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SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NASSAU
---------------------------------------------------------------- )(
PHYSICIANS' RECIPROCAL INSURERS, Inde)( No.: _ _ __

Petitioner,

-against- VERIFIED PETITION

ADMINISTRATORS FOR THE

PROFESSIONS, INC.,

Respondent.

---------------------------------------------------------------- )(

Physicians' Reciprocal Insurers ("PRI"), by its attorneys Stroock & Stroock &

Lavan LLP and David Bolton P.C., hereby alleges, as and for its Verified Petition, as follows:

1. This is an application for a temporary restraining order and preliminary injunction

in aid of arbitration brought pursuant to Article 7 5 of the New York Civil Practice Law and

Rules ("CPLR") (i) prohibiting Administrators for the Professions, Inc. ("AFP" or

"Respondent") from interfering with the transition of PRI' s insurance business to PRIMMA LLC

("PRIMMA"), PRI's wholly-owned subsidiary by denying PRI and PRIMMA access to AFP's

employees or continuing the furlough of such employees; (ii) prohibiting AFP from interfering

with PRIMMA hiring or employing any of the personnel previously or currently retained by AFP

that are necessary in order to conduct the business of PRI; (iii) prohibiting AFP from interfering

with PRI's and PRIMMA's use of and conduct of the affairs of its insurance business at 1800

Northern Boulevard, Roslyn, NY 11576 and 1200 C. Scottsville Road, Suite 195, Rochester,

New York 14624 ("the Premises"), and the use ofthe various information technology systems,

office furniture and other office equipment (the "IT Systems and Equipment") therein, until such

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time that PRJ is able to relocate to a suitable site and replace the IT Systems and Equipment in a

commercially reasonable manner; (iv) prohibiting AFP from interfering with or otherwise

impeding in any manner PRI's transition ofthe management of its insurance business to

PRIMMA; (v) prohibiting AFO from interfering with PRJ's right to its books and records; (vi)

prohibiting AFP from contacting PRI's subscribers or their brokers; and (vii) granting such other

and further relief as the Court may deem appropriate.

2. As discussed in more detail below, PRI is a reciprocal insurer. As such, all of its

business and affairs are managed by another company known as the "attorney-in-fact." AFP

served as PRJ's attorney-in-fact until its authority to do so was revoked by the New York State

Department of Financial Services (the "DFS"), and was subsequently terminated by PRJ's Board

of Governors, on July 6, 2017. Under New York Insurance Law Article 61, an attorney-in-fact

must be authorized by the DFS, and, in the absence of such authorization, AFP is immediately

barred from acting as PRJ's attorney-in-fact. The relief sought by PRI is crucial to enable it to

function and to service its medical professional insureds-and the public. It urgently requires

preliminary injunctive relief in aid of arbitration so that it can orderly transition the management

of its insurance business to a new attorney-in-fact.

3. The DFS, in an Order Pursuant to New York Insurance Law Article 61 regarding

In the Matter ofPhysicians' Reciprocal Insurers dated July 6, 2017 (the "DFS Order") found

that, inter alia, (i) AFP "repeatedly and consistently breached fiduciary and other duties to PRJ,

and mismanaged PRI, failing to adequately protect the interests of the company's subscribers;"

(ii) Anthony Bonomo, the owner and CEO of AFP, "disregarded sound actuarial principles when

setting PRJ's loss reserves, and then tried to cover it up by seeking to silence outside auditors and

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employees who objected to this misconduct"; (iii) "Anthony Bonomo engaged in self-dealing by

using PRI to make so-called 'charitable' donations that benefitted him personally, by promoting

his own reputation and ego," including causing "PRI to contribute over $130,000 to a university,

which named a baseball field after his father, the 'William J. Bonomo Memorial Field"'; and (iv)

"AFP violated other provisions of New York law, including the anti-gifting provisions of

Executive Law 94(13)(a)." See In the Matter of Physicians' Reciprocal Insurers, Order

Pursuant to New York Insurance Law Article 61, at 1-2 (Dept. ofFin. Servs. July 6, 2017). A

true and correct copy of the DFS Order is attached hereto as Exhibit 1.

4. As a result ofthese findings, the DFS Order provides that "pursuant to Article 61

of the New York Insurance Law (including, but not limited to, 6102,6105 and 6106), the

Superintendent hereby withdraws and revokes AFP's authority to act as the attorney-in-fact for

PRI, or any parent, subsidiary or affiliate thereof, effective immediately." (See id at 18)

(emphasis in original). The DFS Order also requires that AFP "fully cooperate in the orderly

transition of the management ofPRI" to a successor attorney-in-fact. (!d. at 18-19).

