1025-00005 · Quorum Insurance Holdings · Pre-Litigation/Pleadings

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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 (To be assigned upon filing)

VERIFIED ANSWER AND AFFIRMATIVE DEFENSES OF DEFENDANT QUORUM CASUALTY & SURETY COMPANY

Defendant Quorum Casualty & Surety Company ("QC&S" or "Defendant"), by and through its attorneys, Calderwood & Harkness LLP, hereby answers the Verified Complaint of Plaintiff Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic" or "Plaintiff") dated February 28, 2026, and respectfully states as follows:

PRELIMINARY STATEMENT

Defendant Quorum Casualty & Surety Company ("QC&S") is a New York-domiciled stock property and casualty insurer, NAIC No. 24891, and 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 maintains its corporate headquarters at 200 Constitution Plaza, Suite 3400, Hartford, Connecticut 06103. QC&S maintains its principal office at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103, and is licensed to transact insurance business in all fifty states, the District of Columbia, and the U.S. Virgin Islands.

QC&S denies all material allegations of the Complaint and respectfully submits that Plaintiff Pinnacle Atlantic Reinsurance Ltd. is not entitled to any of the relief it seeks. The dispute at the heart of this action concerns $78,400,000 in reinsurance recoverables that QC&S properly billed, and that Pinnacle Atlantic knowingly and voluntarily paid, under Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty"), effective as of July 1, 2019. The contested recoverables relate to Treaty Years ("TY") 2022 and 2023: specifically, $69,700,000 ceded for TY 2022 and $8,700,000 ceded for TY 2023.

Pinnacle Atlantic's total demand in this action is $91,000,000, consisting of the $78,400,000 in reinsurance recoverables that Pinnacle Atlantic now seeks to recover, plus $12,600,000 in claimed interest calculated at approximately eight percent (8%) per annum over an average period of twenty-four months. This demand is without merit and should be denied in its entirety.

QC&S fully complied with all of its obligations under the Treaty at all relevant times. Pinnacle Atlantic reviewed and approved all billings and knowingly and voluntarily paid the full amount of $78,400,000 across seven separate billing installments submitted and paid between October 15, 2022 and March 29, 2024. At no time during the payment period did Pinnacle Atlantic raise any objection, issue any reservation of rights, or contest the propriety of any cession. Pinnacle Atlantic did not issue a reservation of rights until December 12, 2025 — more than twenty months after the date of the final billing installment — and did not transmit a formal pre-suit demand until February 14, 2026, when its counsel, Nathaniel R. Calloway III of Hargrove, Fitch & Calloway LLP, sent a demand letter to QC&S.

Moreover, this dispute is subject to mandatory arbitration under Article 22 of the Treaty, which provides for binding arbitration of all disputes arising under or in connection with the Treaty before a three-member arbitration panel seated in New York, New York, under the rules of ARIAS-U.S. (the AIDA Reinsurance and Insurance Arbitration Society – U.S.). Pinnacle Atlantic's decision to file the instant action in this Court, rather than initiate arbitration proceedings, is procedurally improper and contrary to the express terms of the Treaty. QC&S has invoked the arbitration clause and reserves the right to move to stay this action and compel arbitration pursuant to Article 75 of the New York Civil Practice Law and Rules ("CPLR") and, to the extent applicable, the Federal Arbitration Act, 9 U.S.C. §§ 1–16.

QC&S further reserves the right to assert a counterclaim, which will be filed separately, seeking a declaratory judgment confirming the validity of all cessions under TY 2022 and TY 2023, and asserting that Pinnacle Atlantic's refusal to honor its reinsurance obligations and its initiation of this litigation constitutes a breach of the Treaty.

RESPONSES TO ALLEGATIONS OF THE COMPLAINT

QC&S responds to the numbered paragraphs of the Complaint as follows. To the extent that the Complaint contains headings, subheadings, titles, or other non-substantive text, QC&S does not respond to such text except to the extent that it incorporates or restates factual allegations.

I. Responses to Jurisdictional and Party Allegations

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

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

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

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

5. QC&S denies that the Supreme Court of the State of New York, County of New York, Commercial Division, is the appropriate forum for the resolution of this dispute. QC&S affirmatively asserts that Article 22 of the Treaty mandates that all disputes arising under or in connection with the Treaty shall be resolved by binding arbitration conducted under the rules of ARIAS-U.S. before a three-member arbitration panel seated in New York, New York. Pinnacle Atlantic's filing of this action in this Court in lieu of initiating arbitration proceedings is contrary to the express terms of the Treaty and is procedurally improper.

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

II. Responses to Allegations Regarding the Treaty

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

21. QC&S denies that notice of the Meridian Docks Mass Tort Cluster claims was untimely under Article 7 of the Treaty or any other provision thereof. QC&S affirmatively states that Article 7 of the Treaty establishes an individual claim reporting threshold of $1,000,000 per claim. At the time QC&S first reserved the thirty-one individual claims comprising the Meridian Docks Mass Tort Cluster in March 2021, each individual claim was reserved at an amount below the $1,000,000 per-claim reporting threshold. It was not until reserve increases implemented during the first quarter of 2022 that the aggregate reserve for the Meridian Docks Mass Tort Cluster crossed the applicable aggregate reporting threshold. Upon the triggering of that threshold, QC&S promptly and diligently provided notice to Pinnacle Atlantic through Broadreach Intermediaries Inc. on May 22, 2022, in full compliance with the notice requirements of Article 7.

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

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

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

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

25. QC&S denies Pinnacle Atlantic's allegation that QC&S improperly allocated $22,300,000 in incurred but not reported ("IBNR") reserve strengthening to TY 2022. QC&S affirmatively states that the $22,300,000 in IBNR development relates to accident-year 2022 claims whose loss development factors crystallized during TY 2022. This allocation is fully consistent with the definition of "losses incurred" set forth in Article 5.2 of the Treaty, which defines "losses incurred" to include, among other things, case reserves, paid losses, and changes in IBNR reserves attributable to the applicable treaty year.

26. QC&S states that the actuarial analysis supporting the IBNR allocation was performed by Velthorn Actuarial Advisors LLC, located at 75 Ashbury Asset Advisors, Suite 1400, Boston, Massachusetts 02109. The analysis was prepared under the supervision and direction of Dr. Stephen Tanaka, FCAS, MAAA, a principal actuary at Velthorn Actuarial Advisors LLC, and was conducted in full compliance with all applicable actuarial standards of practice ("ASOPs"), including ASOP No. 43 (Unpaid Claim Estimates) and ASOP No. 36 (Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves).

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

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

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

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

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

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

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

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

34. QC&S affirmatively states that Article 11 of the Treaty obligates Pinnacle Atlantic to follow the fortunes of QC&S's good-faith claims-handling and settlement decisions. Under well-established New York law, the follow-the-fortunes doctrine requires a reinsurer to follow the cedent's good-faith claims determinations and settlement decisions, and may only be overcome upon a showing of bad faith, fraud, or gross negligence on the part of the cedent. None of these circumstances is present here. QC&S's claims-handling file for the Veridian Financial Services claims contains extensive documentation of the litigation exposure analysis supporting each settlement amount, including evaluations of discovery materials, deposition testimony, expert reports, and the assessment of potential adverse jury verdicts. QC&S's decision to settle was reasonable, prudent, and consistent with standard industry practice.

