Contract analysis

I. Introduction and Representation Statement This firm represents Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation publicly traded on the Nasdaq Global Select Market (ticker: QIHC), with its principal executive offices at 200 Constitution Plaza, Suite 3400, Hartford, Connecticut 06103, and its principal insurance subsidiary, Quorum Casualty & Surety Company ("QC&S"), a New York-domiciled stock property

II. Background and Treaty Overview To place the parties' dispute in proper context, we briefly summarize the relevant terms and history of the Treaty. The Treaty is a five-year aggregate excess-of-loss reinsurance treaty, effective for the period July 1, 2019, through June 30, 2024, covering commercial general liability, excess and umbrella liability, and professional liability policies issued or renewed by QC&S duri

III. Rejection of Ground One — Late Notice Under Article 7 The Demand Letter's first ground for recoupment is the assertion that QC&S failed to provide timely notice to Pinnacle Atlantic, as required by Article 7 of the Treaty, of certain large underlying claims that drove aggregate losses through the $120,000,000 retention. Specifically, Pinnacle Atlantic contends that QC&S failed to provide timely notice of the thi

IV. Rejection of Ground Two — Misallocation of IBNR Reserve Development Under Article 5 The Demand Letter's second ground for recoupment is the assertion that QC&S improperly allocated $22,300,000 in incurred but not reported ("IBNR") reserve strengthening to Treaty Year 2022 that, in Pinnacle Atlantic's view, should have been attributed to Treaty Year 2021. According to Pinnacle Atlantic, this purported misallocatio

Article 5.2 defines "losses incurred" for each treaty year as the sum of paid losses, outstanding case reserves, and IBNR reserves attributable to losses occurring during the applicable treaty year, as reported in accordance with QC&S's reserving methodology. The IBNR at issue relates to claims that occurred during the TY 2022 accident year but whose development was not fully reflected in earlier reporting periods. T

V. Rejection of Ground Three — Follow-the-Fortunes / Settlements Under Article 11 The Demand Letter's third ground challenges three related professional liability claim settlements constituting what the parties have referred to as the "Veridian Financial Services E&O cluster," arising under QC&S Policy No. PL-2021-15327, issued to policyholder Veridian Financial Services Inc. Specifically, Pinnacle Atlantic takes iss

Article 11 of the Treaty expressly incorporates the follow-the-fortunes principle, providing that Pinnacle Atlantic shall follow the fortunes and settlements of QC&S, provided that such settlements are made in good faith and in a businesslike manner. QC&S's settlement of the Veridian claims fully satisfies this standard. Prior to entering into the Veridian settlements, QC&S conducted a thorough litigation exposure an

VI. Rejection of Ground Four — Alleged Inaccurate Premium Reporting Under Article 3 The Demand Letter's fourth and final ground alleges that QC&S underreported ceded earned premium for Treaty Year 2022 by $6,800,000, asserting that QC&S reported ceded earned premium of $38,400,000 when the correct figure, according to Pinnacle Atlantic, should have been $45,200,000. Pinnacle Atlantic contends that this underreporting

VII. Voluntary Payment and Waiver Independent of the substantive deficiencies in each of the four grounds advanced in the Demand Letter, QC&S notes that Pinnacle Atlantic's claim for return of the $78,400,000 is further undermined by the circumstances of its own payments. As noted above, Pinnacle Atlantic paid all seven billing installments between October 15, 2022, and March 29, 2024, totaling $78,400,000, without a

VIII. Interest Demand The Demand Letter includes a demand for $12,600,000 in interest, purportedly calculated at a rate of 8% per annum on $78,400,000 over an approximately twenty-four (24) month average period. This interest demand is without contractual or legal basis. No provision of the Treaty specifies or authorizes the 8% interest rate asserted by Pinnacle Atlantic. The Treaty's only provision addressing intere

IX. Applicability of Arbitration Clause — Treaty Article 22 The Demand Letter asserts, at pages 14 through 16, that the arbitration clause contained in Article 22 of the Treaty is inapplicable to the specific claims raised therein. QC&S vigorously disagrees with this assertion, and we address it at some length given its dispositive procedural importance.

Article 22 of the Treaty provides for the resolution of disputes "arising under or in connection with" the Treaty by a three-member arbitration panel sitting in New York, New York, in accordance with the ARIAS-U.S. Rules for the Resolution of U.S. Insurance and Reinsurance Disputes, as then in effect. The arbitration clause is mandatory, not permissive: it provides that the parties "shall submit" such disputes to arb

X. Reservation of Rights QC&S and QIH expressly reserve all rights, claims, defenses, counterclaims, and remedies available to them under the Treaty, at law, and in equity, including but not limited to: (a) Claims for declaratory judgment confirming the validity of all cessions under the Treaty for Treaty Year 2022 and Treaty Year 2023, and confirming that QC&S is entitled to retain the full $78,400,000 in reinsuranc

XI. Document Preservation Demand QC&S hereby demands that Pinnacle Atlantic immediately institute, to the extent it has not already done so, a comprehensive litigation hold and preserve all documents, electronically stored information ("ESI"), and communications relating to Treaty No. PA-QCS-2019-EXL-0044, the disputed cessions, and the underlying claims at issue. This obligation extends to, but is not limited to, th

XII. Request for Response and Next Steps In light of the foregoing, QC&S requests that Pinnacle Atlantic, through your firm, confirm in writing within fourteen (14) calendar days of the date of this letter — i.e., no later than April 1, 2026 — the following: (a) Whether Pinnacle Atlantic will participate in arbitration of the disputes identified herein pursuant to Treaty Article 22 and the ARIAS-U.S. Rules, and speci

XIII. Confidentiality Notice This letter and its contents are subject to the attorney-client privilege, the work product doctrine, and all other applicable privileges and protections. This letter is provided in connection with potential arbitration and litigation, and its contents reflect the legal analysis, conclusions, and recommendations of counsel for QC&S and QIH. This letter and its contents should be treated a