1025-00005 · Quorum Insurance Holdings · Case Assessment

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Douglas Carmichael, Responsible Partner, Calderwood & Harkness LLP

FROM: Jeffrey Park, Senior Associate, Calderwood & Harkness LLP (with assistance from Yuki Nakamura, Associate)

DATE: March 12, 2026

RE: Forum Analysis — Arbitration vs. Litigation: Treaty No. PA-QCS-2019-EXL-0044, Quorum Casualty & Surety Company v. Pinnacle Atlantic Reinsurance Ltd.

MATTER NO.: 1025-00005

CLIENT: Quorum Insurance Holdings Corp. / Quorum Casualty & Surety Company

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I. EXECUTIVE SUMMARY

This memorandum analyzes whether the arbitration clause contained in Article 22 of Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty") compels arbitration of all disputes raised in the pre-suit demand letter dated February 14, 2026 (the "Demand Letter"), transmitted on behalf of Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic" or "PARL") by the law firm of Hargrove, Fitch & Calloway LLP ("HFC"), under the direction of lead partner Nathaniel R. Calloway III. The Demand Letter seeks the return of $78,400,000 in reinsurance recoverables previously paid by Pinnacle Atlantic to Quorum Casualty & Surety Company ("QC&S"), together with $12,600,000 in claimed interest calculated at an annual rate of eight percent over an approximate twenty-four-month average period, for a total demand of $91,000,000.

The Demand Letter asserts four separate grounds for recovery: (1) late notice under Treaty Article 7 regarding the Meridian Docks mass tort cluster; (2) misallocation of $22.3 million in IBNR reserve development under Treaty Article 5; (3) a challenge to the follow-the-fortunes doctrine as applied to the Veridian Financial Services E&O cluster settlement under Treaty Article 11; and (4) ceded earned premium underreporting under Treaty Article 3. Despite the breadth and specificity of these Treaty-based claims, the Demand Letter takes the position that Treaty Article 22 — the mandatory arbitration provision — is "inapplicable to the specific claims raised." HFC does not elaborate extensively on the legal basis for this assertion but appears to take the position that Pinnacle Atlantic's claims sound in fraud, misrepresentation, or breach of conditions precedent rather than disputes "arising under" the Treaty, thereby placing them outside the scope of the arbitration clause.

After a thorough analysis of the Treaty language, governing federal and New York law, and the specific claims at issue, we conclude that HFC's position is without substantial legal merit. Treaty Article 22 employs the broadest standard arbitration clause formulation recognized under both federal and New York law — "arising out of or relating to" — which encompasses virtually all disputes having any connection to the Treaty. All four of Pinnacle Atlantic's claims directly concern the interpretation and performance of specific Treaty articles and are paradigmatic examples of disputes falling within the scope of Article 22. The strong federal policy favoring arbitration, codified in the Federal Arbitration Act, 9 U.S.C. §§ 1–16, together with consistent New York jurisprudence enforcing broad reinsurance arbitration clauses, further supports this conclusion.

We recommend that QC&S invoke Treaty Article 22 and serve a formal demand to arbitrate on Pinnacle Atlantic under the ARIAS-U.S. Rules before a three-member arbitration panel seated in New York, New York. If Pinnacle Atlantic files suit in the Supreme Court of the State of New York, New York County, Commercial Division — the forum identified in the Demand Letter as the anticipated venue for litigation — QC&S should promptly move to compel arbitration and stay all litigation proceedings under N.Y. CPLR Article 75 and/or the Federal Arbitration Act, 9 U.S.C. §§ 3–4.

From a strategic perspective, arbitration offers QC&S significant advantages over litigation. An ARIAS-U.S. panel composed of current or former officers of insurance or reinsurance companies will bring deep expertise in the customs and practices of the reinsurance industry — expertise that is particularly valuable given the technical nature of the IBNR allocation and follow-the-fortunes issues at the heart of this dispute. Arbitration also affords QC&S critical confidentiality protections, shielding Quorum Insurance Holdings Corp. ("QIH"), as a publicly traded company (Nasdaq: QIHC), from adverse publicity that could affect market perception, credit ratings, and counterparty relationships. The anticipated timeline for arbitration (twelve to eighteen months from panel formation to hearing) compares favorably to the twenty-four to thirty-six-month or longer track for a trial in the Commercial Division. The principal risk associated with arbitration — limited appellate review under FAA § 10 and CPLR § 7511 — is acceptable given the strength of QC&S's substantive defenses and the symmetric nature of the limited-review risk.

II. BACKGROUND

A. The Parties

1. Cedent: Quorum Casualty & Surety Company

Quorum Casualty & Surety Company ("QC&S") is a New York-domiciled stock property and casualty insurance company, NAIC No. 24891, with its principal office located at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103. QC&S is a wholly owned subsidiary of Quorum Insurance Holdings Corp. ("QIH"), a publicly traded Delaware holding company listed on the Nasdaq Global Select Market under the ticker symbol QIHC. QC&S writes commercial general liability, excess and umbrella liability, professional liability (errors and omissions), and specialty lines coverages throughout the United States and select international markets.

As of December 31, 2025, QC&S reported statutory surplus of approximately $1.42 billion. The company maintains an A.M. Ridgeway Financial Strength Rating of A (Excellent) with a Stable outlook, as most recently affirmed on November 14, 2025. QC&S is regulated by the New York Department of Financial Services ("NYDFS") as its domestic regulator and holds certificates of authority in all fifty states, the District of Columbia, and Puerto Rico.

QC&S is the named cedent under Treaty No. PA-QCS-2019-EXL-0044, the aggregate excess-of-loss reinsurance treaty at issue in this matter.

2. Reinsurer: Pinnacle Atlantic Reinsurance Ltd.

Pinnacle Atlantic Reinsurance Ltd. ("PARL" or "Pinnacle Atlantic") is a Bermuda Class 4 insurer registered with the Bermuda Monetary Authority under BMA Registration No. BMA-4R-2008-0331. Pinnacle Atlantic is a wholly owned subsidiary of Pinnacle Atlantic Group Holdings Ltd., a Bermuda-domiciled holding company. Pinnacle Atlantic maintains a United States office at 1285 Avenue of the Americas, 28th Floor, New York, New York 10019, from which it conducts significant reinsurance assumed business in the U.S. market. For fiscal year 2025, Pinnacle Atlantic reported gross reinsurance assumed premiums of approximately $9.6 billion, making it one of the larger specialty reinsurers active in the North American market.

Pinnacle Atlantic is the named reinsurer under Treaty No. PA-QCS-2019-EXL-0044 and is the party that issued the Demand Letter through its counsel, HFC.

3. Intermediary: Broadreach Intermediaries Inc.

Broadreach Intermediaries Inc. ("Broadreach") is a New York-licensed reinsurance intermediary with offices at 100 Wall Street, 18th Floor, New York, New York 10005. Broadreach served as the designated intermediary under Treaty Article 9, with Jamie Castellano serving as the account executive responsible for the QC&S–Pinnacle Atlantic account. Broadreach facilitated the placement of the Treaty in 2019, handled the transmission of bordereau and billing statements, and served as the conduit for communications between QC&S and Pinnacle Atlantic throughout the treaty period. The intermediary's role is relevant to this analysis because the late notice issue under Treaty Article 7 involves the timing and manner of notice transmitted through Broadreach.

B. The 2019 Treaty

Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty") is an aggregate excess-of-loss reinsurance treaty with an effective date of July 1, 2019. The Treaty covers QC&S's net incurred losses in the commercial general liability, excess and umbrella liability, and professional liability lines of business.

The material economic terms of the Treaty are as follows:

• Treaty Term: Five years, from July 1, 2019 through June 30, 2024, with automatic annual extensions subject to ninety-day advance written non-renewal notice by either party. Pinnacle Atlantic served non-renewal notice on October 1, 2025, effective to terminate automatic extensions as of June 30, 2026. Accordingly, the Treaty is currently extended and in force through June 30, 2026.

• Retention: QC&S retains $120 million per treaty year in aggregate net incurred losses. Pinnacle Atlantic's obligation attaches only after QC&S's aggregate net incurred losses for a given treaty year exceed the $120 million retention.

• Cession Limit: $200 million per treaty year in aggregate net incurred losses in excess of the $120 million retention. Pinnacle Atlantic's maximum liability under the Treaty is therefore $200 million per treaty year, covering losses from $120 million up to $320 million in aggregate.

• Provisional Treaty Premium Rate: 42% of ceded earned premium, subject to a sliding-scale adjustment mechanism with a minimum rate of 35% and a maximum rate of 52%, determined based on actual loss experience relative to ceded earned premium.

• Governing Law: The Treaty is governed by the laws of the State of New York, as provided in Article 16.

• Arbitration: All disputes arising out of or relating to the Treaty are subject to mandatory arbitration under Article 22, as discussed in detail in Section III below.

The Treaty has been in continuous operation since July 1, 2019. During the Treaty years at issue — TY 2022 (July 1, 2021 through June 30, 2022) and TY 2023 (July 1, 2022 through June 30, 2023) — QC&S ceded losses to Pinnacle Atlantic in the aggregate amounts of $69.7 million (TY 2022) and $8.7 million (TY 2023), respectively. Pinnacle Atlantic has paid a total of $78.4 million in reinsurance recoverables to QC&S across seven billing installments transmitted between October 2022 and March 2024. It is these payments that Pinnacle Atlantic now seeks to recover in full.

C. The Dispute

On February 14, 2026, Hargrove, Fitch & Calloway LLP transmitted the Demand Letter on behalf of Pinnacle Atlantic to QC&S, with a copy to QIH's General Counsel, Rachel Sondergaard. The Demand Letter demands the return of $78,400,000 in reinsurance recoverables previously paid by Pinnacle Atlantic, plus $12,600,000 in claimed interest calculated at a rate of eight percent per annum over an approximate twenty-four-month average weighted period, for a total demand of $91,000,000. The Demand Letter asserts four separate grounds in support of this demand.

Ground 1: Late Notice Under Treaty Article 7 — Meridian Docks Mass Tort Cluster

Pinnacle Atlantic contends that QC&S failed to provide timely notice of the Meridian Docks mass tort cluster, which consists of thirty-one commercial general liability claims arising from alleged environmental contamination at a waterfront industrial complex. The Demand Letter asserts that QC&S first set a reservation on the Meridian Docks claims on March 15, 2021, but did not transmit notice to Pinnacle Atlantic through Broadreach until May 22, 2022 — a delay of fourteen months and seven days. Pinnacle Atlantic contends that this delay constitutes a material breach of the notice requirements set forth in Treaty Article 7 and that the late notice prejudiced Pinnacle Atlantic's ability to monitor and participate in the claims-handling process. The quantum of losses allocated to the Meridian Docks cluster is not separately stated in the Demand Letter but is understood to constitute a significant portion of the TY 2022 ceded losses.

Ground 2: Misallocation of IBNR Reserve Development Under Treaty Article 5

Pinnacle Atlantic contends that QC&S improperly allocated $22.3 million in incurred but not reported ("IBNR") reserve development to Treaty Year 2022, when, in Pinnacle Atlantic's view, the reserve development properly belongs to Treaty Year 2021. The significance of this allocation issue is that if the $22.3 million in reserve development is properly allocated to TY 2021 rather than TY 2022, it may reduce or eliminate the amount by which QC&S's aggregate net incurred losses exceeded the $120 million retention in TY 2022, thereby reducing or eliminating Pinnacle Atlantic's cession obligation for that treaty year. The dispute centers on the interpretation and application of the loss allocation and IBNR reporting methodologies specified in Treaty Article 5.

Ground 3: Follow-the-Fortunes Challenge Under Treaty Article 11 — Veridian Financial Services E&O Cluster

Pinnacle Atlantic challenges the application of the follow-the-fortunes doctrine under Treaty Article 11 to the settlement of the Veridian Financial Services errors and omissions claim cluster. QC&S settled the Veridian cluster for a total of $34.5 million, comprising three separate claims: Claim A ($14.2 million), Claim B ($12.8 million), and Claim C ($7.5 million). Pinnacle Atlantic contends that the settlement amounts were unreasonable and that QC&S's exercise of claims-handling discretion was not made in good faith, such that the follow-the-fortunes doctrine should not require Pinnacle Atlantic to defer to QC&S's settlement decisions. This challenge implicates the interpretation of the follow-the-fortunes provisions of Treaty Article 11 and the standard of review applicable to a cedent's claims-handling decisions under the Treaty.