5. On July 6, 2017, following the issuance of the DFS Order withdrawing and

revoking AFP's authority, and based on its own investigation concerning AFP's wrongdoings,

PRI immediately terminated AFP as its attorney-in-fact for cause. In its termination letter, like

the DFS' Order, PRI demanded that AFP honor its obligation pursuant to the Amended and

Restated Management Agreement dated January 1, 1999 (the "Management Agreement). 1 to

cooperate in the transition of the management ofthe insurance business ofPRI to its new wholly-

owned subsidiary, PRIMMA. AFP has refused to comply with both the DFS Order and its
1
A true and accurate copy of the Management Agreement is annexed hereto as Exhibit 2.

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contractual obligations to cooperate in the transition to PRJMMA. AFP has told its employees-

who are the individuals who operate PRJ-that they are furloughed, and that they should not

report to work. Due to the structure of a reciprocal-where all employees are supplied by the

attorney-in-fact-without these employees, PRJ cannot properly function. This is the opposite of

the cooperation and transition required by the DFS Order and the Management Agreement.

6. While PRJ has commenced arbitration against AFP as it is required to do pursuant

to the Management Agreement, urgent relief is required in order that the arbitration award not be

rendered ineffectual. Preliminary injunctive relief in aid of arbitration under Section 7502 of the

CPLR is necessary, since- if AFP continues its refusal to cooperate in the transition of its

operations to PRJ's own attorney-in-fact- PRI will suffer irreparable injury. PRI currently has

no infrastructure to support its operations. This means that claims under policies cannot be

reported. Pending claims cannot be adjusted and claims in litigation cannot be managed or

supervised. Policies cannot be underwritten, issued or renewed or amended. Pending renewals

cannot be processed. PRI' s policyholders would be thrown into limbo causing a massive

disruption in the medical community of New York.

PARTIES

7. PRJ is a reciprocal medical malpractice insurer established pursuant to New York

Insurance Law Article 61, with its headquarters located at 1800 Northern Boulevard, Roslyn, NY

11576. It currently has approximately 10,500 insurance policies in force, covering hospitals,

physicians, dentists and allied health professionals across all ofNew York State. PRJ only issues

policies covering risks in the State of New York. PRI is the second largest medical malpractice

insurer in the State ofNew York.

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8. AFP functioned as PRI's attorney-in-fact pursuant to the Management Agreement

and New York Insurance Law Article 61, until its termination for cause on July 6, 2017. AFP's

principal place ofbusiness is 1800 Northern Boulevard, Roslyn, NY 11576.

JURISDICTION AND VENUE

9. The jurisdiction of this Court to hear this proceeding is based upon Article 75 of

the CPLR.

10. Venue is proper in Nassau County since, inter alia, Petitioner and Respondent are

located in Nassau County, and all events material to this Verified Petition took place there.

ALLEGATIONS

11. PRI is a reciprocal medical malpractice insurer. A reciprocal insurer is an

insurance company that is owned by its policyholders. But unlike other insurers, all of a

reciprocal insurer's business and affairs are managed by another company known as the

"attorney-in-fact." PRI, as a reciprocal, operates through its attorney-in-fact, which performs all

business and day-to-day operations of the insurer, pursuant to statute and a management

agreement, and is obligated to work as an agent in the best interests of the insurance company

and its policyholders.

12. The reciprocal insurer has an advisory committee, which in the case ofPRI is

called the "Board of Governors." The Board of Governors has the ultimate responsibility for the

management and control of PRI and consists of representatives from both the reciprocal and the

attorney-in-fact.

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13. Because all of the operations and affairs ofPRI are managed by AFP as attorney-

in-fact, PRI does not have any employees or property, such as offices, computers, desks, or other

equipment? Rather, all of the real and personal property utilized in the operation ofPRI's

business is owned or rented by its attorney-in-fact. PRI is AFP's sole customer for

management of an ongoing insurance business, and AFP' s employees and the IT Systems and

Equipment are devoted solely to the operations of PRI.

14. AFP has served as PRI's attorney-in-fact since PRI was formed in 1981. At

present, the relationship between AFP and PRI is governed by the terms of the Management

Agreement and New York Insurance Law Article 61. In accordance with New York Insurance

Law, the Management Agreement was reviewed and approved by DFS, which regulates all

insurance companies doing business in New York, including PRI.

15. Pursuant to the Management Agreement, AFP agreed "to manage the insurance

operations ofPRI [... ] by furnishing all the services necessary for PRI's operation as a licensed

insurance company, including but not limited to solicitation of subscribers, investigation of

applicants, underwriting services, issuance of policy forms, cancellation of policies, claims

reporting and processing, reinsurance, risk management, education, data processing, investment,

and accounting services[.]" (See Ex. 2 2). AFP was obligated to "use its best efforts to comply

with the applicable requirements of law and [to] conduct the management and operations ofPRI

in accordance with the provisions of the New York Insurance Law and prudent insurance

practice." (Jd.)

