Opinion ID: 697655
Heading Depth: 3
Heading Rank: 2

Heading: The First State Business

Text: 21 With regard to system business (which was almost exclusively with First State), the defendants did not use a risk bordereau, nor did they ever enter into a formal contractual arrangement spelling out First State's and NERCO's relationship in respect to the latter's reinsuring of risks later assigned under the SANS Treaties. There was evidence, however, indicating how matters worked in practice. In practice, First State's underwriters had the power initially to commit NERCO and the SANS Treaty signatories to the reinsuring of individual risks primarily insured by First State. The reinsurance was evidenced by a layoff sheet that First State prepared; each layoff sheet identified a First State risk that NERCO and the Treaty signatories were to reinsure, and provided a brief summary of information about that risk. A packet containing many of these layoff sheets was periodically provided by First State to Graham Watson, whose underwriter could study the risks and would have the right to cancel the reinsurance at will. 22 Defendants contend that this method was facultative because each risk was individually evaluated in due course by a Graham Watson underwriter based on the information provided on the layoff sheets--and by follow-up phone and face-to-face inquiries, as well as by means of microfiches which reproduced First State's entire underwriting file for a risk, and were available upon request--and it was understood that the reinsurance was subject to cancellation at will by Graham Watson. They point out that because First State's and Graham Watson's employees were under the same roof and answerable to the same bosses, the latter's underwriters could informally influence First State not to cede business the latter did not wish, as further evidence of their facultative control. Notwithstanding the absence of a written understanding between Graham Watson and First State, the district court found, after hearing the evidence, that, Graham Watson underwrote all 'system business' ... by the 'automatic' and/or 'semi-automatic' method of underwriting. Since practically all system business was with First State, this finding grouped that underwriting with the explicit semi-automatic and automatic facilities used in non-system business.