Ground 4: Ceded Earned Premium Underreporting Under Treaty Article 3

Pinnacle Atlantic asserts that QC&S underreported ceded earned premium by $6.8 million, resulting in a corresponding underpayment of treaty premium in the amount of $2,856,000 (calculated at the provisional 42% rate). The Demand Letter contends that this underreporting constitutes a breach of the reporting obligations set forth in Treaty Article 3 and, in combination with the other alleged breaches, supports Pinnacle Atlantic's demand for rescission or restitution of all amounts paid under the Treaty.

Treaty Years and Amounts at Issue

The Treaty years directly at issue are TY 2022 (ceded loss claimed: $69.7 million) and TY 2023 (ceded loss claimed: $8.7 million). The total reinsurance recoverable already paid by Pinnacle Atlantic across these treaty years is $78.4 million, distributed across seven billing installments from October 2022 through March 2024. Including the claimed interest of $12.6 million, Pinnacle Atlantic's total demand is $91.0 million.

D. HFC's Position on the Arbitration Clause

In a notable passage near the conclusion of the Demand Letter, HFC asserts that Treaty Article 22 — the arbitration clause — is "inapplicable to the specific claims raised" in the demand. HFC does not elaborate extensively on this assertion, devoting only a single paragraph to the topic. However, the Demand Letter's characterization of Pinnacle Atlantic's claims provides some insight into the legal theory underlying HFC's position. The Demand Letter repeatedly characterizes QC&S's conduct as constituting "material misrepresentation," "fraudulent inflation," and "willful concealment," suggesting that HFC intends to frame the claims as sounding in fraud, misrepresentation, or breach of conditions precedent — categories that HFC apparently contends fall outside the scope of the arbitration clause's coverage of disputes "arising under" the Treaty.

The Demand Letter further states that, absent a satisfactory resolution within thirty days, Pinnacle Atlantic "reserves the right to pursue all available remedies in any court of competent jurisdiction." The reference to judicial forums, combined with HFC's assertion of the arbitration clause's inapplicability, strongly suggests that if Pinnacle Atlantic proceeds to formal dispute resolution, it intends to file a complaint in the Supreme Court of the State of New York, New York County, Commercial Division — the premier commercial court in New York with jurisdiction over disputes involving sums of this magnitude. The Commercial Division's assignment of cases involving at least $500,000 in dispute and its cadre of experienced commercial judges make it the most likely judicial forum if Pinnacle Atlantic attempts to litigate rather than arbitrate.

As discussed in detail in Sections III through V below, HFC's position that Article 22 is inapplicable is not supported by the text of the clause, the governing legal framework, or the substance of the claims asserted.

III. TEXT AND SCOPE OF TREATY ARTICLE 22

A. Full Text of Article 22

The operative text of Treaty Article 22, titled "ARBITRATION," provides as follows:

ARTICLE 22 — ARBITRATION

22.1 Any and all disputes or differences arising out of or relating to this Treaty, including but not limited to its formation, interpretation, performance, breach, or termination, shall be submitted to and resolved exclusively by arbitration as provided in this Article. The arbitration shall be conducted in accordance with the Rules for the Resolution of U.S. Insurance and Reinsurance Disputes promulgated by ARIAS-U.S. (the "ARIAS-U.S. Rules") as in effect at the time the demand for arbitration is served, except as otherwise provided herein.

22.2 The arbitration shall be conducted before a panel of three arbitrators (the "Panel"). Within thirty (30) days of receipt of a written demand for arbitration, each party shall appoint one arbitrator. The two party-appointed arbitrators shall, within thirty (30) days of the appointment of the second arbitrator, select an umpire. If the two party-appointed arbitrators are unable to agree upon an umpire within such thirty (30) day period, the umpire shall be selected in accordance with the procedures set forth in the ARIAS-U.S. Rules.

22.3 All arbitrators, including the umpire, must be current or former officers of insurance or reinsurance companies. No arbitrator shall be a current or former officer, director, or employee of either party to this Treaty, or of any affiliate of either party.

22.4 The seat of the arbitration shall be New York, New York. The Panel shall have the authority to determine its own jurisdiction and the scope of this arbitration agreement, including any question as to the arbitrability of any dispute or difference submitted to it.

22.5 The Panel shall interpret this Treaty as an honorable engagement and shall not be obligated to follow the strict rules of law. The Panel may consider the custom and practice of the insurance and reinsurance industry in rendering its decision.

22.6 The award of the Panel shall be in writing, shall be final and binding upon the parties, and judgment upon the award may be entered in any court having jurisdiction thereof.

22.7 Each party shall bear the expense of its own party-appointed arbitrator and shall jointly and equally bear the expense of the umpire and any other costs of the arbitration. Each party shall bear its own attorneys' fees and costs, unless the Panel determines that such fees and costs should be allocated otherwise.

22.8 The arbitration proceedings and all materials submitted therein shall be confidential, and neither party shall disclose the existence, content, or results of the arbitration except as may be required by law, regulation, or court order.

The full text of Article 22 is attached hereto as Appendix A.

Several features of Article 22 merit particular attention for purposes of this forum analysis:

First, the clause mandates arbitration of "any and all disputes or differences arising out of or relating to this Treaty, including but not limited to its formation, interpretation, performance, breach, or termination" (Section 22.1, emphasis added). This is the broadest possible formulation of an arbitration clause and is specifically enumerated to encompass every category of dispute conceivably related to the Treaty.

Second, the Panel is expressly "empowered to determine its own jurisdiction and the scope of this arbitration agreement, including any question as to the arbitrability of any dispute or difference submitted to it" (Section 22.4). This explicit delegation of the competence-competence question to the arbitrators further strengthens the clause against judicial override.

Third, the Panel is authorized to "interpret this Treaty as an honorable engagement" and to "consider the custom and practice of the insurance and reinsurance industry" (Section 22.5) — a hallmark provision of reinsurance arbitration that favors cedent interests in disputes involving claims-handling discretion, follow-the-fortunes, and industry custom.

Fourth, all arbitrators must be "current or former officers of insurance or reinsurance companies" (Section 22.3), ensuring a panel with deep industry expertise.

Fifth, the proceedings are expressly confidential (Section 22.8), protecting both parties — and, critically, QIH as a publicly traded holding company — from the disclosure risks inherent in public litigation.

B. Analysis of Clause Breadth

The formulation "arising out of or relating to" is the broadest standard arbitration clause language recognized under both New York and federal law. The significance of this language cannot be overstated, as the courts have drawn a sharp distinction between narrow and broad arbitration clauses when determining the scope of arbitrable disputes.

Broad vs. Narrow Arbitration Clauses. A narrow arbitration clause — one that covers only disputes "arising under" or "arising from" the contract — is generally construed to reach only those disputes directly related to the interpretation and performance of the contract itself. By contrast, a broad arbitration clause — one that covers disputes "arising out of or relating to" the contract — reaches every dispute between the parties that bears any significant relationship to the agreement, regardless of the legal theory under which the claim is asserted. The distinction is well established in the case law. See, e.g., Claire Pryor, 58 F.3d 16, 20 (2d Cir. 1995) (distinguishing "arising under" clause from broader "arising out of or relating to" clause); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987) (broad clause covering claims "arising out of or relating to" the agreement encompasses fraud and tort claims).

Application to Article 22. Treaty Article 22 uses the broadest possible formulation — "any and all disputes or differences arising out of or relating to this Treaty, including but not limited to its formation, interpretation, performance, breach, or termination." This language goes beyond even the standard "arising out of or relating to" formulation by adding the "any and all" qualifier and by expressly enumerating formation, interpretation, performance, breach, and termination as categories of covered disputes. Under established precedent, this language encompasses virtually all disputes that have any connection to the Treaty, including claims sounding in tort, fraud, misrepresentation, breach of warranty, unjust enrichment, or quasi-contract, so long as they have a significant relationship to the agreement.

Application to Pinnacle Atlantic's Claims. All four of Pinnacle Atlantic's claims directly concern the interpretation and performance of specific Treaty articles:

• Late notice implicates Treaty Article 7 (notice requirements);

• IBNR misallocation implicates Treaty Article 5 (loss allocation and reporting);

• Follow-the-fortunes challenge implicates Treaty Article 11 (claims-handling standards);

• Premium underreporting implicates Treaty Article 3 (premium reporting obligations).

These are paradigmatic examples of disputes "arising out of or relating to" the Treaty. Indeed, it would be difficult to conceive of claims more squarely within the scope of a reinsurance treaty arbitration clause than claims asserting that the cedent breached specific articles of the treaty. HFC's effort to recharacterize these claims as falling outside the arbitration clause requires the sort of artificial line-drawing that courts have repeatedly rejected.

IV. APPLICABLE LEGAL FRAMEWORK

A. Federal Arbitration Act (9 U.S.C. §§ 1–16)

1. Applicability. The Federal Arbitration Act ("FAA") governs the enforceability of the arbitration clause in the Treaty. The FAA applies to arbitration agreements in contracts "evidencing a transaction involving commerce." 9 U.S.C. § 2. The Treaty is a reinsurance agreement between a New York-domiciled cedent (QC&S) and a Bermuda-domiciled reinsurer (Pinnacle Atlantic) involving the cession of property and casualty risks originating in multiple states. The transaction plainly involves interstate and international commerce, bringing the Treaty within the scope of the FAA. See, e.g., Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273–74 (1995) (interpreting "involving commerce" broadly to the full extent of Congress's Commerce Clause power); Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56–57 (2003) (same).

2. Key Provisions

FAA § 2 provides that written arbitration agreements in contracts involving commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. This provision establishes a strong federal policy in favor of enforcing arbitration agreements according to their terms. The only grounds for invalidating an arbitration agreement under § 2 are those generally applicable to contracts — fraud, duress, unconscionability, and the like — and not defenses that target the arbitration clause specifically.

FAA § 3 mandates that if any suit or proceeding is brought in any court of the United States upon any issue referable to arbitration under an agreement in writing, the court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3. This provision is mandatory: once the court determines that the dispute is covered by the arbitration agreement, it must stay the litigation. The stay is not discretionary.

FAA § 4 provides that a party aggrieved by the alleged failure of another party to arbitrate "may petition any United States district court" for an order directing that arbitration "proceed in the manner provided for in such agreement." 9 U.S.C. § 4. The court must order arbitration upon being satisfied that the making of the agreement and the failure to comply therewith are not in issue.

3. Federal Policy Favoring Arbitration

The Supreme Court has repeatedly emphasized the "strong federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983). Under this policy, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. at 24–25; see also Camberwell Enterprises Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986) ("[W]here the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.") (internal quotation marks omitted).

4. Preemption of Inconsistent State Law

Even if Pinnacle Atlantic files suit in state court — specifically, the Supreme Court of the State of New York, New York County, Commercial Division — the FAA preempts any inconsistent state law. The Supreme Court has held that the FAA applies in both federal and state courts. Southland Corp. v. Keating, 465 U.S. 1, 10–16 (1984); Allied-Bruce Terminix, 513 U.S. at 272. Accordingly, QC&S may invoke the FAA as a defense or as a basis for a motion to compel arbitration in state court proceedings. Additionally, if QC&S prefers a federal forum for the motion to compel, it may seek removal to the United States District Court for the Southern District of New York, where the FAA provides an independent basis for subject-matter jurisdiction over motions to compel arbitration. See 9 U.S.C. § 4.

B. New York CPLR Article 75

New York CPLR Article 75 is the state statutory framework governing arbitration. Its key provisions are directly applicable to the anticipated procedural posture of this dispute.

CPLR § 7503(a) provides that a party may apply to the court to compel arbitration. The court must compel arbitration unless it finds that "there is no agreement to arbitrate" or that "the claim sought to be arbitrated is barred by limitation of time." N.Y. CPLR § 7503(a). The statute imposes a mandatory obligation on the court to compel arbitration where the conditions are met — it is not a matter of judicial discretion. The party moving to compel arbitration bears the initial burden of demonstrating the existence of a valid arbitration agreement. Once that showing is made, the burden shifts to the party opposing arbitration to demonstrate that the dispute falls outside the scope of the clause or that the clause is otherwise unenforceable.

