted adequate due diligence; had ignored the advice of their own personnel and actuaries; had failed to adequately assess the risk; did not intend to honor their obligations under the Reinsurance Agreements; and Superior National could not rely upon the existence of reinsurance coverage in deciding to consummate the acquisition of the Business Insurance Group Companies.
17. Superior National did in fact rely on the representations of American Re and Inter-Ocean described herein, and relying on those representations consummated the purchase of the Business Insurance Group Companies, paying consideration therefor of $285,000,000. Superior National’s reliance upon the representations of American Re and Inter-Ocean was reasonable and justified under the circumstances as alleged herein.
18. Superior National was unaware of the falsity of American Re’s and Inter-Ocean’s representations at the time they were made, and at the time that Superior National relied upon the truth of those representations to consummate the Purchase Agreement and acquire the Business Insurance Group Companies. Had Superior National known of the falsity of American Re’s and Inter-Ocean’s representations, Superior National would not have consummated the Purchase Agreement and would not have acquired the Business Insurance Group Companies.
19. As a result of Superior National’s reliance upon the false representations and the actions described herein, Superior National has sustained damages in an amount at least equal to:

(a) the $175,000,000 now due under the Reinsurance Agreements;

(b) the sums that Superior National has expended and will continue to expend in attempting to gain the benefits due to the Business Insurance Group Companies under the Reinsurance Agreements; and

(c) additional damages in an amount to be proven at trial, but presently believed to be in excess of $200,000,000.

THIRD CAUSE OF ACTION

(Intentional Interference With Contractual Relations

against Defendants American Re and Inter-Ocean)

20. Superior National incorporates by this reference the allegations set forth in paragraphs 1 through 52 inclusive, of this Complaint as though set forth fully herein.
21. On or about May 5, 1998, Superior National and FHC entered into the Purchase Agreement, by which FHC agreed to sell and Superior National agreed to purchase the Business Insurance Group Companies. FHC’s obligation to cause the Business Insurance Group Companies to secure a contract of reinsurance in the amount of $175,000,000 was a condition precedent to the consummation of the Purchase Agreement.
22. American Re and Inter-Ocean were, at all times relevant hereto, aware of the contractual relationship between Superior National and FHC and were aware of the terms of that contractual relationship. In particular, American Re and Inter-Ocean were aware that the Reinsurance Agreements were a condition precedent to closing the Purchase Agreement, and that but for the defendants’ providing such reinsurance protection to Superior National, Superior National would not have entered into the Purchase Agreement and would not have purchased the Business Insurance Group Companies.
23. On or about May 5, 1998, American Re and Inter-Ocean entered into a binder whereby they agreed to provide a contract of reinsurance of up to $175,000,000 to insure the adequacy of the reserves of the Insurance Companies, which agreement was also reflected in the Reinsurance Agreements.
24. American Re and Inter-Ocean have engaged in intentional acts designed to induce a breach or disruption of the contractual relationship between Superior National and FHC and Superior National’s benefit of the bargain of the Purchase Agreement, including without limitation defendants’ failure and refusal to honor their obligations under the terms of the Reinsurance Agreements, breach of the Reinsurance Agreements, seeking to rescind the Reinsurance Agreements, American Re’s failure to post the required deposit with the California Insurance Commissioner, and Inter-Ocean’s failure to provide a letter of credit or other financial security. As set forth herein, these actions of American Re and Inter-Ocean were illegal and wrongful and, among other things, constituted bad faith conduct, fraud, negligent misrepresentation and an unfair business practice in violation of California Business and Professions Code Section 17200.
25. The actions of American Re and Inter-Ocean as described above have caused interference and disruption of Superior National’s contractual relationship with FHC set forth in the Purchase Agreement, in that Superior National has not received the benefits to be derived under the Purchase Agreement because American Re and Inter-Ocean have failed to deliver the benefits promised by the Reinsurance Agreements which were entered for the very purpose of protecting Superior National against adverse claims development of the Insurance Companies.
26. As a result of American Re’s and Inter-Ocean’s wrongful actions as described above, the condition precedent to closing the Purchase Agreement has failed.
27. As a direct and proximate result of American Re’s and Inter-Ocean’s wrongful actions as described above, Superior National has suffered damages in an amount to be determined according to proof at trial, but presently believed to be in excess of $200,000,000.
28. The actions described herein were intentional, done with conscious disregard for the rights of Superior National, and were fraudulent, malicious, and oppressive, and designed to injure Superior National. Accordingly, Superior National is entitled to punitive and exemplary damages in an amount sufficient to punish American Re and Inter-Ocean for their wrongdoing and to deter similar conduct in the future as well as actual damages for the detriment caused by the conduct of American Re and Inter-Ocean.