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

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

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

37. QC&S affirmatively states that the $6,800,000 difference between the ceded earned premium reported by QC&S ($38,400,000) and the figure asserted by Pinnacle Atlantic ($45,200,000) arises from Pinnacle Atlantic's improper inclusion of run-off portfolio transfer premiums that are expressly excluded under Article 3.4 of the Treaty. Article 3.4 specifically provides that premiums arising from assumption reinsurance transactions, loss portfolio transfers, and run-off portfolio transfers are excluded from the definition of "ceded earned premium" for purposes of the Treaty.

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

VII. Responses to Allegations Regarding Interest and Damages

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

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

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

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

VIII. General Denials

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

44. QC&S denies that Plaintiff is entitled to any relief whatsoever, whether in the form of monetary damages, declaratory relief, injunctive relief, or otherwise.

AFFIRMATIVE DEFENSES

Without assuming any burden of proof that otherwise rests with Plaintiff, and reserving all rights to supplement, amend, or withdraw these defenses as discovery proceeds, QC&S asserts the following affirmative defenses:

FIRST AFFIRMATIVE DEFENSE: Mandatory Arbitration (Treaty Article 22)

The Complaint must be dismissed or, in the alternative, stayed because all disputes arising under or in connection with Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044 are subject to mandatory and binding arbitration under Article 22 of the Treaty. Article 22 expressly provides that any dispute, controversy, or claim arising out of, relating to, or in connection with the Treaty, including any dispute concerning its formation, interpretation, performance, breach, termination, or validity, shall be resolved exclusively by binding arbitration before a three-member arbitration panel sitting in New York, New York, conducted in accordance with the rules of ARIAS-U.S. (the AIDA Reinsurance and Insurance Arbitration Society – U.S.).

Pinnacle Atlantic's assertion, advanced through its counsel Hargrove, Fitch & Calloway LLP in the February 14, 2026 pre-suit demand letter authored by Nathaniel R. Calloway III, Esq., that the arbitration clause is inapplicable to the specific claims raised in the Complaint is without merit. The broad arbitration clause in Article 22 encompasses the entirety of Pinnacle Atlantic's claims, each of which arises directly from the interpretation, performance, and alleged breach of the Treaty.

QC&S has demanded arbitration and has formally invoked Article 22 of the Treaty. QC&S intends to move to compel arbitration and stay this action pursuant to Article 75 of the New York Civil Practice Law and Rules ("CPLR") and, to the extent applicable, the Federal Arbitration Act, 9 U.S.C. §§ 1–16. Under both the CPLR and the Federal Arbitration Act, courts are required to enforce valid arbitration agreements and to stay or dismiss judicial proceedings that fall within the scope of such agreements.

SECOND AFFIRMATIVE DEFENSE: Compliance with Treaty Terms

QC&S at all times fully complied with each and every provision of Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044, including, without limitation, Articles 3 (Premium Provisions), 5 (Losses Incurred), 7 (Notice of Loss), 9 (Intermediary), 11 (Follow-the-Fortunes / Settlements), and all other provisions cited by Pinnacle Atlantic in the Complaint. All cessions for TY 2022, in the amount of $69,700,000, and for TY 2023, in the amount of $8,700,000, totaling $78,400,000, were properly calculated, documented, and billed in strict accordance with the terms and conditions of the Treaty. QC&S is therefore not liable to Pinnacle Atlantic for any of the amounts claimed in the Complaint.

THIRD AFFIRMATIVE DEFENSE: Timely Notice Under Article 7

QC&S provided timely notice of the Meridian Docks Mass Tort Cluster claims in full compliance with Article 7 of the Treaty. Article 7 establishes an individual claim reporting threshold of $1,000,000 per claim. At the time QC&S first reserved the thirty-one (31) individual bodily injury claims comprising the Meridian Docks Mass Tort Cluster on or about March 15, 2021, each individual claim was reserved at an amount below the $1,000,000 per-claim reporting threshold and therefore did not trigger the notice requirement under Article 7.

It was not until reserve increases implemented during the first quarter of 2022 that the aggregate reserves for the Meridian Docks Mass Tort Cluster crossed the applicable aggregate reporting threshold under the Treaty. Upon that event, QC&S promptly provided notice to Pinnacle Atlantic through Broadreach Intermediaries Inc. on May 22, 2022, in full compliance with the notice requirements of Article 7.

Furthermore, under New York law applicable to reinsurance contracts, any defense based on the alleged untimeliness of notice requires Pinnacle Atlantic to demonstrate that it suffered actual prejudice as a result of the timing of the notice. See, e.g., Unigard Sec. Ins. Co. v. Greaves Specialty Insurance, 79 N.Y.2d 576 (1992); Excess Ins. Co. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (2004). Pinnacle Atlantic has not alleged, and cannot demonstrate, any such actual prejudice. Accordingly, even if notice were deemed untimely — which it was not — Pinnacle Atlantic's late notice defense fails as a matter of law.

FOURTH AFFIRMATIVE DEFENSE: Proper IBNR Allocation Under Article 5

The allocation of $22,300,000 in IBNR reserve development to TY 2022 was proper under the definition of "losses incurred" set forth in Article 5.2 of the Treaty. Article 5.2 defines "losses incurred" to include, inter alia, case reserves, paid losses, and changes in IBNR reserves attributable to the applicable treaty year. The $22,300,000 in IBNR development relates to accident-year 2022 claims whose loss development factors crystallized during TY 2022, and the allocation to TY 2022 is consistent with the Treaty's plain language and intent.

The actuarial analysis supporting this allocation was prepared by Velthorn Actuarial Advisors LLC under the direction of Dr. Stephen Tanaka, FCAS, MAAA, a principal actuary with extensive experience in property and casualty loss reserving. The analysis was conducted in compliance with all applicable actuarial standards of practice, including ASOP No. 43 (Unpaid Claim Estimates) and ASOP No. 36 (Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves), and reflects sound and accepted actuarial methodologies.

Pinnacle Atlantic's attempt to reallocate the $22,300,000 in IBNR development to TY 2021 is contrary to the express terms of the Treaty, is inconsistent with applicable actuarial standards, and would produce a result that is economically and contractually illogical, as TY 2021 aggregate net incurred losses of $104,600,000 were below the $120,000,000 retention and were never disputed by Pinnacle Atlantic during TY 2021 or at any time prior to the filing of this action.

FIFTH AFFIRMATIVE DEFENSE: Follow-the-Fortunes Doctrine (Article 11)

Under Article 11 of the Treaty and well-established New York law, Pinnacle Atlantic is obligated to follow the fortunes of QC&S's good-faith claims-handling and settlement decisions. See, e.g., British Int'l Ins. Co. v. Seguros La Republica, S.A., 342 F.3d 78 (2d Cir. 2003); Greaves Specialty Insurance v. ACE Am. Reinsurance Co., 361 F.3d 134 (2d Cir. 2004). The follow-the-fortunes doctrine is a bedrock principle of reinsurance law and is designed to ensure that cedents retain the authority to manage claims and settlements in the ordinary course without being subject to second-guessing by reinsurers after the fact.

QC&S's settlement of the three related errors and omissions / professional liability claims against Veridian Financial Services Inc. for a combined total of $34,500,000 on September 8, 2023 was conducted in good faith, in the ordinary course of QC&S's business, and on the basis of thorough litigation exposure analysis. QC&S's claims-handling file for the Veridian Financial Services claims contains detailed documentation of the analysis underlying each settlement amount, including evaluations of the underlying complaint allegations, discovery materials, deposition testimony, expert reports, damage models, and assessments of potential adverse jury verdicts.