CPLR § 7503(b) provides that a party may apply to the court to stay arbitration on the ground that there is no valid agreement to arbitrate or that the claim is not arbitrable. The party seeking to stay arbitration bears the burden of demonstrating grounds for a stay. This is a heavy burden, particularly where the arbitration clause is broad and the dispute plainly concerns the subject matter of the contract.

CPLR § 7502(c) provides for the availability of provisional remedies in aid of arbitration, including temporary restraining orders, preliminary injunctions, and attachment. This provision may be relevant if QC&S seeks to protect assets or preserve the status quo pending the formation of the arbitration panel.

New York courts have consistently enforced broad arbitration clauses in reinsurance treaties. The New York Court of Appeals has recognized the strong policy favoring arbitration and has repeatedly held that a party seeking to avoid arbitration under a broad "arising out of or relating to" clause bears an exceptionally heavy burden. See, e.g., Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 49–50 (1997) (broad arbitration clause reaches all disputes having a "reasonable relationship" to the contract); Matter of Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Am., 37 N.Y.2d 91, 96 (1975) (arbitration should be compelled unless the court can say with positive assurance that the arbitration clause is not susceptible of an interpretation covering the dispute).

C. New York Convention (United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards)

Because Pinnacle Atlantic is domiciled in Bermuda, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") provides an additional layer of enforceability for the arbitration clause and any resulting arbitral award.

Chapter 2 of the FAA, 9 U.S.C. §§ 201–208, implements the New York Convention in the United States. Section 201 provides that the New York Convention "shall be enforced in United States courts in accordance with this chapter." Section 206 empowers a court to order arbitration "in accordance with the agreement at any place therein provided for, whether that place is within or without the United States." Section 207 requires a court to confirm an arbitral award falling under the Convention "unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention."

Under Article II of the New York Convention, each contracting state must recognize an agreement in writing to arbitrate and, when seized of an action in a matter covered by the agreement, must "refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative, or incapable of being performed." The grounds for refusing to enforce an arbitration agreement under the Convention are narrow and limited to the most fundamental defects — grounds that are plainly inapplicable here.

Bermuda is a party to the New York Convention. Accordingly, any arbitral award rendered by the ARIAS-U.S. panel in New York would be entitled to recognition and enforcement in Bermuda under the Convention, should enforcement proceedings be necessary. This has practical significance: if QC&S prevails in the arbitration and Pinnacle Atlantic fails to honor the award, QC&S could seek enforcement against Pinnacle Atlantic's assets in Bermuda (or in any other New York Convention signatory jurisdiction) with the benefit of the Convention's pro-enforcement framework. As discussed in Section VII.B.4 below, an arbitral award may actually be easier to enforce internationally than a New York court judgment, given the broader recognition framework provided by the Convention compared to the more limited comity principles that govern the enforcement of foreign court judgments.

V. ANALYSIS OF HFC'S POSITION THAT ARTICLE 22 IS INAPPLICABLE

A. Anticipated Arguments by Pinnacle Atlantic / HFC

Based on the Demand Letter and the nature of the claims asserted, we anticipate that HFC will advance the following arguments in opposition to QC&S's invocation of the arbitration clause:

1. Claims Sound in Fraud or Misrepresentation, Not "Arising Under" the Treaty

HFC may argue that Pinnacle Atlantic's allegations of IBNR misallocation, inflated settlements, and premium underreporting constitute fraud or misrepresentation that is conceptually distinct from a "dispute" under the Treaty and therefore falls outside the scope of the arbitration clause. The Demand Letter's repeated use of terms such as "material misrepresentation," "fraudulent inflation," and "willful concealment" suggests that HFC may attempt to recharacterize the claims as independent torts rather than contract-based disputes. HFC may argue that the arbitration clause covers only disputes about the meaning or application of Treaty terms — not claims alleging that the cedent engaged in dishonest conduct that vitiated the treaty relationship.

2. Breach of Conditions Precedent (Late Notice) Is Not a "Dispute" Under the Treaty

HFC may contend that the failure to satisfy the notice requirements of Treaty Article 7 is not merely a breach of a covenant but a failure to satisfy a condition precedent to the formation of Pinnacle Atlantic's reinsurance obligation. Under this theory, HFC would argue that because the condition precedent was never satisfied, the cession never properly attached, and there is no valid "treaty dispute" to arbitrate — the claims relate to the absence of a valid reinsurance obligation rather than to the interpretation or performance of one. This argument attempts to place the late notice claim outside the arbitration clause by characterizing it as going to the existence of the contractual obligation rather than to its terms.

3. Restitutionary Claim for Return of Funds Paid Is Independent of the Treaty

HFC may argue that Pinnacle Atlantic's demand for the return of $78.4 million in reinsurance recoverables is a quasi-contractual or unjust enrichment claim that exists independently of the Treaty. Under this theory, HFC would contend that Pinnacle Atlantic is not seeking to enforce or interpret the Treaty but rather to recover funds that were paid by mistake or under a voided obligation — a claim that sounds in equity or quasi-contract rather than in contract and therefore falls outside the scope of the arbitration clause.

4. Waiver or Forfeiture of Arbitration Rights by QC&S Through Course of Conduct

HFC may argue that QC&S has waived its right to arbitrate by engaging in an extended course of commercial discussions and billing without invoking the arbitration clause. The parties have been in communication regarding the disputed claims since at least mid-2025, when Pinnacle Atlantic first raised concerns about the Meridian Docks late notice issue and the IBNR allocation. QC&S responded to these concerns through its reinsurance department and through Broadreach, engaging in substantive discussions about the merits of the claims without invoking arbitration. HFC may contend that this conduct is inconsistent with an intent to arbitrate and constitutes a waiver of the right to compel arbitration.

B. Rebuttal Analysis for Each Argument

1. Fraud / Misrepresentation Argument

HFC's anticipated argument that Pinnacle Atlantic's claims sound in fraud or misrepresentation and therefore fall outside the arbitration clause is not supported by the governing law. The "arising out of or relating to" language of Article 22 is broad enough to encompass fraud claims that are intertwined with the performance of the contract. Both the Second Circuit and the New York courts have consistently held that fraud and misrepresentation claims "relating to" a contract fall within broad arbitration clauses.

In Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987), the Second Circuit held that where the arbitration clause covers disputes "arising out of or relating to" the agreement, "the clause is not limited to claims arising under the contract, but rather embraces all disputes between the parties having a significant relationship to the contract, regardless of the label attached to the dispute." The court specifically held that fraud and fraudulent inducement claims relating to the contract fell within the scope of a broad arbitration clause. See also Astra Oil Co. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (claims of fraud and conversion relating to a contract containing a broad arbitration clause were arbitrable); JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 172 (2d Cir. 2004) (broad arbitration clause encompassed antitrust claims having a significant relationship to the contract).

More fundamentally, Pinnacle Atlantic's allegations are not truly independent fraud claims. They are, at their core, claims that QC&S breached specific Treaty articles — Article 3 (premium reporting), Article 5 (loss allocation), Article 7 (notice), and Article 11 (claims-handling and follow-the-fortunes). The fact that HFC characterizes these breaches as "fraudulent" or "misrepresentation" does not transform them into non-contractual claims. Even if Pinnacle Atlantic were to plead a separate tort count for fraud, the substance of the claim would require the arbitrators to interpret and apply the Treaty provisions that QC&S allegedly violated. Courts have uniformly rejected efforts to avoid arbitration through artful pleading that recharacterizes contract disputes as independent torts. See Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998) ("[T]he party may not avoid broad language in an arbitration clause by attempting to cast its complaint in tort rather than contract.").

Accordingly, HFC's fraud/misrepresentation argument does not provide a basis for avoiding arbitration under Article 22.

2. Conditions Precedent / Late Notice Argument

HFC's anticipated argument that the late notice claim falls outside the arbitration clause because Article 7 notice is a condition precedent to Pinnacle Atlantic's obligation — and therefore the dispute concerns the existence of the obligation rather than its terms — is equally unavailing.

As an initial matter, whether the notice requirements of Treaty Article 7 constitute conditions precedent or covenants is itself a question of Treaty interpretation — precisely the type of dispute that Article 22 is designed to resolve. The characterization of a contractual provision as a condition precedent versus a covenant is a question of contract interpretation governed by the terms of the agreement and the intent of the parties. See Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995). Submitting this threshold question to the arbitration panel is entirely consistent with the broad scope of Article 22, which covers disputes relating to the Treaty's "formation, interpretation, performance, breach, or termination."

Moreover, even if the notice requirement were characterized as a condition precedent, the question of whether the condition has been satisfied — and, if not, whether the failure is excusable or results in prejudice — remains a dispute "arising out of or relating to" the Treaty. The Second Circuit has held that questions about whether conditions precedent have been met are arbitrable under broad arbitration clauses. See Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 211 (2d Cir. 2005) (noting that even threshold questions about the validity of the contract are for the arbitrators where the parties have agreed to arbitrate questions of arbitrability).

In the reinsurance context specifically, the question of late notice and its consequences is a quintessential issue of treaty interpretation. The ARIAS-U.S. panel will have the expertise to evaluate the notice requirement in the context of reinsurance industry custom, the prejudice (if any) suffered by the reinsurer, and the substantive provisions of the Treaty — all of which are matters squarely within the scope of arbitration.

Furthermore, Article 22.4 expressly empowers the Panel to "determine its own jurisdiction and the scope of this arbitration agreement, including any question as to the arbitrability of any dispute or difference submitted to it." This explicit delegation of the competence-competence question to the Panel means that even if there were a colorable argument that the late notice claim falls outside the scope of the arbitration clause, the threshold determination of arbitrability would itself be for the Panel to decide. See Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 67–69 (2019) (where parties clearly and unmistakably delegated arbitrability questions to the arbitrator, the court may not decide the question even if the argument for arbitrability is "wholly groundless").

3. Restitutionary / Quasi-Contract Argument

HFC's anticipated argument that Pinnacle Atlantic's demand for return of $78.4 million is an independent quasi-contractual or unjust enrichment claim falling outside the arbitration clause is similarly without merit.

The demand for return of reinsurance recoverables is inextricably linked to the Treaty. Pinnacle Atlantic paid the $78.4 million pursuant to billing statements rendered under the Treaty, calculated in accordance with the Treaty's loss allocation and premium provisions, and transmitted through the designated intermediary (Broadreach) in accordance with Treaty Article 9. The only basis for Pinnacle Atlantic's demand that these funds be returned is its contention that QC&S breached specific Treaty provisions — the same Treaty that contains the arbitration clause. A claim for return of funds paid under a contract, on the ground that the contract was breached or that the payments were improper, is the quintessential dispute "arising out of or relating to" the contract.

Courts have uniformly rejected attempts to recharacterize contract disputes as independent quasi-contractual claims for the purpose of avoiding arbitration. See, e.g., Bensadoun v. Jobe-Riat, 316 F.3d 171, 177–78 (2d Cir. 2003) (quasi-contractual claims for unjust enrichment fell within broad arbitration clause where the claims were "intertwined with the underlying contract obligations"); Mehler v. Terminix Int'l Co., 205 F.3d 44, 49 (2d Cir. 2000) (broad arbitration clause reached tort and statutory claims that bore a significant relationship to the contract). The fact that a party labels its claim as one for "restitution" or "unjust enrichment" does not transform it into a non-contractual claim when the substance of the dispute arises from the contractual relationship between the parties.

Moreover, under New York law, a party generally may not maintain a quasi-contractual claim where a valid contract governs the subject matter of the dispute. See Clark-Fitzpatrick, Inc. v. Severin Industries, 70 N.Y.2d 382, 388 (1987) ("The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter."). Because the Treaty governs the parties' reinsurance relationship and specifically addresses the obligations giving rise to the payments at issue, Pinnacle Atlantic's claim for return of those payments sounds in contract — and is squarely within the scope of Article 22.

4. Waiver Argument

HFC's anticipated waiver argument is the weakest of the four anticipated arguments, given the current procedural posture of the dispute.

