SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK COMMERCIAL DIVISION
PINNACLE ATLANTIC REINSURANCE LTD.,
Plaintiff,
— against —
QUORUM CASUALTY & SURETY COMPANY,
Defendant.
Index No.: ____/2026
VERIFIED COUNTERCLAIM OF QUORUM CASUALTY & SURETY COMPANY
Filed: March __, 2026
Counterclaim-Plaintiff Quorum Casualty & Surety Company ("QC&S"), a New York-domiciled stock property and casualty insurer (NAIC No. 24891), with principal offices at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103, by and through its attorneys, Calderwood & Harkness LLP, One Liberty Plaza, 55th Floor, New York, New York 10006 (Douglas Carmichael, Francesca Morano, Jeffrey Park, and Yuki Nakamura, of counsel; Matter No. 1025-00005), hereby interposes the following Verified Counterclaim against Counterclaim-Defendant Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic" or "Counterclaim-Defendant"), a Bermuda Class 4 insurer with a registered office at Clarendon House, 14 Church Street, Hamilton HM 11, Bermuda, and a U.S. office at 1285 Avenue of the Americas, 28th Floor, New York, New York 10019:
PRELIMINARY STATEMENT
1. Quorum Casualty & Surety Company brings this Verified Counterclaim against Pinnacle Atlantic Reinsurance Ltd. to vindicate its contractual rights under a five-year aggregate excess-of-loss reinsurance treaty, designated Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty"), entered into by QC&S and Pinnacle Atlantic on or about July 1, 2019. The Treaty is a sophisticated, arms'-length reinsurance arrangement between two highly rated, well-capitalized parties operating in the global casualty reinsurance market. Under the Treaty, QC&S, as cedent, is entitled to cede aggregate net incurred losses in excess of a per-treaty-year retention of $120,000,000, up to a cession limit of $200,000,000 per treaty year.
2. For Treaty Years 2022 and 2023, QC&S properly ceded an aggregate of $78,400,000 in losses — $69,700,000 for Treaty Year 2022 and $8,700,000 for Treaty Year 2023 — all of which were calculated, reported, billed, and paid in strict accordance with the Treaty's terms. Pinnacle Atlantic duly reviewed, accepted, and paid each of seven billing installments submitted between October 2022 and March 2024, without objection to any submission. At no point during this approximately eighteen-month payment period did Pinnacle Atlantic raise any concern, request any audit, invoke any dispute resolution mechanism, or otherwise signal disagreement with the amounts ceded.
3. Now, more than twenty months after completing its final payment in March 2024, Pinnacle Atlantic has reversed course. Through a pre-suit demand letter dated February 14, 2026, sent by its counsel Hargrove, Fitch & Calloway LLP, Pinnacle Atlantic demands the return of the full $78,400,000 in reinsurance recoverables, together with $12,600,000 in purported interest calculated at approximately eight percent per annum on funds paid over an average period of approximately twenty-four months — a total demand of $91,000,000. This demand is extraordinary in its scope, unprecedented in the parties' long-standing business relationship, and wholly unsupported by the plain language of the Treaty or applicable New York law.
4. Pinnacle Atlantic's demand letter rests on four grounds, each of which is factually and legally baseless: (i) that QC&S provided late notice under Article 7 of the Treaty regarding the Meridian Docks mass tort claims; (ii) that QC&S improperly allocated $22,300,000 in incurred-but-not-reported ("IBNR") reserve development to Treaty Year 2022 in alleged contravention of Article 5; (iii) that QC&S's settlement of the Veridian Financial Services E&O cluster failed to satisfy the follow-the-fortunes/follow-the-settlements doctrine codified in Article 11 of the Treaty; and (iv) that QC&S underreported ceded earned premium by $6,800,000 in alleged violation of Article 3 of the Treaty. As set forth in detail below, each ground fails under the Treaty's plain terms, applicable actuarial standards, and well-established New York reinsurance law.
5. Compounding these meritless claims, Pinnacle Atlantic has further breached the Treaty by threatening to file suit in this Court in derogation of the mandatory arbitration clause contained in Article 22 of the Treaty, which requires all disputes arising under or in connection with the Treaty to be resolved through a three-member arbitration panel convened under the ARIAS-U.S. Rules, with hearings seated in New York, New York. Pinnacle Atlantic's counsel has affirmatively taken the position that Article 22 is inapplicable to its claims — a position that defies the broad, unambiguous language of the arbitration clause and contradicts decades of New York case law favoring the enforcement of arbitration provisions in reinsurance contracts.
6. By this Counterclaim, QC&S seeks (a) a declaratory judgment confirming the validity and enforceability of all cessions for Treaty Years 2022 and 2023 and QC&S's entitlement to retain the $78,400,000 in reinsurance recoverables previously paid by Pinnacle Atlantic, (b) a declaratory judgment that QC&S's premium reporting complied with the Treaty and that Pinnacle Atlantic has no termination right based on any alleged premium discrepancy, and (c) compensatory damages for breach of the Treaty, including breach of the mandatory arbitration obligation.
PARTIES
A. Counterclaim-Plaintiff Quorum Casualty & Surety Company
7. Counterclaim-Plaintiff Quorum Casualty & Surety Company ("QC&S") is a stock property and casualty insurance company organized and existing under the laws of the State of New York. QC&S is domiciled in New York and maintains its principal offices at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103. QC&S is assigned NAIC No. 24891 by the National Association of Insurance Commissioners and is licensed to transact insurance in all fifty states and the District of Columbia.
8. QC&S carries an A.M. Ridgeway rating of "A (Excellent)" with a Stable outlook, as of its most recent evaluation published in 2025. As of December 31, 2025, QC&S reported statutory surplus of approximately $1,420,000,000 on its annual statement filed with the New York State Department of Financial Services.
