Arch Specialty Insurance Co. is suing Axiom Insurance Managers Agency LLC for at least $17.2 million, claiming the excess & surplus lines managing general underwriter broke an agreement by charging too little to cover policies' actual risks.

In Arch Specialty Insurance Co. v. Axiom Insurance Managers Agency LLC et al., filed Feb. 13 in New York federal court, Arch claims Axiom breached a 2008 producer agreement, which authorized Axiom to produce, bind and underwrite E&S policies for certain hospitality and entertainment businesses and provide related services including binding, issuing, endorsing, cancelling and non-renewing policies.

Arch claims Axiom underwrote 1,004 separate policies and collected more than $10.6 million in premiums from Feb. 25, 2008, to July 25, 2009. During that time, Arch alleges it lost more than $18.5 million under the Axiom policies.

The complaint states that an audit of 547 policies showed Axiom disregarded the agreement’s underwriting criteria and charged premiums that broke with pricing criteria “on substantially all audited policies.” Arch stated that more than 90 percent of the audited policies were priced incorrectly and did not cover the risks underwritten by Axiom, and at least 93 percent of the policies did not comply with either underwriting or pricing criteria; and that Arch would have written only 10 percent of the audited policies if the files had been properly underwritten and priced.

Arch seeks minimum damages of $8.6 million and punitive damages of an additional $8.6 million, and is asking the court’s permission to amend the damages amount if new or unknown losses arise.

The suit brings claims for negligence, professional negligence, faithless servant, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and breach of contract. The aiding and abetting breach of fiduciary duty allegation targets Axiom President and CEO Dan Djordjevic.

Arch canceled the producer agreement on March 27, 2009, though the cancellation did not become effective until July 25, 2009, according to the complaint. Arch barred Axiom from underwriting new policies on March 27, 2009, the complaint says.