Under both federal and New York law, waiver of arbitration rights requires a showing of (1) an intent to waive, manifested by conduct inconsistent with the right to arbitrate, and (2) prejudice to the opposing party resulting from the inconsistent conduct. See Morgan v. Sundance, Inc., 596 U.S. 411, 416 (2022) (holding that courts may not condition waiver on a showing of prejudice under federal arbitration law — noting, however, that this decision addressed the standard under the FAA and distinguished contractual waiver); De unioio v. Kohlmeyer, 35 N.Y.2d 402, 405 (1974) (waiver of arbitration requires "clear, deliberate and unequivocal" conduct); Sherrill v. Grayco Builders, Inc., 64 N.Y.2d 261, 272 (1985) (waiver of arbitration is not lightly inferred).

We note that the Supreme Court's 2022 decision in Morgan v. Sundance, Inc. eliminated the prejudice requirement for waiver of arbitration rights under the FAA, holding that courts may not create arbitration-specific waiver rules that differ from general waiver principles. However, even under Morgan, waiver requires a showing that the party acted inconsistently with the right to arbitrate — typically by engaging in litigation conduct such as filing a complaint, engaging in discovery, filing motions, or otherwise availing itself of the judicial process.

Here, QC&S has not engaged in any litigation conduct inconsistent with arbitration. The dispute is at the pre-suit demand stage. No court filings have been made by either party. No litigation discovery has occurred. QC&S has not filed a complaint, answered a complaint, served or responded to interrogatories, taken or defended depositions, or filed any motions in any court. QC&S's engagement in commercial discussions and billing — the ordinary course of business under the Treaty — does not constitute the type of conduct that could give rise to waiver.

Moreover, QC&S should act promptly to invoke arbitration by serving a formal demand to arbitrate on Pinnacle Atlantic. Taking this step now, before any litigation is filed, will conclusively foreclose any waiver argument and demonstrate QC&S's commitment to the contractual forum. We recommend that the demand to arbitrate be served simultaneously with or immediately following the response letter to HFC's demand, as discussed in Section IX below.

C. Overall Assessment of HFC's Position

HFC's assertion in the Demand Letter that Treaty Article 22 is "inapplicable to the specific claims raised" is without substantial merit under the governing law. The assertion appears to rest on an incorrect assumption that claims characterized as sounding in fraud, misrepresentation, or breach of conditions precedent fall outside the scope of a broad "arising out of or relating to" arbitration clause. This assumption is directly contradicted by the weight of authority in both the Second Circuit and the New York state courts.

Every one of Pinnacle Atlantic's four grounds for recovery directly concerns the interpretation and performance of specific Treaty articles — Articles 3, 5, 7, and 11. The disputes require the decision-maker to construe Treaty language, apply Treaty standards, and evaluate QC&S's conduct in the context of its obligations under the Treaty. These are paradigmatic arbitration-clause disputes.

The strong presumption of arbitrability under both federal and New York law weighs heavily in QC&S's favor. Under the governing standard, doubts about the scope of arbitrable issues must be resolved in favor of arbitration. Here, there is no genuine doubt: the claims are clearly within the scope of Article 22.

If Pinnacle Atlantic files suit in the Supreme Court of the State of New York, New York County, Commercial Division, QC&S has a high likelihood of success on a motion to compel arbitration and stay litigation. We estimate the probability of success on such a motion at approximately ninety percent or higher, based on the breadth of the arbitration clause, the governing legal framework, and the nature of the claims asserted.

VI. PROCEDURAL MECHANICS

A. Motion to Compel Arbitration in NY Supreme Court

If Pinnacle Atlantic files a complaint in the Supreme Court of the State of New York, New York County, Commercial Division, QC&S should promptly move to compel arbitration and stay all litigation proceedings. The procedural framework for such a motion is as follows:

Statutory Basis. QC&S's motion would be brought under N.Y. CPLR § 7503(a), which authorizes a party to apply to the court to compel arbitration where a valid arbitration agreement exists and the opposing party has refused to arbitrate. Simultaneously, QC&S should seek a stay of all litigation proceedings under CPLR § 7503(a) (which provides for a stay pending arbitration as part of the order compelling arbitration) and/or FAA § 3 (which mandates a stay of litigation pending arbitration where the issues are referable to arbitration under a valid agreement). QC&S may also invoke FAA § 4 as an alternative or additional basis for compelling arbitration.

Filing Timeline. It is critical that QC&S file the motion to compel arbitration before answering the complaint or engaging in any substantive litigation activity. Any responsive litigation conduct — including filing an answer, serving discovery requests or responses, or appearing at a preliminary conference — could be cited by HFC in support of a waiver argument. Accordingly, QC&S should file the motion to compel as its first responsive filing after receiving the complaint. Under CPLR § 7503(c), a party who has not participated in the arbitration and who has not made or been served with an application to compel arbitration may apply to stay arbitration within twenty days after service of the demand for arbitration. Conversely, QC&S's position as the party seeking to compel arbitration is strengthened by prompt action.

Supporting Papers. The motion should be supported by:

(a) A memorandum of law setting forth the legal arguments in favor of compelling arbitration, including the analysis contained in this memorandum;

(b) An affidavit of Tobias Engström, Senior Vice President, Reinsurance & Capital Markets, Quorum Insurance Holdings Corp., authenticating the Treaty and Article 22, attesting to the parties' course of dealing under the Treaty, and confirming that QC&S has at all times intended to resolve disputes under the Treaty through the contractual arbitration mechanism;

(d) A copy of the Demand Letter, to demonstrate that the claims asserted are squarely within the scope of the arbitration clause; and

(e) A proposed order compelling arbitration and staying all litigation pending the completion of arbitration proceedings.

Forum Considerations. If QC&S prefers to litigate the motion to compel in federal court, it may seek removal of Pinnacle Atlantic's state court action to the United States District Court for the Southern District of New York. Diversity jurisdiction exists because QC&S is a citizen of New York and Connecticut (for diversity purposes, a corporation is a citizen of its state of incorporation and its principal place of business), and Pinnacle Atlantic is a citizen of Bermuda. The amount in controversy ($91 million) far exceeds the $75,000 statutory threshold. Additionally, the FAA provides an independent basis for federal jurisdiction over motions to compel arbitration under contracts involving foreign commerce. See 9 U.S.C. § 205 (providing for removal of actions relating to arbitration agreements falling under the New York Convention). Federal court may offer certain procedural advantages, including the opportunity to invoke the FAA's framework directly and the expertise of Southern District judges in complex commercial arbitration matters.

B. Pre-Emptive Demand to Arbitrate

Rather than waiting for Pinnacle Atlantic to file suit, QC&S should take the initiative and serve a formal demand to arbitrate on Pinnacle Atlantic. This approach offers several advantages.

Procedure. Under ARIAS-U.S. Rules and Treaty Article 22, the arbitration is initiated by service of a written demand for arbitration. The demand should:

(a) Identify the Treaty (Treaty No. PA-QCS-2019-EXL-0044) and the arbitration clause (Article 22);

(b) Describe the disputes to be submitted to arbitration, including both the claims raised by Pinnacle Atlantic in the Demand Letter and QC&S's counterclaims (discussed in Section VIII below);

(d) Demand that Pinnacle Atlantic appoint its party-appointed arbitrator within thirty (30) days, as required by Article 22.2; and

(e) Identify QC&S's party-appointed arbitrator (if QC&S has selected one by the time the demand is served) or reserve QC&S's right to appoint its arbitrator within the prescribed period.

Strategic Advantages. Serving a pre-emptive demand to arbitrate has significant strategic value. First, it demonstrates QC&S's commitment to the contractual forum and conclusively forecloses any waiver argument. Second, it places QC&S in the position of the demanding party — a posture that carries initiative and momentum. Third, it forces Pinnacle Atlantic to either comply with the demand (by appointing its arbitrator and proceeding to arbitration) or to seek judicial intervention to stay the arbitration under CPLR § 7503(b) — a proceeding in which Pinnacle Atlantic would bear the heavy burden of demonstrating that the dispute is not arbitrable. Fourth, if Pinnacle Atlantic thereafter files suit in NY Supreme Court, QC&S's prior demand to arbitrate strengthens its position on any subsequent motion to compel arbitration by demonstrating that QC&S acted first to invoke the contractual forum.

C. ARIAS-U.S. Arbitration Procedure

The Treaty provides for arbitration under the ARIAS-U.S. Rules. The key procedural features of an ARIAS-U.S. arbitration are as follows:

Panel Composition. The arbitration will be conducted before a three-member panel. Each party selects one arbitrator, and the two party-appointed arbitrators select the umpire. If the party-appointed arbitrators cannot agree on an umpire within thirty days, the umpire is selected through the procedures specified in the ARIAS-U.S. Rules (typically a ranking process from a slate of candidates). All arbitrators, including the umpire, must be current or former officers of insurance or reinsurance companies — ensuring that the panel has deep industry expertise in reinsurance customs, practices, and technical issues.

Seat. The arbitration will be seated in New York, New York, as specified in Article 22.4.

Procedure. The ARIAS-U.S. Rules provide a structured but flexible procedural framework. The proceedings typically include:

(a) An organizational meeting at which the Panel sets the procedural schedule and addresses preliminary matters, including the scope of document exchange, the identification of issues, and the hearing format;

(b) Document exchange — generally more streamlined than civil litigation discovery under CPLR Article 31, with the Panel exercising discretion to limit the scope and burden of production;

(c) Written witness statements and, in some cases, depositions (though depositions are less common than in civil litigation);

(d) Pre-hearing briefs submitted by each party addressing the legal and factual issues;

(e) An evidentiary hearing at which witnesses testify (often by presenting their written statements and submitting to cross-examination) and the parties present their cases;

(f) Post-hearing briefs, if directed by the Panel; and

(g) A written award, which is final and binding under Article 22.6.

Timeline. Based on the complexity of the issues and the typical pace of ARIAS-U.S. proceedings, we estimate that the arbitration hearing can be expected within twelve to eighteen months of panel formation. This compares favorably to the twenty-four to thirty-six-month (or longer) timeline typically associated with a trial in the Commercial Division of the Supreme Court, given the current caseload and scheduling practices in that court.

Honorable Engagement. Article 22.5 provides that the Panel "shall interpret this Treaty as an honorable engagement and shall not be obligated to follow the strict rules of law" and "may consider the custom and practice of the insurance and reinsurance industry in rendering its decision." This is a standard reinsurance arbitration provision that gives the Panel flexibility to consider industry custom and equitable principles in addition to — and, in some cases, in lieu of — strict legal rules. The honorable engagement standard generally benefits cedents in reinsurance disputes, as it permits the Panel to give weight to established industry practices regarding late notice standards, IBNR allocation methodology, follow-the-fortunes principles, and other customary cedent prerogatives.

VII. STRATEGIC CONSIDERATIONS

A. Advantages of Arbitration for QC&S

1. Panel Expertise

The single most important strategic advantage of arbitration for QC&S is the expertise of the arbitration panel. Under Treaty Article 22.3, all arbitrators must be "current or former officers of insurance or reinsurance companies." This qualification requirement ensures that the panel members will have direct, hands-on experience with the concepts, customs, and technical issues at the heart of this dispute.

The claims asserted by Pinnacle Atlantic implicate some of the most technically complex areas of reinsurance practice:

• Late notice standards (Article 7) — The question of what constitutes timely notice, and whether a fourteen-month delay is excusable or prejudicial, is deeply informed by industry custom regarding the timing, manner, and consequences of late notice in aggregate excess-of-loss treaties. An arbitration panel composed of insurance and reinsurance company officers will have direct familiarity with the practical realities of claims reporting, bordereau preparation, and the flow of information between cedents, intermediaries, and reinsurers.

• IBNR allocation methodology (Article 5) — The proper allocation of $22.3 million in IBNR reserve development between Treaty Years 2021 and 2022 requires an understanding of actuarial reserving practices, loss development patterns, and the conventions governing the assignment of reserve changes to specific treaty years. These are technical questions that are routinely handled by reinsurance professionals and are less familiar to generalist judges.