9. QC&S is a wholly owned subsidiary of Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol "QIHC." QIH is headquartered at 200 Constitution Plaza, Suite 3400, Hartford, Connecticut 06103, and had an approximate market capitalization of $6.7 billion as of February 28, 2026.
10. QC&S writes commercial casualty, professional liability, and specialty lines of insurance. For fiscal year 2025, QIH and its subsidiaries reported gross written premium of approximately $4.18 billion and net earned premium of approximately $2.93 billion.
11. QC&S is the cedent under the Treaty that is the subject of this action.
B. Counterclaim-Defendant Pinnacle Atlantic Reinsurance Ltd.
12. Counterclaim-Defendant Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic") is a Bermuda Class 4 insurer registered with the Bermuda Monetary Authority under BMA Registration No. BMA-4R-2008-0331. Pinnacle Atlantic's registered office is located at Clarendon House, 14 Church Street, Hamilton HM 11, Bermuda. Pinnacle Atlantic also maintains a U.S. office at 1285 Avenue of the Americas, 28th Floor, New York, New York 10019.
13. Pinnacle Atlantic is a subsidiary of Pinnacle Atlantic Group Holdings Ltd., a Bermuda exempted company. Pinnacle Atlantic is a global reinsurer specializing in casualty treaty and facultative reinsurance. For fiscal year 2025, Pinnacle Atlantic reported gross reinsurance assumed of approximately $9.6 billion.
14. Upon information and belief, Pinnacle Atlantic's Chief Executive Officer is Sir Edmund Haverford, its Chief Claims Officer is Lorraine Metcalf, and its Senior Vice President, Treaty Disputes & Recoveries, is Conrad Hesse.
15. Pinnacle Atlantic is the reinsurer under the Treaty that is the subject of this action.
16. Pinnacle Atlantic maintains a permanent office in New York County, transacts substantial reinsurance business in the State of New York, and is subject to the jurisdiction of this Court. The Treaty is governed by New York law pursuant to Article 16 thereof, and the Treaty's arbitration clause (Article 22) designates New York, New York as the seat of arbitration proceedings.
JURISDICTION AND VENUE
17. This Court has subject-matter jurisdiction over this Counterclaim pursuant to CPLR § 3019, as the counterclaims asserted herein are compulsory and permissive counterclaims that arise from the same transaction and occurrences as the claims asserted by Pinnacle Atlantic in its Complaint. Each counterclaim concerns the same Treaty, the same cessions, and the same Treaty Years that are at issue in the main action.
18. This Court has personal jurisdiction over Pinnacle Atlantic. Pinnacle Atlantic maintains its U.S. office at 1285 Avenue of the Americas, 28th Floor, New York, New York 10019, and conducts substantial and continuous business in the State of New York and in New York County. Moreover, the Treaty is governed by New York law pursuant to Article 16, and the Treaty's arbitration clause designates New York as the seat of proceedings. Pinnacle Atlantic has voluntarily submitted to the jurisdiction of this Court by commencing litigation in this forum.
19. Venue in New York County, Commercial Division, is proper pursuant to CPLR § 503, as Pinnacle Atlantic maintains offices in New York County and the Treaty's governing-law and arbitration provisions are connected to New York County.
20. QC&S reserves all rights to move to compel arbitration under Treaty Article 22, CPLR Article 75, and the Federal Arbitration Act, 9 U.S.C. §§ 1–16, and to stay this litigation pending completion of arbitration proceedings. The filing of this Counterclaim is made without waiver of QC&S's right to arbitrate and is intended solely to preserve QC&S's rights and defenses in the event this Court declines to compel arbitration or determines that judicial resolution of some or all issues is appropriate.
FACTUAL ALLEGATIONS
A. The Treaty
21. On or about July 1, 2019, QC&S and Pinnacle Atlantic entered into Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty"). The Treaty is an aggregate excess-of-loss reinsurance contract covering casualty lines of business written by QC&S. A true and correct copy of the Treaty, including all endorsements and addenda, is attached hereto as Exhibit A and is incorporated by reference.
22. The Treaty covers QC&S's commercial general liability, excess and umbrella liability, and professional liability policies — collectively, the covered lines of business. The Treaty provides reinsurance protection for aggregate net incurred losses in the covered lines in excess of a per-treaty-year retention.
23. The initial term of the Treaty was five years, from July 1, 2019 through June 30, 2024. The Treaty contains a provision for automatic annual extensions unless either party provides ninety (90) days' written notice of non-renewal. Pursuant to this automatic extension mechanism, the Treaty was extended twice: first, through June 30, 2025, and then through June 30, 2026.
24. On or about October 1, 2025, Pinnacle Atlantic provided timely notice of non-renewal to QC&S. Accordingly, the Treaty will lapse on June 30, 2026, and no further treaty years will commence after that date. All obligations with respect to cessions for prior treaty years, including run-off obligations, survive the expiration of the Treaty in accordance with its terms.
25. Article 6 of the Treaty establishes a per-treaty-year retention of $120,000,000 in aggregate net incurred losses. Once aggregate net incurred losses for a given treaty year exceed $120,000,000, QC&S is entitled to cede losses to Pinnacle Atlantic up to a per-treaty-year cession limit of $200,000,000 in excess of the retention — i.e., the Treaty covers aggregate net incurred losses from $120,000,000 to $320,000,000 per treaty year.
26. Article 8 of the Treaty establishes the premium structure. Pinnacle Atlantic receives a treaty premium calculated at a provisional rate of 42% of ceded earned premium, subject to a slide-scale adjustment based on loss experience. The minimum premium rate is 35%, and the maximum premium rate is 52%.
