Opinion ID: 697655
Heading Depth: 2
Heading Rank: 1

Heading: Signing the Treaties

Text: 7 In 1979, NERCO retained a U.S. broker, G.L. Hodson, to assist it in arranging for this reinsurance on the London market. Towards this end, Graves Hewitt, the CEO of Cameron & Colby, and his associates drafted and circulated in late 1979 a document known as the Placing Information. This document stated that Cameron & Colby had established the Graham Watson division after studying facultative reinsurance operations in North America and after receiving the approval and support of the Hartford and ITT. 5 The stated purpose of the division was: 8 1. To participate in the property and casualty facultative reinsurance business which is currently dominated by the direct writers. 9 2. To rationalise [sic] the facultative placements of both the Hartford and the First State not only from an administration [sic] point of view but also to provide the retrocessionaires with a broad cross section of facultative reinsurance emanating from these two companies. 10 According to the Placing Information, Graham Watson was charged with penetrating the non-brokered ... direct professional reinsurance market, leaving [f]acultative reinsurance emanating from reinsurance intermediaries ... [to] continue to be written separately through NERFAC, the latter being an existing in-house entity that had, for some time, been writing reinsurance for the defendants. The Placing Information was circulated to, among others, several European sub-brokers retained by Hodson to act on NERCO's behalf in seeking potential retrocessionaires. 6 11 In late 1979, Hewitt traveled to London accompanied by Thomas Hearn, a Hodson employee. Aided by employees of sub-broker Sedgwick Payne, they approached Ralph Bailey, the head underwriter for plaintiff Terra Nova Insurance Company Limited, and described to him the proposed reinsurance plan. Sedgwick-Payne's brokers thereafter negotiated with Bailey the slips spelling out the terms of the treaties. With Bailey agreeing to act as lead underwriter for the London market companies, the brokers approached Ron Kellet, head underwriter for plaintiff B.P.D. Kellet & Others, a Lloyd's syndicate, with the request that he act as lead underwriter on behalf of all other Lloyd's syndicates. 7 After the leads had stamped and initialed the slips, indicating the proportion of the total risk they were bound to accept, the slips were separately presented for approval to the underwriters for each of the plaintiffs, 8 each of whom indicated his or her acceptance of a portion of the risks by initialing the slip. 9 12 These slips constituted, in abbreviated form, the contracts between the cedent NERCO and the various retrocessionaires. 10 Briefly summarized, the slips provided that the subject matter of the Treaties was Business classified by the Reassured [NERCO] as Property and Casualty Facultative Assumed business produced and underwritten by the Graham Watson division of Cameron & Colby Co., Inc. They also stated that the Lead Underwriter had authority to require exclusion of certain types of risks, and to agree to the final wording of the formal contract. NERCO was to retain a minimum of $250,000 of each risk ceded, and as respects system business (i.e., risks written by First State and other Hartford entities, infra ), was not to cede more than 50 percent of the original reinsurance limit of any given risk to the Treaties, and was to co-reinsure for 10 percent participation on each such risk. The slips also specified the commission structure and various other conditions of the Treaties. The slips did not incorporate the Placing Information as such. 13 Each underwriter subsequently signed Treaty Wordings, formal contracts containing a more elaborate statement of the parties' agreements. These were based on the slips, and the parties agreed that, in the event of any inconsistency, the slips would control. The first set of SANS Treaties ran for the eleven month period from February 1 through December 31, 1980. Thereafter, those plaintiffs who desired to continue for another year indicated their willingness to join by initialling new slips and ultimately executing new Treaty Wordings for 1981. Successive Treaties were entered into for 1982 and for 1983. Some of the plaintiffs entered into Treaties for each of the four years; others were parties to the Treaties for only one, two, or three of those years. The Treaties were open to renegotiation each year, and certain changes, e.g., relating to commission structure and the like, were in fact made. 14 For each Treaty year there were actually two slips prepared, one for property business and one for casualty business. The business covered by each slip was further divided into system business and non-system business. System business denoted risks written by member companies of the Hartford, and included, among others, First State and the Hartford itself. Non-system business referred to risks written by any other primary insurer. As a condition of participation, although not included in the written contracts, Bailey insisted that no non-system business be ceded to the SANS Treaties for the first year. He testified in his deposition that this was because he felt that the system business was the steadier, better part of the portfolio.