• Follow-the-fortunes doctrine (Article 11) — The follow-the-fortunes doctrine is a cornerstone of the cedent-reinsurer relationship, and its application to the Veridian Financial Services E&O cluster settlement involves questions about the standard of review for a cedent's claims-handling decisions, the reasonableness of settlement allocations, and the good f

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Douglas Carmichael, Responsible Partner, Calderwood & Harkness LLP
FROM: Jeffrey Park, Senior Associate, Calderwood & Harkness LLP (with assistance from Yuki Nakamura, Associate)
DATE: March 12, 2026
RE: Forum Analysis — Arbitration vs. Litigation: Treaty No. PA-QCS-2019-EXL-0044, Quorum Casualty & Surety Company v. Pinnacle Atlantic Reinsurance Ltd.
MATTER NO.: 1025-00005
CLIENT: Quorum Insurance Holdings Corp. / Quorum Casualty & Surety Company
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I. EXECUTIVE SUMMARY
This memorandum analyzes whether the arbitration clause contained in Article 22 of Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty") compels arbitration of all disputes raised in the pre-suit demand letter dated February 14, 2026 (the "Demand Letter"), transmitted on behalf of Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic" or "PARL") by the law firm of Hargrove, Fitch & Calloway LLP ("HFC"), under the direction of lead partner Nathaniel R. Calloway III. The Demand Letter seeks the return of $78,400,000 in reinsurance recoverables previously paid by Pinnacle Atlantic to Quorum Casualty & Surety Company ("QC&S"), together with $12,600,000 in claimed interest calculated at an annual rate of eight percent over an approximate twenty-four-month average period, for a total demand of $91,000,000.
The Demand Letter asserts four separate grounds for recovery: (1) late notice under Treaty Article 7 regarding the Meridian Docks mass tort cluster; (2) misallocation of $22.3 million in IBNR reserve development under Treaty Article 5; (3) a challenge to the follow-the-fortunes doctrine as applied to the Veridian Financial Services E&O cluster settlement under Treaty Article 11; and (4) ceded earned premium underreporting under Treaty Article 3. Despite the breadth and specificity of these Treaty-based claims, the Demand Letter takes the position that Treaty Article 22 — the mandatory arbitration provision — is "inapplicable to the specific claims raised." HFC does not elaborate extensively on the legal basis for this assertion but appears to take the position that Pinnacle Atlantic's claims sound in fraud, misrepresentation, or breach of conditions precedent rather than disputes "arising under" the Treaty, thereby placing them outside the scope of the arbitration clause.
After a thorough analysis of the Treaty language, governing federal and New York law, and the specific claims at issue, we conclude that HFC's position is without substantial legal merit. Treaty Article 22 employs the broadest standard arbitration clause formulation recognized under both federal and New York law — "arising out of or relating to" — which encompasses virtually all disputes having any connection to the Treaty. All four of Pinnacle Atlantic's claims directly concern the interpretation and performance of specific Treaty articles and are paradigmatic examples of disputes falling within the scope of Article 22. The strong federal policy favoring arbitration, codified in the Federal Arbitration Act, 9 U.S.C. §§ 1–16, together with consistent New York jurisprudence enforcing broad reinsurance arbitration clauses, further supports this conclusion.
We recommend that QC&S invoke Treaty Article 22 and serve a formal demand to arbitrate on Pinnacle Atlantic under the ARIAS-U.S. Rules before a three-member arbitration panel seated in New York, New York. If Pinnacle Atlantic files suit in the Supreme Court of the State of New York, New York County, Commercial Division — the forum identified in the Demand Letter as the anticipated venue for litigation — QC&S should promptly move to compel arbitration and stay all litigation proceedings under N.Y. CPLR Article 75 and/or the Federal Arbitration Act, 9 U.S.C. §§ 3–4.
From a strategic perspective, arbitration offers QC&S significant advantages over litigation. An ARIAS-U.S. panel composed of current or former officers of insurance or reinsurance companies will bring deep expertise in the customs and practices of the reinsurance industry — expertise that is particularly valuable given the technical nature of the IBNR allocation and follow-the-fortunes issues at the heart of this dispute. Arbitration also affords QC&S critical confidentiality protections, shielding Quorum Insurance Holdings Corp. ("QIH"), as a publicly traded company (Nasdaq: QIHC), from adverse publicity that could affect market perception, credit ratings, and counterparty relationships. The anticipated timeline for arbitration (twelve to eighteen months from panel formation to hearing) compares favorably to the twenty-four to thirty-six-month or longer track for a trial in the Commercial Division. The principal risk associated with arbitration — limited appellate review under FAA § 10 and CPLR § 7511 — is acceptable given the strength of QC&S's substantive defenses and the symmetric nature of the limited-review risk.
II. BACKGROUND
A. The Parties
1. Cedent: Quorum Casualty & Surety Company
Quorum Casualty & Surety Company ("QC&S") is a New York-domiciled stock property and casualty insurance company, NAIC No. 24891, with its principal office located at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103. QC&S is a wholly owned subsidiary of Quorum Insurance Holdings Corp. ("QIH"), a publicly traded Delaware holding company listed on the Nasdaq Global Select Market under the ticker symbol QIHC. QC&S writes commercial general liability, excess and umbrella liability, professional liability (errors and omissions), and specialty lines coverages throughout the United States and select international markets.
As of December 31, 2025, QC&S reported statutory surplus of approximately $1.42 billion. The company maintains an A.M. Ridgeway Financial Strength Rating of A (Excellent) with a Stable outlook, as most recently affirmed on November 14, 2025. QC&S is regulated by the New York Department of Financial Services ("NYDFS") as its domestic regulator and holds certificates of authority in all fifty states, the District of Columbia, and Puerto Rico.
QC&S is the named cedent under Treaty No. PA-QCS-2019-EXL-0044, the aggregate excess-of-loss reinsurance treaty at issue in this matter.
2. Reinsurer: Pinnacle Atlantic Reinsurance Ltd.
Pinnacle Atlantic Reinsurance Ltd. ("PARL" or "Pinnacle Atlantic") is a Bermuda Class 4 insurer registered with the Bermuda Monetary Authority under BMA Registration No. BMA-4R-2008-0331. Pinnacle Atlantic is a wholly owned subsidiary of Pinnacle Atlantic Group Holdings Ltd., a Bermuda-domiciled holding company. Pinnacle Atlantic maintains a United States office at 1285 Avenue of the Americas, 28th Floor, New York, New York 10019, from which it conducts significant reinsurance assumed business in the U.S. market. For fiscal year 2025, Pinnacle Atlantic reported gross reinsurance assumed premiums of approximately $9.6 billion, making it one of the larger specialty reinsurers active in the North American market.
Pinnacle Atlantic is the named reinsurer under Treaty No. PA-QCS-2019-EXL-0044 and is the party that issued the Demand Letter through its counsel, HFC.
3. Intermediary: Broadreach Intermediaries Inc.
Broadreach Intermediaries Inc. ("Broadreach") is a New York-licensed reinsurance intermediary with offices at 100 Wall Street, 18th Floor, New York, New York 10005. Broadreach served as the designated intermediary under Treaty Article 9, with Jamie Castellano serving as the account executive responsible for the QC&S–Pinnacle Atlantic account. Broadreach facilitated the placement of the Treaty in 2019, handled the transmission of bordereau and billing statements, and served as the conduit for communications between QC&S and Pinnacle Atlantic throughout the treaty period. The intermediary's role is relevant to this analysis because the late notice issue under Treaty Article 7 involves the timing and manner of notice transmitted through Broadreach.
B. The 2019 Treaty
Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty") is an aggregate excess-of-loss reinsurance treaty with an effective date of July 1, 2019. The Treaty covers QC&S's net incurred losses in the commercial general liability, excess and umbrella liability, and professional liability lines of business.
The material economic terms of the Treaty are as follows:
• Treaty Term: Five years, from July 1, 2019 through June 30, 2024, with automatic annual extensions subject to ninety-day advance written non-renewal notice by either party. Pinnacle Atlantic served non-renewal notice on October 1, 2025, effective to terminate automatic extensions as of June 30, 2026. Accordingly, the Treaty is currently extended and in force through June 30, 2026.
• Retention: QC&S retains $120 million per treaty year in aggregate net incurred losses. Pinnacle Atlantic's obligation attaches only after QC&S's aggregate net incurred losses for a given treaty year exceed the $120 million retention.
• Cession Limit: $200 million per treaty year in aggregate net incurred losses in excess of the $120 million retention. Pinnacle Atlantic's maximum liability under the Treaty is therefore $200 million per treaty year, covering losses from $120 million up to $320 million in aggregate.
• Provisional Treaty Premium Rate: 42% of ceded earned premium, subject to a sliding-scale adjustment mechanism with a minimum rate of 35% and a maximum rate of 52%, determined based on actual loss experience relative to ceded earned premium.
• Governing Law: The Treaty is governed by the laws of the State of New York, as provided in Article 16.
• Arbitration: All disputes arising out of or relating to the Treaty are subject to mandatory arbitration under Article 22, as discussed in detail in Section III below.
The Treaty has been in continuous operation since July 1, 2019. During the Treaty years at issue — TY 2022 (July 1, 2021 through June 30, 2022) and TY 2023 (July 1, 2022 through June 30, 2023) — QC&S ceded losses to Pinnacle Atlantic in the aggregate amounts of $69.7 million (TY 2022) and $8.7 million (TY 2023), respectively. Pinnacle Atlantic has paid a total of $78.4 million in reinsurance recoverables to QC&S across seven billing installments transmitted between October 2022 and March 2024. It is these payments that Pinnacle Atlantic now seeks to recover in full.
C. The Dispute
On February 14, 2026, Hargrove, Fitch & Calloway LLP transmitted the Demand Letter on behalf of Pinnacle Atlantic to QC&S, with a copy to QIH's General Counsel, Rachel Sondergaard. The Demand Letter demands the return of $78,400,000 in reinsurance recoverables previously paid by Pinnacle Atlantic, plus $12,600,000 in claimed interest calculated at a rate of eight percent per annum over an approximate twenty-four-month average weighted period, for a total demand of $91,000,000. The Demand Letter asserts four separate grounds in support of this demand.
Ground 1: Late Notice Under Treaty Article 7 — Meridian Docks Mass Tort Cluster
Pinnacle Atlantic contends that QC&S failed to provide timely notice of the Meridian Docks mass tort cluster, which consists of thirty-one commercial general liability claims arising from alleged environmental contamination at a waterfront industrial complex. The Demand Letter asserts that QC&S first set a reservation on the Meridian Docks claims on March 15, 2021, but did not transmit notice to Pinnacle Atlantic through Broadreach until May 22, 2022 — a delay of fourteen months and seven days. Pinnacle Atlantic contends that this delay constitutes a material breach of the notice requirements set forth in Treaty Article 7 and that the late notice prejudiced Pinnacle Atlantic's ability to monitor and participate in the claims-handling process. The quantum of losses allocated to the Meridian Docks cluster is not separately stated in the Demand Letter but is understood to constitute a significant portion of the TY 2022 ceded losses.
Ground 2: Misallocation of IBNR Reserve Development Under Treaty Article 5
Pinnacle Atlantic contends that QC&S improperly allocated $22.3 million in incurred but not reported ("IBNR") reserve development to Treaty Year 2022, when, in Pinnacle Atlantic's view, the reserve development properly belongs to Treaty Year 2021. The significance of this allocation issue is that if the $22.3 million in reserve development is properly allocated to TY 2021 rather than TY 2022, it may reduce or eliminate the amount by which QC&S's aggregate net incurred losses exceeded the $120 million retention in TY 2022, thereby reducing or eliminating Pinnacle Atlantic's cession obligation for that treaty year. The dispute centers on the interpretation and application of the loss allocation and IBNR reporting methodologies specified in Treaty Article 5.
Ground 3: Follow-the-Fortunes Challenge Under Treaty Article 11 — Veridian Financial Services E&O Cluster
Pinnacle Atlantic challenges the application of the follow-the-fortunes doctrine under Treaty Article 11 to the settlement of the Veridian Financial Services errors and omissions claim cluster. QC&S settled the Veridian cluster for a total of $34.5 million, comprising three separate claims: Claim A ($14.2 million), Claim B ($12.8 million), and Claim C ($7.5 million). Pinnacle Atlantic contends that the settlement amounts were unreasonable and that QC&S's exercise of claims-handling discretion was not made in good faith, such that the follow-the-fortunes doctrine should not require Pinnacle Atlantic to defer to QC&S's settlement decisions. This challenge implicates the interpretation of the follow-the-fortunes provisions of Treaty Article 11 and the standard of review applicable to a cedent's claims-handling decisions under the Treaty.
Ground 4: Ceded Earned Premium Underreporting Under Treaty Article 3
Pinnacle Atlantic asserts that QC&S underreported ceded earned premium by $6.8 million, resulting in a corresponding underpayment of treaty premium in the amount of $2,856,000 (calculated at the provisional 42% rate). The Demand Letter contends that this underreporting constitutes a breach of the reporting obligations set forth in Treaty Article 3 and, in combination with the other alleged breaches, supports Pinnacle Atlantic's demand for rescission or restitution of all amounts paid under the Treaty.
Treaty Years and Amounts at Issue
