Full opinion text
MEMORANDUM DENNEY, District Judge. This matter comes before the Court after trial to the Court and submission of final written arguments. Jurisdiction is established under 28 U.S.C. § 1332. In this action, the plaintiffs, Calvert Fire Insurance Company [Calvert] of Baltimore,'Maryland, and Central National Insurance Company [Central National] of Omaha, Nebraska, have filed suit against the defendants, specifically Unigard Mutual Insurance Company [Unigard] of Seattle, Washington, seeking rescission of various reinsurance treaties. After long and careful deliberation, the Court is now ready to make the following findings of fact and conclusions of law. BACKGROUND At all times material to this lawsuit, there existed between Calvert and Central National agreements to share on a 50-50 basis the risks and profits of reinsurance accepted by either in their assumed reinsurance division. On June 19, 1975, Michael Cooper, of Guy Carpenter and Company [Guy Carpenter], San Francisco, California, a reinsurance intermediary, in writing, invited the plaintiffs to participate in a reinsurance program for the Unigard Insurance Group, Excess and Special Risks Department. Thereafter, on or about June 28, 1973, the plaintiffs executed four placement slips by which it agreed to accept and reinsure certain risks of the defendant, Unigard. Said placement slips were later replaced by formal reinsurance treaties executed by Calvert and Unigard on the following dates: EXCESS CASUALTY REINSURANCE TREATY, FIRST LAYER CALVERT — AUGUST 9, 1973 UNIGARD — NOVEMBER 27, 1973 EXCESS CASUALTY REINSURANCE TREATY, THIRD LAYER CALVERT — AUGUST 9, 1973 UNIGARD — NOVEMBER 27, 1973 EXCESS PROPERTY REINSURANCE TREATY CALVERT — OCTOBER 1, 1973 UNIGARD — OCTOBER 11, 1973 QUOTA SHARE REINSURANCE TREATY CALVERT — JULY 2, 1974 UNIGARD — JULY 12, 1974 . [Filing #66 at § 7]. Through Pritchard & Baird, Inc., Morris-town, New Jersey, another reinsurance intermediary, the parties entered into a fifth treaty known as the Special All Risk Reinsurance Agreement [All Risk Treaty] effective July 1, 1973. The formal agreement was executed by Unigard on March 8, 1974, and by Central National on January 28, 1974 [Filing # 66 at § 9]. The parties operated under the Quota Share and Excess Layered Treaties until December, 1974, when the contracts were terminated as a result of cancellation notices exchanged by the parties in September, 1974. The All Risk Treaty was mutually terminated effective July 1, 1974 [Filing # 66 at § 9, ¶ 10]. Reports continued to be rendered by Unigard on the runoff of the business reinsured. On August 22, 1977, the plaintiffs initiated this action seeking rescission of these reinsurance agreements. The basis of this action is twofold. First, the plaintiffs claim that Unigard, in the letter of June 19, 1973, from Michael Cooper of Guy Carpenter to the plaintiffs, made false and fraudulent representations regarding Unigard’s reinsurance program in order to induce plaintiffs to enter into said program and that plaintiffs, relying thereon, did enter into this program to their detriment. Second, the plaintiffs claim that Unigard failed to render timely and accurate reports and keep accurate records as required under the terms of the reinsurance agreements, thereby materially breaching said agreements. Unigard, by its answer, denies that it made any misrepresentations to the plaintiffs or materially breached the agreements and further contends that, even assuming that it did so,- the plaintiffs’ action is barred by the applicable statute of limitations and the doctrines of waiver and ratification. Unigard has also filed a counterclaim seeking the balance already allegedly due under the treaties, any payments which will subsequently become due, prejudgment interest and attorneys’ fees. SUMMARY OF FACTS The Unigard-Allen, Miller Relationship In late 1971, Unigard became interested in establishing an Excess and Special Risks Department and obtaining reinsurance to protect that facility [Tr. 365:17-24; 366:21-367:5]. At about that same time, James W. (Bill) Allen was considering terminating his employment with C. V. Starr & Co., Saw Francisco, California, an excess and surplus lines underwriting management agency [Tr. 367:24-368:2], and establishing his own independent firm to write excess and special risks business [Tr. 367:13 — 14; Seery depo. (11/3/78) 11:22-12:6; see also Ex. # 1 and # 2], In September of 1971, officers of Unigard were introduced to Mr. Allen and after some negotiations an agency agreement was entered into between Mr. Allen’s company, Allen, Miller & Associates [Allen, Miller], San Francisco, California, and Unigard, effective March 15, 1972 [Ex. # 13; Tr. 367:18-368:13], On May 30, 1972, Unigard issued a news release regarding the arrangement with Allen, Miller [Ex. # 11; Tr. 379-25-380:5], Under this arrangement, Allen, Miller was authorized, inter alia, to issue and terminate contracts of insurance, to have full underwriting authority, to collect premiums and pay claims, to negotiate reinsurance agreements by treaty, to place facultative reinsurance, to keep all necessary records, to issue quarterly reports, to keep all monies collected until rendering a report thereon 60 days after the close of each quarter, with the right to invest such sums in the interim and to retain the income therefrom, and generally to do everything necessary for the management of the insurance business conducted pursuant to the agreement. [Ex. # 13; see also Ex. # 209 and # 256]. Indeed, in discussing the nature of this arrangement, Robert Seery, Vice-President of Reinsurance Division at Unigard [Tr. 364:8-17; Seery depo. (3/11/78) 7:11-16], explained that it was considered a managing general agency [Tr. 368:14-17; Seery depo. (11/3/78) 38:16-39:1], as opposed to an ordinary agency. The Reinsurance Program Around this period of time, Unigard was also in contact with Michael Cooper of Guy Carpenter, regarding the placement of reinsurance to protect the new Unigard excess and special risks facility [Cooper depo. 18:25-19:3; 19:20-22; 20:15-21:15; 21:17-22:8; 31:28-33:13]. On March 10, 1972, Unigard formally appointed Guy Carpenter as reinsurance intermediary, to negotiate certain reinsurance agreements for Unigard [Ex. # 5; Tr. 377:15-20; Cooper depo. 18:7-17]. While the formal treaty documents had not been completely drafted at this time, it was essentially March 15, 1972, the effective date of Unigard’s agency agreement with Allen, Miller, that Unigard’s reinsurance program became operational [Cooper depo. 37:13-16; 40:8-25], As set up, the reinsurance program operated on a layered basis. The first layer was the Quota Share Treaty which covered the first $500,000.00 of risk [Tr. 368:18-25]. Under the Quota Share Treaty, a reinsurer has a certain percentage share of the risk and a certain percentage share of the premium [Tr. 438:13-18; Cooper depo. 20:4-7]. For example, when the program began, Unigard retained a 20% position in the Quota Share, placed 20% directly without the use of an intermediary, and had the remaining 60% placed by Guy Carpenter [Tr. 369:4-6; Cooper depo. 37:13-38:1]. The next layer consisted of the Excess Layered Treaties. These treaties covered risks in excess of the $500,000.00 Quota Share Treaty limit up to a maximum of $5,000,000.00 [Tr. 369:6-18]. These treaties were also placed by Guy Carpenter, and, like the Quota Share