27. The Treaty was placed by Broadreach Intermediaries Inc. ("Broadreach"), an intermediary broker with offices at 100 Wall Street, 18th Floor, New York, New York 10005. Broadreach is designated as the intermediary broker under Article 9 of the Treaty. The Broadreach account executive responsible for the Treaty placement was James "Jamie" Castellano.
28. Article 16 of the Treaty provides that the Treaty shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles.
29. Article 22 of the Treaty contains a mandatory arbitration provision requiring all disputes arising under or in connection with the Treaty to be submitted to and resolved by a three-member arbitration panel sitting in New York, New York, in accordance with the ARIAS-U.S. Rules for the Resolution of U.S. Insurance and Reinsurance Disputes.
B. QC&S's Performance Under the Treaty — Treaty Years 2022 and 2023
1. Treaty Year 2022 (July 1, 2022 — June 30, 2023).
30. Treaty Year 2022, as defined by the Treaty, encompasses the twelve-month period from July 1, 2022 through June 30, 2023.
31. QC&S's aggregate net incurred losses for Treaty Year 2022 totaled $189,700,000. This figure exceeds the per-treaty-year retention of $120,000,000 by $69,700,000, producing ceded losses of $69,700,000 ($189,700,000 minus $120,000,000) — an amount well within the per-treaty-year cession limit of $200,000,000.
32. QC&S timely and accurately reported loss development to Pinnacle Atlantic through Broadreach during Treaty Year 2022, in compliance with the reporting requirements set forth in Articles 5 and 7 of the Treaty. QC&S submitted periodic billings through the intermediary as losses developed and the retention was pierced. The first billing installment in the amount of $15,000,000 was submitted to Pinnacle Atlantic through Broadreach on or about October 15, 2022. Subsequent installments were submitted over the course of the treaty year and the months following its expiration, as loss development continued in accordance with the Treaty's terms.
33. Among the losses ceded for Treaty Year 2022 were losses arising from the Meridian Docks mass tort cluster — a group of thirty-one (31) related commercial general liability bodily injury claims arising from alleged toxic contamination at the Meridian Docks industrial waterfront redevelopment project in Newark, New Jersey. The underlying policyholder is Meridian Docks Development LLC, insured under QC&S Policy No. CGL-2020-09844. QC&S's aggregate net incurred losses on the Meridian Docks claims totaled $41,200,000. These losses were incurred during Treaty Year 2022 and were properly included in the aggregate net incurred loss calculation for that treaty year.
34. In addition to the Meridian Docks cluster, ceded losses for Treaty Year 2022 included $22,300,000 in IBNR reserve development properly allocated to accident-year 2022 claims. This reserve development represented an actuarially sound estimate of losses that had been incurred but not yet reported as of the applicable valuation dates, and whose development factors crystallized during Treaty Year 2022. The IBNR allocation was consistent with the Treaty's definition of "losses incurred" set forth in Article 5.2 of the Treaty, which expressly encompasses IBNR reserves established and developed in accordance with generally accepted actuarial principles.
35. The $22,300,000 IBNR reserve development was reviewed and confirmed by QC&S's consulting actuaries, Velthorn Actuarial Advisors LLC ("Velthorn"), located at 75 Ashbury Asset Advisors, Suite 1400, Boston, Massachusetts 02109. The Velthorn analysis was conducted under the supervision of Dr. Stephen Tanaka, FCAS, MAAA, a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. Dr. Tanaka's analysis followed applicable Actuarial Standards of Practice, including ASOP No. 43 (Unpaid Claim Estimates), and concluded that the IBNR reserve development was reasonable, supportable, and properly allocated to Treaty Year 2022.
36. Pinnacle Atlantic reviewed and paid all billing installments attributable to Treaty Year 2022 without objection, reservation, or request for further information.
2. Treaty Year 2023 (July 1, 2023 — June 30, 2024).
37. Treaty Year 2023, as defined by the Treaty, encompasses the twelve-month period from July 1, 2023 through June 30, 2024.
38. QC&S's aggregate net incurred losses for Treaty Year 2023 totaled $128,700,000. This figure exceeds the per-treaty-year retention of $120,000,000 by $8,700,000, producing ceded losses of $8,700,000 ($128,700,000 minus $120,000,000) — an amount well within the per-treaty-year cession limit.
39. Among the losses ceded for Treaty Year 2023 were losses attributable to the Veridian Financial Services E&O cluster — three related professional liability claims brought by investors against Veridian Financial Services Inc., insured under QC&S Policy No. PL-2021-15327. The three claims alleged misrepresentation in connection with structured-product sales conducted by Veridian Financial Services Inc.
40. QC&S settled the Veridian E&O cluster on September 8, 2023, for a combined settlement amount of $34,500,000, allocated as follows: Claim A — $14,200,000; Claim B — $12,800,000; and Claim C — $7,500,000. The settlements were reached after extensive discovery, multiple mediations, and a rigorous litigation exposure analysis conducted by QC&S's in-house claims professionals and outside counsel. Each settlement was made in good faith, in the ordinary course of QC&S's claims-handling business, and at amounts that reflected the assessed litigation risk and exposure of the underlying claims.
41. Of the $34,500,000 in total settlement payments, QC&S retained $26,100,000 net after application of other applicable reinsurance. The remaining $8,700,000 was ceded to the Treaty as part of QC&S's aggregate net incurred losses for Treaty Year 2023, after the $120,000,000 retention was exceeded.
42. The final billing installment for Treaty Year 2023, in the amount of $3,200,000, was submitted to Pinnacle Atlantic through Broadreach on or about March 29, 2024. Pinnacle Atlantic paid this installment, as it had paid all prior installments, without objection.
3. Total Cessions and Payment.
43. The total ceded losses for Treaty Years 2022 and 2023, combined, amount to $78,400,000 ($69,700,000 for Treaty Year 2022 plus $8,700,000 for Treaty Year 2023).