The follow-the-fortunes doctrine may only be overcome upon a showing of bad faith, fraud, or gross negligence on the part of the cedent. Pinnacle Atlantic has not alleged, and cannot demonstrate, any such bad faith, fraud, or gross negligence. Moreover, QC&S retained $26,100,000 in net incurred losses after the application of other reinsurance, demonstrating significant alignment of financial interest between QC&S and its reinsurers and negating any inference that QC&S settled the Veridian claims at inflated amounts for the purpose of shifting losses to the Treaty.

SIXTH AFFIRMATIVE DEFENSE: Proper Premium Reporting Under Article 3

QC&S accurately reported ceded earned premium of $38,400,000 for TY 2022 in full compliance with Article 3 of the Treaty. The $6,800,000 discrepancy asserted by Pinnacle Atlantic arises solely from Pinnacle Atlantic's improper inclusion of run-off portfolio transfer premiums that are expressly excluded from the definition of "ceded earned premium" under Article 3.4 of the Treaty. Article 3.4 specifically provides that premiums arising from assumption reinsurance transactions, loss portfolio transfers, and run-off portfolio transfers shall not be included in "ceded earned premium" for purposes of calculating treaty premiums.

Accordingly, no treaty premium underpayment of $2,856,000 (or any other amount) has occurred. QC&S's premium reporting was accurate and consistent with the Treaty's terms, and Pinnacle Atlantic's assertion to the contrary is based on an erroneous reading of the Treaty.

Furthermore, even if a premium discrepancy existed — which it does not — such a discrepancy would not entitle Pinnacle Atlantic to terminate the Treaty, rescind its payment obligations, or exercise any offset right against reinsurance recoverables validly owed to QC&S. The Treaty contains specific remedial provisions for premium disputes (see Article 3.6), and those provisions do not authorize the drastic remedies sought by Pinnacle Atlantic.

SEVENTH AFFIRMATIVE DEFENSE: Waiver by Payment

Pinnacle Atlantic knowingly and voluntarily paid $78,400,000 in reinsurance recoverables to QC&S across seven separate billing installments submitted and paid between October 15, 2022 and March 29, 2024. Pinnacle Atlantic reviewed and approved each billing prior to authorizing payment. At no time during the payment period did Pinnacle Atlantic raise any objection, request additional documentation, issue a reservation of rights, or otherwise indicate that it contested the propriety of any cession.

Pinnacle Atlantic did not raise any reservation of rights with respect to the cessions until December 12, 2025 — more than twenty (20) months after the date of the final billing installment — and did not transmit its formal pre-suit demand until February 14, 2026.

By its voluntary, knowing, and unreserved payment of the full $78,400,000, Pinnacle Atlantic waived any and all objections to the TY 2022 and TY 2023 cessions. Under well-established principles of New York contract law, a party that makes voluntary payments with knowledge of the material facts and without protest or reservation of rights is deemed to have waived any objection to those payments and is estopped from seeking their return. See, e.g., Beth Israel Med. Ctr. v. Ridgeway Specialty Insurance, 448 F.3d 573 (2d Cir. 2006).

EIGHTH AFFIRMATIVE DEFENSE: Estoppel

Pinnacle Atlantic is estopped from denying the validity of the TY 2022 and TY 2023 cessions because QC&S reasonably relied, to its detriment, on Pinnacle Atlantic's payments. Specifically, QC&S relied on the $78,400,000 in reinsurance recoverables in booking a corresponding reinsurance recoverable on its statutory balance sheet, including in Schedule F, Part 3, of its annual statement as of December 31, 2025, filed with the New York State Department of Financial Services and the National Association of Insurance Commissioners. QC&S also relied on the recoverables in reporting its financial position to regulators, rating agencies, and investors, and in managing its statutory surplus, which currently stands at approximately $1,420,000,000.

If Pinnacle Atlantic were permitted to recoup the $78,400,000 in amounts voluntarily paid, QC&S and its parent company QIH would suffer material prejudice, including the need to restate financial filings, the adverse impact on statutory surplus and risk-based capital ratios, potential regulatory consequences, and reputational harm. Under the circumstances, principles of equitable estoppel bar Pinnacle Atlantic from now seeking to recover amounts that it voluntarily paid and upon which QC&S reasonably relied.

NINTH AFFIRMATIVE DEFENSE: Laches

Pinnacle Atlantic's unreasonable delay in asserting its claims constitutes laches and bars recovery. The final billing installment was paid on March 29, 2024. Pinnacle Atlantic did not issue a reservation of rights until December 12, 2025, approximately twenty (20) months later, and did not send a formal demand until February 14, 2026, approximately twenty-two (22) months after the final payment. This prolonged and inexplicable delay prejudiced QC&S, which, during the intervening period, relied upon the recoverables in its regulatory filings, financial reporting, capital management decisions, and business planning. The passage of time has also impaired QC&S's ability to gather and preserve evidence relating to the claims at issue. Under the doctrine of laches, Pinnacle Atlantic's claims are barred.

TENTH AFFIRMATIVE DEFENSE: Failure to Demonstrate Prejudice (Late Notice)

To the extent Pinnacle Atlantic contends that QC&S's notice of the Meridian Docks Mass Tort Cluster claims was untimely under Article 7 of the Treaty, Pinnacle Atlantic has failed, and cannot, demonstrate actual prejudice resulting from the timing of notice. Under New York law applicable to reinsurance contracts, a reinsurer cannot avoid liability on a late notice defense absent a showing of actual prejudice. See Unigard Sec. Ins. Co. v. Greaves Specialty Insurance, 79 N.Y.2d 576 (1992). Pinnacle Atlantic has not identified any specific prejudice it suffered as a result of the timing of QC&S's notice, and no such prejudice exists. Pinnacle Atlantic received notice of the claims well in advance of any settlement, and had the opportunity to review, evaluate, and participate in the handling of the claims. Accordingly, any late notice defense asserted by Pinnacle Atlantic fails as a matter of law.

ELEVENTH AFFIRMATIVE DEFENSE: Failure to Mitigate Damages

Pinnacle Atlantic failed to take reasonable steps to mitigate its alleged damages, including, without limitation, by failing to raise its concerns contemporaneously with the billings during the payment period from October 2022 through March 2024, by failing to conduct its own actuarial review of the cessions during that period, by failing to request additional documentation or audits as permitted under the Treaty, and by failing to exercise its rights under Article 14 (Audits and Access to Records) at any time prior to December 2025. Had Pinnacle Atlantic acted promptly and diligently, any alleged damages could have been avoided or substantially reduced. Pinnacle Atlantic's failure to mitigate bars or reduces any recovery to which it might otherwise be entitled.

TWELFTH AFFIRMATIVE DEFENSE: No Entitlement to Interest

Pinnacle Atlantic is not entitled to interest of $12,600,000 or any other amount. All payments made by Pinnacle Atlantic were properly owed under the terms of the Treaty, and Pinnacle Atlantic paid voluntarily, without protest, and without reservation of rights. Because no overpayment, unjust enrichment, or wrongful retention occurred, no basis exists for the accrual or recovery of interest, whether characterized as pre-judgment interest, statutory interest, or otherwise.

THIRTEENTH AFFIRMATIVE DEFENSE: Reservation of Rights

QC&S reserves the right to amend this Answer and to assert additional affirmative defenses as discovery proceeds, additional facts become known, and additional legal theories are identified. QC&S's assertion of the foregoing affirmative defenses is without prejudice to its right to assert additional defenses and is not intended to be, and shall not be construed as, a waiver of any defense, right, or argument available to QC&S under the Treaty, at law, or in equity.

