Contract analysis

I. Purpose and Scope The purpose of this memorandum is to compare the final issued policy forms for the renewed product-liability and general-liability insurance tower (the "PL Tower") against the negotiated terms reflected in the binders issued at the time the renewal was bound on June 28, 2022. This post-bind review is performed in accordance with our standard practice of confirming that the policy forms, as ultima

II. Executive Summary of Findings Overall, the final issued policy forms for the renewed PL Tower are substantially consistent with the negotiated binder terms, and no material adverse deviations have been identified in any layer of the tower. We summarize our principal findings as follows: First, the two key coverage enhancements negotiated during the 2022 renewal cycle — specifically, (a) the increase in the produc

III. Layer-by-Layer Review A. Primary GL/PL — Midland Casualty & Surety Company

1. Policy Identification. The primary general liability and product liability policy has been renewed with Midland Casualty & Surety Company ("Midland Casualty"), an insurer domiciled in the State of Illinois and rated A+ (Superior) XV by A.M. Best. The key identifying information for the renewal policy is as follows: The renewal premium of $1,125,000 constitutes the base premium for the primary layer and represents

2. Product Recall Sub-Limit — Confirmed Properly Reflected. One of the two principal coverage enhancements sought by Nexford during the renewal cycle was an increase in the product recall sub-limit within the Midland Casualty primary policy. Under the prior policy (MCS-GL-2021-55671), the product recall sub-limit was set at $2,500,000 per occurrence and $5,000,000 in the aggregate. During the renewal process, and bas

3. Completed Operations Extension. The second key coverage element confirmed in this review is the completed operations extension. The Midland Casualty primary policy (MCS-GL-2022-58904) provides completed operations coverage extending 10 years post-delivery. This is consistent with both the prior policy (MCS-GL-2021-55671) and the binder terms for the renewal year. The completed operations coverage is set forth in t

4. Named Insured Schedule. The Named Insured Schedule attached to the Midland Casualty primary policy (MCS-GL-2022-58904) correctly lists all four Named Insureds as follows: All four Employer Identification Numbers (EINs) are correctly listed and match the corporate records maintained by Nexford's Office of the General Counsel. The addresses listed on the Named Insured Schedule match the current principal office addr

5. Cross-Liability / Separation of Insureds. The cross-liability provision, also commonly referred to as the "separation of insureds" clause, has been confirmed present in the issued Midland Casualty primary policy, consistent with the binder terms. Under this provision, each Named Insured is treated as if separately insured for purposes of determining coverage, except with respect to the overall aggregate limit of l

6. Pollution Exclusion. The Midland Casualty primary policy (MCS-GL-2022-58904) contains an absolute pollution exclusion, which is consistent with both the binder terms and the prior policy (MCS-GL-2021-55671). The absolute pollution exclusion precludes coverage for bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollut

8. Pending and Prior Litigation / Known Claims. The prior and pending litigation exclusion language in the Midland Casualty primary policy (MCS-GL-2022-58904) has been reviewed and confirmed to be consistent with the binder terms. The policy is written on an occurrence basis, meaning that coverage attaches based on the date of the occurrence (i.e., the date of the accident or event giving rise to bodily injury or pro

9. SIR Provisions. The Self-Insured Retention ("SIR") under the Midland Casualty primary policy (MCS-GL-2022-58904) is confirmed at $500,000 per occurrence, consistent with the prior policy year and the binder terms. No change in the SIR amount, structure, or application has been introduced in the renewal form. The SIR applies to both indemnity payments and allocated defense costs within the SIR layer. That is, withi

10. Additional Insured / Vendor Coverage. The Midland Casualty primary policy (MCS-GL-2022-58904) includes a blanket additional insured endorsement that provides additional insured status to parties with whom any Named Insured has entered into a written contract requiring such status. This endorsement was confirmed as properly attached to the final issued policy, consistent with the binder terms. The endorsement cove

1. Policy Identification. The first excess layer, structured as an umbrella policy, has been renewed with Great Basin Insurance Company ("Great Basin"), an insurer domiciled in the State of Nevada and rated A (Excellent) XV by A.M. Best. The key identifying information for the renewal policy is as follows: The renewal premium of $862,500 is the continuing premium from the prior year. We note that this figure should b

