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IONE
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO
Document Scanning Lead Sheet
Oct-26-2010 8:14 am
Case Number: CGC-04-431719
Filing Date: Oct-19-2010 1:46
Juke Box: 001 Image: 03006603
NOTICE
J ASBESTOS SETTLEMENT TRUST et al VS. ZURICH-AMERICAN INSURANCE COMPAN
001C03006603
Instructions:
Please place this sheet on top of the document to be scanned.B BW oN
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New
MORGAN, LEWIS & BOCKIUS LLP
Paut A. Zevnik, State Bar No. 75343
Michel Y. Horton, State Bar No. 114243
Aaron S. Dutra, State Bar No. 216971
One Market, Spear Street Tower
San Francisco, California 94105
Tel: (415) 442-1000
Fax: (415) 442-1001
Attorneys for Plaintiffs
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
FULLER-AUSTIN ASBESTOS SETTLEMENT
TRUST, er al.,
Plaintiffs,
vs.
ZURICH-AMERICAN INSURANCE
COMPANY, individually and as successor to
Zurich insurance Company, ef al.,
Defendants.
WESTERN ASBESTOS SETTLEMENT TRUST,
eral,
Plaintiffs,
VS.
ZURICH-AMERICAN INSURANCE
COMPANY, individually and as successor to
Zurich Insurance Company, ef al.,
Defendants.
PEPSIAMERICAS, INC.. ef ai,
Plaintiffs,
VS.
DB2/21996225.1
LED
San Francisco Coumty Superior Court
ULT 19 2010
mone F THE COURT
Dapaly Cia
Case No. CGC 04-431719
Case No. CGC 04-436181
Case No. CGC 05-442140
Case No. CGC 05-442745
NOTICE OF ERRATA REGARDING
PLAINTIFFS’ TRIAL BRIEF
Date: October 19, 2010
Time:
Dept. 304
Judge: Hon. Richard A. Kramer
PLAINTIFFS’ NOTICE OF ERRATA REGARDING TRIAL BRIEFB WN
o ~
we
ZURICH-AMERICAN INSURANCE
COMPANY, individually and as successor to
Zurich Insurance Company, ef al.,
Defendants.
PNEUMO ABEX LLC,
Plaintiff,
vs.
ZURICH-AMERICAN INSURANCE
COMPANY, individually and as successor to
Zurich Insurance Company, ef al.,
Defendants.
DB2/21996225.1
PLAINTIFFS’ NOTICE OF ERRATA REGARDING TRIAL BRIEFoN ON
” oe
tw .
Plaintiffs Fuller-Austin Asbestos Settlement Trust, Fuller-Austin {nsulation Company,
Kraft Foods Global. Inc., National Dairy Products Corporation, Krafteo Corporation, Kraft, Inc.,
General Foods Company, Nabisco Brands Co., PubliCard, Inc., Somerset Oil, Inc., Southland Oil
Company, Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric
Iluminating Company, Toledo Edison Company, ITT Corporation, Swan Transportation
Company, Swan Asbestos & Silica Settlement Trust, Monongahela Power Company. West Penn
Power Company, the Potomac Edison Company, Rohm and Haas Company, Deere & Company,
Plaintiffs Western Asbestos Settlement Trust. Western Mac Arthur Company, Mac Arthur
Company, Western Asbestos Company, Plaintiffs PepsiAmericas, Inc.. Southern Natural Gas
Company, El Paso Production Company, Petro-Tex Chemical Corporation Dissolution.
Distribution, Liquidating, And Recovery Trust, Tennessee Gas Pipeline Company, and Pneumo
Abex LLC (collectively, “Plaintiffs”), timely filed and served their Trial Brief on October 18,
2010. Plaintiffs inadvertently omitted from their Trial Brief the names of three witnesses that
Plaintiffs intend to present by way of deposition testimony, Peter Bengelsdorf, Peter Johnson. and
Joel Ross. The additional information is found at pages 69 and 70 of the Trial Brief, as well as
Exhibit D. Attached hereto as Exhibit 1 are corrected pages that include the additional
information.
Upon discovery of this omission, Plaintiffs notified Defendants and timely served a final
Trial Brief that includes the additional information on October 18, 2010. Plaintiffs are
concurrently lodging a copy of the final Trial Brief with the Court, and will serve all parties with
a copy of same.