FOURTH CAUSE OF ACTION

(Intentional Interference with Prospective Economic Advantage

against Defendants American Re and Inter-Ocean)

29. Superior National incorporates by this reference the allegations set forth in paragraphs 1 through 61, inclusive, of this Complaint as though set forth fully herein.
30. Superior National has an economic relationship with the Business Insurance Group Companies, which relationship had the probability of substantial economic benefit to Superior National. Also, the Purchase Agreement provides Superior National with an economic relationship with FHC, which relationship had the probability of substantial economic benefit to Superior National, namely, Superior National’s purchase of the Business Insurance Group Companies with the protection of the Reinsurance Agreements in place.
31. American Re and Inter-Ocean at all relevant times were aware of Superior National’s economic relationships with FHC and the Business Insurance Group Companies and were fully informed that the reinsurance transactions described herein were for the express purpose of facilitating Superior National’s purchase of the Business Insurance Group Companies from FHC. American Re and Inter-Ocean knew that their actions would interfere with this relationship and cause Superior National to lose in whole or in part the probable future economic benefit or advantage of its relationship with FHC and the Business Insurance Group Companies.
32. American Re and Inter-Ocean engaged in the conduct described herein with the intent, and having the effect, of disrupting Superior National’s economic relationships with FHC and the Business Insurance Group Companies.
33. American Re and Inter-Ocean willfully, deliberately, and tortiously interfered with such economic relationship by, inter alia, failing to perform under the Reinsurance Agreements; breaching the Reinsurance Agreements; purporting to rescind the Reinsurance Agreements; failing to post the deposit with the California Insurance Commissioner; and failing to provide a letter of credit or other financial security. As set forth herein, these actions of American Re and Inter-Ocean were illegal and wrongful and, among other things, constituted bad faith conduct, fraud, negligent misrepresentation and an unfair business practice in violation of California Business and Professions Code Section 17200.
34. As a proximate result of American Re’s and Inter-Ocean’s intentional interference with Superior National’s economic relationship with FHC and the Business Insurance Group Companies, Superior National has been damaged in an amount to be proven at trial, but presently believed to be in excess of $200,000,000.
35. The actions described herein were intentional, done with conscious disregard for the rights of Superior National, and were fraudulent, malicious, and oppressive, and designed to injure Superior National. Accordingly, Superior National is entitled to punitive and exemplary damages in an amount sufficient to punish American Re and Inter-Ocean for their wrongdoing and to deter similar conduct in the future as well as actual damages for the detriment caused by the conduct of American Re and Inter-Ocean.

FIFTH CAUSE OF ACTION

(Negligent Interference With Prospective Economic Advantage

against Defendants American Re and Inter-Ocean)

36. Superior National incorporates by this reference the allegations set forth in paragraphs 1 through 63, inclusive, of this Complaint as though set forth fully herein.
37. American Re and Inter-Ocean at all relevant times were fully aware of Superior National’s economic relationships with FHC and the Business Insurance Group Companies and were fully informed that the reinsurance transactions described herein were for the express purpose of facilitating Superior National’s purchase of the Business Insurance Group Companies. American Re and Inter-Ocean knew that if they did not act with due care, their actions would interfere with this relationship and cause Superior National to lose in whole or in part the probable future economic benefit or advantage of its relationships with FHC and the Business Insurance Group Companies.
38. American Re and Inter-Ocean engaged in the conduct described herein without due care and utter disregard for the consequences of their actions, which conduct had the effect of disrupting Superior National’s economic relationship with FHC and the Business Insurance Group Companies.
39. American Re and Inter-Ocean negligently interfered with such economic relationships by, inter alia, failing to perform under the Reinsurance Agreements; breaching the Reinsurance Agreements; purporting to rescind the Reinsurance Agreements; failing to post the deposit with the California Insurance Commissioner, and failing to provide a letter of credit or other financial security. As set forth herein, these actions of American Re and Inter-Ocean were illegal, wrongful and, among other things, constituted bad faith conduct, fraud, negligent misrepresentation and an unfair business practice in violation of California Business and Professions Code Section 17200.
40. As a proximate result of American Re’s and Inter-Ocean’s negligent interference with Superior National’s economic relationship with FHC and the Business Insurance Group Companies, Superior National has been damaged in an amount to be proven at trial, but presently believed to be in excess of $200,000,000.