2. Follow-Form Confirmation. The issued Great Basin umbrella policy confirms that it is written on a follow-form basis to the Midland Casualty primary policy (MCS-GL-2022-58904), subject to the Great Basin policy's own terms, conditions, and exclusions where expressly stated. This follow-form structure means that the Great Basin policy incorporates by reference the coverage grants, definitions, and conditions of the

3. Key Deviations from Primary Form — Review Against Binder. While the Great Basin umbrella generally follows form to the Midland Casualty primary, the policy contains its own provisions addressing certain coverage areas. We have reviewed these deviations against the binder terms and confirm the following: Pollution Exclusion. The Great Basin umbrella contains its own absolute pollution exclusion, which is drafted in

4. Attachment Point and Erosion. The Great Basin umbrella attaches at $10,000,000, which is the Midland Casualty primary general aggregate limit. As noted in Section III.A.8 above, the two pending claims (Higgins v. NCS and Consolidated Builders v. Triton) carry open reserves totaling approximately $8,300,000, and defense costs continue to accumulate against the Midland Casualty primary aggregate for the expiring pol

5. Overall Finding. No discrepancies have been identified between the issued Great Basin umbrella policy and the corresponding binder terms. All terms, conditions, exclusions, and endorsements are consistent with the negotiated binder documentation. C. 2nd Excess — Cornerstone Reinsurance Corp.

1. Policy Identification. The second excess layer has been renewed with Cornerstone Reinsurance Corp. ("Cornerstone"), an insurer domiciled in the State of New York and rated A+ (Superior) XV by A.M. Best. The key identifying information for the renewal policy is as follows: The renewal premium of $437,000 is the continuing premium from the prior year. The policy attaches excess of the combined limits of the Midland

2. Follow-Form Confirmation. The issued Cornerstone policy confirms that it is written on a follow-form basis to both the Midland Casualty primary (MCS-GL-2022-58904) and the Great Basin 1st Excess/Umbrella policy, subject to Cornerstone's own stated terms and conditions. This follow-form structure is consistent with the binder terms and the prior year policy. The schedule of underlying insurance attached to the Corn

3. Key Terms Reviewed. We have reviewed the principal coverage grants, exclusions, and conditions of the Cornerstone policy against the binder terms and confirm that no deviations have been identified. The following items were specifically reviewed: (a) Coverage grants: The Cornerstone policy follows form to the coverage grants of the underlying Midland Casualty primary and Great Basin umbrella policies. No additiona

4. Overall Finding. No discrepancies have been identified between the issued Cornerstone policy and the corresponding binder terms. All terms are consistent with the negotiated binder documentation. D. 3rd Excess — Allegheny Pacific Underwriters, Inc.

1. Policy Identification. The third and final excess layer has been renewed with Allegheny Pacific Underwriters, Inc. ("Allegheny Pacific"), an insurer domiciled in the State of California and rated A (Excellent) XIV by A.M. Best. The key identifying information for the renewal policy is as follows: The renewal premium of $218,400 is the continuing premium from the prior year. The policy attaches excess of the combin

2. Follow-Form Confirmation. The issued Allegheny Pacific policy confirms that it is written on a follow-form basis to the underlying policies, consistent with the binder terms. The follow-form language is standard and provides that the Allegheny Pacific policy incorporates by reference the terms, conditions, definitions, and exclusions of the underlying policies, except to the extent that the Allegheny Pacific polic

3. Key Terms Reviewed. We have reviewed the following items in the issued Allegheny Pacific policy: (a) Schedule of underlying insurance: The schedule correctly lists all three underlying layers — Midland Casualty & Surety Company (Policy No. MCS-GL-2022-58904, $5,000,000 per occurrence / $10,000,000 aggregate), Great Basin Insurance Company ($25,000,000 per occurrence / $25,000,000 aggregate, excess of $10,000,000),

4. Overall Finding. No discrepancies have been identified between the issued Allegheny Pacific policy and the corresponding binder terms. All terms are consistent with the negotiated binder documentation.

