Opinion ID: 835369
Heading Depth: 2
Heading Rank: 3

Heading: The Pooling Agreement

Text: In 1999, but with an effective date of December 31, 1998, CCCC, CalComp, SNIC, and two other insurers owned by Superior Group entered into what they denominated an intercompany pooling agreement (the pooling agreement). The agreement was signed on behalf of each of the five signatory companies by the same individual, J. Chris Seaman, who was the executive vice president and chief financial officer of each company. Each company was owned, directly or indirectly, by Superior Group and each had identical officers and directors (except for the formality that one New York resident served on CCCC's board, but not on the other boards, because CCCC had been domesticated in New York). The pooling agreement covered all workers' compensation insurance policies written by the five companies. It had two primary effects. First, the four parties other than CalComp agreed to cede and transfer all the losses and expenses related to those policies to CalComp, and CalComp agreed to reinsure[ ] and assume[ ] all those losses and expenses. Second, CalComp then agreed to retrocede[ ] and transfer[ ] back to the other four companies, and each of those companies agreed to reinsure and assume from CalComp, an agreed-upon percentage of the pooled business. [3] Those percentages were based on the relative financial surplus of each company at the time the agreement was signed, as set out in the agreement, and the pooling agreement provided that they could change each year depending on the changing financial surplus of each company. For 1999, CalComp's percentage of the pooled business was 62 percent, SNIC's was 22 percent, and CCCC's was two percent. (The other two commonly controlled companies, neither of which is involved in the issues here, had the remaining 14 percent.) The net effect of the pooling agreement, as it relates to this case, was that CalComp agreed to reinsure 100 percent of CCCC's losses and expenses, and SNIC agreed to reinsure 22 percent of CalComp's reinsurance obligations, including CalComp's reinsurance of CCCC. Schedule P states that [i]f a workers' compensation pool is used, [the filing insurer or reinsurer] must list participants and their corresponding amounts and it requires a filing insurer or reinsurer to identify ceding companies and reserves. However, neither CCCC nor SNIC ever disclosed the pooling agreement to DCBS on their Schedule P forms or in any other way.