Contract analysis

I. Responses to Jurisdictional and Party Allegations

1. QC&S admits that Pinnacle Atlantic Reinsurance Ltd. is a Bermuda Class 4 insurer regulated by the Bermuda Monetary Authority, holding BMA Registration No. BMA-4R-2008-0331, with a registered office at Clarendon House, 14 Church Street, Hamilton HM 11, Bermuda, and a U.S. office located at 1285 Avenue of the Americas, 28th Floor, New York, New York 10019. QC&S further admits, upon information and belief, that Pinna

2. QC&S admits that it is a New York-domiciled stock property and casualty insurer, holding NAIC No. 24891, with its principal office located at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103.

3. QC&S admits that it is a wholly owned subsidiary of Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation with its corporate headquarters at 200 Constitution Plaza, Suite 3400, Hartford, Connecticut 06103. QC&S further admits that QIH is publicly traded on the Nasdaq Stock Market under the ticker symbol QIHC.

4. QC&S admits that the Treaty is governed by New York law pursuant to Article 16 thereof.

5. QC&S denies that the Supreme Court of the State of New York, County of New York, Commercial Division, is the appropriate forum for the resolution of this dispute. QC&S affirmatively asserts that Article 22 of the Treaty mandates that all disputes arising under or in connection with the Treaty shall be resolved by binding arbitration conducted under the rules of ARIAS-U.S. before a three-member arbitration panel se

6. To the extent the Complaint contains additional jurisdictional allegations not specifically addressed herein, QC&S denies that this Court has jurisdiction over the subject matter of this dispute in light of the mandatory arbitration clause and reserves all rights to challenge jurisdiction and venue.

II. Responses to Allegations Regarding the Treaty

7. QC&S admits that Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty") was duly executed by the parties and has an effective date of July 1, 2019. The Treaty speaks for itself, and QC&S refers to the full text thereof for a complete and accurate statement of its terms.

8. QC&S admits that the Treaty is an aggregate excess-of-loss reinsurance treaty covering commercial general liability, excess and umbrella liability, and professional liability policies issued or renewed by QC&S during the applicable treaty years.

9. QC&S admits that the original term of the Treaty was five (5) years, running from July 1, 2019 through June 30, 2024, with automatic annual extensions unless either party provided ninety (90) days' prior written notice of non-renewal.

10. QC&S admits that the Treaty was extended through June 30, 2026 by operation of two successive one-year automatic extensions, and that Pinnacle Atlantic provided notice of non-renewal on or about October 1, 2025. QC&S further admits that the Treaty is scheduled to lapse on June 30, 2026, subject to applicable run-off provisions.

11. QC&S admits that the Treaty provides for a per-treaty-year retention of $120,000,000 in aggregate net incurred losses, as set forth in Article 6 of the Treaty.

12. QC&S admits that the Treaty provides for a cession limit of $200,000,000 per treaty year, covering aggregate net incurred losses from $120,000,000 to $320,000,000, as set forth in the Treaty.

13. QC&S admits that the Treaty provides for a provisional treaty premium rate of forty-two percent (42%) of ceded earned premium, subject to a slide-scale adjustment mechanism with a minimum rate of thirty-five percent (35%) and a maximum rate of fifty-two percent (52%), as set forth in the Treaty.

14. QC&S admits that Broadreach Intermediaries Inc., located at 100 Wall Street, 18th Floor, New York, New York 10005, is designated as the intermediary broker under Article 9 of the Treaty, and that James "Jamie" Castellano serves as the Account Executive responsible for the Treaty placement.

15. QC&S denies each and every allegation that it breached any provision of the Treaty, whether express or implied. QC&S at all times complied with the terms and conditions of the Treaty.

16. To the extent the Complaint purports to quote or paraphrase specific provisions of the Treaty, QC&S states that the Treaty speaks for itself and refers to the actual text of the Treaty for a complete and accurate recitation of its terms. QC&S denies any characterization of the Treaty's terms that is inconsistent with the Treaty's plain language.

III. Responses to Allegations Regarding Late Notice (Article 7) — Meridian Docks Mass Tort Cluster

17. QC&S admits that it first reserved the thirty-one (31) related commercial general liability bodily injury claims arising from the Meridian Docks industrial waterfront redevelopment project located in Newark, New Jersey (collectively, the "Meridian Docks Mass Tort Cluster") on or about March 15, 2021.