The Treaty years directly at issue are TY 2022 (ceded loss claimed: $69.7 million) and TY 2023 (ceded loss claimed: $8.7 million). The total reinsurance recoverable already paid by Pinnacle Atlantic across these treaty years is $78.4 million, distributed across seven billing installments from October 2022 through March 2024. Including the claimed interest of $12.6 million, Pinnacle Atlantic's total demand is $91.0 million.
D. HFC's Position on the Arbitration Clause
In a notable passage near the conclusion of the Demand Letter, HFC asserts that Treaty Article 22 — the arbitration clause — is "inapplicable to the specific claims raised" in the demand. HFC does not elaborate extensively on this assertion, devoting only a single paragraph to the topic. However, the Demand Letter's characterization of Pinnacle Atlantic's claims provides some insight into the legal theory underlying HFC's position. The Demand Letter repeatedly characterizes QC&S's conduct as constituting "material misrepresentation," "fraudulent inflation," and "willful concealment," suggesting that HFC intends to frame the claims as sounding in fraud, misrepresentation, or breach of conditions precedent — categories that HFC apparently contends fall outside the scope of the arbitration clause's coverage of disputes "arising under" the Treaty.
The Demand Letter further states that, absent a satisfactory resolution within thirty days, Pinnacle Atlantic "reserves the right to pursue all available remedies in any court of competent jurisdiction." The reference to judicial forums, combined with HFC's assertion of the arbitration clause's inapplicability, strongly suggests that if Pinnacle Atlantic proceeds to formal dispute resolution, it intends to file a complaint in the Supreme Court of the State of New York, New York County, Commercial Division — the premier commercial court in New York with jurisdiction over disputes involving sums of this magnitude. The Commercial Division's assignment of cases involving at least $500,000 in dispute and its cadre of experienced commercial judges make it the most likely judicial forum if Pinnacle Atlantic attempts to litigate rather than arbitrate.
As discussed in detail in Sections III through V below, HFC's position that Article 22 is inapplicable is not supported by the text of the clause, the governing legal framework, or the substance of the claims asserted.
III. TEXT AND SCOPE OF TREATY ARTICLE 22
A. Full Text of Article 22
The operative text of Treaty Article 22, titled "ARBITRATION," provides as follows:
ARTICLE 22 — ARBITRATION
22.1 Any and all disputes or differences arising out of or relating to this Treaty, including but not limited to its formation, interpretation, performance, breach, or termination, shall be submitted to and resolved exclusively by arbitration as provided in this Article. The arbitration shall be conducted in accordance with the Rules for the Resolution of U.S. Insurance and Reinsurance Disputes promulgated by ARIAS-U.S. (the "ARIAS-U.S. Rules") as in effect at the time the demand for arbitration is served, except as otherwise provided herein.
22.2 The arbitration shall be conducted before a panel of three arbitrators (the "Panel"). Within thirty (30) days of receipt of a written demand for arbitration, each party shall appoint one arbitrator. The two party-appointed arbitrators shall, within thirty (30) days of the appointment of the second arbitrator, select an umpire. If the two party-appointed arbitrators are unable to agree upon an umpire within such thirty (30) day period, the umpire shall be selected in accordance with the procedures set forth in the ARIAS-U.S. Rules.
22.3 All arbitrators, including the umpire, must be current or former officers of insurance or reinsurance companies. No arbitrator shall be a current or former officer, director, or employee of either party to this Treaty, or of any affiliate of either party.
22.4 The seat of the arbitration shall be New York, New York. The Panel shall have the authority to determine its own jurisdiction and the scope of this arbitration agreement, including any question as to the arbitrability of any dispute or difference submitted to it.
22.5 The Panel shall interpret this Treaty as an honorable engagement and shall not be obligated to follow the strict rules of law. The Panel may consider the custom and practice of the insurance and reinsurance industry in rendering its decision.
22.6 The award of the Panel shall be in writing, shall be final and binding upon the parties, and judgment upon the award may be entered in any court having jurisdiction thereof.
22.7 Each party shall bear the expense of its own party-appointed arbitrator and shall jointly and equally bear the expense of the umpire and any other costs of the arbitration. Each party shall bear its own attorneys' fees and costs, unless the Panel determines that such fees and costs should be allocated otherwise.
22.8 The arbitration proceedings and all materials submitted therein shall be confidential, and neither party shall disclose the existence, content, or results of the arbitration except as may be required by law, regulation, or court order.
The full text of Article 22 is attached hereto as Appendix A.
Several features of Article 22 merit particular attention for purposes of this forum analysis:
First, the clause mandates arbitration of "any and all disputes or differences arising out of or relating to this Treaty, including but not limited to its formation, interpretation, performance, breach, or termination" (Section 22.1, emphasis added). This is the broadest possible formulation of an arbitration clause and is specifically enumerated to encompass every category of dispute conceivably related to the Treaty.
Second, the Panel is expressly "empowered to determine its own jurisdiction and the scope of this arbitration agreement, including any question as to the arbitrability of any dispute or difference submitted to it" (Section 22.4). This explicit delegation of the competence-competence question to the arbitrators further strengthens the clause against judicial override.
Third, the Panel is authorized to "interpret this Treaty as an honorable engagement" and to "consider the custom and practice of the insurance and reinsurance industry" (Section 22.5) — a hallmark provision of reinsurance arbitration that favors cedent interests in disputes involving claims-handling discretion, follow-the-fortunes, and industry custom.
Fourth, all arbitrators must be "current or former officers of insurance or reinsurance companies" (Section 22.3), ensuring a panel with deep industry expertise.
Fifth, the proceedings are expressly confidential (Section 22.8), protecting both parties — and, critically, QIH as a publicly traded holding company — from the disclosure risks inherent in public litigation.
B. Analysis of Clause Breadth
The formulation "arising out of or relating to" is the broadest standard arbitration clause language recognized under both New York and federal law. The significance of this language cannot be overstated, as the courts have drawn a sharp distinction between narrow and broad arbitration clauses when determining the scope of arbitrable disputes.
Broad vs. Narrow Arbitration Clauses. A narrow arbitration clause — one that covers only disputes "arising under" or "arising from" the contract — is generally construed to reach only those disputes directly related to the interpretation and performance of the contract itself. By contrast, a broad arbitration clause — one that covers disputes "arising out of or relating to" the contract — reaches every dispute between the parties that bears any significant relationship to the agreement, regardless of the legal theory under which the claim is asserted. The distinction is well established in the case law. See, e.g., Claire Pryor, 58 F.3d 16, 20 (2d Cir. 1995) (distinguishing "arising under" clause from broader "arising out of or relating to" clause); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987) (broad clause covering claims "arising out of or relating to" the agreement encompasses fraud and tort claims).
Application to Article 22. Treaty Article 22 uses the broadest possible formulation — "any and all disputes or differences arising out of or relating to this Treaty, including but not limited to its formation, interpretation, performance, breach, or termination." This language goes beyond even the standard "arising out of or relating to" formulation by adding the "any and all" qualifier and by expressly enumerating formation, interpretation, performance, breach, and termination as categories of covered disputes. Under established precedent, this language encompasses virtually all disputes that have any connection to the Treaty, including claims sounding in tort, fraud, misrepresentation, breach of warranty, unjust enrichment, or quasi-contract, so long as they have a significant relationship to the agreement.
Application to Pinnacle Atlantic's Claims. All four of Pinnacle Atlantic's claims directly concern the interpretation and performance of specific Treaty articles:
• Late notice implicates Treaty Article 7 (notice requirements);
• IBNR misallocation implicates Treaty Article 5 (loss allocation and reporting);
• Follow-the-fortunes challenge implicates Treaty Article 11 (claims-handling standards);
• Premium underreporting implicates Treaty Article 3 (premium reporting obligations).
These are paradigmatic examples of disputes "arising out of or relating to" the Treaty. Indeed, it would be difficult to conceive of claims more squarely within the scope of a reinsurance treaty arbitration clause than claims asserting that the cedent breached specific articles of the treaty. HFC's effort to recharacterize these claims as falling outside the arbitration clause requires the sort of artificial line-drawing that courts have repeatedly rejected.
IV. APPLICABLE LEGAL FRAMEWORK
A. Federal Arbitration Act (9 U.S.C. §§ 1–16)
1. Applicability. The Federal Arbitration Act ("FAA") governs the enforceability of the arbitration clause in the Treaty. The FAA applies to arbitration agreements in contracts "evidencing a transaction involving commerce." 9 U.S.C. § 2. The Treaty is a reinsurance agreement between a New York-domiciled cedent (QC&S) and a Bermuda-domiciled reinsurer (Pinnacle Atlantic) involving the cession of property and casualty risks originating in multiple states. The transaction plainly involves interstate and international commerce, bringing the Treaty within the scope of the FAA. See, e.g., Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273–74 (1995) (interpreting "involving commerce" broadly to the full extent of Congress's Commerce Clause power); Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56–57 (2003) (same).
2. Key Provisions
FAA § 2 provides that written arbitration agreements in contracts involving commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. This provision establishes a strong federal policy in favor of enforcing arbitration agreements according to their terms. The only grounds for invalidating an arbitration agreement under § 2 are those generally applicable to contracts — fraud, duress, unconscionability, and the like — and not defenses that target the arbitration clause specifically.
FAA § 3 mandates that if any suit or proceeding is brought in any court of the United States upon any issue referable to arbitration under an agreement in writing, the court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3. This provision is mandatory: once the court determines that the dispute is covered by the arbitration agreement, it must stay the litigation. The stay is not discretionary.
FAA § 4 provides that a party aggrieved by the alleged failure of another party to arbitrate "may petition any United States district court" for an order directing that arbitration "proceed in the manner provided for in such agreement." 9 U.S.C. § 4. The court must order arbitration upon being satisfied that the making of the agreement and the failure to comply therewith are not in issue.
3. Federal Policy Favoring Arbitration
The Supreme Court has repeatedly emphasized the "strong federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983). Under this policy, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. at 24–25; see also Camberwell Enterprises Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986) ("[W]here the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.") (internal quotation marks omitted).
4. Preemption of Inconsistent State Law
Even if Pinnacle Atlantic files suit in state court — specifically, the Supreme Court of the State of New York, New York County, Commercial Division — the FAA preempts any inconsistent state law. The Supreme Court has held that the FAA applies in both federal and state courts. Southland Corp. v. Keating, 465 U.S. 1, 10–16 (1984); Allied-Bruce Terminix, 513 U.S. at 272. Accordingly, QC&S may invoke the FAA as a defense or as a basis for a motion to compel arbitration in state court proceedings. Additionally, if QC&S prefers a federal forum for the motion to compel, it may seek removal to the United States District Court for the Southern District of New York, where the FAA provides an independent basis for subject-matter jurisdiction over motions to compel arbitration. See 9 U.S.C. § 4.
B. New York CPLR Article 75
New York CPLR Article 75 is the state statutory framework governing arbitration. Its key provisions are directly applicable to the anticipated procedural posture of this dispute.
CPLR § 7503(a) provides that a party may apply to the court to compel arbitration. The court must compel arbitration unless it finds that "there is no agreement to arbitrate" or that "the claim sought to be arbitrated is barred by limitation of time." N.Y. CPLR § 7503(a). The statute imposes a mandatory obligation on the court to compel arbitration where the conditions are met — it is not a matter of judicial discretion. The party moving to compel arbitration bears the initial burden of demonstrating the existence of a valid arbitration agreement. Once that showing is made, the burden shifts to the party opposing arbitration to demonstrate that the dispute falls outside the scope of the clause or that the clause is otherwise unenforceable.
CPLR § 7503(b) provides that a party may apply to the court to stay arbitration on the ground that there is no valid agreement to arbitrate or that the claim is not arbitrable. The party seeking to stay arbitration bears the burden of demonstrating grounds for a stay. This is a heavy burden, particularly where the arbitration clause is broad and the dispute plainly concerns the subject matter of the contract.