SIXTH CAUSE OF ACTION

(Unlawful, Unfair and Fraudulent Business

Practices in Violation of Business & Professions

Code Section 17200 et seq.

against Defendants American Re and Inter-Ocean)

41. Superior National incorporates by this reference the allegations set forth in paragraphs 1 through 73, inclusive, of this Complaint as though set forth fully herein.
42. California Business and Professions Code section 17200 prohibits acts, which constitute "unlawful, unfair or fraudulent business practices."
43. The misrepresentations, concealments, and actions of American Re and Inter-Ocean concerning the Reinsurance Agreements and the other conduct alleged herein, including but not limited to the conduct alleged in Paragraph 35, constitute unfair business acts or practices within the meaning of California Business and Professions Code Section 17200.
44. Superior National has been, and without this Court’s intercession will continue to be, irreparably harmed by American Re’s and Inter-Ocean’s business practices. Superior National has no adequate remedy at law to prevent this irreparable harm. Superior National is entitled to an injunction prohibiting American Re and Inter-Ocean from failing to honor their obligations, and to enjoin defendants from engaging further in the same or similar unlawful, unfair, or fraudulent business practices, or unfair, deceptive, untrue, or misleading advertising or statements.
45. Defendants should be ordered to account for and disgorge all reinsurance premiums and profits defendants received from their pattern and practice of unlawful activities described herein, and to pay Superior National’s attorneys’ fees incurred in this action.

 

SEVENTH CAUSE OF ACTION

Promissory Estoppel

against Defendants American Re and Inter-Ocean)

46. Superior National incorporates by this reference the allegations set forth in paragraphs 1 through 73, inclusive, of this Complaint as though set forth fully herein.
47. On or about May 5, 1998 and thereafter, American Re and Inter-Ocean promised, assured and represented to FHC and the Business Insurance Group Companies that American Re and Inter-Ocean had assessed the risk and would reinsure the adequacy of the Insurance Companies’ reserves up to $175,000,000, and made the other promises, assurances and representations described herein. American Re and Inter-Ocean made these promises, assurances and representations for the purpose of having FHC and the Business Insurance Group Companies communicate, and with the knowledge that FHC and the Business Insurance Group Companies would communicate such promises, assurances and representations to Superior National. Additionally, in the reinsurance binder issued on or about May 5, 1998, and in the Reinsurance Agreements, American Re and Inter-Ocean made the same promises directly to Superior National.
48. American Re and Inter-Ocean made the promises described herein with the intention that Superior National rely upon these promises.
49. The promises, assurances and representations described herein had the effect of creating a contractual relationship between American Re and Inter-Ocean, on the one hand, and Superior National, on the other hand.
50. In making the promises, assurances and representations described herein, American Re and Inter-Ocean knew or should have known that Superior National would be reasonably induced to rely on American Re’s and Inter-Ocean’s promises, assurances and representations and in reliance thereon would enter into the Purchase Agreement with FHC; pay the purchase price for the Business Insurance Group Companies reflected in the Purchase Agreement; and assume the rights and obligations of the Business Insurance Group Companies as reflected in the Purchase Agreement.
51. Superior National did in fact reasonably rely upon American Re’s and Inter-Ocean’s promises, assurances and representations, and was induced to enter into the Purchase Agreement with FHC; to pay the purchase price for the Business Insurance Group Companies reflected in the Purchase Agreement; and to assume the rights and obligations of the Business Insurance Group Companies as reflected in the Purchase Agreement.
52. American Re and Inter-Ocean, after having received the full premium for the Reinsurance Agreements, have not performed any part of their promises, assurances and representations in that they did not honor their obligations under the Reinsurance Agreements, have failed and refused to post the required deposit with the California Insurance Commissioner, and have failed to provide the required letter of credit or other financial security.
53. As a result of American Re’s and Inter-Ocean’s failure to perform according to the promises, assurances and representations that they made to Superior National, Superior National has incurred actual and consequential damages in an amount to be determined at trial, measured in part by the extent and consequences of Superior National’s reliance on American Re’s and Inter-Ocean’s promises, assurances and representations, including but not limited to, the purchase price of $285,000,000.
54. Injustice can be avoided only by returning Superior National to its rightful place as a result of its reliance on American Re’s and Inter-Ocean’s promises, or alternatively by enforcing American Re’s and Inter-Ocean’s promises, assurances and representations completely, and by enforcing American Re’s and Inter-Ocean’s obligations to honor their commitments under the Reinsurance Agreements.

WHEREFORE, Superior National prays judgment against all Defendants, and each of them, as follows:

1. For compensatory damages in an amount to be determined at the time of trial, plus interest thereon at the legal rate on all causes of action except for the sixth cause of action;

2. On the seventh cause of action, for promissory estoppel, specific relief as measured by the extent of Superior National’s reliance upon defendants’ promises in, among other amounts, the amount of the purchase price of $285,000,000, and interest thereon at the legal rate;

3. For punitive damages according to proof on the first, third and fourth causes of action;

4. On the sixth cause of action, for unfair business practices, for an accounting, and disgorgement of profits;

5. On the sixth cause of action, for an injunction prohibiting American Re and Inter-Ocean from purporting to rescind or rescinding the Reinsurance Agreements;

6. For attorneys’ fees incurred herein, as provided by law;

7. For costs of suit incurred herein; and

8. For such other and further relief as the Court deems just and proper.