Treaty, the reinsurers on these treaties had a percentage of the risk and a percentage of the premiums [Cooper depo. 38:17-39:1], As mentioned earlier, Unigard and the plaintiffs also entered into an All Risk Treaty through Pritchard & Baird, Inc. [Tr. 369:19-22], This treaty provided coverage up to $500,000.00 [Seery depo. (9/26/79) 34:4-7] and could be used interchangeably with the Quota Share Treaty to provide coverage for those insurance lines excluded by that treaty as the All Risk Treaty had fewer exclusions [Tr. 369:25-270:1; Seery depo. (9/26/79) 36:10-37:9], The last layer consisted of facultative reinsurance. This reinsurance provided coverage over and above the Quota Share, Excess Layered and All Risk Treaties, thereby permitting Allen, Miller, who could place this reinsurance itself pursuant to its agreement with Unigard [Ex. # 13], to further increase the size of the risk it could write [Tr. 370:3-9]. Central National’s and Calvert’s Involvement in the Program Shortly before June of 1973, one of the original reinsurers on the Quota Share and Excess Layered Treaties, New England Reinsurance Corporation [NERCO] which had a 35% position in the Quota Share, informed Mr. Cooper that it desired to terminate its contracts as of July 1, 1973 [Tr. 388:14-18; Cooper depo. 41:1-11], Informed of NERCO’s decision, Unigard instructed Mr. Cooper to increase its participation on the Quota Share Treaty by 10% and replace the remaining 25% [Cooper depo. 45:21-22; 46:21-24; Tr. 388:14-389:7], Thereafter, Mr. Cooper, in order to replace the remaining 25% on the Quota Share Treaty, wrote Robert Sias, Vice-President of Reinsurance Division at Central National [Tr. 94:18-19] to invite Central National’s participation in Unigard’s reinsurance program [Ex. # 28]. As this document forms the basis of plaintiff’s allegations of misrepresentation, the Court will proceed to an examination of the contents contained therein. In the June 19, 1973, letter inviting Central National’s participation in the Unigard’s reinsurance program, Mr. Cooper captioned the letter: UNIGARD INSURANCE GROUP Excess and Special Risks Department A similar caption is set forth on the statement of “Underwriting Information” and on each of the two sheets of performance figures accompanying the cover letter. Following the performances figures were the placement slips regarding the four reinsurance treaties. In setting forth what business the reinsurance agreements would cover, each placement slip stated in pertinent part that it covered a specified portion “. . . of all business written in the Reassureds Excess and Special Risks Department.” The only reference in the material sent by Mr. Cooper regarding Allen, Miller and its functions was the single statement in the Underwriting Information that “Underwriting is performed by Allen, Miller & Associates of San Francisco and New York.” [Ex. # 28], In the June 19 letter, Mr. Cooper also set forth the projected premium income under the treaties for the twelve months starting July 1, 1973. In this regard, he wrote: The estimated premium income under the various Covers for the twelve months starting July 1, 1973 is as under: (1) Quota Share — $10,000,000 for 100%. (2) Liability subject earned premium $4,000,000, developing a reinsurance premium of $1,000,000 on the three Liability Covers. (3) Property Excess — $2,000,000 developed reinsurance premium at the rate of 40% of G.O.P. of risks attaching. [Ex. # 28], Finally, the placement slips and the reinsurance treaties which replaced them provided that the plaintiffs, in addition to providing reinsurance on policies written after July 1,1973, would also provide reinsurance on risks represented by unearned premiums on policies in effect on June 30, 1973. In this regard, the experience figures attached to Mr. Cooper’s letter of June 19, 1973, showed the written premium for the period April 1, 1972 to March 31, 1972, under the various treaties to be $6,149,025.00, the earned premium for the same period to be $3,264,586.00, thereby leaving an unearned premium portfolio of $2,884,439.00 to be assumed by the reinsurers on July 1, 1973 [Ex. # 28], On or about June 28, 1973, Mr. Sias executed the placement slips, thereby agreeing to accept and reinsure certain risks of Unigard [See Ex. # 28]. As mentioned earlier, these placement slips were later replaced by formal reinsurance agreements [Ex. # 252A-# 255A], Reporting and Termination During this period of time, Unigard did not render any report to the plaintiffs within sixty days of the close of the Second Quarter of 1973 other than a letter dated September 25, 1973, from Guy Carpenter reporting the 100% unearned premium portfolio on June 30, 1973, to be $3,564,348.87 [Ex. # 41; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6]. Thereafter, the plaintiffs began receiving various quarterly reports. The Third Quarter 1973 report received by the plaintiffs on January 4, 1974, showed the unearned premium portfolio transfer of July 1, 1973, to be $6,411,320.88 [Ex. # 235; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6], The Fourth Quarter 1973 account received by the plaintiffs on March 8, 1974, represented the unearned premium portfolio transfer to be $8,482,098.70 [Ex. # 237; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6], The First Quarter 1974 report, received by plaintiffs on July 15, 1974, represented the July 1, 1973, unearned premium portfolio transfer to be $8,394,511.10 [Ex. # 238; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6]. This figure was subséquently revised to $9,128,592.79 [Ex. 258, Defendant’s answers to Interrogatory # 6]. Likewise, throughout these quarters, premium income written for the various covers from April 1, 1972, to June 30, 1973, began to increase drastically. [See Ex. # 258, Defendant’s answers to Interrogatory # 1]. In August of 1974, officers at Unigard began discussing the termination of its agency agreement with Allen, Miller [Ex. # 65 and # 68]. On August 8, 1974, Mr. Allen, of Allen Miller, sent notice of its intent to terminate the agreement effective October 15, 1974 [Ex. # 67]. Thereafter, the parties executed a memorandum agreeing that the agency agreement would terminate on October 15, 1974 [Seery depo. (11/3/78) 62:19-63:15], On September 27,1974, the plaintiffs sent Unigard its notice of cancellation of the Quota Share and Excess Layered Treaties, effective December 31, 1974 [Ex. # 75A, B, C]. On October 2, 1974, Mr. Cooper wrote Central National enclosing a notice of cancellation of the treaties dated September 26, 1974, from Unigard, effective December 31, 1974 [Ex. # 76A, B], On October 3,1974, the plaintiffs received the Second Quarter 1974 report which indicated the July 1, 1973, unearned premium portfolio transfer to be $9,099,474.42 [Ex. # 239; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6]. On April 4, 1975, the plaintiffs received the Third Quarter 1974 report showing the July 1, 1973, unearned premium portfolio to be $9,915,957.74 [Ex. # 250; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6]. On May 27, 1975, the plaintiffs received the Fourth Quarter 1974 account indicating the unearned premium portfolio transfer of July 1, 1973, to be $10,417,286.81 [Ex. # 241; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6]. Again, throughout these quarters the actual premium income written for the treaties continued to rise [See Ex. # 258; Defendant’s