Dated: October 19, 2010 MORGAN, LEWIS & BOCKIUS LLP
» Mae Lele
Aaron S$. Dutra
Attorneys for Plaintiffs
DB2/21996225.1Ceo nt DH BN
RP NN NM NR Be Be Be se Be ee es ee Se
RRR S&B F&F &awe BADE BEH ARS
27
MorcaN, Lew
Bockius LLP
ATTORNEYS AT LAW
SAN FRaNcIsco
think that the fact that the Order [May 1995 Order] was not the product, from the standpoint of
Zurich and ITT, of litigation between opposing parties ... that point was and is binding on me
here.” (August 26, 2010 hearing transcript at 61:22-26.) The Court also noted that while the J7T
Industries decision might not be due preclusive effect, the plaintiffs will be able to establish at
trial that the May 26, 1995 Order does not bar or otherwise affect plaintiffs’ Phase One claims:
One thing the Court said was Zurich could not
overcome the allegations of the complaint through collateral
estoppel because the May 1995 Order was not the product of
litigation between opposing parties as it would apply to Zurich
and ITT. And I think that finding is binding on me here. And
even if it's not binding on me here, it's all but axiomatic.
You know, the Court was right. And if I were to say, well,
I'm not bound by that determination, it would take plaintiffs
about ten minutes to -- well, less than ten minutes, just show
me what was going on in 1995, But I think it is binding.
(August 26, 2010 hearing transcript at p. 61.) Without this critical element, the May 1995 Order
is not entitled to any preclusive effect. Barker v. Hull, 191 Cal. App. 3d 221, 226 (1987).
IX. PLAINTIFFS’ PHASE ONE TRIAL PRESENTATION
Plaintiffs’ direct case for the Phase One trial will consists of the following witnesses, live
and by deposition:
Live Testimony Witnesses:
Alan W. Faigin, expert, custom and practice.
Larry S. Murphy, expert, accounting principles.
(Summaries of the experts’ opinions are set forth as Exhibit C.)
Deposition Testimony Witnesses:
Reuben Arrambide, Zurich PMQ, REM relationship to Zurich.
Peter Bengelsdorf, New Hampshire Insurance Department
E. Randall Clouser, Zurich PMQ, Home customer lists.
John Cross, Zurich PMQ (6/4/09), Gruntal Financial.
John Cross, Zurich PMQ (3/23/10), recapitalization transactions.
Steven Gluckstern, Zurich PMQ and personal, recapitalization transactions.
Peter Johnson, REM
DB221905328.4 69
PLAINTIFFS’ TRIAL BRIEFw
27
MORGAN, Lewict &
Bockius LLP
ATTORNEYS AT LAW
SAN FRANCISCO
Bruce Lerner, Zurich PMQ, real estate leases/space.
Mark Lyons, Zurich PMQ, “cut through” and “fronting” policies.
Paul Melinyshyn, Zurich PMQ, Zurich policy renewals.
Grant Murray, Zurich PMQ, Sterling Forest.
Frank Pierson, Zurich PMQ, 1991 Stop Loss Treaty and AEOLA.
Michael C. Poremba, Zurich PMQ, “cut through” and “fronting” policies.
Joel Ross, REM PMQ, REM operations
(Summaries of the deponents testimony designated by plaintiffs are set forth as Exhibit D.)
X. CONCLUSION
The plaintiffs look forward to presenting their case at the Phase One trial.
Dated: October 18, 2010 MORGAN, LEWIS & BOCKIUS LLP
By: a =
Michel Y. Horton
Attorneys for Plaintiffs
DB2/21905328.4 70
PLAINTIFFS’ TRIAL BRIEPh
C>«
e&
REUBEN ARRAMBIDE
Zurich PMQ Designee
REM Relationship to Zurich
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
First Vice President of Shared Services Operations for Zurich American Insurance
Company; joined Zurich American as a claim manager in January of 1995.
At the time of the closing of the “Recapitalization transaction,” Zurich American
Insurance Company planned for an increase in claims activity. Zurich American planned
for a 10 to 30 percent increase in claims-handling volume as the result of new business
from Home policyholders.