2
Until Bruce Shulan's appointment as Chief Restructuring Officer in November, 2016, PRI did not have any full-
time executive management.

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16. Under the Management Agreement, AFP was entitled to appoint three individuals

to the Board of Governors, and did so. Those individuals were the ultimate owner of AFP,

Anthony Bonomo, and members of senior management of AFP, Carl Bonomo and Gerald

Dolman (the "AFP Governors"). (See id. 8).

17. AFP' s compensation under the Management Agreement was directly tied to the

volume of premium that it generated on PRI's behalf. AFP's compensation for each calendar

year was computed on the basis ofPRI's direct written premium as follows: "15% of the first

$200 million; 12% ofthe next $100 million; 8% of all premiums over $300 million." (See Ex. 2

at Amendment to Management Agreement, dated May 25, 2010). AFP was paid this

compensation regardless of whether the policies it issued on PRI' s behalf were profitable.

18. The Management Agreement would have expired by its terms on December 31,

20 17, provided that PRI gave AFP at least 180 days written notice of its intent not to renew the

Management Agreement. PRI gave such notice on June 29, 2017 (the "Notice ofNon-

Renewal"), though AFP has known for some time that PRI had no intention of renewing the

Management Agreement. The Notice of Non-renewal triggered an obligation by AFP to

cooperate in the transition of the management ofPRI's business to a new attorney-in-fact. This

obligation exists regardless of whether the Management Agreement is terminated at the end of

2017 or earlier. The Management Agreement requires AFP to "(a) [c]ooperate to facilitate the

transfer of operations to the successor Attorney-in-Fact ofPRI and its subscribers; and (b)

[c]ooperate with PRI towards the end that there will be an orderly transfer of management

services functions in respect to PRI's new Attorney-in-Fact." (See Ex. 2 3 and lO.D.).

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19. The Management Agreement further provides for AFP's termination "forthwith

upon written notice [to AFP], because of fraud or dishonesty[.]" (See id. 1O.A). Upon

termination of the Management Agreement, AFP is obligated to cooperate in the transfer of

operations to a new attorney-in-fact, "towards the end that there will be an orderly transfer of

management services functions ... " (See id. 10.D.). 3 Disputes arising out of or under the

Management Agreement are subject to arbitration. (See id. 16).

20. As PRI's regulator, the DFS periodically conducts an examination ofPRI. During

2016, the DFS conducted such an examination ofPRI's financial affairs for the period from 2010

through 2014 (the "Examination"). During the course of the Examination, the DFS uncovered

instances of wrongdoing and misconduct on AFP' s part. DFS alerted PRI' s Board of Governors

to this misconduct.

21. As a result ofthe DFS Examination, the Board of Governors ofPRI passed a

resolution dated August 24,2016 forming a Special Committee ofthe Board of Governors (the

"Special Committee") consisting of five Board members that excluded the AFP Governors. The

Special Committee was authorized (i) to formulate, establish, oversee and direct a process for the

identification, evaluation and negotiation of strategic alternatives available to PRI, including the

replacement of AFP as the attorney-in-fact, and other strategic options concerning the

administration of the operations of the company, (ii) to evaluate and negotiate the terms of any

proposed definitive or other agreements in respect of such strategic alternatives, (iii) to make

recommendations to the Board in respect of pursuing such strategic alternatives, (iv) to make

The obligation to cooperate in transitioning to a new attorney-in-fact also arises where one of the parties
provides notice of its intention not to renew the Management Agreement. See Ex. 2 3 and IO.D.

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recommendations to the Board that the Board take other actions or consider other matters that the

special committee deems necessary or appropriate with respect to potential strategic transactions,

and (v) to engage in discussions and negotiation with DFS concerning strategic alternatives

available to PRI and resolution of any PRI examination issues ... "

22. The position ofChiefRestructuring Officer was created by the Board of

Governors ofPRI by resolution dated October 26, 2016. The duties of the ChiefRestructuring

Officer include "1) supervision of an audit ofthe performance of APF [sic], and the transactions

between PRI and AFP, under the Management Agreement; 2) investigation and recommendation

ofthe alternatives to the administration ofPRI's business; 3) undertaking arrangements for the

transition of the administration ofPRI's business, and 4) such other and further duties as shall be

specified by the Special Committee ... "

23. Bruce C. Shulan was appointed Chief Restructuring Officer by the Special

Committee on November 10, 2016. As part of his responsibilities, he undertook a review of the