CPLR § 7502(c) provides for the availability of provisional remedies in aid of arbitration, including temporary restraining orders, preliminary injunctions, and attachment. This provision may be relevant if QC&S seeks to protect assets or preserve the status quo pending the formation of the arbitration panel.
New York courts have consistently enforced broad arbitration clauses in reinsurance treaties. The New York Court of Appeals has recognized the strong policy favoring arbitration and has repeatedly held that a party seeking to avoid arbitration under a broad "arising out of or relating to" clause bears an exceptionally heavy burden. See, e.g., Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 49–50 (1997) (broad arbitration clause reaches all disputes having a "reasonable relationship" to the contract); Matter of Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Am., 37 N.Y.2d 91, 96 (1975) (arbitration should be compelled unless the court can say with positive assurance that the arbitration clause is not susceptible of an interpretation covering the dispute).
C. New York Convention (United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards)
Because Pinnacle Atlantic is domiciled in Bermuda, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") provides an additional layer of enforceability for the arbitration clause and any resulting arbitral award.
Chapter 2 of the FAA, 9 U.S.C. §§ 201–208, implements the New York Convention in the United States. Section 201 provides that the New York Convention "shall be enforced in United States courts in accordance with this chapter." Section 206 empowers a court to order arbitration "in accordance with the agreement at any place therein provided for, whether that place is within or without the United States." Section 207 requires a court to confirm an arbitral award falling under the Convention "unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention."
Under Article II of the New York Convention, each contracting state must recognize an agreement in writing to arbitrate and, when seized of an action in a matter covered by the agreement, must "refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative, or incapable of being performed." The grounds for refusing to enforce an arbitration agreement under the Convention are narrow and limited to the most fundamental defects — grounds that are plainly inapplicable here.
Bermuda is a party to the New York Convention. Accordingly, any arbitral award rendered by the ARIAS-U.S. panel in New York would be entitled to recognition and enforcement in Bermuda under the Convention, should enforcement proceedings be necessary. This has practical significance: if QC&S prevails in the arbitration and Pinnacle Atlantic fails to honor the award, QC&S could seek enforcement against Pinnacle Atlantic's assets in Bermuda (or in any other New York Convention signatory jurisdiction) with the benefit of the Convention's pro-enforcement framework. As discussed in Section VII.B.4 below, an arbitral award may actually be easier to enforce internationally than a New York court judgment, given the broader recognition framework provided by the Convention compared to the more limited comity principles that govern the enforcement of foreign court judgments.
V. ANALYSIS OF HFC'S POSITION THAT ARTICLE 22 IS INAPPLICABLE
A. Anticipated Arguments by Pinnacle Atlantic / HFC
Based on the Demand Letter and the nature of the claims asserted, we anticipate that HFC will advance the following arguments in opposition to QC&S's invocation of the arbitration clause:
1. Claims Sound in Fraud or Misrepresentation, Not "Arising Under" the Treaty
HFC may argue that Pinnacle Atlantic's allegations of IBNR misallocation, inflated settlements, and premium underreporting constitute fraud or misrepresentation that is conceptually distinct from a "dispute" under the Treaty and therefore falls outside the scope of the arbitration clause. The Demand Letter's repeated use of terms such as "material misrepresentation," "fraudulent inflation," and "willful concealment" suggests that HFC may attempt to recharacterize the claims as independent torts rather than contract-based disputes. HFC may argue that the arbitration clause covers only disputes about the meaning or application of Treaty terms — not claims alleging that the cedent engaged in dishonest conduct that vitiated the treaty relationship.
2. Breach of Conditions Precedent (Late Notice) Is Not a "Dispute" Under the Treaty
HFC may contend that the failure to satisfy the notice requirements of Treaty Article 7 is not merely a breach of a covenant but a failure to satisfy a condition precedent to the formation of Pinnacle Atlantic's reinsurance obligation. Under this theory, HFC would argue that because the condition precedent was never satisfied, the cession never properly attached, and there is no valid "treaty dispute" to arbitrate — the claims relate to the absence of a valid reinsurance obligation rather than to the interpretation or performance of one. This argument attempts to place the late notice claim outside the arbitration clause by characterizing it as going to the existence of the contractual obligation rather than to its terms.
3. Restitutionary Claim for Return of Funds Paid Is Independent of the Treaty
HFC may argue that Pinnacle Atlantic's demand for the return of $78.4 million in reinsurance recoverables is a quasi-contractual or unjust enrichment claim that exists independently of the Treaty. Under this theory, HFC would contend that Pinnacle Atlantic is not seeking to enforce or interpret the Treaty but rather to recover funds that were paid by mistake or under a voided obligation — a claim that sounds in equity or quasi-contract rather than in contract and therefore falls outside the scope of the arbitration clause.
4. Waiver or Forfeiture of Arbitration Rights by QC&S Through Course of Conduct
HFC may argue that QC&S has waived its right to arbitrate by engaging in an extended course of commercial discussions and billing without invoking the arbitration clause. The parties have been in communication regarding the disputed claims since at least mid-2025, when Pinnacle Atlantic first raised concerns about the Meridian Docks late notice issue and the IBNR allocation. QC&S responded to these concerns through its reinsurance department and through Broadreach, engaging in substantive discussions about the merits of the claims without invoking arbitration. HFC may contend that this conduct is inconsistent with an intent to arbitrate and constitutes a waiver of the right to compel arbitration.
B. Rebuttal Analysis for Each Argument
1. Fraud / Misrepresentation Argument
HFC's anticipated argument that Pinnacle Atlantic's claims sound in fraud or misrepresentation and therefore fall outside the arbitration clause is not supported by the governing law. The "arising out of or relating to" language of Article 22 is broad enough to encompass fraud claims that are intertwined with the performance of the contract. Both the Second Circuit and the New York courts have consistently held that fraud and misrepresentation claims "relating to" a contract fall within broad arbitration clauses.
In Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987), the Second Circuit held that where the arbitration clause covers disputes "arising out of or relating to" the agreement, "the clause is not limited to claims arising under the contract, but rather embraces all disputes between the parties having a significant relationship to the contract, regardless of the label attached to the dispute." The court specifically held that fraud and fraudulent inducement claims relating to the contract fell within the scope of a broad arbitration clause. See also Astra Oil Co. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (claims of fraud and conversion relating to a contract containing a broad arbitration clause were arbitrable); JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 172 (2d Cir. 2004) (broad arbitration clause encompassed antitrust claims having a significant relationship to the contract).
More fundamentally, Pinnacle Atlantic's allegations are not truly independent fraud claims. They are, at their core, claims that QC&S breached specific Treaty articles — Article 3 (premium reporting), Article 5 (loss allocation), Article 7 (notice), and Article 11 (claims-handling and follow-the-fortunes). The fact that HFC characterizes these breaches as "fraudulent" or "misrepresentation" does not transform them into non-contractual claims. Even if Pinnacle Atlantic were to plead a separate tort count for fraud, the substance of the claim would require the arbitrators to interpret and apply the Treaty provisions that QC&S allegedly violated. Courts have uniformly rejected efforts to avoid arbitration through artful pleading that recharacterizes contract disputes as independent torts. See Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998) ("[T]he party may not avoid broad language in an arbitration clause by attempting to cast its complaint in tort rather than contract.").
Accordingly, HFC's fraud/misrepresentation argument does not provide a basis for avoiding arbitration under Article 22.
2. Conditions Precedent / Late Notice Argument
HFC's anticipated argument that the late notice claim falls outside the arbitration clause because Article 7 notice is a condition precedent to Pinnacle Atlantic's obligation — and therefore the dispute concerns the existence of the obligation rather than its terms — is equally unavailing.
As an initial matter, whether the notice requirements of Treaty Article 7 constitute conditions precedent or covenants is itself a question of Treaty interpretation — precisely the type of dispute that Article 22 is designed to resolve. The characterization of a contractual provision as a condition precedent versus a covenant is a question of contract interpretation governed by the terms of the agreement and the intent of the parties. See Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995). Submitting this threshold question to the arbitration panel is entirely consistent with the broad scope of Article 22, which covers disputes relating to the Treaty's "formation, interpretation, performance, breach, or termination."
Moreover, even if the notice requirement were characterized as a condition precedent, the question of whether the condition has been satisfied — and, if not, whether the failure is excusable or results in prejudice — remains a dispute "arising out of or relating to" the Treaty. The Second Circuit has held that questions about whether conditions precedent have been met are arbitrable under broad arbitration clauses. See Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 211 (2d Cir. 2005) (noting that even threshold questions about the validity of the contract are for the arbitrators where the parties have agreed to arbitrate questions of arbitrability).
In the reinsurance context specifically, the question of late notice and its consequences is a quintessential issue of treaty interpretation. The ARIAS-U.S. panel will have the expertise to evaluate the notice requirement in the context of reinsurance industry custom, the prejudice (if any) suffered by the reinsurer, and the substantive provisions of the Treaty — all of which are matters squarely within the scope of arbitration.
Furthermore, Article 22.4 expressly empowers the Panel to "determine its own jurisdiction and the scope of this arbitration agreement, including any question as to the arbitrability of any dispute or difference submitted to it." This explicit delegation of the competence-competence question to the Panel means that even if there were a colorable argument that the late notice claim falls outside the scope of the arbitration clause, the threshold determination of arbitrability would itself be for the Panel to decide. See Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 67–69 (2019) (where parties clearly and unmistakably delegated arbitrability questions to the arbitrator, the court may not decide the question even if the argument for arbitrability is "wholly groundless").
3. Restitutionary / Quasi-Contract Argument
HFC's anticipated argument that Pinnacle Atlantic's demand for return of $78.4 million is an independent quasi-contractual or unjust enrichment claim falling outside the arbitration clause is similarly without merit.
The demand for return of reinsurance recoverables is inextricably linked to the Treaty. Pinnacle Atlantic paid the $78.4 million pursuant to billing statements rendered under the Treaty, calculated in accordance with the Treaty's loss allocation and premium provisions, and transmitted through the designated intermediary (Broadreach) in accordance with Treaty Article 9. The only basis for Pinnacle Atlantic's demand that these funds be returned is its contention that QC&S breached specific Treaty provisions — the same Treaty that contains the arbitration clause. A claim for return of funds paid under a contract, on the ground that the contract was breached or that the payments were improper, is the quintessential dispute "arising out of or relating to" the contract.
Courts have uniformly rejected attempts to recharacterize contract disputes as independent quasi-contractual claims for the purpose of avoiding arbitration. See, e.g., Bensadoun v. Jobe-Riat, 316 F.3d 171, 177–78 (2d Cir. 2003) (quasi-contractual claims for unjust enrichment fell within broad arbitration clause where the claims were "intertwined with the underlying contract obligations"); Mehler v. Terminix Int'l Co., 205 F.3d 44, 49 (2d Cir. 2000) (broad arbitration clause reached tort and statutory claims that bore a significant relationship to the contract). The fact that a party labels its claim as one for "restitution" or "unjust enrichment" does not transform it into a non-contractual claim when the substance of the dispute arises from the contractual relationship between the parties.
Moreover, under New York law, a party generally may not maintain a quasi-contractual claim where a valid contract governs the subject matter of the dispute. See Clark-Fitzpatrick, Inc. v. Severin Industries, 70 N.Y.2d 382, 388 (1987) ("The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter."). Because the Treaty governs the parties' reinsurance relationship and specifically addresses the obligations giving rise to the payments at issue, Pinnacle Atlantic's claim for return of those payments sounds in contract — and is squarely within the scope of Article 22.
4. Waiver Argument
HFC's anticipated waiver argument is the weakest of the four anticipated arguments, given the current procedural posture of the dispute.