PRAYER FOR RELIEF

WHEREFORE, Defendant Quorum Casualty & Surety Company respectfully requests that this Court enter judgment as follows:

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

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

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

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

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

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

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

8. Granting such other and further relief as this Court deems just, equitable, and proper.

VERIFICATION

STATE OF CONNECTICUT COUNTY OF HARTFORD

I, Diana Kessler-Hoff, being duly sworn, depose and state:

I am the Vice President, Claims & Reinsurance Recoveries of Quorum Casualty & Surety Company, the Defendant in the above-captioned action. I am authorized to make this verification on behalf of the Defendant. I have read the foregoing Verified Answer and Affirmative Defenses of Defendant Quorum Casualty & Surety Company and know the contents thereof. The statements and allegations set forth therein are true to my knowledge, except as to those matters stated upon information and belief, and as to those matters, I believe them to be true. This verification is made by me and not by the Defendant's attorneys because the Defendant is a corporation.

________________________________________

Diana Kessler-Hoff Vice President, Claims & Reinsurance Recoveries Quorum Casualty & Surety Company

Date: ________

Sworn to and subscribed before me this _ day of _____, 2026.

________________________________________

Notary Public

My commission expires: ____

ATTORNEY SIGNATURE AND CERTIFICATION

CALDERWOOD & HARKNESS LLP Attorneys for Defendant Quorum Casualty & Surety Company

One Liberty Plaza, 55th Floor New York, New York 10006 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

Douglas Carmichael, Responsible Partner Jeffrey Park, Lead Associate Yuki Nakamura, Associate

Matter No. 1025-00005

By: ________

Jeffrey Park Attorney of Record for Defendant Quorum Casualty & Surety Company

Date: ________

CERTIFICATE OF SERVICE

I, Jeffrey Park, an attorney duly admitted to practice before the courts of the State of New York, hereby certify that on this _ day of _____, 2026, I caused a true and correct copy of the foregoing Verified Answer and Affirmative Defenses of Defendant Quorum Casualty & Surety Company to be served upon counsel for Plaintiff by the following methods:

Via NYSCEF Electronic Filing:

Nathaniel R. Calloway III, Esq. Hargrove, Fitch & Calloway LLP 51 West 52nd Street, 40th Floor New York, New York 10019

Via Overnight Delivery (Sundial Data Systems):

Nathaniel R. Calloway III, Esq. Hargrove, Fitch & Calloway LLP 51 West 52nd Street, 40th Floor New York, New York 10019

________________________________________

Jeffrey Park Calderwood & Harkness LLP One Liberty Plaza, 55th Floor New York, New York 10006