PRI-AFP relationship, and the work that AFP has performed for PRJ. His investigation was

limited because he was denied full access by AFP to its personnel and systems. But even on the

basis of limited access, numerous instances of fraudulent and dishonest conduct on AFP' s part

came to his attention as a result of the Examination and the discharge of his duties as Chief

Restructuring Officer. These instances include, but are not limited to:

a. Deliberate Underpricing. AFP fraudulently and dishonestly caused PRJ to issue

insurance policies to hospital customers at premium rates that were significantly

below actuarially justified premium rates. AFP continued this practice after

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becoming well aware that it caused massive losses to PRI. AFP was indifferent to

the losses caused to PRI because AFP's compensation was based solely on the

volume of premium collected by PRI, not PRI's profitability. A prime example of

this misconduct is the policy issued by AFP on behalf ofPRI to the North Shore

University Hospital system. Even though it was evident that the North Shore

policies were running at an accumulated deficiency of over $39 million for the

years 2004-2008, AFP continued to issue policies to North Shore at unjustified

and inadequate rates;

b. Structured Settlements. In the course of settling claims, PRI sometimes uses

structured settlement annuities. AFP caused PRI to purchase structured

settlement annuities through a broker affiliated with AFP, Settlement Success

Intermediaries, AFP fraudulently and dishonestly caused PRI to pay the salaries

oftwo of Settlement Success's employees even though PRI derived no benefit

from their services and even though all revenues from the operations of

Settlement Success were paid to an affiliate of AFP in which PRI has no interest;

c. Improper "Charitable Donation." AFP fraudulently and dishonestly caused PRI

to make an illegal premium rebate which was disguised as a charitable donation.

AFP caused PRI to make a payment in the amount of $900,000 to North Shore -

Long Island Jewish Health System Foundation, which it represented to the Board

of Governors was a charitable donation. In reality, this payment was intended by

AFP to be an illegal premium rebate equal to the projected investment income

expected to be received on the annual premium paid by the hospital for its

msurance;

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d. Unauthorized Chargebacks. AFP fraudulently and dishonestly caused PRI to pay

a portion of the salaries of its senior executives out of the funds of PRI. While the

Management Agreement allowed certain types of employee expenses to be

charged to PRI, the payment of salaries of senior executives was not permitted.

This practice occurred from at least 2011 through 2015 and resulted in more than

$12 million being wrongfully paid to AFP by PRI; and

e. Failure to Repay Advances. Under the Management Agreement, AFP was

permitted to withdraw funds from PRJ's accounts for the payment of its

management fees based on an estimate of premiums that would be paid in the

coming year. These payments constituted advances of AFP's management fees.

In 2015, AFP estimated future premium collection based on historical premium

levels. However, in 2016 there was a precipitous drop in PRI' s premiums and

AFP became obligated to repay PRI over $2 million of advances. AFP has failed

to repay this advance in full and has stated that it is unable to do so. At present,

AFP continues to be indebted to PRI for these advances in an amount that exceeds

$1.5 million. Under Section 7 ofthe Management Agreement, AFP was obligated

to make this payment over a year ago and has refused to do so, despite repeated

demand by the Board of Governors.

24. On July 6, 2017 the DFS issued its Order resulting from its lengthy Examination.

(See Ex. 1). The DFS made findings of multiple instances where AFP breached its duties to PRI

and its Subscribers including:

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a) Masking PRJ's true financial condition: "Bonomo and AFP repeatedly caused PRJ

to set its reserves at inadequate levels, and to inaccurately value its assets, despite

clear evidence that such levels and valuations were insufficient. Bonomo and

AFP caused this to be done, in all likelihood, to ensure that [DFS] continued to

approve the Management Agreement[ ... ] and to continue [DFS's] overall

authorization for AFP to serve as PRI's attorney-in-fact- thereby enriching AFP

at PRJ's expense." (See id. at 8). Over the years, AFP terminated FTI

Consulting, an AFP accounting employee, and Marcum LLP, an outside auditor,

in order to hide these financial inaccuracies. (See id. at 9-1 0);

b) Causing PRJ to make unauthorized charitable donations: "[S]ince 2006, AFP has

caused PRJ to spend very substantial sums on charitable contributions without

seeking any approval by the Board, let alone the specific authorization required.

Since 2006, APP caused PRJ to expend approximately $3.6 million of corporate

funds on such contributions. However, during that time, AFP sought specific

approval from the Board for only about $250,000 of this amount (at most). AFP

thus violated fiduciary and other duties, and the Management Agreement, by

causing PRJ to make approximately $3.35 million in unauthorized charitable

contributions - many of which benefitted Anthony Bonomo personally."4 (See id.

at 11).