18. QC&S admits that it provided notice of the Meridian Docks Mass Tort Cluster to Pinnacle Atlantic through the designated intermediary broker, Broadreach Intermediaries Inc., on or about May 22, 2022.

19. QC&S admits that the policyholder for the Meridian Docks claims is Meridian Docks Development LLC, insured under QC&S commercial general liability policy bearing Policy No. CGL-2020-09844.

20. QC&S admits that the current net incurred loss for QC&S across all thirty-one (31) Meridian Docks Mass Tort Cluster claims is $41,200,000.

21. QC&S denies that notice of the Meridian Docks Mass Tort Cluster claims was untimely under Article 7 of the Treaty or any other provision thereof. QC&S affirmatively states that Article 7 of the Treaty establishes an individual claim reporting threshold of $1,000,000 per claim. At the time QC&S first reserved the thirty-one individual claims comprising the Meridian Docks Mass Tort Cluster in March 2021, each indiv

22. QC&S denies that any alleged delay in the provision of notice caused actual prejudice to Pinnacle Atlantic. Under well-established New York law applicable to reinsurance contracts, a reinsurer asserting a late notice defense bears the burden of demonstrating that it suffered actual prejudice as a result of the timing of notice. Pinnacle Atlantic has not alleged, and cannot demonstrate, any such prejudice.

IV. Responses to Allegations Regarding IBNR Misallocation (Article 5)

23. QC&S admits that it reported TY 2022 aggregate net incurred losses of $189,700,000 in accordance with the reporting procedures established by the Treaty.

24. QC&S admits that it claimed TY 2022 ceded losses of $69,700,000, calculated as TY 2022 aggregate net incurred losses of $189,700,000 less the per-treaty-year retention of $120,000,000.

25. QC&S denies Pinnacle Atlantic's allegation that QC&S improperly allocated $22,300,000 in incurred but not reported ("IBNR") reserve strengthening to TY 2022. QC&S affirmatively states that the $22,300,000 in IBNR development relates to accident-year 2022 claims whose loss development factors crystallized during TY 2022. This allocation is fully consistent with the definition of "losses incurred" set forth in Arti

26. QC&S states that the actuarial analysis supporting the IBNR allocation was performed by Velthorn Actuarial Advisors LLC, located at 75 Ashbury Asset Advisors, Suite 1400, Boston, Massachusetts 02109. The analysis was prepared under the supervision and direction of Dr. Stephen Tanaka, FCAS, MAAA, a principal actuary at Velthorn Actuarial Advisors LLC, and was conducted in full compliance with all applicable actuar

27. QC&S denies that the $22,300,000 in IBNR development should be reallocated to TY 2021. QC&S notes that TY 2021 aggregate net incurred losses totaled $104,600,000, an amount below the per-treaty-year retention of $120,000,000. Pinnacle Atlantic did not dispute the TY 2021 loss reporting during TY 2021 or at any time prior to filing the Complaint.

28. QC&S further notes that, even under Pinnacle Atlantic's reallocation theory, TY 2022 ceded losses would be $47,400,000, calculated as follows: ($189,700,000 − $22,300,000) − $120,000,000 = $47,400,000. Thus, even if Pinnacle Atlantic's position were accepted — which it should not be — the disputed amount would decrease by only $22,300,000, not the full $78,400,000 demanded in the Complaint. This arithmetic realit

V. Responses to Allegations Regarding Follow-the-Fortunes / Settlements (Article 11) — Veridian E&O Cluster

29. QC&S admits that it settled three related errors and omissions / professional liability claims brought by investors against Veridian Financial Services Inc. (insured under QC&S professional liability policy bearing Policy No. PL-2021-15327) for a combined total of $34,500,000 on September 8, 2023.

30. QC&S admits that the settlement amounts for the three claims were as follows: Claim A — $14,200,000; Claim B — $12,800,000; and Claim C — $7,500,000.

31. QC&S admits that it retained $26,100,000 in net incurred losses after the application of other reinsurance applicable to the Veridian Financial Services claims.

32. QC&S admits that $8,700,000 of the Veridian Financial Services settlement was ceded to the Treaty within the TY 2023 aggregate, representing the full TY 2023 cession calculated as the TY 2023 aggregate net incurred loss of $128,700,000 less the $120,000,000 per-treaty-year retention.