Date: ________

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 (To be assigned upon filing)
VERIFIED ANSWER AND AFFIRMATIVE DEFENSES OF DEFENDANT QUORUM CASUALTY & SURETY COMPANY
Defendant Quorum Casualty & Surety Company ("QC&S" or "Defendant"), by and through its attorneys, Calderwood & Harkness LLP, hereby answers the Verified Complaint of Plaintiff Pinnacle Atlantic Reinsurance Ltd. ("Pinnacle Atlantic" or "Plaintiff") dated February 28, 2026, and respectfully states as follows:
PRELIMINARY STATEMENT
Defendant Quorum Casualty & Surety Company ("QC&S") is a New York-domiciled stock property and casualty insurer, NAIC No. 24891, and 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 maintains its corporate headquarters at 200 Constitution Plaza, Suite 3400, Hartford, Connecticut 06103. QC&S maintains its principal office at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103, and is licensed to transact insurance business in all fifty states, the District of Columbia, and the U.S. Virgin Islands.
QC&S denies all material allegations of the Complaint and respectfully submits that Plaintiff Pinnacle Atlantic Reinsurance Ltd. is not entitled to any of the relief it seeks. The dispute at the heart of this action concerns $78,400,000 in reinsurance recoverables that QC&S properly billed, and that Pinnacle Atlantic knowingly and voluntarily paid, under Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty"), effective as of July 1, 2019. The contested recoverables relate to Treaty Years ("TY") 2022 and 2023: specifically, $69,700,000 ceded for TY 2022 and $8,700,000 ceded for TY 2023.
Pinnacle Atlantic's total demand in this action is $91,000,000, consisting of the $78,400,000 in reinsurance recoverables that Pinnacle Atlantic now seeks to recover, plus $12,600,000 in claimed interest calculated at approximately eight percent (8%) per annum over an average period of twenty-four months. This demand is without merit and should be denied in its entirety.
QC&S fully complied with all of its obligations under the Treaty at all relevant times. Pinnacle Atlantic reviewed and approved all billings and knowingly and voluntarily paid the full amount of $78,400,000 across seven separate billing installments submitted and paid between October 15, 2022 and March 29, 2024. At no time during the payment period did Pinnacle Atlantic raise any objection, issue any reservation of rights, or contest the propriety of any cession. Pinnacle Atlantic did not issue a reservation of rights until December 12, 2025 — more than twenty months after the date of the final billing installment — and did not transmit a formal pre-suit demand until February 14, 2026, when its counsel, Nathaniel R. Calloway III of Hargrove, Fitch & Calloway LLP, sent a demand letter to QC&S.
Moreover, this dispute is subject to mandatory arbitration under Article 22 of the Treaty, which provides for binding arbitration of all disputes arising under or in connection with the Treaty before a three-member arbitration panel seated in New York, New York, under the rules of ARIAS-U.S. (the AIDA Reinsurance and Insurance Arbitration Society – U.S.). Pinnacle Atlantic's decision to file the instant action in this Court, rather than initiate arbitration proceedings, is procedurally improper and contrary to the express terms of the Treaty. QC&S has invoked the arbitration clause and reserves the right to move to stay this action and compel arbitration pursuant to Article 75 of the New York Civil Practice Law and Rules ("CPLR") and, to the extent applicable, the Federal Arbitration Act, 9 U.S.C. §§ 1–16.
QC&S further reserves the right to assert a counterclaim, which will be filed separately, seeking a declaratory judgment confirming the validity of all cessions under TY 2022 and TY 2023, and asserting that Pinnacle Atlantic's refusal to honor its reinsurance obligations and its initiation of this litigation constitutes a breach of the Treaty.
RESPONSES TO ALLEGATIONS OF THE COMPLAINT
QC&S responds to the numbered paragraphs of the Complaint as follows. To the extent that the Complaint contains headings, subheadings, titles, or other non-substantive text, QC&S does not respond to such text except to the extent that it incorporates or restates factual allegations.
I. Responses to Jurisdictional and Party Allegations
1.  QC&S admits that Pinnacle Atlantic Reinsurance Ltd. is a Bermuda Class 4 insurer regulated by the Bermuda Monetary Authority, holding BMA Registration No. BMA-4R-2008-0331, with a registered office at Clarendon House, 14 Church Street, Hamilton HM 11, Bermuda, and a U.S. office located at 1285 Avenue of the Americas, 28th Floor, New York, New York 10019. QC&S further admits, upon information and belief, that Pinnacle Atlantic is a subsidiary of Pinnacle Atlantic Group Holdings Ltd.
2.  QC&S admits that it is a New York-domiciled stock property and casualty insurer, holding NAIC No. 24891, with its principal office located at 200 Constitution Plaza, Suite 3200, Hartford, Connecticut 06103.
3.  QC&S admits that it is a wholly owned subsidiary of Quorum Insurance Holdings Corp. ("QIH"), a Delaware corporation with its corporate headquarters at 200 Constitution Plaza, Suite 3400, Hartford, Connecticut 06103. QC&S further admits that QIH is publicly traded on the Nasdaq Stock Market under the ticker symbol QIHC.
4.  QC&S admits that the Treaty is governed by New York law pursuant to Article 16 thereof.
5.  QC&S denies that the Supreme Court of the State of New York, County of New York, Commercial Division, is the appropriate forum for the resolution of this dispute. QC&S affirmatively asserts that Article 22 of the Treaty mandates that all disputes arising under or in connection with the Treaty shall be resolved by binding arbitration conducted under the rules of ARIAS-U.S. before a three-member arbitration panel seated in New York, New York. Pinnacle Atlantic's filing of this action in this Court in lieu of initiating arbitration proceedings is contrary to the express terms of the Treaty and is procedurally improper.
6.  To the extent the Complaint contains additional jurisdictional allegations not specifically addressed herein, QC&S denies that this Court has jurisdiction over the subject matter of this dispute in light of the mandatory arbitration clause and reserves all rights to challenge jurisdiction and venue.
II. Responses to Allegations Regarding the Treaty
7.  QC&S admits that Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044 (the "Treaty") was duly executed by the parties and has an effective date of July 1, 2019. The Treaty speaks for itself, and QC&S refers to the full text thereof for a complete and accurate statement of its terms.
8.  QC&S admits that the Treaty is an aggregate excess-of-loss reinsurance treaty covering commercial general liability, excess and umbrella liability, and professional liability policies issued or renewed by QC&S during the applicable treaty years.
9.  QC&S admits that the original term of the Treaty was five (5) years, running from July 1, 2019 through June 30, 2024, with automatic annual extensions unless either party provided ninety (90) days' prior written notice of non-renewal.
10.  QC&S admits that the Treaty was extended through June 30, 2026 by operation of two successive one-year automatic extensions, and that Pinnacle Atlantic provided notice of non-renewal on or about October 1, 2025. QC&S further admits that the Treaty is scheduled to lapse on June 30, 2026, subject to applicable run-off provisions.
11.  QC&S admits that the Treaty provides for a per-treaty-year retention of $120,000,000 in aggregate net incurred losses, as set forth in Article 6 of the Treaty.
12.  QC&S admits that the Treaty provides for a cession limit of $200,000,000 per treaty year, covering aggregate net incurred losses from $120,000,000 to $320,000,000, as set forth in the Treaty.
13.  QC&S admits that the Treaty provides for a provisional treaty premium rate of forty-two percent (42%) of ceded earned premium, subject to a slide-scale adjustment mechanism with a minimum rate of thirty-five percent (35%) and a maximum rate of fifty-two percent (52%), as set forth in the Treaty.
14.  QC&S admits that Broadreach Intermediaries Inc., located at 100 Wall Street, 18th Floor, New York, New York 10005, is designated as the intermediary broker under Article 9 of the Treaty, and that James "Jamie" Castellano serves as the Account Executive responsible for the Treaty placement.
15.  QC&S denies each and every allegation that it breached any provision of the Treaty, whether express or implied. QC&S at all times complied with the terms and conditions of the Treaty.
16.  To the extent the Complaint purports to quote or paraphrase specific provisions of the Treaty, QC&S states that the Treaty speaks for itself and refers to the actual text of the Treaty for a complete and accurate recitation of its terms. QC&S denies any characterization of the Treaty's terms that is inconsistent with the Treaty's plain language.
III. Responses to Allegations Regarding Late Notice (Article 7) — Meridian Docks Mass Tort Cluster
17.  QC&S admits that it first reserved the thirty-one (31) related commercial general liability bodily injury claims arising from the Meridian Docks industrial waterfront redevelopment project located in Newark, New Jersey (collectively, the "Meridian Docks Mass Tort Cluster") on or about March 15, 2021.