answers to Interrogatory # 1], Around this period of time, Unigard personnel began traveling to San Francisco to reconstruct Allen, Miller’s records. [Nee Ex. # 81, # 85, # 90, # 92, # 93, # 96, # 98, # 200, # 205], On November 11, 1975, the First Quarter 1975 report, the first report issued by Unigard was received by the plaintiffs. In this report, the unearned premium portfolio transfer of July 1, 1973, was shown to be $17,133,845.00, a jump of approximately $7,000,000.00 from the last report, and the written premium for the period July 1, 1973 to December 31, 1973, was shown to be $12,343,966.35 [Ex. # 242; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6]. That same date, the plaintiffs received from Unigard the Second Quarter 1975 report indicating the unearned premium portfolio transfer to be $17,039,858.42, and the written premium for the period July 1, 1973 to December 31, 1973, to be $13,057,001.36 [Ex. # 242; see also Ex. # 270; Ex. # 258, Defendant’s answers to Interrogatory # 6]. Actual premium income written under these treaties from April 1,1972 to June 30, 1973, rose drastically from approximately $15,000,000.00 for the Fourth Quarter 1974 to approximately $25,000,000.00 for the First and Second Quarters of 1975 [See Ex. # 258, Defendant’s answers to Interrogatory # 1]. In December of 1975, Earl Watters, Comptroller at Central National [Tr. 236:18-21], was informed by Central National’s Reinsurance Division that the figures furnished by Unigard in the reports received in November of that year were incorrect. Consequently, he refused to honor further reports, or make any payments to Unigard pending clarification [Ex. # 230; Tr. 236:2-11; 237:23-238:2]. Subsequently, efforts to obtain accurate figures were made by Central National on a number of occasions through 1976 [Ex. # 216, # 217, # 220, # 220A]. However, during an inspection visit to Unigard by Ken Johnson, head of Central National’s Reinsurance Claims Department [Tr. 166:8-10], he was told by Mr. Seery that it would be as long as six months to a year before the obvious errors in the figures could be corrected [Tr. 200:11-201:4]. On December 17, 1976, a meeting was held by the principals of Central National, Calvert and Unigard in an attempt to resolve their differences. The effort was unsuccessful [Ex. # 231]. In April of 1977, Central National retained James H. Von Gunten, a reinsurance consultant [Tr. 244:13-14] to review Central National’s and Unigard’s files and advise Central National regarding the situation [Tr. 248:25-249:3]. Mr. Von Gunten’s preliminary observations were received on April 7, 1977 [Ex. # 259]. On April 15, 1977, a second meeting was held between the executives of Central National and Unigard in an attempt to arrive at a settlement. Again, this effort was unsuccessful [Tr. 486:5-7; 84:2-14; 85:8-16; Seery depo. (9/26/79) 67:20-69:22]. Thereafter, arrangements were made for Mr. Von Gunten to make a full scale audit of Unigard on behalf of the plaintiffs [Tr. 250:4-7]. Mr. Von Gunten’s report was received on July 8, 1977 [Ex. # 234]. On August 22, 1977, the plaintiffs initiated this action for rescission, tendering back premiums received by them under the treaties. The All Risk Treaty On May 17, 1973, Joseph L. Kelley, of Pritchard & Baird, Inc., wrote Mr. Sias inviting Central National’s participation in a fifth treaty, an All Risk Treaty [Ex. # 143]. Mr. Kelley’s letter was captioned: Unigard Mutual Insurance Company for the account Allen, Miller Associates At the bottom of the cover letter, Mr. Kelley wrote: “Unigard is making its mark in the excess and surplus lines field. We have good reason to believe the growth pattern will be solid and consistent with Unigard’s performance in the past.” Attached to the cover letter was a memorandum containing a similar caption on each of its pages. At the end of the memorandum was some information regarding the employees of Allen, Miller [Ex. # 263]. With respect to the premiums ceded to reinsurers from inception May 1, 1972, through March 31, 1973, Mr. Kelley, in his letter wrote: “We note that Premiums ceded to Reinsurers from inception May 1,1972 through December 31, 1972 amounted to $210,834; first quarter has indicated an additional $127,871 with one loss of $100,000 reserved.” Thereafter, in his memorandum, Mr. Kelley stated that projected premium volume was $450,000.00 to $500,000.00 per year [Ex. # 263]. The All Risk Treaty became effective July 1, 1973, with Unigard executing the formal treaty agreement on March 8, 1974, and Central National executing said agreement on January 28, 1974 [Ex. # 143]. The agreement was mutually terminated effective July 1, 1974 [see Filing # 66 at ¶ 9], On March 31, 1979, Unigard issued a report indicating that first year volume for the treaty was $2,033,670.89 and succeeding year volume was $4,755,430.22 [Filing # 45, Ex. C]. GOVERNING LAW This being a diversity action, at the outset the Court is faced with the determination of what state law governs the issues involved herein. In their final written argument, the plaintiffs raise, for the first time, the possibility that the law of California or Washington, rather than the law of Nebraska, is applicable to the issues raised in this case. Prior to that time, this Court was of the impression, by reason of its view of the case and the contentions of the parties involved, that Nebraska law governed this action. Nevertheless, assuming that a conflict exists between the laws of these states, it is clear, as the following discussion will demonstrate, that the Court’s initial impression was correct. It has long been established that in a diversity action, in a conflict of laws situation, a federal district court must apply the conflict of laws rule of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Seedkem v. Safranek, 466 F.Supp. 340 (D.Neb.1979); Epperson v. Christenson, 324 F.Supp. 1121 (D.Neb.1971). The question then presented is what conflict of laws rule the Nebraska Supreme Court has held applicable in this situation. This Court’s research has failed to disclose any Nebraska choice of law rules dealing particularly with an action for rescission of a reinsurance agreement on the basis of misrepresentation and nonperformance. Under these circumstances, the Court believes that the approach taken by Judge Robinson of this Court in the case of Fullington v. Iowa Sheet Metal Contractors, 319 F.Supp. 243 (D.Neb.1970), should be applied in this case. In Fullington, Judge Robinson wrote: Since this Court is not bound by the Nebraska pleading rule it was necessary in the present case to determine whether Nebraska or Iowa law applied, because Nebraska itself has no choice of law rule governing the type of action herein involved. This Court being free to fashion a choice of law rule of its own, adopted the modern trend in this area, of isolating the particular issue and then applying the law of the state having the most significant contacts with that particular issue. Here, the particular issue involved is the injury to the plaintiff, and the state having the most significant contact with that issue is Iowa, since that is where the injury occurred. This Court’s instructions on the law of this case were in accord with present Iowa law. Fullington v. Iowa Sheet Metal Contractors, supra, 319 F.Supp. at 245. Applying the most significant contacts analysis of Fullington to the issues involved in this