44. Pinnacle Atlantic paid the full $78,400,000 in reinsurance recoverables across seven (7) billing installments submitted between October 2022 and March 2024. Pinnacle Atlantic's payments were processed without delay, without offset, without reservation of rights, and without any contemporaneous objection to the validity of the cessions, the loss calculations, the notice provided, or the settlement decisions underlying the ceded losses.
45. At no time during the billing and payment process — spanning approximately eighteen months — did Pinnacle Atlantic exercise any right to audit QC&S's books and records (which right is afforded by Article 14 of the Treaty), request an independent actuarial review, issue a reservation of rights, or otherwise signal disagreement with any aspect of QC&S's cessions.
C. QC&S's Compliance with Treaty Notice Requirements
46. Article 7 of the Treaty establishes notice requirements for underlying claims that may give rise to ceded losses. Article 7 requires the cedent to notify the reinsurer of individual underlying claims when the cedent's net incurred on such individual claim exceeds a reporting threshold of $1,000,000.
47. QC&S first reserved the thirty-one (31) Meridian Docks mass tort claims on or about March 15, 2021, shortly after the claims were first reported and QC&S completed an initial coverage evaluation. At the time of initial reserving, each individual Meridian Docks claim was reserved at an amount below the Article 7 individual claim reporting threshold of $1,000,000. The aggregate reserve across the thirty-one claims was modest, reflecting the early stage of the underlying litigation and the limited loss development information then available.
48. Over the following twelve months, the Meridian Docks litigation developed significantly. Plaintiffs produced expert reports documenting the scope of alleged contamination, and additional claimants emerged. In the first quarter of 2022, reserve increases on individual Meridian Docks claims caused multiple claims to exceed the $1,000,000 individual claim reporting threshold set forth in Article 7, thereby triggering QC&S's notice obligation for the first time.
49. QC&S provided notice to Pinnacle Atlantic through Broadreach on May 22, 2022 — promptly after the notice obligation was triggered by the reserve increases in Q1 2022. The notice was comprehensive, identifying all thirty-one claims, providing then-current reserve information, and describing the nature of the mass tort litigation. The notice was transmitted in writing through the intermediary broker in accordance with the notice mechanism prescribed by Article 7.
50. The interval of approximately fourteen months and seven days between the initial reserving of the claims on March 15, 2021 and the notice on May 22, 2022 is entirely consistent with the Treaty's requirements. The notice obligation was not triggered upon initial reserving, because individual claim reserves at that time fell below the $1,000,000 reporting threshold. The obligation arose only when reserve increases in Q1 2022 pushed individual claims above that threshold. QC&S provided notice promptly thereafter, and the interval reflects the natural progression of loss development in complex mass tort litigation — not any failure of diligence by QC&S.
51. Moreover, Pinnacle Atlantic has suffered no prejudice whatsoever from the timing of QC&S's notice. Pinnacle Atlantic received notice well before the $120,000,000 Treaty Year 2022 retention was pierced, well before any billing installment was submitted, and with ample time to evaluate the claims and exercise any rights it may have had under the Treaty. Pinnacle Atlantic thereafter reviewed and paid all billings without any reservation based on the timing of notice.
D. QC&S's Compliance with Premium Reporting
52. Article 3 of the Treaty governs the reporting of ceded earned premium, which forms the basis for calculation of the treaty premium payable to Pinnacle Atlantic.
53. For Treaty Year 2022, QC&S reported ceded earned premium of $38,400,000, calculated in accordance with the definitions and exclusions set forth in Article 3 and its subsections.
54. Pinnacle Atlantic now asserts that the correct figure for TY 2022 ceded earned premium is $45,200,000 — a difference of $6,800,000. Pinnacle Atlantic contends that QC&S underreported ceded earned premium by this amount.
55. The alleged $6,800,000 difference arises entirely from Pinnacle Atlantic's improper inclusion of premiums attributable to run-off portfolio transfer transactions. Article 3.4 of the Treaty expressly excludes from the definition of "ceded earned premium" any premiums arising from or attributable to run-off portfolio transfer transactions, novation agreements, or loss portfolio transfers. QC&S properly excluded these premiums from its TY 2022 ceded earned premium calculation in strict compliance with Article 3.4.
56. QC&S's premium reporting was accurate, complete, and consistent with the Treaty's terms. No premium underreporting occurred.
57. Even assuming, arguendo, that a $6,800,000 premium discrepancy existed — which QC&S expressly denies — such a discrepancy would at most give rise to a premium adjustment under the slide-scale mechanism set forth in the Treaty. At the provisional rate of 42%, a $6,800,000 increase in ceded earned premium would produce an additional treaty premium of only $2,856,000 ($6,800,000 × 42%). Under no construction of the Treaty would a premium reporting discrepancy of this nature give rise to a right to rescind or terminate the Treaty or to demand return of paid reinsurance recoverables. The Treaty contains no provision making premium reporting a condition precedent to coverage or permitting retroactive forfeiture of coverage based on a premium dispute. The appropriate remedy, if any, is a prospective premium adjustment through the slide-scale mechanism — a remedy that is readily quantifiable and easily administered.
E. Pinnacle Atlantic's Wrongful Demand
58. On or about December 12, 2025, Pinnacle Atlantic sent a "reservation of rights" letter to QC&S regarding the TY 2022 and TY 2023 cessions. This letter was the first indication, received more than twenty months after Pinnacle Atlantic completed payment of the seventh and final billing installment, that Pinnacle Atlantic harbored any concern about the validity of the cessions.
59. On February 14, 2026, the law firm of Hargrove, Fitch & Calloway LLP, located at 51 West 52nd Street, 40th Floor, New York, New York 10019, acting through lead partner Nathaniel R. Calloway III and senior associate Priya Subramanian, sent a pre-suit demand letter to QC&S on behalf of Pinnacle Atlantic. The demand letter demanded the return of $78,400,000 in paid reinsurance recoverables, together with $12,600,000 in purported interest — which Pinnacle Atlantic calculated at approximately eight percent (8%) per annum on the funds paid over an average period of approximately twenty-four months — for a total demand of $91,000,000.