18.  QC&S admits that it provided notice of the Meridian Docks Mass Tort Cluster to Pinnacle Atlantic through the designated intermediary broker, Broadreach Intermediaries Inc., on or about May 22, 2022.
19.  QC&S admits that the policyholder for the Meridian Docks claims is Meridian Docks Development LLC, insured under QC&S commercial general liability policy bearing Policy No. CGL-2020-09844.
20.  QC&S admits that the current net incurred loss for QC&S across all thirty-one (31) Meridian Docks Mass Tort Cluster claims is $41,200,000.
21.  QC&S denies that notice of the Meridian Docks Mass Tort Cluster claims was untimely under Article 7 of the Treaty or any other provision thereof. QC&S affirmatively states that Article 7 of the Treaty establishes an individual claim reporting threshold of $1,000,000 per claim. At the time QC&S first reserved the thirty-one individual claims comprising the Meridian Docks Mass Tort Cluster in March 2021, each individual claim was reserved at an amount below the $1,000,000 per-claim reporting threshold. It was not until reserve increases implemented during the first quarter of 2022 that the aggregate reserve for the Meridian Docks Mass Tort Cluster crossed the applicable aggregate reporting threshold. Upon the triggering of that threshold, QC&S promptly and diligently provided notice to Pinnacle Atlantic through Broadreach Intermediaries Inc. on May 22, 2022, in full compliance with the notice requirements of Article 7.
22.  QC&S denies that any alleged delay in the provision of notice caused actual prejudice to Pinnacle Atlantic. Under well-established New York law applicable to reinsurance contracts, a reinsurer asserting a late notice defense bears the burden of demonstrating that it suffered actual prejudice as a result of the timing of notice. Pinnacle Atlantic has not alleged, and cannot demonstrate, any such prejudice.
IV. Responses to Allegations Regarding IBNR Misallocation (Article 5)
23.  QC&S admits that it reported TY 2022 aggregate net incurred losses of $189,700,000 in accordance with the reporting procedures established by the Treaty.
24.  QC&S admits that it claimed TY 2022 ceded losses of $69,700,000, calculated as TY 2022 aggregate net incurred losses of $189,700,000 less the per-treaty-year retention of $120,000,000.
25.  QC&S denies Pinnacle Atlantic's allegation that QC&S improperly allocated $22,300,000 in incurred but not reported ("IBNR") reserve strengthening to TY 2022. QC&S affirmatively states that the $22,300,000 in IBNR development relates to accident-year 2022 claims whose loss development factors crystallized during TY 2022. This allocation is fully consistent with the definition of "losses incurred" set forth in Article 5.2 of the Treaty, which defines "losses incurred" to include, among other things, case reserves, paid losses, and changes in IBNR reserves attributable to the applicable treaty year.
26.  QC&S states that the actuarial analysis supporting the IBNR allocation was performed by Velthorn Actuarial Advisors LLC, located at 75 Ashbury Asset Advisors, Suite 1400, Boston, Massachusetts 02109. The analysis was prepared under the supervision and direction of Dr. Stephen Tanaka, FCAS, MAAA, a principal actuary at Velthorn Actuarial Advisors LLC, and was conducted in full compliance with all applicable actuarial standards of practice ("ASOPs"), including ASOP No. 43 (Unpaid Claim Estimates) and ASOP No. 36 (Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves).
27.  QC&S denies that the $22,300,000 in IBNR development should be reallocated to TY 2021. QC&S notes that TY 2021 aggregate net incurred losses totaled $104,600,000, an amount below the per-treaty-year retention of $120,000,000. Pinnacle Atlantic did not dispute the TY 2021 loss reporting during TY 2021 or at any time prior to filing the Complaint.
28.  QC&S further notes that, even under Pinnacle Atlantic's reallocation theory, TY 2022 ceded losses would be $47,400,000, calculated as follows: ($189,700,000 − $22,300,000) − $120,000,000 = $47,400,000. Thus, even if Pinnacle Atlantic's position were accepted — which it should not be — the disputed amount would decrease by only $22,300,000, not the full $78,400,000 demanded in the Complaint. This arithmetic reality underscores the fundamental overreach of Pinnacle Atlantic's claims.
V. Responses to Allegations Regarding Follow-the-Fortunes / Settlements (Article 11) — Veridian E&O Cluster
29.  QC&S admits that it settled three related errors and omissions / professional liability claims brought by investors against Veridian Financial Services Inc. (insured under QC&S professional liability policy bearing Policy No. PL-2021-15327) for a combined total of $34,500,000 on September 8, 2023.
30.  QC&S admits that the settlement amounts for the three claims were as follows: Claim A — $14,200,000; Claim B — $12,800,000; and Claim C — $7,500,000.
31.  QC&S admits that it retained $26,100,000 in net incurred losses after the application of other reinsurance applicable to the Veridian Financial Services claims.
32.  QC&S admits that $8,700,000 of the Veridian Financial Services settlement was ceded to the Treaty within the TY 2023 aggregate, representing the full TY 2023 cession calculated as the TY 2023 aggregate net incurred loss of $128,700,000 less the $120,000,000 per-treaty-year retention.
33.  QC&S denies that the settlements of the Veridian Financial Services claims lacked a meaningful litigation exposure analysis, were at inflated amounts, or were not conducted in the ordinary course of QC&S's business. QC&S further denies that the settlements were made in bad faith or without businesslike conduct.
34.  QC&S affirmatively states that Article 11 of the Treaty obligates Pinnacle Atlantic to follow the fortunes of QC&S's good-faith claims-handling and settlement decisions. Under well-established New York law, the follow-the-fortunes doctrine requires a reinsurer to follow the cedent's good-faith claims determinations and settlement decisions, and may only be overcome upon a showing of bad faith, fraud, or gross negligence on the part of the cedent. None of these circumstances is present here. QC&S's claims-handling file for the Veridian Financial Services claims contains extensive documentation of the litigation exposure analysis supporting each settlement amount, including evaluations of discovery materials, deposition testimony, expert reports, and the assessment of potential adverse jury verdicts. QC&S's decision to settle was reasonable, prudent, and consistent with standard industry practice.
VI. Responses to Allegations Regarding Premium Reporting (Article 3)
35.  QC&S admits that it reported ceded earned premium for TY 2022 of $38,400,000 in accordance with Article 3 of the Treaty.
36.  QC&S denies that it underreported ceded earned premium for TY 2022 or for any other treaty year. QC&S further denies that the correct ceded earned premium figure for TY 2022 is $45,200,000, as claimed by Pinnacle Atlantic.
37.  QC&S affirmatively states that the $6,800,000 difference between the ceded earned premium reported by QC&S ($38,400,000) and the figure asserted by Pinnacle Atlantic ($45,200,000) arises from Pinnacle Atlantic's improper inclusion of run-off portfolio transfer premiums that are expressly excluded under Article 3.4 of the Treaty. Article 3.4 specifically provides that premiums arising from assumption reinsurance transactions, loss portfolio transfers, and run-off portfolio transfers are excluded from the definition of "ceded earned premium" for purposes of the Treaty.
38.  QC&S denies that any treaty premium underpayment has occurred, including but not limited to the alleged underpayment of $2,856,000 (calculated by Pinnacle Atlantic as 42% of $6,800,000). QC&S further denies that any alleged premium discrepancy entitles Pinnacle Atlantic to terminate the Treaty or exercise any offset right against reinsurance recoverables properly owed to QC&S.
VII. Responses to Allegations Regarding Interest and Damages
39.  QC&S denies that Pinnacle Atlantic is entitled to the return of $78,400,000 in reinsurance recoverables. The amounts were properly billed, properly collected, and properly retained under the terms of the Treaty.
40.  QC&S denies that Pinnacle Atlantic is entitled to $12,600,000 in interest, whether calculated at eight percent (8%) per annum or at any other rate. No overpayment, unjust enrichment, or wrongful retention occurred, and accordingly no basis exists for the accrual of interest.
41.  QC&S denies that Pinnacle Atlantic is entitled to the total demanded amount of $91,000,000 or any lesser amount.
42.  QC&S denies that it has been unjustly enriched or has otherwise acted wrongfully in any respect.
VIII. General Denials
43.  QC&S denies each and every allegation of the Complaint not specifically admitted herein.
44.  QC&S denies that Plaintiff is entitled to any relief whatsoever, whether in the form of monetary damages, declaratory relief, injunctive relief, or otherwise.
AFFIRMATIVE DEFENSES
Without assuming any burden of proof that otherwise rests with Plaintiff, and reserving all rights to supplement, amend, or withdraw these defenses as discovery proceeds, QC&S asserts the following affirmative defenses:
FIRST AFFIRMATIVE DEFENSE: Mandatory Arbitration (Treaty Article 22)