IV. Aggregate Tower Summary — Renewal PL Program The following table summarizes the complete renewed PL Tower for the July 1, 2022 – July 1, 2023 policy year: Note: The total premiums for the four layers as listed in the table above sum to $2,642,900. The total PL renewal premium, inclusive of the $67,000 incremental premium for the product recall sub-limit increase, taxes, surcharges, and broker fees allocated to th

V. Negotiated Wording Improvements — Compliance Check The Renewal Negotiation Points Memorandum dated June 13, 2022, identified eight specific PL-related negotiation items that were addressed during the renewal process. The following is a compliance check of each item against the final issued policy forms: PL Item No. 1 — Recall Sub-Limit Increase ($2.5M/$5M → $5M/$10M): Confirmed reflected. The product recall sub-li

VI. Comparison with Prior Year Policies In addition to comparing the final issued policy forms against the binder terms, we have conducted a brief comparison of the Midland Casualty renewal policy (MCS-GL-2022-58904) against the expiring Midland Casualty policy (MCS-GL-2021-55671) to confirm that no inadvertent narrowing of coverage has occurred. This comparison is consistent with our standard post-bind review practi

VII. Open Items and Recommendations A. Items Requiring No Further Action on PL Tower The following items have been resolved and require no further action: Recall Sub-Limit Endorsement. As discussed in Section III.A.2 above, the recall sub-limit endorsement (Endorsement No. MCS-END-2022-RC-001) was initially flagged as potentially unattached in the Renewal Binding Confirmation Review Letter dated July 8, 2022. The fin

1. Defense Cost Erosion Tracking. Per the guidance provided by Yuki Nakamura to Trevor Haines, Vice President of Risk Management, on June 15, 2022, Nexford's risk management team should continue tracking defense costs in Higgins v. Nexford Conveyor Systems, LLC (Case No. 2021-L-04382) and Consolidated Builders Supply Co. v. Triton Fastener Corp. (Case No. 1:21-cv-08914) against the expiring-year Midland Casualty prim

2. Claims Reporting Compliance. Nexford should ensure strict compliance with the Claims Reporting Compliance Checklist dated June 1, 2022, for all new occurrences during the renewal period. The checklist specifies the carrier-specific notice requirements for each layer of the PL Tower, including the designated claims contacts, required notice formats, and applicable time frames for reporting. Failure to comply with t

3. Five-Year Loss History and Next Renewal Preparation. Total PL incurred losses over the most recent five-year period stand at approximately $15,120,000, comprising $4,720,000 in paid losses, $8,300,000 in open reserves, and $2,100,000 in incurred-but-not-reported (IBNR) reserves per the actuarial analysis prepared by Kessler Quinn Advisory Group. This loss experience will be a significant factor in the carriers' ev

VIII. Conclusion Based on our review of the final issued policy forms for all four layers of the renewed PL Tower (July 1, 2022 – July 1, 2023), we conclude as follows:

1. The final issued policy forms are consistent in all material respects with the negotiated binder terms. No material adverse deviations have been identified in any layer of the PL Tower.

2. The two key coverage enhancements negotiated during the renewal cycle — the product recall sub-limit increase to $5,000,000 per occurrence / $10,000,000 aggregate and the continuation of the completed operations 10-year post-delivery extension — are properly documented in the Midland Casualty primary policy (MCS-GL-2022-58904), including through Endorsement No. MCS-END-2022-RC-001 (recall sub-limit).

3. All three excess layers — Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Allegheny Pacific Underwriters, Inc. (3rd Excess) — follow form to the underlying policies, consistent with their respective binders, and no discrepancies have been identified.

4. All eight PL negotiation items identified in the Renewal Negotiation Points Memorandum dated June 13, 2022, have been confirmed as properly reflected in the final issued policy forms.

5. The total PL Tower provides $75,000,000 in aggregate coverage at a renewal premium of $2,985,500, representing a 12.96% increase over the prior year premium.

6. No corrective endorsements are required for the PL Tower at this time. The recall sub-limit endorsement, previously flagged as potentially unattached, has been confirmed as properly included in the final issued policy.

7. We recommend that the matter file be updated to reflect these confirmations and that the PL Tower post-bind review is complete. The matter may proceed toward dormant status following resolution of the outstanding D&O Tower endorsement item (Vandermeer National Insurance Company "Claim" definition), which is being addressed separately. We remain available to discuss any questions regarding this memorandum or the PL