Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the California Department of Insurance ("CDI") Order to Show Cause ("OSC") issued on June 18, 2025, against Quorum Indemnity Insurance Company ("QIIC"), a Connecticut-domiciled stock insurance company (NAIC No. 41927; EIN 06-2193847) licensed as an admitted insurer in 28 states, including California, and to recommend a comprehensive hearing strategy fo

II. Background and Procedural History A. Multi-State Market-Conduct Examination Context In September 2023, the Connecticut Department of Insurance ("CTDOI"), acting as QIIC's domestic regulator, initiated a coordinated multi-state market-conduct examination of QIIC pursuant to NAIC Market Regulation protocols. The CTDOI designated the Florida Office of Insurance Regulation ("FL OIR") as the lead examining state, cons

III. Legal Framework — California Advertising Requirements A. Applicable Statutory and Regulatory Provisions California maintains one of the most rigorous regulatory frameworks in the nation governing insurance advertising. The California Insurance Code imposes comprehensive requirements on admitted insurers with respect to the content, form, and pre-dissemination approval of advertising materials. The principal stat

IV. Analysis of QIIC's Exposure A. Factual Vulnerabilities Based on our review of the factual record, we have identified the following primary factual vulnerabilities that CDI is likely to emphasize in the OSC proceeding. Each vulnerability is discussed below, together with our assessment of its likely impact on the hearing.

1. Duration of Non-Compliance. The non-compliant advertisements were disseminated to California consumers over a period of approximately 29 months (May 2022 through October 2024), as part of a broader 32-month enterprise-wide advertising non-compliance window (March 2022 through November 2024). This prolonged duration is perhaps QIIC's most significant factual vulnerability. CDI will almost certainly characterize the

2. Volume of Non-Compliant Creatives. Based on our preliminary analysis of geographic targeting data, we estimate that 8 to 12 unique ad creatives were specifically geo-targeted to California consumers or served to California-based users during the violation period. Each of these creatives contained rate-comparison or premium savings claims subject to CDI's prior-approval requirement. The volume of non-compliant crea

3. Absence of Filing Records. QIIC is unable to produce CDI filing confirmations, approval letters, or submission records for any of the California-targeted rate-comparison advertisements, because none of these creatives were ever submitted to CDI for pre-publication review. This constitutes a complete and undisputed filing failure. There is no ambiguity in the factual record — the advertisements were simply not file

4. Pinnacle Bridge MGA Workflow Bypass. As noted above, 31 of the 43 total non-compliant ad creatives enterprise-wide (72.1%) were originated and placed by Pinnacle Bridge MGA, LLC's in-house marketing team without routing through QIIC's advertising compliance review process. While we have not yet completed the allocation analysis to determine the precise number of California-specific creatives attributable to Pinnac

5. Prior Regulatory Counsel Awareness. During the Hargrove & Sattler LLP engagement (which concluded in June 2025), the advertising compliance gap was identified through the multi-state examination process. However, comprehensive remediation was not completed before the H&S engagement concluded. CDI may inquire during the hearing about the delay between the identification of the advertising compliance issues and the

6. Multi-State Pattern. CDI is likely aware — through inter-state regulatory communication channels and the NAIC Market Analysis Working Group — of the parallel CTDOI civil penalty ($275,000) and FL OIR administrative fine ($180,000) assessed against QIIC for related advertising violations. The multi-state pattern may influence CDI's assessment of the seriousness and systemic nature of the compliance failure. CDI may

1. No Evidence of Consumer Harm. This is QIIC's strongest mitigating argument. The rate-comparison claims contained in the non-compliant advertisements — while unfiled with CDI — were based on actuarially supportable data derived from QIIC's competitive rate analyses. There is no allegation in the CDI OSC, and no finding in the FL OIR examination report, that the rate-comparison claims were substantively false, misle

2. Voluntary Cessation. All non-compliant advertisements were taken down and deactivated by November 2024, approximately seven months before the CDI OSC was issued on June 18, 2025. The cessation of non-compliant advertising was initiated by QIIC's internal compliance function in response to preliminary findings communicated during the multi-state examination process, and was not compelled by CDI order or enforcement

3. Proactive Remediation. QIIC has undertaken a comprehensive remediation program that goes significantly beyond merely ceasing the non-compliant advertisements. The remediation program includes: • Retention of Calderwood & Harkness LLP (effective August 19, 2025) to conduct a four-phase market-conduct compliance refresh, including a complete overhaul of QIIC's advertising compliance infrastructure. • Development of

