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aggregate amount of reserves deposited by the Dealership in the
PLRF plus the accumulated investment income. The excess loss
insurance policies were renewed on an annual basis throughout the
period at issue.
In 1987, the Dealerships began offering VSC's under the
program outlined above. Until a few years before, dealerships in
which petitioner David Mungenast held an interest had sold
similar vehicle service contracts under a program administered by
a company called North American Dealer Services, Inc. (NADS). It
appears that under that program amounts paid by the dealerships
to NADS to insure their losses had been subject to NADS'
unfettered control. NADS had gone bankrupt, causing the
Dealerships to sustain heavy losses honoring their contractual
obligations without indemnification. The program administered by
MBP and API was designed to offer dealerships greater security
than the NADS program. In marketing the program to the
Dealerships, salesmen for MBP stressed the security provided by
the escrow arrangement and by Travelers' reputation as a major
insurance company. In his decision to adopt the MBP program for
the Dealerships, David Mungenast attached considerable
significance to these characteristics.
The Dealerships evidently believed that Travelers'
participation in the program would be important to their
customers. Promotional literature for the program that the
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