33. QC&S denies that the settlements of the Veridian Financial Services claims lacked a meaningful litigation exposure analysis, were at inflated amounts, or were not conducted in the ordinary course of QC&S's business. QC&S further denies that the settlements were made in bad faith or without businesslike conduct.

34. QC&S affirmatively states that Article 11 of the Treaty obligates Pinnacle Atlantic to follow the fortunes of QC&S's good-faith claims-handling and settlement decisions. Under well-established New York law, the follow-the-fortunes doctrine requires a reinsurer to follow the cedent's good-faith claims determinations and settlement decisions, and may only be overcome upon a showing of bad faith, fraud, or gross neg

VI. Responses to Allegations Regarding Premium Reporting (Article 3)

35. QC&S admits that it reported ceded earned premium for TY 2022 of $38,400,000 in accordance with Article 3 of the Treaty.

36. QC&S denies that it underreported ceded earned premium for TY 2022 or for any other treaty year. QC&S further denies that the correct ceded earned premium figure for TY 2022 is $45,200,000, as claimed by Pinnacle Atlantic.

37. QC&S affirmatively states that the $6,800,000 difference between the ceded earned premium reported by QC&S ($38,400,000) and the figure asserted by Pinnacle Atlantic ($45,200,000) arises from Pinnacle Atlantic's improper inclusion of run-off portfolio transfer premiums that are expressly excluded under Article 3.4 of the Treaty. Article 3.4 specifically provides that premiums arising from assumption reinsurance t

38. QC&S denies that any treaty premium underpayment has occurred, including but not limited to the alleged underpayment of $2,856,000 (calculated by Pinnacle Atlantic as 42% of $6,800,000). QC&S further denies that any alleged premium discrepancy entitles Pinnacle Atlantic to terminate the Treaty or exercise any offset right against reinsurance recoverables properly owed to QC&S.

VII. Responses to Allegations Regarding Interest and Damages

39. QC&S denies that Pinnacle Atlantic is entitled to the return of $78,400,000 in reinsurance recoverables. The amounts were properly billed, properly collected, and properly retained under the terms of the Treaty.

40. QC&S denies that Pinnacle Atlantic is entitled to $12,600,000 in interest, whether calculated at eight percent (8%) per annum or at any other rate. No overpayment, unjust enrichment, or wrongful retention occurred, and accordingly no basis exists for the accrual of interest.

41. QC&S denies that Pinnacle Atlantic is entitled to the total demanded amount of $91,000,000 or any lesser amount.

42. QC&S denies that it has been unjustly enriched or has otherwise acted wrongfully in any respect.

43. QC&S denies each and every allegation of the Complaint not specifically admitted herein.

44. QC&S denies that Plaintiff is entitled to any relief whatsoever, whether in the form of monetary damages, declaratory relief, injunctive relief, or otherwise. AFFIRMATIVE DEFENSES Without assuming any burden of proof that otherwise rests with Plaintiff, and reserving all rights to supplement, amend, or withdraw these defenses as discovery proceeds, QC&S asserts the following affirmative defenses: FIRST AFFIRMATIV

1. Dismissing the Complaint in its entirety, with prejudice, and on the merits;

2. In the alternative, staying this action and compelling arbitration under Article 22 of Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044, to be conducted before a three-member arbitration panel seated in New York, New York, under the rules of ARIAS-U.S.;

3. Entering judgment in favor of Defendant QC&S on all claims asserted in the Complaint;

4. Denying Pinnacle Atlantic's demand for the return of $78,400,000 in reinsurance recoverables;

5. Denying Pinnacle Atlantic's demand for $12,600,000 in interest;

6. Denying Pinnacle Atlantic's total demand of $91,000,000;

7. Awarding QC&S its costs and reasonable attorneys' fees incurred in defending this action, to the extent permitted by applicable law or the Treaty;

8. Granting such other and further relief as this Court deems just, equitable, and proper. VERIFICATION STATE OF CONNECTICUT COUNTY OF HARTFORD I, Diana Kessler-Hoff, being duly sworn, depose and state: I am the Vice President, Claims & Reinsurance Recoveries of Quorum Casualty & Surety Company, the Defendant in the above-captioned action. I am authorized to make this verification on behalf of the Defendant. I have r