litigation makes clear that Nebraska law applies. Plaintiffs’ original complaint alleged that the defendant companies were corporations of six different states and that Central National was a Nebraska corporation with its principal place of business in Nebraska. Plaintiffs further alleged that Central National and Calvert had entered into an agreement to share the risks and profits of the proposed reinsurance scheme on a 50-50 basis and that “all these acts were performed in whole or in part in Nebraska.” [Filing # 1 at ¶ V]. Plaintiffs also alleged that “in or about June of 1973, the defendants, in Omaha, Nebraska, through their broker of record, submitted a written offer to Central National . .. . ” [Filing # 1 at ¶ IV]. Plaintiffs then alleged that by reason of the fraud that induced plaintiffs to enter into the treaties, said treaties are void from inception. Likewise, in their first amended complaint, plaintiffs alleged that “on or about June 19, 1973, Unigard, in Omaha, Nebraska, through its negotiating agent, Guy Carpenter & Company, Inc., submitted a written offer to Central National which proposed that Central National reinsure a portion of the insurance issued by Unigard . . . . ” [Filing # 34 at ¶ V], As noted previously, this written offer, which was sent to Omaha, Nebraska, contained placement slips for Central National to execute. Said placement slips were executed by Robert Sias, an officer of Central National. Similarly, the treaty agreements which replaced the placement slips as the formal contractual documents, were executed by Mr. Sias. Moreover, the theory of plaintiffs’ cause of action is that the representations made in Omaha, Nebraska by Guy Carpenter on behalf of Unigard, were made with knowledge of their falsity or as positive statements of fact without knowledge thereof and with reckless disregard as to their truth. In other words, the plaintiffs have, in effect, alleged that a tort was committed upon them in Nebraska for which they seek rescission. In sum, Nebraska is the jurisdiction in which the offer to the plaintiffs was submitted, the jurisdiction in which the offer was accepted, the jurisdiction in which the alleged misrepresentations were committed, the jurisdiction in which the treaties were executed by the plaintiffs, the jurisdiction in which the main plaintiff, Central National, is incorporated and has its principal place of business, and, finally, the jurisdiction in which the plaintiffs have suffered any damages. Indeed, Nebraska is the jurisdiction in which the meetings between the officers of the plaintiffs and Unigard were held in 1976 and 1977 in an attempt to settle this matter. By contrast, the California and Washington contacts with this litigation are, at the most, quite minimal. California’s only contact with this matter is that Allen, Miller and Guy Carpenter are located there. Yet, Allen, Miller had no contractual relationship with the plaintiffs. And, while Guy Carpenter negotiated and placed the reinsurance, handled communications and sent periodic bills to the plaintiffs, the end result of its functions occurred in Nebraska. Likewise, Washington’s only contact with this action is that it is the state of Unigard’s residency. Therefore, it is clear from the above discussion that Nebraska is the state with the most significant contacts with the issues involved in this litigation. Accordingly, this Court, in making its determination herein, will look to applicable Nebraska law. RESCISSION — MISREPRESENTATION As noted previously in this opinion, the plaintiffs’ main theory in support of their claim for rescission of these reinsurance agreements is that Unigard allegedly made various misrepresentations at the inception of these agreements which induced plaintiffs to enter into these agreements, ultimately to their detriment. Briefly stated, the plaintiffs contend that Unigard misrepresented the true status of Allen, Miller and its “Excess and Special Risks Department”, and the premium volume and unearned premium portfolio portion of that volume as of March 31, 1973, in the June 19, 1973, letter written by Mr. Cooper of Guy Carpenter, on Unigard’s behalf. Before proceeding to a consideration of the merits of these allegations, it is necessary to review the present state of Nebraska law in the area of misrepresentation. Applicable Law Throughout this lawsuit, the parties have disagreed as to what are the essential elements of misrepresentation. Essentially, this disagreement has centered on the question of whether the plaintiffs must prove scienter or an “intent to deceive” as one of the essential elements. Unigard, of course, argues that proof of scienter in terms of an intent to deceive is an essential element of misrepresentation. On the other hand, the plaintiffs argue that in an action for rescission based on false representations, proof of scienter is unnecessary. A brief review of Nebraska law will make these positions clearer. The essential elements of a cause of action for rescission based on misrepresentation has been set forth on various occasions by the Nebraska Supreme Court. In Russo v. Williams, 160 Neb. 564, 571, 71 N.W.2d 131, 138 (1955), the court wrote as follows: To maintain an action for rescission because of false representations the party seeking such relief must allege and prove what representations were made; that they were false and so known to be by the party charged with making them or else were made without knowledge as a positive statement of known fact; that the party seeking relief believed the representations to be true; and that he relied and acted upon them and was injured thereby. Accord, Anson v. Grace, 174 Neb. 258, 117 N.W.2d 529 (1962); Wegner v. West, 169 Neb. 546, 100 N.W.2d 542 (1960); Caruso v. Moy, 164 Neb. 68, 81 N.W.2d 826 (1951). However, the list of essential elements set forth above has not been restricted solely to actions for rescission. On numerous occasions, the Nebraska Supreme Court has set forth essentially the same elements in many other types of actions. See, e. g., Smith v. Wrehe, 199 Neb. 753, 261 N.W.2d 620 (1978) (action to recover balance due; action defended on ground of false representation); Moser v. Jeffrey, 194 Neb. 132, 231 N.W.2d 106 (1975) (action for damages for false representations); Buhrman v. International Harvester Co., 181 Neb. 633, 150 N.W.2d 220 (1967) (action for civil conspiracy based on fraud); Cook Livestock Co. v. Reisig, 161 Neb. 640, 74 N.W.2d 370 (1956) (action for damages for false representations); Campbell v. C & C Motor Co., 146 Neb. 721, 21 N.W.2d 427 (1946) (action at law for false representations); Paul v. Cameron, 127 Neb. 510, 256 N.W. 11 (1934) (action for damages on the basis of fraud); Peterson v. Schaberg, 116 Neb. 346, 217 N.W. 586 (1928) (action for damages for deceit). Yet, in 1969, in the case of Transportation Equip. Rentals, Inc. v. Mauk, 184 Neb. 309, 167 N.W.2d 183 (1969), the Nebraska Supreme Court unexplainedly added a new element to the list — “intent to deceive.” In this regard, the court wrote: The essential elements required to sustain an action for fraud are, generally speaking, that a representation was made as a statement of fact, which was untrue and known to be untrue by the party making it, or else recklessly made; that it was made with intent to deceive and for the purpose of inducing the other party to act upon it; and that he did in fact rely on it and