60. The demand letter asserts four grounds for the demand: (i) late notice under Article 7 regarding the Meridian Docks mass tort claims; (ii) misallocation of $22,300,000 in IBNR reserve development under Article 5; (iii) failure to follow the fortunes or follow the settlements under Article 11 regarding the Veridian Financial Services E&O cluster; and (iv) alleged underreporting of ceded earned premium by $6,800,000 under Article 3.
61. Each of these four grounds is factually and legally baseless, as set forth in this Counterclaim. In summary:
(a) Late notice: QC&S provided notice on May 22, 2022, promptly after individual claims exceeded the $1,000,000 reporting threshold in Q1 2022. The fourteen-month interval between initial reserving and notice reflects the natural development of the claims, not any failure of diligence. Pinnacle Atlantic suffered no prejudice.
(b) IBNR misallocation: The $22,300,000 in IBNR reserve development was properly allocated to Treaty Year 2022 under Article 5.2 of the Treaty, as confirmed by Velthorn Actuarial Advisors LLC under the supervision of Dr. Stephen Tanaka, FCAS, MAAA, in accordance with applicable actuarial standards of practice.
(c) Follow the fortunes: The Veridian E&O cluster settlement was made in good faith, after rigorous litigation exposure analysis, in the ordinary course of QC&S's claims-handling business. Article 11 and well-established New York law require Pinnacle Atlantic to follow QC&S's good-faith claims-handling decisions absent fraud, bad faith, or gross negligence — none of which is alleged or present here.
(d) Premium underreporting: The $6,800,000 difference arises from Pinnacle Atlantic's erroneous inclusion of run-off portfolio transfer premiums expressly excluded by Article 3.4. Even if a discrepancy existed, the sole remedy would be a premium adjustment of $2,856,000 — not return of $78,400,000 in paid recoverables.
62. In addition, the demand letter asserts, without any reasoned basis, that Treaty Article 22's mandatory arbitration clause is inapplicable to the specific claims raised by Pinnacle Atlantic. This position is without merit, as Article 22 broadly encompasses "all disputes arising under or in connection with" the Treaty, which unambiguously includes each of the four grounds cited in the demand letter.
F. Pinnacle Atlantic's Breach of the Arbitration Clause
63. Treaty Article 22 contains a mandatory arbitration provision that reads, in pertinent part, as follows: "Any dispute arising under or in connection with this Treaty, including but not limited to disputes concerning its formation, validity, interpretation, performance, or termination, shall be submitted to and resolved by a panel of three arbitrators sitting in New York, New York, in accordance with the ARIAS-U.S. Rules for the Resolution of U.S. Insurance and Reinsurance Disputes then in effect."
64. The arbitration clause is mandatory, not permissive. It requires — rather than merely permits — submission of disputes to arbitration. The clause is broadly worded and encompasses all of the claims asserted by Pinnacle Atlantic in its demand letter and Complaint, which concern the interpretation and performance of the Treaty's loss cession, notice, settlement, and premium reporting provisions.
65. By threatening to file suit in this Court rather than submitting its disputes to arbitration, and by affirmatively taking the position through its counsel at Hargrove, Fitch & Calloway LLP that Article 22 is inapplicable to its claims, Pinnacle Atlantic has breached and repudiated its contractual obligation to arbitrate disputes under the Treaty.
66. QC&S has demanded arbitration of the parties' disputes in accordance with Article 22. QC&S reserves all rights to move to compel arbitration under CPLR Article 75 and the Federal Arbitration Act, 9 U.S.C. §§ 1–16, and to seek a stay of this litigation pending arbitration.
FIRST CAUSE OF ACTION
Declaratory Judgment — Validity of Treaty Year 2022 Cessions
67. QC&S repeats and realleges each and every allegation contained in Paragraphs 1 through 66 above as though fully set forth herein.
68. An actual, justiciable controversy exists between QC&S and Pinnacle Atlantic regarding the validity and enforceability of QC&S's Treaty Year 2022 cessions totaling $69,700,000 under Treaty No. PA-QCS-2019-EXL-0044. Pinnacle Atlantic has demanded the return of these funds and threatened litigation to compel such return, and QC&S disputes the validity of that demand in its entirety.
69. QC&S properly calculated its aggregate net incurred losses for Treaty Year 2022 at $189,700,000. This figure includes, among other components, $41,200,000 in losses from the Meridian Docks mass tort cluster and $22,300,000 in IBNR reserve development allocated to accident-year 2022 claims.
70. The $120,000,000 per-treaty-year retention was exceeded, and QC&S was entitled under the plain terms of the Treaty to cede $69,700,000 in losses to Pinnacle Atlantic.
71. QC&S complied with all applicable requirements of Treaty Articles 3, 5, 7, and 11 with respect to Treaty Year 2022, including all reporting, notice, and claims-handling obligations.
72. The IBNR reserve development of $22,300,000 was properly allocated to Treaty Year 2022 under Article 5.2 of the Treaty, which defines "losses incurred" to include IBNR reserves established and developed in accordance with generally accepted actuarial principles. The allocation was confirmed by Velthorn Actuarial Advisors LLC under the supervision of Dr. Stephen Tanaka, FCAS, MAAA, and was consistent with applicable Actuarial Standards of Practice, including ASOP No. 43.
73. Notice of the Meridian Docks mass tort claims was timely provided on May 22, 2022, promptly after individual claim reserves exceeded the $1,000,000 reporting threshold established in Article 7. Pinnacle Atlantic suffered no prejudice from the timing of notice and, indeed, accepted and paid all billing installments without raising any notice objection.