4
DFS further details $2 million in improper charitable donations from 2006 to 2015, which benefited "organizations
and family members directly linked to AFP senior executives Anthony Bonomo, Carl Bonomo or Gerry Dolman."
(See id at 11). These include causing PRI to donate:

a) $90,000 to the GAELS foundation, which was founded by Anthony Bonomo. This money was used to
fund a sports field named after Bonomo;

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c) Writing improper premiums with no regard to fiscal impact on PRI (See id. at 12);

d) Selecting and recommending unqualified advisors and cronies for investment

advisory contracts: "[I]n 2004, while serving as AFP's President, Anthony

Bonomo engaged Barry Bekkedam ofBallamor Capital for AFP, and then

recommended Bekkadam [sic] to PRI' s Board to fill the position of Investment

Advisor to PRI." (See id. at 13). However, "Bonomo utterly failed to conduct

any due diligence on Bekkadam [sic] or Ballamor." (See id.). Due to

Bekkedam's "poor guidance," PRI's portfolios lost $135 million by 2009 or 2010.

(See id. ). Bonomo then engaged Triton Capital Management to serve as PRI' s

investment advisor. Bonomo performed no due diligence, but Bonomo's

daughters and Triton Capital's principal's daughters played on the same youth

basketball team. (See id. at 14). In August 2006, AFP caused PRI to enter into

another investment advisory agreement at fees "well in excess of market rates for

such services," and "designed to help retain PRI's large annual premium from an

institutional subscribers ofPRI (since the Additional Investment Advisor sat on

the Board ofthe institutional subscriber)[.]" (See id. at 15);

b) $95,000 to Our Lady ofMt. Carmel, the Bonomo's family's church. DFS further notes that the '"donation'
apparently was used to secure the Church as a filming location for a movie called 'The Brooklyn Banker,'
which was made by a cousin of Anthony Bonomo";
c) $130,250 to Adelphi University, which named a baseball field the "William J. Bonomo Memorial Field."
Bonomo's son played on the Adelphi baseball team;
d) $186,500 to the New York Institute of Technology, where Bonomo is a member of the "President's
Forum," an elite group of donors.
e) $7,500 to New York Institute ofTechnology Athletics, where Bonomo's son was on the coaching staff;
f) $95,250 to St. John's University, where Bonomo received his undergraduate and law degrees;
g) $31,000 to Saint Mary's Church in Manhasset, New York, which Bonomo and his family attend;
h) $21,000 to Carbini College and its athletic programs, where Bonomo's daughter attended and played both
basketball and lacrosse; and
i) $12,250 to the Dante Foundation, where both Bonomo and his cousin are board members.
(See id. at 11-12).

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e) Intentionally Dissipating and Wasting PRI Assets and Abusing the Management

Agreement: AFP employees failed to keep proper track of the time they spent

working for PRI or AFP, resulting in PRI paying a great amount of expenses than

it should have. (See id. ). AFP also caused PRI "to engage in improper rebates,

contracts and booking in order to obtain and retain a large annual premium from

an institutional subscriber," under the guise of a "charitable contribution" to an

affiliate of that subscriber. (See id. at 16). AFP also failed to refund $4 million in

overpayments made by PRI to AFP, despite contractual and fiduciary duties to do

so, and PRI's demand for refund. (See id.).

f) Violating New York Executive Law 94(13)(a): On December 27,2016, in a

settlement with the New York State Joint Commission on Public Ethics, AFP

"acknowledge[d] to be true" facts demonstrating that it committed a violation of

the anti-gifting provisions in 94(13)(a), and paid $70,000 to the Commission.

(See id. at 16-17).

25. As a result of these findings, the DFS Order provides:

IT IS HEREBY ORDERED that, pursuant to Article 61 of the

Insurance Law, including, but not limited to, Insurance Law
6102, 6105 and 6106, the Superintendent hereby withdraws and
revokes AFP's authority to act as the attorney-in-fact for PRI, or
any parent, subsidiary or affiliate thereof, effective immediately.
IT IS FURTHER ORDERED, that all non-subscriber members
ofthe Board of Governors ofPRI (e.g., any officers, employees or
others associated with APP) are immediately prohibited and barred
from participation in the affairs of the Board of Governors
forthwith, and shall be replaced in a timely fashion pursuant to the
subscriber's agreement and by-laws ofPRI and New York law.