was induced thereby to act to his injury or damage. [Emphasis added]. Transportation Equip. Rentals, Inc. v. Mauk, supra, 184 Neb. at 312, 167 N.W.2d at 186. From that point on, the Nebraska Supreme Court on numerous occasions reiterated the essential elements as set forth in Mauk. See, e. g., Luscher v. Empkey, 206 Neb. 572, 293 N.W.2d 866 (1980); Novotny v. McClintick, 206 Neb. 99, 291 N.W.2d 252 (1980); Negus, Sweenie Inc. v. Beaver Lake Corp., 202 Neb. 671, 276 N.W.2d 668 (1979); Page v. Andreason, 200 Neb. 641, 264 N.W.2d 682 (1978); Bellairs v. Dudden, 194 Neb. 5, 230 N.W.2d 92 (1975). Thus, from the foregoing review of the Nebraska law on this subject, the positions of the parties become even more apparent. The plaintiffs argue that this being an action for rescission based on misrepresentation, the essential elements of Russo v. Williams, supra, should be applied and that proof of scienter or an “intent to deceive” should be unnecessary. On the other hand, Unigard, relying on Transportation Equip. Rentals, Inc. v. Mauk, supra, and its progeny, contends that the essential elements contained in those cases should be applied herein and, therefore, that the plaintiffs must prove scienter or an intent to deceive on Unigard’s part. In support of its position, the plaintiffs argue that the differences in the proof requirements lies in the distinction between an action brought at law and an action brought in equity, as here. In essence, plaintiffs contend that in an action at law for misrepresentation, proof of scienter is necessary. On the other hand, the plaintiffs claim that in an action brought in equity, for example, for rescission, based on misrepresentation, proof of scienter is unnecessary. However, this claimed distinction does not seem to find support in Nebraska law. True, in many early cases, the Nebraska courts repeatedly stated that in actions based on false representations, it was not necessary to prove scienter. Yet, a review of those cases indicates that, those courts, in holding that scienter was unnecessary, did not distinguish between actions at law or actions brought in equity. See Paul v. Cameron, supra (action for damages; not necessary to allege or prove scienter); Kuhlman v. Shaw, 91 Neb. 469, 136 N.W. 55 (1912) (action for damages; not necessary to aver or prove scienter); Omaha Elec. Light & Power Co. v. Union Fuel Co., 88 Neb. 423, 129 N.W. 989 (1911) (action for damages for deceit and fraud; proof of scienter in an action for fraud and deceit not necessary); Gerner v. Mosher, 58 Neb. 135, 78 N.W. 384 (1899) (action for damages for false representation; not necessary to prove scienter); Johnson v. Gulick, 46 Neb. 817, 65 N.W. 883 (1896) (defendant counterclaimed for damages based on false representation; proof of scienter held unnecessary). Indeed, in Maser v. Lind, 181 Neb. 365, 148 N.W.2d 831 (1967), the most recent case in which the Nebraska Supreme Court held that proof of scienter is unnecessary and a case upon which the plaintiffs place much reliance, the plaintiffs were seeking damages for fraud, not rescission. Moreover, as noted earlier in this discussion, prior to the Mauk decision, the essential elements necessary to be proved in numerous eases brought at law were essentially the same as the elements required to sustain an action for rescission on the basis of misrepresentation. In each case, there was no requirement that scienter or intent to deceive be proved. See also Swanson Petroleum Corp. v. Cumberland, 184 Neb. 323, 167 N.W.2d 391 (1969); Allied Bldg. Credits, Inc. v. Damicus, 167 Neb. 390, 93 N.W.2d-210 (1958). A consideration of the Nebraska Supreme Court’s approach on the equity side, likewise, indicates that that equity-law distinction put forth by the plaintiffs does not seem to be followed under Nebraska law. In Bellairs v. Dudden, supra, the plaintiffs brought suit to enforce a constructive trust on the basis of fraud. Although this was purely an equitable action, the Nebraska Supreme Court, quoting from the Mauk decision, held that one of the essential elements required to sustain an action for fraud was that the representation “was made with intent to deceive . . ..” Bellairs v. Dudden, supra, 194 Neb. at 13, 230 N.W.2d at 97. However, the fact that this equity-law distinction does not find support under Nebraska case law does not necessarily mean that in this case the plaintiffs must prove that Unigard made its various misrepresentations with “intent to deceive.” A review of the Mauk decision and some of the case law thereafter will shed more light on this proposition. As noted earlier, it was in the 1979 case of Transportation Equip. Rentals, Inc. v. Mauk, supra, that the Nebraska Supreme Court unexplainedly added a new element to the list of essential elements required to be proved in an action for misrepresentation. In so doing, the Mauk court cited to the case of Campbell v. C & C Motor Co., supra. Yet, nowhere in the Campbell case was the requirement of scienter or “intent to deceive” included among the essential elements set forth therein. Campbell v. C & C Motor Co., supra, 146 Neb. at 723-24, 21 N.W.2d 427. Moreover, in the Mauk decision, the Nebraska Supreme Court made no reference to the Maser case which was decided a mere two years earlier and in which the court held that proof of scienter was unnecessary. As discussed earlier, since the Mauk decision, the Nebraska Supreme Court has, on various occasions, reiterated the essential elements contained in that case in other decisions. However, this has not always been the case. In Swanson Petroleum Corp. v. Cumberland, supra, the plaintiff sought damages for the value of goods allegedly obtained by the defendant by false pretenses. While this case was decided merely a week after Mauk, the court, in setting forth the essential elements for fraud, made no reference to the requirement of “intent to deceive” or the Mauk decision. Swanson Petroleum Corp. v. Cumberland, supra, 184 Neb, at 330, 167 N.W.2d at 396. Thereafter, in the case of Mid-States Equip. Co. v. Evans, 191 Neb. 230, 214 N.W.2d 496 (1974), the plaintiff brought an action for damages on the basis of fraud. Judgment was rendered for the plaintiff in the lower court and the defendant appealed. On appeal, the defendant asserted as error the giving of an instruction which states that one element of fraud is that false representations were made, knowing them to be false or without knowledge of their truth or falsity as a positive statement of fact. The Nebraska Supreme Court found no error, stating as follows: Defendant asserts error in an instruction which permitted a finding of fraud if “the representations were submitted by the defendant without knowledge of the truth or falsity of the same as a positive statement of fact.” No authorities are cited. In regard to this element of fraud we have heretofore approved the criterion criticized. See, Campbell v. C & C Motor Co., 146 Neb. 721, 21 N.W.2d 427; Swanson Petroleum Corp. v. Cumberland, 184 Neb. 323, 167 N.W.2d 391. Mid-States Equip. Co. v. Evans, supra, 191 Neb. at 231-32, 214 N.W.2d at 497-98. Significantly, in a concurring opinion, Judge Spencer wrote: Appellant in this action contends that intent is an element of fraud in Nebraska. He relies upon Transportation Equipment Rentals, Inc. v. Mauk (1969), 184 Neb. 309, 167 N.W.2d 183, the first syllabus point of which reads: “The essential elements