74. QC&S seeks a declaratory judgment pursuant to CPLR § 3001 declaring that:
(a) QC&S's Treaty Year 2022 cessions of $69,700,000 under Treaty No. PA-QCS-2019-EXL-0044 are valid, enforceable, and properly calculated in accordance with the Treaty's terms;
(b) QC&S complied with all applicable notice, reporting, and claims-handling requirements of the Treaty with respect to Treaty Year 2022;
(c) The IBNR reserve development of $22,300,000 was properly allocated to Treaty Year 2022 under Article 5.2;
(d) Notice of the Meridian Docks mass tort claims was timely under Article 7; and
(e) QC&S is entitled to retain all amounts paid by Pinnacle Atlantic with respect to Treaty Year 2022.
SECOND CAUSE OF ACTION
Declaratory Judgment — Validity of Treaty Year 2023 Cessions
75. QC&S repeats and realleges each and every allegation contained in Paragraphs 1 through 74 above as though fully set forth herein.
76. An actual, justiciable controversy exists between QC&S and Pinnacle Atlantic regarding the validity and enforceability of QC&S's Treaty Year 2023 cessions totaling $8,700,000 under Treaty No. PA-QCS-2019-EXL-0044.
77. QC&S properly calculated its aggregate net incurred losses for Treaty Year 2023 at $128,700,000. The $120,000,000 per-treaty-year retention was exceeded, and QC&S was entitled under the plain terms of the Treaty to cede $8,700,000 in losses to Pinnacle Atlantic.
78. The Veridian Financial Services E&O cluster settlement of $34,500,000 was made in good faith, in the ordinary course of QC&S's claims-handling business, and after a thorough and rigorous litigation exposure analysis. The settlement of each of the three related claims (Claim A: $14,200,000; Claim B: $12,800,000; Claim C: $7,500,000) reflected the assessed risk and exposure of the underlying claims and was reached following extensive discovery and mediation. The settlement falls squarely within the follow-the-fortunes doctrine codified in Article 11 of the Treaty.
79. Under well-established New York law, the follow-the-fortunes doctrine requires a reinsurer to follow the cedent's good-faith claims-handling and settlement decisions absent a showing of fraud, bad faith, or gross negligence. See, e.g., North River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134 (2d Cir. 2004); British Int'l Ins. Co. v. Seguros La Republica, S.A., 342 F.3d 78 (2d Cir. 2003). Pinnacle Atlantic has made no allegation — because none can truthfully be made — that QC&S's settlement of the Veridian E&O cluster was the product of fraud, bad faith, or gross negligence.
80. Pinnacle Atlantic's allegation that QC&S settled the Veridian E&O claims at inflated amounts in order to push aggregate losses above the $120,000,000 retention is a serious accusation that is wholly without factual basis. QC&S's settlement decisions were made by experienced claims professionals exercising independent business judgment, with the advice of outside counsel, and without reference to the Treaty's retention level. QC&S would have settled these claims on the same terms regardless of whether any excess-of-loss reinsurance protection existed.
81. QC&S seeks a declaratory judgment pursuant to CPLR § 3001 declaring that:
(a) QC&S's Treaty Year 2023 cessions of $8,700,000 under Treaty No. PA-QCS-2019-EXL-0044 are valid, enforceable, and properly calculated in accordance with the Treaty's terms;
(b) The Veridian Financial Services E&O cluster settlement was made in good faith, in the ordinary course of QC&S's claims-handling business, and in compliance with the follow-the-fortunes doctrine codified in Article 11;
(c) Pinnacle Atlantic is obligated to follow QC&S's good-faith settlement decisions under the Treaty and applicable New York law; and
(d) QC&S is entitled to retain all amounts paid by Pinnacle Atlantic with respect to Treaty Year 2023.
THIRD CAUSE OF ACTION
Declaratory Judgment — Validity of Premium Reporting and Absence of Termination Right
82. QC&S repeats and realleges each and every allegation contained in Paragraphs 1 through 81 above as though fully set forth herein.
83. An actual, justiciable controversy exists between QC&S and Pinnacle Atlantic regarding whether QC&S's reported ceded earned premium of $38,400,000 for Treaty Year 2022 is accurate, and whether Pinnacle Atlantic has any termination right, rescission right, or offset based on the alleged $6,800,000 premium discrepancy.
84. The $6,800,000 difference between QC&S's reported ceded earned premium of $38,400,000 and Pinnacle Atlantic's asserted figure of $45,200,000 is attributable entirely to premiums arising from run-off portfolio transfer transactions. Article 3.4 of the Treaty expressly excludes such premiums from the definition of "ceded earned premium." QC&S properly excluded these premiums from its reporting in accordance with Article 3.4.
85. QC&S reported ceded earned premium accurately and in compliance with the Treaty. No premium underreporting occurred.
86. Even if, arguendo, a premium discrepancy of $6,800,000 existed (which QC&S expressly denies), it would give rise solely to a premium adjustment under the slide-scale mechanism set forth in the Treaty. At the provisional rate of 42%, such an adjustment would amount to $2,856,000 ($6,800,000 × 42%). A premium discrepancy of this nature and magnitude would not give rise to a right to void, rescind, or terminate the Treaty, nor would it entitle Pinnacle Atlantic to demand the return of $78,400,000 in paid reinsurance recoverables. The Treaty contains no provision making accurate premium reporting a condition precedent to coverage or providing for retroactive forfeiture of coverage based on a premium dispute.
