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

Heading: Further Performance

Text: 23 At trial, plaintiffs made much of the absence of proof of particular occasions when defendants had ever actually rejected a risk listed in a bordereau or layoff sheet. Plaintiffs also sharply questioned whether the information in the bordereaux and layoff sheets was sufficient to allow for adequate underwriting (evaluation) of individual risks. Defendants responded by emphasizing that, whether or not used, the right to reject at all times existed, and by pointing to evidence that its underwriters adequately reviewed the risks and had other means--personal inquiries, telephone calls, inspection of First State files, and so on--to make inquiry in doubtful cases. Defendants' evidence also indicated that Graham Watson conducted periodic audits of the underwriting practices of MGAs and others in order to assess compliance with the terms of the various facilities. The district court found no evidence that defendants had rejected any risks and found that Graham Watson's underwriting of individual risks was inadequate. 24 In any case, while defendants wrote some small percentage of reinsurance under the SANS Treaties that was facultative in the traditional sense of advance risk-by-risk underwriting, most of the reinsurance produced under the SANS Treaties was underwritten either under some variety of the semi-automatic facility or, in the case of First State system business, under the informal in-house procedures previously described. And, as mentioned above, over the four years of the SANS Treaties, one MGA, Baccala & Shoop, furnished almost all of the non-system business to defendants. Non-system business was found by the court to constitute approximately one-half of the treaty business during the four year period. 25 The agreement with Ralph Bailey to avoid non-system business for the first year was not to the liking of Graham Watson, whose employees felt that non-system business would be a steadier source of income for the Treaties. Bailey also made known his dislike of MGAs and his reluctance to allow MGA business to be ceded to the SANS Treaties. Bailey testified that, because MGAs did not themselves bear any risk, they did not underwrite as carefully as did underwriters on the payrolls of the primary companies, and hence the business produced through them was of a lower quality. 12 Again, this was not to the liking of Graham Watson; one internal memorandum, dated December 11, 1980, stated that Ralph Bailey has an aversion to MGAs and he will have to be approached rather delicately because a good deal of the business going into this facility will be on business which is designed to provide a real flow of business from a single source. This memorandum also noted that Tom Hearn, of Hodson, would travel to London on December 15, 1980 to attempt to overcome this aversion. Responding to repeated requests from Graham Watson employees, Bailey agreed at some time during the first year to begin allowing non-system business to be ceded to the Treaties. While he expressly agreed to the cession of certain MGA business during the first year (from an MGA known as the London Agency), he did so only with great reluctance. However, he did not request or insert an exclusion for MGA business in the slips or Treaty Wordings for subsequent years, as he could have done. No such express exclusion was ever inserted.