required to sustain an action for fraud are, generally speaking, that a representation was made as a statement of fact, which was untrue and known to be untrue by the party making it, or else recklessly made; that it was made with intent to deceive and for the purpose of inducing the other party to act upon it; and that he did in fact rely on it and was induced thereby to act to his injury or damage.” (Italics supplied.) The statement “that it was made with intent to deceive and for the purpose of inducing the other party to act upon it” crept into that case by inadvertence and had no bearing on the result reached. Our law is otherwise. See, Swanson Petroleum Corp. v. Cumberland (1969), 184 Neb. 323, 167 N.W.2d 391; Allied Building Credits, Inc. v. Damicus (1958), 167 Neb. 390, 93 N.W.2d 210; Campbell v. C & C Motor Co. (1946), 146 Neb. 721, 21 N.W.2d 427. Mid-States Equip. Co. v. Evans, supra, 191 Neb. at 232-33, 214 N.W.2d at 498. In 1978, in the case of Smith v. Wrehe, supra, the plaintiff brought suit to recover the balance due on the purchase price of a contract for the sale of a taxicab company. The defendant prayed for dismissal on the ground that he had been induced to sign the contract because of plaintiff’s false representation. In setting forth the essential elements, the court made no mention of the element of “intent to deceive.” Smith v. Wrehe, supra, 199 Neb. at 757-58, 261 N.W.2d at 623-24. Finally, in the recent case of Ames Bank v. Hahn, 205 Neb. 353, 287 N.W.2d 687 (1980), the Nebraska Supreme Court shed some light on the problems created by the Mauk decision. In Ames Bank, the plaintiff filed the following petition, as described in pertinent part by the Nebraska Supreme Court: The amended petition alleged in its first cause of action that the defendant Hahn was a lawyer associated with and employed by the defendants, Warren S. Zweiback, Mark L. Laughlin, and Zweiback & Laughlin, a partnership; that on October 14, 1974, Bruce N. Miller, as president of E. G. Miller Realty Company, delivered a promissory note in the-amount of $153,358.60 to the plaintiff; that Hahn and Zweiback & Laughlin represented Bruce N. Miller, a partner in Minnesota Candlewood Company; that on November 7, 1974, Hahn prepared two mortgages from Candlewood to the plaintiff which were intended to secure the E. G. Miller Realty Company note, but the mortgages described land now owned by Candlewood; that Hahn represented to the plaintiff that Candlewood owned the land described in the mortgages; that on February 18, 1975, E. G. Miller Enterprises, Inc., executed a warranty deed to Candlewood that had been prepared by Hahn but which did not describe the property the deed was intended to convey; that Hahn was in direct communication with the .plaintiff in regard to these matters, and the plaintiff relied upon the misrepresentations made by Hahn; that the plaintiff does not show whether Hahn knew whether the representations he made to the plaintiff were untrue; that the plaintiff had been damaged because there was a balance of $148,358.60, plus interest, due on the note which the plaintiff was unable to collect because of the misrepresentations of Hahn. There was no allegation that Hahn knew the representations were false and no direct allegation that the representations were made with the intention that they be acted upon. Ames Bank v. Hahn, 205 Neb. at 354-55, 287 N.W.2d at 688-89. In response, the defendant filed a demurrer to the petition, contending that the plaintiff was required to allege scienter or “an intent to deceive.” In addressing this issue, the Nebraska Supreme Court wrote: The issue with regard to the first cause of action is whether the plaintiff was required to allege scienter or an intent to deceive. In Page v. Andreasen, 200 Neb. 641, 264 N.W.2d 682, we said: “The essential elements required to sustain an action for fraudulent misrepresentation are, generally speaking, that a representation was made as a statement of fact, which was untrue and known to be un true by the party making it, or else recklessly made; that it was made with intent to deceive and for the purposes of inducing the other party to act upon it; and that he did in fact rely on it and was induced thereby to act to his injury or damage.” (Emphasis supplied.) The plaintiff relies on Campbell v. C & C Motor Co., 146 Neb. 721, 21 N.W.2d 427, and contends that it was not required to allege that the misrepresentation was made with intent to deceive. In the Campbell case we said: “In this connection, the burden is on the plaintiff to prove by preponderance of the evidence, the following essential elements constituting fraud and deceit: (1) That such defendant made a material representation; (2) that it was false; (3) that, when made, such defendant knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted on by plaintiff; (5) that plaintiff acted in reliance on it; and (6) that he thereby suffered injury.” (Emphasis supplied.) The requirement of scienter is satisfied by alleging that the person making the statement knew the statement was false, or made it as a positive statement without knowledge as to whether it was true or false, and the false statement was made with intention that it should be acted upon. See, 37 C.J.S., Fraud, § 19, p. 254; Prosser, Law of Torts (4th Ed.), § 107, p. 699, at p. 700. The first cause of action alleged in this case was defective because the plaintiff failed to allege that the defendant knew the representation was false, or made the representation as a positive statement without knowledge as to whether it was true or false. Ames Bank v. Hahn, supra, 205 Neb. at 355-56, 287 N.W.2d at 689. Reading the Ames Bank decision in light of prior Nebraska case law discussed earlier, it is this Court’s opinion that proof of scienter is, indeed, necessary. However, this is not scienter in terms of an “intent to deceive.” Rather, this is scienter in terms of knowledge and it is satisfied, as Ames Bank demonstrates, by proving that the person who made the representation knew it was false or made it as a positive statement without knowledge as to its truth or falsity. Moreover, this interpretation is completely consistent with and, indeed, supported by those early cases in which the Nebraska courts held that proof of scienter was unnecessary. As those cases demonstrate, the courts therein were referring to scienter in terms of good faith or intent. See.Paul v. Cameron, supra; Newberg v. Chicago B. & Q. R. R. Co., 120 Neb. 171, 231 N.W. 766 (1930); Field v. Morse, 54 Neb. 789, 75 N.W. 58 (1898); Johnson v. Gulich, supra. However, in listing the essential elements needed to be proved, those courts required the injured party to prove that the person who made the representation “knew it was false or else made it without knowledge as a positive statement of known fact.” Paul v. Cameron, supra, 127 Neb. at 517, 256 N.W. at 14. Accord, Peterson v. Schaberg, supra; see also Willard v. Key, 83 Neb. 850, 120 N.W. 419 (1909). And, it was this same element that was, in essence, adopted and consistently required to be proved as part of the essential elements set forth in both cases at law and in equity, decided thereafter. In sum, proof of scienter is necessary. However, as the case law demonstrates, this is scienter in terms of a knowledge requirement, not in terms of an “intent to deceive,” as Unigard contends. Accordingly, it is clear, in light of the