The Complaint must be dismissed or, in the alternative, stayed because all disputes arising under or in connection with Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044 are subject to mandatory and binding arbitration under Article 22 of the Treaty. Article 22 expressly provides that any dispute, controversy, or claim arising out of, relating to, or in connection with the Treaty, including any dispute concerning its formation, interpretation, performance, breach, termination, or validity, shall be resolved exclusively by binding arbitration before a three-member arbitration panel sitting in New York, New York, conducted in accordance with the rules of ARIAS-U.S. (the AIDA Reinsurance and Insurance Arbitration Society – U.S.).
Pinnacle Atlantic's assertion, advanced through its counsel Hargrove, Fitch & Calloway LLP in the February 14, 2026 pre-suit demand letter authored by Nathaniel R. Calloway III, Esq., that the arbitration clause is inapplicable to the specific claims raised in the Complaint is without merit. The broad arbitration clause in Article 22 encompasses the entirety of Pinnacle Atlantic's claims, each of which arises directly from the interpretation, performance, and alleged breach of the Treaty.
QC&S has demanded arbitration and has formally invoked Article 22 of the Treaty. QC&S intends to move to compel arbitration and stay this action pursuant to Article 75 of the New York Civil Practice Law and Rules ("CPLR") and, to the extent applicable, the Federal Arbitration Act, 9 U.S.C. §§ 1–16. Under both the CPLR and the Federal Arbitration Act, courts are required to enforce valid arbitration agreements and to stay or dismiss judicial proceedings that fall within the scope of such agreements.
SECOND AFFIRMATIVE DEFENSE: Compliance with Treaty Terms
QC&S at all times fully complied with each and every provision of Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044, including, without limitation, Articles 3 (Premium Provisions), 5 (Losses Incurred), 7 (Notice of Loss), 9 (Intermediary), 11 (Follow-the-Fortunes / Settlements), and all other provisions cited by Pinnacle Atlantic in the Complaint. All cessions for TY 2022, in the amount of $69,700,000, and for TY 2023, in the amount of $8,700,000, totaling $78,400,000, were properly calculated, documented, and billed in strict accordance with the terms and conditions of the Treaty. QC&S is therefore not liable to Pinnacle Atlantic for any of the amounts claimed in the Complaint.
THIRD AFFIRMATIVE DEFENSE: Timely Notice Under Article 7
QC&S provided timely notice of the Meridian Docks Mass Tort Cluster claims in full compliance with Article 7 of the Treaty. Article 7 establishes an individual claim reporting threshold of $1,000,000 per claim. At the time QC&S first reserved the thirty-one (31) individual bodily injury claims comprising the Meridian Docks Mass Tort Cluster on or about March 15, 2021, each individual claim was reserved at an amount below the $1,000,000 per-claim reporting threshold and therefore did not trigger the notice requirement under Article 7.
It was not until reserve increases implemented during the first quarter of 2022 that the aggregate reserves for the Meridian Docks Mass Tort Cluster crossed the applicable aggregate reporting threshold under the Treaty. Upon that event, QC&S promptly provided notice to Pinnacle Atlantic through Broadreach Intermediaries Inc. on May 22, 2022, in full compliance with the notice requirements of Article 7.
Furthermore, under New York law applicable to reinsurance contracts, any defense based on the alleged untimeliness of notice requires Pinnacle Atlantic to demonstrate that it suffered actual prejudice as a result of the timing of the notice. See, e.g., Unigard Sec. Ins. Co. v. Greaves Specialty Insurance, 79 N.Y.2d 576 (1992); Excess Ins. Co. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (2004). Pinnacle Atlantic has not alleged, and cannot demonstrate, any such actual prejudice. Accordingly, even if notice were deemed untimely — which it was not — Pinnacle Atlantic's late notice defense fails as a matter of law.
FOURTH AFFIRMATIVE DEFENSE: Proper IBNR Allocation Under Article 5
The allocation of $22,300,000 in IBNR reserve development to TY 2022 was proper under the definition of "losses incurred" set forth in Article 5.2 of the Treaty. Article 5.2 defines "losses incurred" to include, inter alia, case reserves, paid losses, and changes in IBNR reserves attributable to the applicable treaty year. The $22,300,000 in IBNR development relates to accident-year 2022 claims whose loss development factors crystallized during TY 2022, and the allocation to TY 2022 is consistent with the Treaty's plain language and intent.
The actuarial analysis supporting this allocation was prepared by Velthorn Actuarial Advisors LLC under the direction of Dr. Stephen Tanaka, FCAS, MAAA, a principal actuary with extensive experience in property and casualty loss reserving. The analysis was conducted in compliance with all applicable actuarial standards of practice, including ASOP No. 43 (Unpaid Claim Estimates) and ASOP No. 36 (Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves), and reflects sound and accepted actuarial methodologies.
Pinnacle Atlantic's attempt to reallocate the $22,300,000 in IBNR development to TY 2021 is contrary to the express terms of the Treaty, is inconsistent with applicable actuarial standards, and would produce a result that is economically and contractually illogical, as TY 2021 aggregate net incurred losses of $104,600,000 were below the $120,000,000 retention and were never disputed by Pinnacle Atlantic during TY 2021 or at any time prior to the filing of this action.
FIFTH AFFIRMATIVE DEFENSE: Follow-the-Fortunes Doctrine (Article 11)
Under Article 11 of the Treaty and well-established New York law, Pinnacle Atlantic is obligated to follow the fortunes of QC&S's good-faith claims-handling and settlement decisions. See, e.g., British Int'l Ins. Co. v. Seguros La Republica, S.A., 342 F.3d 78 (2d Cir. 2003); Greaves Specialty Insurance v. ACE Am. Reinsurance Co., 361 F.3d 134 (2d Cir. 2004). The follow-the-fortunes doctrine is a bedrock principle of reinsurance law and is designed to ensure that cedents retain the authority to manage claims and settlements in the ordinary course without being subject to second-guessing by reinsurers after the fact.
QC&S's settlement of the three related errors and omissions / professional liability claims against Veridian Financial Services Inc. for a combined total of $34,500,000 on September 8, 2023 was conducted in good faith, in the ordinary course of QC&S's business, and on the basis of thorough litigation exposure analysis. QC&S's claims-handling file for the Veridian Financial Services claims contains detailed documentation of the analysis underlying each settlement amount, including evaluations of the underlying complaint allegations, discovery materials, deposition testimony, expert reports, damage models, and assessments of potential adverse jury verdicts.
The follow-the-fortunes doctrine may only be overcome upon a showing of bad faith, fraud, or gross negligence on the part of the cedent. Pinnacle Atlantic has not alleged, and cannot demonstrate, any such bad faith, fraud, or gross negligence. Moreover, QC&S retained $26,100,000 in net incurred losses after the application of other reinsurance, demonstrating significant alignment of financial interest between QC&S and its reinsurers and negating any inference that QC&S settled the Veridian claims at inflated amounts for the purpose of shifting losses to the Treaty.
SIXTH AFFIRMATIVE DEFENSE: Proper Premium Reporting Under Article 3
QC&S accurately reported ceded earned premium of $38,400,000 for TY 2022 in full compliance with Article 3 of the Treaty. The $6,800,000 discrepancy asserted by Pinnacle Atlantic arises solely from Pinnacle Atlantic's improper inclusion of run-off portfolio transfer premiums that are expressly excluded from the definition of "ceded earned premium" under Article 3.4 of the Treaty. Article 3.4 specifically provides that premiums arising from assumption reinsurance transactions, loss portfolio transfers, and run-off portfolio transfers shall not be included in "ceded earned premium" for purposes of calculating treaty premiums.
Accordingly, no treaty premium underpayment of $2,856,000 (or any other amount) has occurred. QC&S's premium reporting was accurate and consistent with the Treaty's terms, and Pinnacle Atlantic's assertion to the contrary is based on an erroneous reading of the Treaty.
Furthermore, even if a premium discrepancy existed — which it does not — such a discrepancy would not entitle Pinnacle Atlantic to terminate the Treaty, rescind its payment obligations, or exercise any offset right against reinsurance recoverables validly owed to QC&S. The Treaty contains specific remedial provisions for premium disputes (see Article 3.6), and those provisions do not authorize the drastic remedies sought by Pinnacle Atlantic.
SEVENTH AFFIRMATIVE DEFENSE: Waiver by Payment
Pinnacle Atlantic knowingly and voluntarily paid $78,400,000 in reinsurance recoverables to QC&S across seven separate billing installments submitted and paid between October 15, 2022 and March 29, 2024. Pinnacle Atlantic reviewed and approved each billing prior to authorizing payment. At no time during the payment period did Pinnacle Atlantic raise any objection, request additional documentation, issue a reservation of rights, or otherwise indicate that it contested the propriety of any cession.