IT IS FURTHER ORDERED, that AFP shall, pursuant to the

terms of the Management Agreement, fully cooperate in the
orderly transition of the management of the affairs ofPRI,

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including, but not limited to, the orderly transition to the successor
attorney-in-fact, in order to facilitate the safe, sound and competent
operation of PRI and to protect its subscribers and policyholders,
including, but not limited to, by making available to PRI and the
successor attorney-in-fact all books, records and information
belonging to PRI, including, but not limited to, electronically-
stored information. Specifically, and without limitation, the
Management Agreement provides that APP shall immediately and
continuing as requested by PRI:

(a) Cooperate to facilitate the transfer of operations to the

successor Attorney-in-Fact ofPRI and its subscribers; and

(b) Cooperate with PRI towards the end that there will be
an orderly transfer of management services functions in
respect to PRI's business to a new Attorney-in-Fact.
(Management Agreement~ 10.D.(a), (b).)

26. Although the Management Agreement was set to expire on December 31, 2017,

as a result of the DFS Order revoking AFP's authority to serve as PRI's attorney-in-fact, AFP

can no longer perform under the agreement, and is in breach thereof. PRI' s Board of Governors

voted to terminate AFP as a result of the DFS Order revoking its authority, and for fraud and

dishonesty on July 6, 2017. On the same date, PRI delivered to AFP a notice of immediate

termination (the "Termination Letter").

27. As recited in the DFS Order, under the Section 10.D of the Management

Agreement, AFP has an obligation to cooperate fully with PRI in the transition ofPRI's business

to a new attorney-in-fact prior to and after termination of the Management Agreement. The

Management Agreement provides that AFP's obligation is "towards the end that there will be an

orderly transfer of management services functions ... " (See Ex. 2 lO.D).

28. Furthermore, the DFS Order directs AFP to "comply with the terms of the

Management Agreement that require AFP to: (a) Cooperate to facilitate the transfer of operations

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to the successor Attorney-in-Fact ofPRI and its subscribers; and (b) Cooperate with PRI towards

the end that there will be an orderly transfer of management services functions in respect to

PRI's business to a new Attorney-in-Fact." (See Ex. 1 at 3 (internal citations omitted)). PRI

expressly references these obligations in the Termination Letter, which also included a proposal

whereby, as part of the transition, PRIMMA would subcontract with AFP for the use of its

facilities and employees at cost. AFP has not agreed to this proposal. Indeed, as set forth below,

it is refusing to cooperate in the transition of the management of PRI' s insurance business to

PRIMMA.

29. Instead of cooperating, AFP has virtually shut down PRI's business. On July 7,

2017, AFP told its employees (the only individuals who operate PRI's business day-to-day) not

to show up to work until further notice, thereby bringing PRI' s business to a standstill.

30. On July 7, 2017, when Harold Horwich, Esq., counsel to PRI, learned ofthe

AFP's intention to furlough its employees, he wrote an email to counsel for AFP repeating PRI's

offer to pay for the cost of AFP employees. Counsel for AFP replied that AFP read the DFS

Order to prohibit AFP employees from being subcontracted to PRIMMA.

31. The DFS orally informed counsel for AFP that the DFS Order should not be

interpreted in that manner, and that it supported PRI's request that AFP's employees (with the

exception ofthe AFP Governors) be subcontracted to PRIMMA. The DFS further clarified its

position in a letter to AFP' s counsel, dated July 7, 2017 (the "DFS Letter"), wherein it explains:

[T)he Order does not require AFP to furlough employees or

prevent those AFP employees who had been performing services
for PRI, which I understand constitutes all of AFP's employees,

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from continuing to perform such services in furtherance of the

cooperation required in the Management Agreement. On the
contrary, as I indicated, the Order is clear that AFP is to "fully
cooperate in the orderly transition of the management of the affairs
ofPRI to a successor attorney-in-fact ... in order to facilitate the
safe, sound and competent operation of PRI." Moreover, the Order
prohibits AFP from taking any "action to impede or impair in any
way the business or operations of PRI now or in the future."
AFP's furloughing of employees is both unnecessary in order
to comply with the Order and violative of the Order which
requires cooperation in accordance with the terms of the
Management Agreement and prohibits impeding PRI's
business.

(emphasis added).

32. The DFS Letter further comments on AFP's obligations, stating:

In the [Termination] Notice, PRI states that it is prepared to have

PRIMMA, the successor attorney-in-fact, "enter into an interim
agreement with AFP under which PRIMMA would subcontract"
for, among other things, the services of AFP' s employees, which
would allow PRIMMA to direct those employees in conducting
PRI' s affairs. Such an arrangement is certainly permitted under
the Order and is necessary to ensure that AFP can meet its
obligation of cooperation under the Order and the Management
Agreement. Moreover, as stated to you in our call, AFP's
discharge of its cooperation obligation is critical to prevent
irreparable damage to PRI.

We expect AFP to cooperate with PRI in its transition to

PRIMMA and fully discharge its obligations to PRI to ensure that
its policyholders are protected.

(See id (emphasis added)).