foregoing discussion, that the essential elements necessary to prove a cause of action for misrepresentation have, in essence, remained the same. There are no actual differences, as the parties in this case contend. In short, this Court has come full-circle back to the essential elements in the rescission cases presented at the beginning of this discussion. Thus, it is those elements that will be applied herein. To reiterate, they are as follows: To maintain an action for rescission because of false representations the party seeking such relief must allege and prove what representations were made; that they were false and so known to be by the party charged with making them or else were made without knowledge as a positive statement of known fact; that the party seeking relief believed the representations to be true; and that he relied and acted upon them and was injured thereby. Russo v. Williams, supra, 160 Neb. at 571, 71 N.W.2d at 138. Having decided upon the essential elements upon which the plaintiffs have the burden of proof, the Court will proceed to a consideration of the merits of plaintiffs’ allegations of misrepresentation. Discussion (a) Status of Guy Carpenter and Company. At the outset, Unigard contends that it cannot be held responsible for the representations contained in the June 19, 1973, solicitation letter from Mr. Cooper of Guy Carpenter and Company to Mr. Sias of Central National, for the reason that at no time was Guy Carpenter and Company acting as an agent for Unigard. However, in light of the facts of this case and the applicable law, this Court cannot agree. On March 10, 1972, Mr. Seery wrote to Mr. Cooper stating: “We would like Guy Carpenter to negotiate certain reinsuance contracts for us .. ..” (Emphasis added) [Ex. # 5]. At his deposition, Mr. Cooper referred to this letter as Guy Carpenter’s “formal appointment” to place reinsurance for Unigard [Cooper depo. 18:7-17]. With respect to its effect, he stated: “This letter empowers us to go into the market and do the transaction of business. We sent a copy of this — in fact, Mr. Sias got a copy of this as our letter to represent the reinsured companies.’’ (Emphasis added) [Cooper depo. 19:15-18], After Guy Carpenter’s appointment as reinsurance intermediary, Mr. Cooper, on various occasions sent drafts of underwriting information and treaty wording to Unigard, for its approval [See Ex. # 6, # 10, # 12, # 15-17]. Thereafter, Guy Carpenter transmitted the statement of accounts and periodic bills to the plaintiffs [See Ex. # 235, # 237-51], In the recent case of In re Pritchard & Baird, Inc., No. E-75-3202 (D.N.J. March 1, 1979), the court faced this identical question based on a set of facts similar to those presented in this case. In that case, the court held that the reinsurance intermediary was an agent of the reinsured. In this regard, the court wrote in pertinent part: Here, ESLIC and P & B entered into an agreement whereby P & B would secure reinsurers who would accept reinsurance on terms and conditions set by ESLIC. During all negotiations leading to the acceptance and execution of the treaty ESLIC made all final decisions as to the terms and conditions of the reinsurance treaty, the ceding commissions to be paid and the limits of the treaty. The reinsurance was offered to the reinsurers on a take it or leave it basis. There is no doubt that P & B was acting as ESLIC’s agent for the purpose of ceding the reinsurance, as the reinsurers had no right to negotiate terms or conditions and, indeed,their participation in the treaty was subject to the conditions set by ESLIC .... * * * * * * The contention that. P & B acted as a dual agent has no support in the facts before the Court. There is no indication that any of the reinsurers had the right to, or did control any of the actions of P & B; nor did P & B consent to act in any manner subject to the reinsurers control. In the absence of the element of control, no agency relationship can be sustained. Aetna Insurance Co. v. Glen Falls Insurance Co., 453 F.2d 687 (CA 5, 1972). It is the conclusion of this Court that P & B, as the named intermediary in the all risk reinsurance treaty under consideration, not only acted as the agent of ESL-IC for the purpose of ceding reinsurance, but acted also as its agent for the receipt and transmission of all premium-loss-contingent commission monies due under the treaty. In re Pritchard & Baird, Inc., supra, slip op. at 14, 17-18. Given the similarity between the facts of this case and those presented in the Pritchard & Baird case, as well as the extensive treatment of the subject by the Court therein, it is this Court’s opinion that the decision of the court in the Pritchard & Baird case should be controlling herein. Accordingly, this Court holds that at all times material to this case and in all transactions with the plaintiffs relating to the Unigard reinsurance program, Guy Carpenter and Company was acting as an agent of Unigard. (b) Allen, Miller and Unigard’s Excess and Special Risks Department In his June 19, 1973, letter and attachments thereto, inviting the plaintiffs’ participation in Unigard’s reinsurance program, Mr. Cooper represented to the plaintiffs that the risks they were to reinsure were to be written, booked, serviced and collected for in the “Excess and Special Risks Department” of the Unigard Insurance Company with only the underwriting done by Allen, Miller [Ex. 28]. However, this Court finds that, in reality, Unigard had no Excess and Special Risks Department and the entire operation was performed by Allen, Miller with no day-to-day supervisor or control by Unigard. This finding is based on the following evidence. With respect to Unigard’s Excess and Special Risks Department, Mr. Seery, in his deposition of November 3, 1978 [Ex. # 150A], testified as follows: Q. The letter which you seen dated June 19, 1973, from Mr. Mike Cooper to Mr. Bob Syas and has attached to it some exhibits which are captioned Excess and Special Risks Department of Unigard Insurance Company. Do you remember that? A. Yes. Q. And the Excess and Special Risks Department phrase was used in the correspondence from time to time with reference to Unigard, and are you familiar with that? A. Yes, I am. Q. Can you tell me the history of the Excess and Special Risks Department at Unigard? When did it begin? A. March 15, 1972. Q. Who was in the department at Unigard? A. There wasn’t any specific department as such in Unigard. In Unigard the Allen, Miller & Associates Excess and Special Risks operation was described as an Excess and Special Risks Department of Unigard, but there was no physical department. It was a part of the overall corporate underwriting unit. Q. Was there anybody in Unigard that was an employee of Unigard that was considered a part of the Excess and Special Risks Department? A. No. There was management people. Essentially myself and Justin Lee, Underwriting Vice President, but there wasn’t any — wasn’t anybody actively working in the Excess and . Special Risks Department as such. [Seery depo. (11/3/78) 9:13-10:14]. From the foregoing testimony, it is clear that Unigard had no Excess and Special Risks Department. On the other hand, while the “Underwriting Information” made reference to Allen, Miller solely as underwriter, it is clear from a reading of the agency agreement between Unigard and Allen, Miller [Ex. # 13], that Allen, Miller had been given