4. Institutional Corrective Action at the Board Level. The QIH Board of Directors' Audit & Compliance Committee, chaired by independent director Margaret Aldworth, directed the comprehensive compliance refresh on August 12, 2025, following its review of Internal Audit Report No. IA-2025-017. This board-level directive demonstrates that QIIC's remediation efforts are not merely operational adjustments but reflect a go

5. Accepted Corrective Action Plan with FL OIR. The CAP submitted to FL OIR on July 1, 2025, and accepted with modifications on July 28, 2025, includes advertising remediation milestones that directly address the types of deficiencies identified in the CDI OSC. The existence of an accepted CAP with the lead examining state demonstrates that QIIC is already subject to a structured remediation framework with specific d

6. Internal Audit Self-Identification. Internal Audit Report No. IA-2025-017, issued August 4, 2025, self-identified the advertising compliance gap as a high-priority control deficiency. The fact that QIIC's internal audit function — operating independently of the marketing and compliance departments — detected and escalated the advertising compliance deficiency demonstrates that the organization's internal controls,

7. First Formal CDI Enforcement Action. Based on our review of publicly available CDI enforcement records, QIIC has not been the subject of prior CDI advertising enforcement actions. While CDI may note that the severity and duration of the current violations diminish the weight of this factor, the absence of prior CDI enforcement history is a recognized mitigating circumstance that should be presented. C. Penalty Exp

V. Recommended Hearing Strategy A. Overall Posture: Cooperative and Remediation-Forward We recommend that QIIC adopt a cooperative, non-adversarial approach to the October 14, 2025 hearing. The central theme of QIIC's hearing presentation should be institutional responsibility and transformation: QIIC should acknowledge the filing failures forthrightly, accept responsibility for the inadequacy of its advertising comp

1. Written Remediation Narrative. A detailed written narrative describing QIIC's remediation efforts since the examination findings, organized chronologically. The narrative should cover the identification of the advertising compliance gap through the multi-state examination, the cessation of non-compliant advertisements in November 2024, the Internal Audit Report findings (August 4, 2025), the Board Audit & Complian

2. Calderwood & Harkness Engagement Summary. A summary of the Calderwood & Harkness engagement, including its commencement date (August 19, 2025), its four-phase structure, the scope of work (encompassing all three QIH carrier subsidiaries and the Pinnacle Bridge MGA platform), and the target completion date (January 30, 2026). The summary should specifically highlight the advertising compliance components of the eng

3. Draft Advertising Review & Filing SOP. A draft or substantially complete version of the revised Advertising Review & Filing SOP. We recommend accelerating the advertising-specific portions of Phase 2 to ensure that a substantially complete draft is available by October 10, 2025, for inclusion in the pre-hearing package or submission as a supplemental exhibit. The draft SOP should specifically highlight the new cen

4. FL OIR CAP Summary. A description of the Corrective Action Plan accepted by FL OIR on July 28, 2025, including the advertising-specific remediation milestones and the December 31, 2025 compliance certification deadline. This demonstrates that QIIC is already operating under a regulatory-approved remediation framework.

5. Internal Audit Report Summary. A summary of Internal Audit Report No. IA-2025-017, highlighting the self-identification of advertising compliance deficiencies and the Internal Audit department's recommendations. The full Internal Audit Report may be privileged and should not be provided; a summary prepared for regulatory submission should be reviewed for privilege implications.

6. Board Directive Documentation. Documentation of the August 12, 2025 directive from the QIH Board of Directors' Audit & Compliance Committee directing management to retain new outside counsel and undertake the comprehensive compliance refresh. This may take the form of a summary or excerpt from Committee minutes, reviewed for privilege considerations.

7. Confirmation of Advertising Cessation. Written confirmation, supported by platform data where available, that all non-compliant advertisements were ceased by November 2024.

8. Training Program Description. A description of the upcoming Phase 3 advertising compliance training program targeting 85 marketing personnel (including Pinnacle Bridge MGA staff), scheduled for November 17 through December 5, 2025, including the anticipated curriculum, training delivery methodology, and completion certification requirements. Timeline for Submission. We recommend filing the pre-hearing remediation

1. Lena Fujimoto — Director, Market Conduct & Consumer Affairs. Ms. Fujimoto should serve as the primary witness to testify regarding QIIC's advertising compliance review process, both as it existed during the violation period and as revised. Ms. Fujimoto is the individual with the most direct operational knowledge of the advertising compliance workflow, and her testimony will be the most granular and technically spe