33. Despite these explicit directions, AFP continues to refuse PRI and PRIMMA

access to its employees, leaving PRI without the ability to operate.

34. On July 8, 2017, Harold Horwich sent an email to AFP's counsel stating as

follows: "Gentlemen: Please advise whether you have been able to satisfy yourselves that the

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DFS order does not require the furlough of AFP employees on Monday. We informed DFS of

your concern and they indicated that they would contact you directly. If they have not satisfied

your concern please let me know and I will contact them again. If they have, I would like to be

in contact so that we can make suitable arrangements for having the work force return on

Monday. Having them out has the potential to cause serious injury to PRJ and violates both the

DFS order and the cooperation provisions of the Management Agreement. We have held off on

taking legal action with the expectation that this could be cleared up over the weekend."

35. Neither AFP nor its counsel responded to Mr. Horwich's July 8th email. AFP

remains in breach of the DFS Order's and the Management Agreement's requirement that AFP

cooperate in the transition of business to PRI's new attorney-in-fact, PRIMMA.

36. On July 10, 2017, PRI commenced arbitration against AFP, seeking damages

resulting from Respondent's misconduct, self-dealing, fraud and chronic breaches of the

Management Agreement. Importantly, PRI seeks permanent injunctive relief prohibiting AFP

from (i) from interfering with the transition ofPRI's insurance business to PRIMMA, PRI's

wholly-owned subsidiary by denying PRI and PRIMMA access to AFP' s employees or

continuing the furlough of such employees; (ii) interfering with PRIMMA hiring or employing

any of the personnel previously or currently retained by AFP that are necessary in order to

conduct the business ofPRI; (iii) interfering with PRJ's and PRIMMA's use of the Premises and

conduct of the affairs of its insurance business at the Premises, and the use of the IT Systems and

Equipment therein, until such time that PRI is able to relocate to a suitable site and replace the IT

Systems and Equipment in a commercially reasonable manner; (iv) interfering with or otherwise

impeding in any manner PRI' s transition of the management of its insurance business to

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PRIMMA; and (v) contacting PRI's subscribers or their brokers. A true and correct copy of

PRI' s Arbitration Demand is attached hereto as Exhibit 3.

37. AFP's refusal to cooperate in the transition of its operations to PRI's own

attorney-in-fact will cause PRI to suffer irreparable injury. PRI currently has no infrastructure to

support its operations. This means that claims under policies cannot be reported. Pending

claims cannot be adjusted and those in litigation cannot be managed or supervised. Policies

cannot be issued or renewed or amended. Pending renewals cannot be processed. PRI's

policyholders would be thrown into limbo causing a massive disruption in the medical

community of New York. This is precisely what the DFS sought to avoid. The DFS Order

makes clear that an orderly transition is necessary to "facilitate the safe, sound and competent

operation of PRI and to protect its subscribers and policyholders." (Ex. 1 at 18).

CAUSE OF ACTION

38. PRI repeats and realleges the allegations contained in paragraphs 1 through 37

hereof.

39. PRI's claims against AFP are subject to arbitration as agreed to in the

Management Agreement. PRI seeks this preliminary injunction in aid of arbitration in order to

ensure that the arbitration award in this matter is not rendered ineffectual.

40. Absent the issuance of an injunction, PRI will be irreparably harmed as will the

medical professionals who obtained medical malpractice insurance through PRI, and thousands

ofNew Yorkers who depend on that coverage. Without the preliminary injunction, PRI's

functionality would be wholly impaired, since, inter alia, (i) claims under policies would not be

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reported; (ii) pending claims would not be adjusted; (iii) claims in litigation would not be

managed or supervised; and (iv) new and renewal policies would not be processed and issued. In

other words, its business would come to a standstill.

41. PRI seeks to maintain the status quo by allowing it to continue to use the same

personnel, the current Premises, the IT Systems and Equipment under PRIMMA management

until PRI can arrange to move to alternative premises and direct PRIMMA to hire the individuals

that are currently servicing its business. PRI has offered, and continues to offer, to reimburse

AFP for any cost and expenses associated with the Premises, the IT Systems and Equipment and

the personnel from now until it has taken over the operations of its business.

42. The order sought herein will ensure that PRI and those benefiting from its medical

malpractice insurance are not irreparably harmed.

43. Given that AFP's authority has been revoked by the DFS, and the Management

Agreement has been terminated, AFP is required to cooperate in the transition to PRI' s new

attorney-in-fact. It is not doing so. PRI has demonstrated that it will likely succeed on the merits

of its claims for injunctive relief as set out in the Arbitration Demand. Moreover, AFP' s

numerous instances of self-dealing, misconduct, fraud and breaches of the Management

Agreement are well-documented in the DFS Order, and have been the subject of the

Examination.