complete control over the operations with no supervision by Unigard. Indeed, in discussing Allen, Miller’s status, Mr. Seery stated as follows: Q. I will ask you if that is a copy of the first agreement that existed between Allen Miller and Unigard? A. Yes, it is. Q. How would you describe that? How would you characterize it in the insurance world? A. We characterized it as an underwriting management agreement. Q. Would a manager and general agent be a— A. I know that other people have used that term, although I don’t know if it is correct, but other people have used that. Q. On a broad category you would classify it as a managing general agent or underwriting general agent? A. Yes. Q. How do you distinguish managing general agent contract from a — just an agency general contract? A. A managing general agency contract is much broader in giving power to the agent than a regular agency contract. That is, it gives them the authority to underwrite contracts, as well as produce business and, depending on the type of arrangement, to settle claims and do the accounting and a variety of things that the insurance company would normally itself do as opposed to the agent. Q. That includes collecting the premiums and— A. Yes, sir. Q. And that is what that contract provided in general? A. Yes, it did. [Seery depo. (11/3/78) 38:13-39:15], Q. And Allen Miller had authority to do the underwriting under the agreement; is that right? A. Yes, they did. Q. And you really had no control over the underwriting that he did, because you didn’t review it in your office at Unigard, did you? A. We did not. Q. There was nobody in Unigard’s office that second guessed them on underwriting, as it were, by looking over their underwriting? A. You mean acceptance of risk and that type of thing? Q. Yes. A. No. Q. Under the contract you really had no authority to do that; isn’t that right? A. We had the right to review their records, whatever, in whatever form we chose to. Q. But not to tell them how to underwrite? A. No. That’s correct. [Seery depo. (11/3/78) 66:19-67:12], Q. Actually, Unigard had no right to supervise Allen Miller under its contract anyway; isn’t that right? A. We had a right to review the books and to audit the records and that type of thing. Q. But, no right to supervise the day to day operations or the underwriting as it proceeded from day to day; is that correct? A. That’s correct. [Seery depo. (11/3/78) 83:16-23]. At trial, Mr. Seery again admitted that the agreement between Allen, Miller and Unigard was a managing general agency [Tr. 368:10-17], As noted earlier, a managing general agent is recognized as one with unlimited authority to underwrite, to appoint other agents, to produce business, to collect the premiums and to service claims [Tr. 69:11-15; 76:5-8; 105:23-106:3; Seery depo. (11/3/78) 39:2-13], Thus, while Allen, Miller was a managing general agent with unlimited autonomy and control, the sole reference to Allen, Millers functions in the material sent by Mr. Cooper was that Allen, Miller would perform the underwriting [Ex. # 13]. At trial, George E. Young, an expert in the reinsurance field [Tr. 301:20-303:19], was asked to consider the June 19, 1973, letter and the contents contained therein. With respect to the Cooper letter, which Mr. Young described as an offering letter [Tr. 304:12-14], he found that it did not comply with the custom and practice in the insurance industry in that it did not clearly and fully communicate the role and scope of Allen, Miller as Unigard’s managing general agent [Tr. 309:17-311:4]. Further, Mr. Young testified that it was custom and practice in the business with respect to the cover or placement slips and treaties, that the Underwriting Manager would be named therein and the documents would be written to reveal that the business was produced under his control. With respect to the placement slips attached to the Cooper letter, Mr. Young found that they, like the Cooper cover letter, were contrary to custom and practice in the industry. The slips revealed nothing of the nature of Allen, Miller’s exclusive responsibility for the management of the business to be insured thereunder, failing to even name that entity [Tr. 311:9-312:5; see Tr. 343:22-346:3], Likewise, Dennis Gentry, at one time an employee at Central National [Tr. 133:11-14], in outlining his background in the reinsurance business, testified that while he worked for a managing general agency in Texas all reinsurance treaties covering business generated by his employer specifically named such managing general agent as the producer of such business [Tr. 134:2-135:1]. In short, the foregoing discussion makes clear that, with respect to Unigard’s Excess and Special Risks Department and the status of Allen, Miller, the representations contained in the Cooper letter and the attachments thereto did not comply with the custom and practice of the business and, most significantly, were totally false. Unigard clearly had no Excess and Special Risks Department. Allen, Miller, on the other hand, had complete control over the operation and no supervision by Unigard. Yet, the sole reference to Allen, Miller in the mass of materials from Mr. Cooper was in the underwriting information that Allen, Miller would perform the underwriting. As Mr. Young testified, this was not in compliance with the custom and practice of the industry and, as the representation did not show the true nature of Allen, Miller’s status, it was therefore false. It is also clear that Unigard knew these representations to be false. The agency agreement between Unigard and Allen, Miller was negotiated in late 1971 to early 1972. It became effective as of March 15, 1972 [Ex. # 13; Tr. 367:9-368:13]. From Mr. Seery’s deposition, it is clear that at all times Unigard knew that there was no actual Excess and Special Risks Department. On May 25, 1972, Mr. Cooper wrote Mr. Seery, enclosing a draft of the Excess Property Treaty. In this letter, Mr. Cooper also wrote in pertinent part: The two major points upon which we should appreciate your guidance, both as respects this Cover and the Excess Liability Covers, are: 2) In line with the placing slips and our Cover Notes, Article 1 does not mention Allen, Miller and Associates, Inc. As such, the contracts are technically broader, although the memorandum of underwriting information sent to all Reinsurers states that underwriting will be performed by Allen, Miller. Perhaps it is in order to use the language in the draft, which would mean that no contract amendment would be necessary should you at some future date appoint other Underwriting Managers in different areas of the country. Pending your reply to the second point in particular, we have not sent a copy of the draft to Bill Allen. (Emphasis added). [Ex. # 10]. On June 8, 1972, Mr. Cooper and Mr. Seery met to discuss the wording of the Treaty and the “major points” raised in Mr. Cooper’s letter of May 25, 1972 [Ex. # 12]. Thereafter, on June 20, 1972, Mr. Seery wrote Mr. Cooper confirming their June 8 conversation. In this letter he wrote: We discussed your cover wording and your letter of May 25,1972 when I was in your office June 8th. I indicated in that conversation that the wording as outlined was acceptable to us. [Ex. # 12], Thus, by these letters, it is clear that Guy Carpenter and Unigard had agreed not to mention Allen, Miller’s name or role in these reinsurance transactio