87. QC&S seeks a declaratory judgment pursuant to CPLR § 3001 declaring that:
(a) QC&S's reported ceded earned premium of $38,400,000 for Treaty Year 2022 was accurately calculated in compliance with Article 3 of the Treaty;
(b) The premiums arising from run-off portfolio transfer transactions were properly excluded from ceded earned premium under Article 3.4;
(c) Pinnacle Atlantic has no termination, rescission, or offset right based on the alleged $6,800,000 premium discrepancy;
(d) Any premium adjustment, if applicable (which QC&S denies), is limited to the slide-scale mechanism set forth in the Treaty and would amount to no more than $2,856,000; and
(e) A premium dispute, standing alone, provides no basis for demanding return of paid reinsurance recoverables.
FOURTH CAUSE OF ACTION
Breach of the Treaty — Wrongful Demand for Return of Paid Recoverables
88. QC&S repeats and realleges each and every allegation contained in Paragraphs 1 through 87 above as though fully set forth herein.
89. The Treaty constitutes a valid and binding contract between QC&S and Pinnacle Atlantic, enforceable in accordance with its terms and governed by the laws of the State of New York pursuant to Article 16.
90. QC&S fully performed all of its obligations under the Treaty with respect to Treaty Year 2022 and Treaty Year 2023 cessions, including all obligations related to loss reporting, notice, premium reporting, settlement, and claims handling.
91. Pinnacle Atlantic paid $78,400,000 in reinsurance recoverables across seven billing installments between October 2022 and March 2024, without objection, without reservation of rights, and without exercising its contractual audit rights or requesting additional information. Each payment was voluntary, informed, and made in the ordinary course of the parties' reinsurance relationship.
92. Having made those payments, and absent any valid ground for rescission, recoupment, or disgorgement under the Treaty or New York law, Pinnacle Atlantic is bound by its payment obligations and has no right to demand the return of the $78,400,000 previously paid.
93. Pinnacle Atlantic's February 14, 2026 demand for the return of $78,400,000 in paid reinsurance recoverables, together with $12,600,000 in purported interest, constitutes a wrongful repudiation of Pinnacle Atlantic's payment obligations under the Treaty and a material breach of the Treaty.
94. Pinnacle Atlantic's wrongful demand has caused and continues to cause QC&S actual, direct, and consequential damages, including but not limited to the following:
(a) Statutory Balance Sheet Uncertainty: QC&S carries the $78,400,000 in reinsurance recoverables on its statutory balance sheet as an asset, reported on Schedule F, Part 3, of its annual statement filed with the New York State Department of Financial Services. Pinnacle Atlantic's demand has created material uncertainty regarding the recoverability of this asset, threatening QC&S's statutory surplus position, which stood at $1,420,000,000 as of December 31, 2025.
(b) GAAP Financial Reporting Consequences: QC&S's parent company, Quorum Insurance Holdings Corp., a public company traded on Nasdaq, is subject to GAAP financial reporting requirements. The wrongful demand has created a potential pre-tax charge of $78,400,000, with an after-tax impact of approximately $61,936,000 at a 21% federal corporate income tax rate. QC&S and QIH are required to evaluate whether the demand constitutes a reasonably possible or probable loss under ASC 450 (Contingencies) and to make appropriate disclosures in their financial statements, creating additional uncertainty and cost.
(c) Credit Facility Covenant Implications: QIH maintains a $750,000,000 revolving credit facility with Cartwright National Bank, N.A., which contains a minimum statutory surplus covenant requiring QC&S to maintain statutory surplus of at least $1,100,000,000. As of December 31, 2025, QC&S's headroom under this covenant stood at $320,000,000 ($1,420,000,000 statutory surplus minus $1,100,000,000 covenant minimum). If QC&S were required to write off the $78,400,000 recoverable, its statutory surplus would decline to $1,341,600,000, reducing headroom to $241,600,000. If the full $91,000,000 demand were honored (including the purported $12,600,000 in interest), QC&S's statutory surplus would decline to approximately $1,329,000,000, leaving headroom of approximately $229,000,000. While QC&S would remain in compliance with the covenant, the material reduction in headroom affects QIH's financial flexibility and borrowing capacity.
(d) Legal Fees and Costs: QC&S has been forced to retain counsel and incur substantial legal fees and costs in defending against Pinnacle Atlantic's wrongful demand, analyzing its claims, and preserving QC&S's rights through this Counterclaim and through the demand for arbitration.
(e) Reputational Harm: Pinnacle Atlantic's demand, and the possibility that it may become public through litigation, threatens to cause reputational harm to QC&S in the reinsurance market, potentially affecting QC&S's ability to place reinsurance on favorable terms and maintain existing reinsurance relationships. The reinsurance market is a small, relationship-driven market in which a cedent's reputation for accurate reporting and fair dealing is of paramount importance.
95. QC&S seeks compensatory damages in an amount to be proven at trial or hearing, but not less than the costs and expenses incurred in connection with defending against Pinnacle Atlantic's wrongful demand, together with such other damages as are established by the evidence.
FIFTH CAUSE OF ACTION
Breach of the Treaty — Repudiation of Arbitration Obligation
96. QC&S repeats and realleges each and every allegation contained in Paragraphs 1 through 95 above as though fully set forth herein.
97. Treaty Article 22 requires all disputes arising under or relating to the Treaty to be submitted to binding arbitration before a three-member panel convened in accordance with the ARIAS-U.S. Rules for the Resolution of U.S. Insurance and Reinsurance Disputes, with hearings seated in New York, New York.
98. The arbitration clause in Article 22 is mandatory, broadly worded, and unambiguously applies to each and every dispute that Pinnacle Atlantic has raised in its demand letter and Complaint, including disputes concerning the interpretation of the Treaty's loss cession, notice, settlement, and premium reporting provisions.
99. Pinnacle Atlantic, through its counsel at Hargrove, Fitch & Calloway LLP, has affirmatively taken the position that Article 22 is inapplicable to its claims and has threatened to file suit — and has filed suit — in this Court in derogation of its contractual obligation to arbitrate.