Pinnacle Atlantic did not raise any reservation of rights with respect to the cessions until December 12, 2025 — more than twenty (20) months after the date of the final billing installment — and did not transmit its formal pre-suit demand until February 14, 2026.
By its voluntary, knowing, and unreserved payment of the full $78,400,000, Pinnacle Atlantic waived any and all objections to the TY 2022 and TY 2023 cessions. Under well-established principles of New York contract law, a party that makes voluntary payments with knowledge of the material facts and without protest or reservation of rights is deemed to have waived any objection to those payments and is estopped from seeking their return. See, e.g., Beth Israel Med. Ctr. v. Ridgeway Specialty Insurance, 448 F.3d 573 (2d Cir. 2006).
EIGHTH AFFIRMATIVE DEFENSE: Estoppel
Pinnacle Atlantic is estopped from denying the validity of the TY 2022 and TY 2023 cessions because QC&S reasonably relied, to its detriment, on Pinnacle Atlantic's payments. Specifically, QC&S relied on the $78,400,000 in reinsurance recoverables in booking a corresponding reinsurance recoverable on its statutory balance sheet, including in Schedule F, Part 3, of its annual statement as of December 31, 2025, filed with the New York State Department of Financial Services and the National Association of Insurance Commissioners. QC&S also relied on the recoverables in reporting its financial position to regulators, rating agencies, and investors, and in managing its statutory surplus, which currently stands at approximately $1,420,000,000.
If Pinnacle Atlantic were permitted to recoup the $78,400,000 in amounts voluntarily paid, QC&S and its parent company QIH would suffer material prejudice, including the need to restate financial filings, the adverse impact on statutory surplus and risk-based capital ratios, potential regulatory consequences, and reputational harm. Under the circumstances, principles of equitable estoppel bar Pinnacle Atlantic from now seeking to recover amounts that it voluntarily paid and upon which QC&S reasonably relied.
NINTH AFFIRMATIVE DEFENSE: Laches
Pinnacle Atlantic's unreasonable delay in asserting its claims constitutes laches and bars recovery. The final billing installment was paid on March 29, 2024. Pinnacle Atlantic did not issue a reservation of rights until December 12, 2025, approximately twenty (20) months later, and did not send a formal demand until February 14, 2026, approximately twenty-two (22) months after the final payment. This prolonged and inexplicable delay prejudiced QC&S, which, during the intervening period, relied upon the recoverables in its regulatory filings, financial reporting, capital management decisions, and business planning. The passage of time has also impaired QC&S's ability to gather and preserve evidence relating to the claims at issue. Under the doctrine of laches, Pinnacle Atlantic's claims are barred.
TENTH AFFIRMATIVE DEFENSE: Failure to Demonstrate Prejudice (Late Notice)
To the extent Pinnacle Atlantic contends that QC&S's notice of the Meridian Docks Mass Tort Cluster claims was untimely under Article 7 of the Treaty, Pinnacle Atlantic has failed, and cannot, demonstrate actual prejudice resulting from the timing of notice. Under New York law applicable to reinsurance contracts, a reinsurer cannot avoid liability on a late notice defense absent a showing of actual prejudice. See Unigard Sec. Ins. Co. v. Greaves Specialty Insurance, 79 N.Y.2d 576 (1992). Pinnacle Atlantic has not identified any specific prejudice it suffered as a result of the timing of QC&S's notice, and no such prejudice exists. Pinnacle Atlantic received notice of the claims well in advance of any settlement, and had the opportunity to review, evaluate, and participate in the handling of the claims. Accordingly, any late notice defense asserted by Pinnacle Atlantic fails as a matter of law.
ELEVENTH AFFIRMATIVE DEFENSE: Failure to Mitigate Damages
Pinnacle Atlantic failed to take reasonable steps to mitigate its alleged damages, including, without limitation, by failing to raise its concerns contemporaneously with the billings during the payment period from October 2022 through March 2024, by failing to conduct its own actuarial review of the cessions during that period, by failing to request additional documentation or audits as permitted under the Treaty, and by failing to exercise its rights under Article 14 (Audits and Access to Records) at any time prior to December 2025. Had Pinnacle Atlantic acted promptly and diligently, any alleged damages could have been avoided or substantially reduced. Pinnacle Atlantic's failure to mitigate bars or reduces any recovery to which it might otherwise be entitled.
TWELFTH AFFIRMATIVE DEFENSE: No Entitlement to Interest
Pinnacle Atlantic is not entitled to interest of $12,600,000 or any other amount. All payments made by Pinnacle Atlantic were properly owed under the terms of the Treaty, and Pinnacle Atlantic paid voluntarily, without protest, and without reservation of rights. Because no overpayment, unjust enrichment, or wrongful retention occurred, no basis exists for the accrual or recovery of interest, whether characterized as pre-judgment interest, statutory interest, or otherwise.
THIRTEENTH AFFIRMATIVE DEFENSE: Reservation of Rights
QC&S reserves the right to amend this Answer and to assert additional affirmative defenses as discovery proceeds, additional facts become known, and additional legal theories are identified. QC&S's assertion of the foregoing affirmative defenses is without prejudice to its right to assert additional defenses and is not intended to be, and shall not be construed as, a waiver of any defense, right, or argument available to QC&S under the Treaty, at law, or in equity.
PRAYER FOR RELIEF
WHEREFORE, Defendant Quorum Casualty & Surety Company respectfully requests that this Court enter judgment as follows:
1.  Dismissing the Complaint in its entirety, with prejudice, and on the merits;
2.  In the alternative, staying this action and compelling arbitration under Article 22 of Aggregate Excess-of-Loss Reinsurance Treaty No. PA-QCS-2019-EXL-0044, to be conducted before a three-member arbitration panel seated in New York, New York, under the rules of ARIAS-U.S.;
3.  Entering judgment in favor of Defendant QC&S on all claims asserted in the Complaint;
4.  Denying Pinnacle Atlantic's demand for the return of $78,400,000 in reinsurance recoverables;
5.  Denying Pinnacle Atlantic's demand for $12,600,000 in interest;
6.  Denying Pinnacle Atlantic's total demand of $91,000,000;
7.  Awarding QC&S its costs and reasonable attorneys' fees incurred in defending this action, to the extent permitted by applicable law or the Treaty;
8.  Granting such other and further relief as this Court deems just, equitable, and proper.
VERIFICATION
STATE OF CONNECTICUT COUNTY OF HARTFORD
I, Diana Kessler-Hoff, being duly sworn, depose and state:
I am the Vice President, Claims & Reinsurance Recoveries of Quorum Casualty & Surety Company, the Defendant in the above-captioned action. I am authorized to make this verification on behalf of the Defendant. I have read the foregoing Verified Answer and Affirmative Defenses of Defendant Quorum Casualty & Surety Company and know the contents thereof. The statements and allegations set forth therein are true to my knowledge, except as to those matters stated upon information and belief, and as to those matters, I believe them to be true. This verification is made by me and not by the Defendant's attorneys because the Defendant is a corporation.
________________________________________
Diana Kessler-Hoff Vice President, Claims & Reinsurance Recoveries Quorum Casualty & Surety Company
Date: ________
Sworn to and subscribed before me this _ day of _____, 2026.
________________________________________
Notary Public
My commission expires: ____
ATTORNEY SIGNATURE AND CERTIFICATION
CALDERWOOD & HARKNESS LLP Attorneys for Defendant Quorum Casualty & Surety Company
One Liberty Plaza, 55th Floor New York, New York 10006 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
Douglas Carmichael, Responsible Partner Jeffrey Park, Lead Associate Yuki Nakamura, Associate
Matter No. 1025-00005
By: ________
Jeffrey Park Attorney of Record for Defendant Quorum Casualty & Surety Company
Date: ________
CERTIFICATE OF SERVICE
I, Jeffrey Park, an attorney duly admitted to practice before the courts of the State of New York, hereby certify that on this _ day of _____, 2026, I caused a true and correct copy of the foregoing Verified Answer and Affirmative Defenses of Defendant Quorum Casualty & Surety Company to be served upon counsel for Plaintiff by the following methods:
Via NYSCEF Electronic Filing:
Nathaniel R. Calloway III, Esq. Hargrove, Fitch & Calloway LLP 51 West 52nd Street, 40th Floor New York, New York 10019
Via Overnight Delivery (Sundial Data Systems):
Nathaniel R. Calloway III, Esq. Hargrove, Fitch & Calloway LLP 51 West 52nd Street, 40th Floor New York, New York 10019
________________________________________
Jeffrey Park Calderwood & Harkness LLP One Liberty Plaza, 55th Floor New York, New York 10006
Date: ________

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK COMMERCIAL DIVISION

PINNACLE ATLANTIC REINSURANCE LTD.,

QUORUM CASUALTY & SURETY COMPANY,

PRELIMINARY STATEMENT

RESPONSES TO ALLEGATIONS OF THE COMPLAINT

AFFIRMATIVE DEFENSES

PRAYER FOR RELIEF

VERIFICATION

STATE OF CONNECTICUT COUNTY OF HARTFORD

ATTORNEY SIGNATURE AND CERTIFICATION

CERTIFICATE OF SERVICE

Record

Parties

Dates

Amounts