44. The balance of equities is in PRI's favor. The entry of a preliminary injunction

will not be prejudicial to AFP. During the period of the injunction, PRI will pay the rent for the

Premises, the fair value ofthe use and occupancy of the IT Systems and Equipment as well as

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the direct costs of the employees. AFP does not have any business other than the administration

of PRI, and therefore an injunction will not interfere with any other business or operations of

AFP. In the unlikely event that AFP were successfully to prove that it was not in breach of the

Management Agreement, AFP would have a claim for damages against PRI, which PRJ has the

financial resources to pay.

45. The maintenance of the status quo as proposed by PRI will not work any material

hardship on AFP. Since the Management Agreement has been terminated, and its authority

revoked by the DFS, AFP has no sources of revenue, since PRI is its only customer. This would

soon require it to lay off all of its employees-indeed, it has purported to furlough them-default

on its office lease, and any other financial obligations that it has. It would also render its IT

systems and equipment virtually worthless.

46. Moreover, during the period of the injunction, PRJ will pay the rent for the

Premises, the fair value of the use and occupancy of the IT Systems and Equipment as well as

the direct costs of the employees. AFP does not have any business other than the administration

of PRJ, and therefore an injunction will not interfere with any other business or operations of

AFP. Furthermore, the Management Agreement provides that, in the event of a termination, if

PRI has not breached its obligations to AFP under the agreement, AFP may not compete with

PRIor PRJ's new attorney-in-fact for a period of two years. (See Ex. 2 lO.C.(f)).

Additionally, PRJ is not prohibited from hiring AFP's personnel post-termination since AFP has

"breach[ed] its obligations to PRI under this Agreement." (See id. lO.C.(e)). In other words,

AFP agreed that its employees were free to work for a subsequent attorney-in-fact for PRI in the

event that it breached the Management Agreement, which it undeniably has.

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4 7. The potential harm to PRI, and to the medical industry and the patients it serves

far outweighs any potential harm to AFP.

48. Indeed, DFS notes these concerns in its Termination Order, stating that PRI must

be safeguarded "to protect existing and future policyholders, and to strengthen New York's

medical malpractice insurance market." (See Ex. 1 at 17).

WHEREFORE, Petitioner respectfully requests that the Court enter a

preliminary injunction in aid of arbitration as follows:

1. Prohibiting AFP from interfering with the transition of PRI' s insurance business

to PRIMMA, PRI's wholly-owned subsidiary by denying PRI and PRIMMA access to AFP's

employees or continuing the furlough of such employees;

2. Prohibiting AFP from interfering with PRIMMA hiring or employing any of the

personnel previously or currently retained by AFP that are necessary in order to conduct the

business of PRI;

3. Prohibiting AFP from interfering with PRI's and PRIMMA's use of and conduct

of the affairs of its insurance business at the Premises, and the use of the IT Systems and

Equipment therein, until such time that PRI is able to relocate to a suitable site and replace the IT

Systems and Equipment in a commercially reasonable manner;

4. Prohibiting AFP from interfering with or otherwise impeding in any manner

PRI's transition of the management of its insurance business to PRIMMA;

5. Prohibiting AFP from interfering with PRI's right to its books and records;

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6. Prohibiting AFP from contacting PRI' s subscribers or their brokers; and

7. Granting such other relief as this Court deems proper.

Dated: New York, New York /

July 10, 2017

By: ~
-R~~e_rt_L_e_w_i_n~~~--~--~---------

Michele L. Jacobson
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, NY 10038
Telephone (212) 806-5643
Facsimile: (212) 806-6006
rlewin@stroock.com

David Bolton
DAVID BOLTON, P.C.
Suite 509
666 Old Country Road
Garden City, New York 11530
Telephone: (516) 222-0600
Facsimile: (516) 908-4475
dbolton@dboltonpc.com

Attorneys for Petitioner

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VERIFICATION

STATE OF NEW YORK )

) ss:
COUNTY OF NEW YORK )

BRUCE C. SHULAN, being duly sworn, deposes and says: that he is the Chief

Restructuring Officer of the Petitioner Physicians' Reciprocal Insurers, in the above-entitled

proceeding; that he has read the foregoing Verified Petition and knows the contents thereof; that

the Verified Petition is true of his own knowledge, except as to matters therein state to be

alleged on information and belief, and that as to those matters h true.

Sworn to before me this

lOth day of July, 2017
ARTHUR J.IERSKOWttt
Naeay Public, State of New York
No. 02HE6357865
///)~../ ~In New York County
(_~/v(_/~-[ Cemmlaalm Expires May 1, 20 "> I
Notary Public

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