Under both federal and New York law, waiver of arbitration rights requires a showing of (1) an intent to waive, manifested by conduct inconsistent with the right to arbitrate, and (2) prejudice to the opposing party resulting from the inconsistent conduct. See Morgan v. Sundance, Inc., 596 U.S. 411, 416 (2022) (holding that courts may not condition waiver on a showing of prejudice under federal arbitration law — noting, however, that this decision addressed the standard under the FAA and distinguished contractual waiver); De unioio v. Kohlmeyer, 35 N.Y.2d 402, 405 (1974) (waiver of arbitration requires "clear, deliberate and unequivocal" conduct); Sherrill v. Grayco Builders, Inc., 64 N.Y.2d 261, 272 (1985) (waiver of arbitration is not lightly inferred).
We note that the Supreme Court's 2022 decision in Morgan v. Sundance, Inc. eliminated the prejudice requirement for waiver of arbitration rights under the FAA, holding that courts may not create arbitration-specific waiver rules that differ from general waiver principles. However, even under Morgan, waiver requires a showing that the party acted inconsistently with the right to arbitrate — typically by engaging in litigation conduct such as filing a complaint, engaging in discovery, filing motions, or otherwise availing itself of the judicial process.
Here, QC&S has not engaged in any litigation conduct inconsistent with arbitration. The dispute is at the pre-suit demand stage. No court filings have been made by either party. No litigation discovery has occurred. QC&S has not filed a complaint, answered a complaint, served or responded to interrogatories, taken or defended depositions, or filed any motions in any court. QC&S's engagement in commercial discussions and billing — the ordinary course of business under the Treaty — does not constitute the type of conduct that could give rise to waiver.
Moreover, QC&S should act promptly to invoke arbitration by serving a formal demand to arbitrate on Pinnacle Atlantic. Taking this step now, before any litigation is filed, will conclusively foreclose any waiver argument and demonstrate QC&S's commitment to the contractual forum. We recommend that the demand to arbitrate be served simultaneously with or immediately following the response letter to HFC's demand, as discussed in Section IX below.
C. Overall Assessment of HFC's Position
HFC's assertion in the Demand Letter that Treaty Article 22 is "inapplicable to the specific claims raised" is without substantial merit under the governing law. The assertion appears to rest on an incorrect assumption that claims characterized as sounding in fraud, misrepresentation, or breach of conditions precedent fall outside the scope of a broad "arising out of or relating to" arbitration clause. This assumption is directly contradicted by the weight of authority in both the Second Circuit and the New York state courts.
Every one of Pinnacle Atlantic's four grounds for recovery directly concerns the interpretation and performance of specific Treaty articles — Articles 3, 5, 7, and 11. The disputes require the decision-maker to construe Treaty language, apply Treaty standards, and evaluate QC&S's conduct in the context of its obligations under the Treaty. These are paradigmatic arbitration-clause disputes.
The strong presumption of arbitrability under both federal and New York law weighs heavily in QC&S's favor. Under the governing standard, doubts about the scope of arbitrable issues must be resolved in favor of arbitration. Here, there is no genuine doubt: the claims are clearly within the scope of Article 22.
If Pinnacle Atlantic files suit in the Supreme Court of the State of New York, New York County, Commercial Division, QC&S has a high likelihood of success on a motion to compel arbitration and stay litigation. We estimate the probability of success on such a motion at approximately ninety percent or higher, based on the breadth of the arbitration clause, the governing legal framework, and the nature of the claims asserted.
VI. PROCEDURAL MECHANICS
A. Motion to Compel Arbitration in NY Supreme Court
If Pinnacle Atlantic files a complaint in the Supreme Court of the State of New York, New York County, Commercial Division, QC&S should promptly move to compel arbitration and stay all litigation proceedings. The procedural framework for such a motion is as follows:
Statutory Basis. QC&S's motion would be brought under N.Y. CPLR § 7503(a), which authorizes a party to apply to the court to compel arbitration where a valid arbitration agreement exists and the opposing party has refused to arbitrate. Simultaneously, QC&S should seek a stay of all litigation proceedings under CPLR § 7503(a) (which provides for a stay pending arbitration as part of the order compelling arbitration) and/or FAA § 3 (which mandates a stay of litigation pending arbitration where the issues are referable to arbitration under a valid agreement). QC&S may also invoke FAA § 4 as an alternative or additional basis for compelling arbitration.
Filing Timeline. It is critical that QC&S file the motion to compel arbitration before answering the complaint or engaging in any substantive litigation activity. Any responsive litigation conduct — including filing an answer, serving discovery requests or responses, or appearing at a preliminary conference — could be cited by HFC in support of a waiver argument. Accordingly, QC&S should file the motion to compel as its first responsive filing after receiving the complaint. Under CPLR § 7503(c), a party who has not participated in the arbitration and who has not made or been served with an application to compel arbitration may apply to stay arbitration within twenty days after service of the demand for arbitration. Conversely, QC&S's position as the party seeking to compel arbitration is strengthened by prompt action.
Supporting Papers. The motion should be supported by:
(a) A memorandum of law setting forth the legal arguments in favor of compelling arbitration, including the analysis contained in this memorandum;
(b) An affidavit of Tobias Engström, Senior Vice President, Reinsurance & Capital Markets, Quorum Insurance Holdings Corp., authenticating the Treaty and Article 22, attesting to the parties' course of dealing under the Treaty, and confirming that QC&S has at all times intended to resolve disputes under the Treaty through the contractual arbitration mechanism;
(c) A certified copy of the Treaty, with Article 22 prominently identified;
(d) A copy of the Demand Letter, to demonstrate that the claims asserted are squarely within the scope of the arbitration clause; and
(e) A proposed order compelling arbitration and staying all litigation pending the completion of arbitration proceedings.
Forum Considerations. If QC&S prefers to litigate the motion to compel in federal court, it may seek removal of Pinnacle Atlantic's state court action to the United States District Court for the Southern District of New York. Diversity jurisdiction exists because QC&S is a citizen of New York and Connecticut (for diversity purposes, a corporation is a citizen of its state of incorporation and its principal place of business), and Pinnacle Atlantic is a citizen of Bermuda. The amount in controversy ($91 million) far exceeds the $75,000 statutory threshold. Additionally, the FAA provides an independent basis for federal jurisdiction over motions to compel arbitration under contracts involving foreign commerce. See 9 U.S.C. § 205 (providing for removal of actions relating to arbitration agreements falling under the New York Convention). Federal court may offer certain procedural advantages, including the opportunity to invoke the FAA's framework directly and the expertise of Southern District judges in complex commercial arbitration matters.
B. Pre-Emptive Demand to Arbitrate
Rather than waiting for Pinnacle Atlantic to file suit, QC&S should take the initiative and serve a formal demand to arbitrate on Pinnacle Atlantic. This approach offers several advantages.
Procedure. Under ARIAS-U.S. Rules and Treaty Article 22, the arbitration is initiated by service of a written demand for arbitration. The demand should:
(a) Identify the Treaty (Treaty No. PA-QCS-2019-EXL-0044) and the arbitration clause (Article 22);
(b) Describe the disputes to be submitted to arbitration, including both the claims raised by Pinnacle Atlantic in the Demand Letter and QC&S's counterclaims (discussed in Section VIII below);
(c) Invoke the Treaty's arbitration clause and the ARIAS-U.S. Rules;
(d) Demand that Pinnacle Atlantic appoint its party-appointed arbitrator within thirty (30) days, as required by Article 22.2; and
(e) Identify QC&S's party-appointed arbitrator (if QC&S has selected one by the time the demand is served) or reserve QC&S's right to appoint its arbitrator within the prescribed period.
Strategic Advantages. Serving a pre-emptive demand to arbitrate has significant strategic value. First, it demonstrates QC&S's commitment to the contractual forum and conclusively forecloses any waiver argument. Second, it places QC&S in the position of the demanding party — a posture that carries initiative and momentum. Third, it forces Pinnacle Atlantic to either comply with the demand (by appointing its arbitrator and proceeding to arbitration) or to seek judicial intervention to stay the arbitration under CPLR § 7503(b) — a proceeding in which Pinnacle Atlantic would bear the heavy burden of demonstrating that the dispute is not arbitrable. Fourth, if Pinnacle Atlantic thereafter files suit in NY Supreme Court, QC&S's prior demand to arbitrate strengthens its position on any subsequent motion to compel arbitration by demonstrating that QC&S acted first to invoke the contractual forum.
C. ARIAS-U.S. Arbitration Procedure
The Treaty provides for arbitration under the ARIAS-U.S. Rules. The key procedural features of an ARIAS-U.S. arbitration are as follows:
Panel Composition. The arbitration will be conducted before a three-member panel. Each party selects one arbitrator, and the two party-appointed arbitrators select the umpire. If the party-appointed arbitrators cannot agree on an umpire within thirty days, the umpire is selected through the procedures specified in the ARIAS-U.S. Rules (typically a ranking process from a slate of candidates). All arbitrators, including the umpire, must be current or former officers of insurance or reinsurance companies — ensuring that the panel has deep industry expertise in reinsurance customs, practices, and technical issues.
Seat. The arbitration will be seated in New York, New York, as specified in Article 22.4.
Procedure. The ARIAS-U.S. Rules provide a structured but flexible procedural framework. The proceedings typically include:
(a) An organizational meeting at which the Panel sets the procedural schedule and addresses preliminary matters, including the scope of document exchange, the identification of issues, and the hearing format;
(b) Document exchange — generally more streamlined than civil litigation discovery under CPLR Article 31, with the Panel exercising discretion to limit the scope and burden of production;
(c) Written witness statements and, in some cases, depositions (though depositions are less common than in civil litigation);
(d) Pre-hearing briefs submitted by each party addressing the legal and factual issues;
(e) An evidentiary hearing at which witnesses testify (often by presenting their written statements and submitting to cross-examination) and the parties present their cases;
(f) Post-hearing briefs, if directed by the Panel; and
(g) A written award, which is final and binding under Article 22.6.
Timeline. Based on the complexity of the issues and the typical pace of ARIAS-U.S. proceedings, we estimate that the arbitration hearing can be expected within twelve to eighteen months of panel formation. This compares favorably to the twenty-four to thirty-six-month (or longer) timeline typically associated with a trial in the Commercial Division of the Supreme Court, given the current caseload and scheduling practices in that court.
Honorable Engagement. Article 22.5 provides that the Panel "shall interpret this Treaty as an honorable engagement and shall not be obligated to follow the strict rules of law" and "may consider the custom and practice of the insurance and reinsurance industry in rendering its decision." This is a standard reinsurance arbitration provision that gives the Panel flexibility to consider industry custom and equitable principles in addition to — and, in some cases, in lieu of — strict legal rules. The honorable engagement standard generally benefits cedents in reinsurance disputes, as it permits the Panel to give weight to established industry practices regarding late notice standards, IBNR allocation methodology, follow-the-fortunes principles, and other customary cedent prerogatives.
VII. STRATEGIC CONSIDERATIONS
A. Advantages of Arbitration for QC&S
1. Panel Expertise
The single most important strategic advantage of arbitration for QC&S is the expertise of the arbitration panel. Under Treaty Article 22.3, all arbitrators must be "current or former officers of insurance or reinsurance companies." This qualification requirement ensures that the panel members will have direct, hands-on experience with the concepts, customs, and technical issues at the heart of this dispute.
The claims asserted by Pinnacle Atlantic implicate some of the most technically complex areas of reinsurance practice:
• Late notice standards (Article 7) — The question of what constitutes timely notice, and whether a fourteen-month delay is excusable or prejudicial, is deeply informed by industry custom regarding the timing, manner, and consequences of late notice in aggregate excess-of-loss treaties. An arbitration panel composed of insurance and reinsurance company officers will have direct familiarity with the practical realities of claims reporting, bordereau preparation, and the flow of information between cedents, intermediaries, and reinsurers.
• IBNR allocation methodology (Article 5) — The proper allocation of $22.3 million in IBNR reserve development between Treaty Years 2021 and 2022 requires an understanding of actuarial reserving practices, loss development patterns, and the conventions governing the assignment of reserve changes to specific treaty years. These are technical questions that are routinely handled by reinsurance professionals and are less familiar to generalist judges.
• Follow-the-fortunes doctrine (Article 11) — The follow-the-fortunes doctrine is a cornerstone of the cedent-reinsurer relationship, and its application to the Veridian Financial Services E&O cluster settlement involves questions about the standard of review for a cedent's claims-handling decisions, the reasonableness of settlement allocations, and the good f