100. By refusing to submit to the agreed-upon arbitration mechanism and by threatening and pursuing litigation in a judicial forum that is not contemplated by the Treaty for the resolution of substantive disputes, Pinnacle Atlantic has breached and repudiated Article 22 of the Treaty.
101. Pinnacle Atlantic's breach of the arbitration clause has caused and continues to cause QC&S damages, including but not limited to:
(a) Legal fees and costs incurred in enforcing the arbitration provision, including costs associated with analyzing and responding to Pinnacle Atlantic's position that Article 22 is inapplicable;
(b) Legal fees and costs incurred in preparing and filing this Counterclaim to preserve QC&S's rights in the event arbitration is not compelled;
(c) Legal fees and costs that will be incurred in moving to compel arbitration under CPLR Article 75 and the Federal Arbitration Act; and
(d) The delay, uncertainty, and disruption caused by Pinnacle Atlantic's insistence on litigating in a forum not contemplated by the parties' contract, rather than proceeding expeditiously through the agreed-upon arbitration mechanism.
102. QC&S seeks damages for Pinnacle Atlantic's breach of the mandatory arbitration provision in Treaty Article 22, including attorneys' fees and costs incurred in enforcing the arbitration clause, to the extent permitted by New York law and the Treaty.
PRAYER FOR RELIEF
WHEREFORE, Counterclaim-Plaintiff Quorum Casualty & Surety Company respectfully demands judgment as follows:
1. On the First Cause of Action: A declaratory judgment, pursuant to CPLR § 3001, that QC&S's Treaty Year 2022 cessions of $69,700,000 under Treaty No. PA-QCS-2019-EXL-0044 are valid, enforceable, and properly calculated in accordance with the Treaty's terms, and that QC&S is entitled to retain all amounts paid by Pinnacle Atlantic with respect to Treaty Year 2022;
2. On the Second Cause of Action: A declaratory judgment, pursuant to CPLR § 3001, that QC&S's Treaty Year 2023 cessions of $8,700,000 under the Treaty are valid, enforceable, and properly calculated in accordance with the Treaty's terms, and that QC&S is entitled to retain all amounts paid by Pinnacle Atlantic with respect to Treaty Year 2023;
3. On the Third Cause of Action: A declaratory judgment, pursuant to CPLR § 3001, that QC&S's premium reporting under Article 3 complied with the Treaty, that Pinnacle Atlantic has no termination, rescission, or offset right based on the alleged premium discrepancy of $6,800,000, and that any premium adjustment, if applicable, is limited to the slide-scale mechanism set forth in the Treaty;
4. On the Fourth Cause of Action: Compensatory damages in an amount to be determined at trial or hearing for breach of the Treaty arising from Pinnacle Atlantic's wrongful demand for return of $78,400,000 in paid reinsurance recoverables and $12,600,000 in purported interest;
5. On the Fifth Cause of Action: Damages, including attorneys' fees and costs, for Pinnacle Atlantic's breach of the mandatory arbitration provision in Treaty Article 22, to the extent permitted by New York law and the Treaty;
6. Pre-judgment interest on all sums awarded, at the applicable statutory rate pursuant to CPLR § 5001;
7. Costs and disbursements of this action, pursuant to CPLR Article 83; and
8. Such other and further relief as this Court deems just and proper.
RESERVATION OF RIGHTS
QC&S files this Verified Counterclaim without waiver of its right to compel arbitration of the parties' disputes under Treaty Article 22, CPLR Article 75, and the Federal Arbitration Act, 9 U.S.C. §§ 1–16. Nothing in this Counterclaim shall be construed as a waiver, abandonment, or relinquishment of QC&S's contractual right to arbitrate.
QC&S has concurrently demanded arbitration in writing pursuant to Article 22 and the ARIAS-U.S. Rules, and reserves the right to move this Court to compel arbitration and to stay this action pending completion of arbitration proceedings.
In the event this Court grants a motion to compel arbitration, QC&S will pursue all counterclaims asserted herein before the arbitration panel, and the filing of this Counterclaim shall be without prejudice to QC&S's right to do so.
JURY DEMAND
Counterclaim-Plaintiff Quorum Casualty & Surety Company hereby demands a trial by jury on all issues so triable, pursuant to CPLR § 4101, in the event this matter proceeds in this Court rather than in arbitration.
VERIFICATION
VERIFICATION
STATE OF CONNECTICUT ) ) ss.: COUNTY OF HARTFORD )
I, Diana Kessler-Hoff, being duly sworn, state as follows:
1. I am the Vice President, Claims & Reinsurance Recoveries, of Quorum Casualty & Surety Company ("QC&S"), the Counterclaim-Plaintiff in this action. I am duly authorized to make this verification on behalf of QC&S.
2. I have read the foregoing Verified Counterclaim of Quorum Casualty & Surety Company and know the contents thereof. The factual allegations set forth in the Verified Counterclaim are true and correct to the best of my knowledge, information, and belief, based upon my personal knowledge, my review of QC&S's books and records, and information provided to me by other officers, employees, and agents of QC&S in the ordinary course of business.
3. This verification is made pursuant to CPLR § 3020 and is submitted in support of the Verified Counterclaim.
________________________________________
Diana Kessler-Hoff Vice President, Claims & Reinsurance Recoveries Quorum Casualty & Surety Company
Sworn to and subscribed before me this __ day of March, 2026.
________________________________________
Notary Public, State of Connecticut My Commission Expires: ___
SIGNATURE BLOCK
CALDERWOOD & HARKNESS LLP
Attorneys for Counterclaim-Plaintiff Quorum Casualty & Surety Company
By: ________
Douglas Carmichael Responsible Partner
Francesca Morano Billing Partner
Jeffrey Park Lead Associate
Yuki Nakamura Working Associate