Zurich had discretion to choose which Home policies to renew.
Zurich American rented Home’s office space. including furnishings and equipment.
Zurich American employed between 100 and 200 former claims personnel from Home.
Risk Enterprise Management (REM”) was created to facilitate the run-off of Home. It
also provided claims services and other services for “fronted” and “cut-through” policies.
From 1995 to 2000. REM was majority-owned by various Zurich entities. From 2001
until its sale in 2007. REM was wholly-owned by Zurich Insurance Company. It was
sold for $13.2 million in 2007.
1982/21991 $20 2PETER BENGELSDORF
New Hampshire Insurance Department
Special Deputy Commissioner
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Retained by NHID on March 3, 1997 as an examiner to review accounting, operational
and economic aspects of the Home and report back to NHID; became Special Deputy
Commissioner for NHID in connection with Supervision of the Home; became Special
Deputy Liquidator of the Home after Liquidation.
The Home in Liquidation does not anticipate being able to pay policyholder claims in
full.
Home’s estimated liabilities are approximately $4 billion; its estimated assets are $1
billion.
There is no order by the NHID precluding Home policyholders from bringing claims
against Zurich.
Prior to the Rehabilitation, the NHID did not dictate how claims were paid. REM
determined such matters. During this time, the NHID did not run the Home, nor did it
have control over Home’s assets.
Other than the fact that it imposes certain discovery burdens on the Home in Liquidation,
this litigation does not interfere with the liquidation or the Liquidator’s possession of or
rights to the assets and property of the Home.
Nobody within the NHID intends at this time to bring the claims asserted in this
litigation. Nobody within the NHID involved with the liquidation has taken a position
that Plaintiffs are not permitted to bring the claims in this lawsuit against Zurich.
DB2/21991083.1E. RANDALL CLOUSER
Zurich PMQ Designee
Home Customer Lists
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
. Executive Vice President for Zurich North America.
. Home did not have a master customer list, but Home maintained renewal lists and other
partial lists; some customer lists were transferred to Zurich.
° Because the “Recapitalization transaction” was priced “in its entirety,” does not know the
value placed by Zurich on the use of Home’s customer lists.
DB2219ALV6IJOHN CROSS
Zurich PMQ Designeee
Gruntal Financial
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Former Chief Financial Officer for Zurich Global Assets and Zurich Centre Group:
employed by Zurich-related entities from 1996 to 2003.
Gruntal Financial Corporation, a retail broker/dealer, was a wholly- or majority-owned
subsidiary of Home Insurance Company: at the time of the “Recapitalization transaction.”
Zurich estimated its worth was $300 million.
In 1997, Gruntal Financial Corporation was reorganized as Gruntal Financial. LLC. Asa
result, Home Insurance became the owner of the Preferred A Interest in Gruntal
Financial. LLC: the value of which was estimated at $155 to $160 million.
A 1997 amendment added Article VIII to the Portfolio Value Swap Agreement.
specifying that Orange Stone Reinsurance would provide Home a 7.5 percent return on
its Preferred A Interest in Gruntal.
Article VIII was replaced by the February 29, 2000 Modification Agreement. under
which a Note was issued, which provided that Orange Stone Reinsurance would pay
Home a 7.5 percent return on its Preferred A Interest in Gruntal LLC in the event ofa
“liquidity event”.
A portion of the Gruntal Financial assets were sold in 2002 (so-called “Ryan Beck”
transaction); the proceeds of this transaction were not disclosed.
On March [4. 2003. Orange Stone Reinsurance paid Home $234.363.833 to satisfy its
obligation to pay Home for its Preferred A Interest in Gruntal LLC. plus 7.5% annual
interest.
[BIZ SRL3%
JOHN CROSS
Zurich PMQ Designee
Recapitalization Transactions
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Former Chief Financial Officer of Zurich Global Assets and Zurich Centre Group:
employed by Zurich-related entities from 1996 to 2003.
Zurich Insurance Company obtained access to the books and records of Home Insurance
Company under the Renewal Rights Agreement: consideration paid for obtaining this
access was the Aggregate Excess of Loss Agreement ("AEOLA”).
‘The Home was reinsured by Centre Re Limited. Zurich Insurance Bermuda Limited.
Trygg-Hansa and Kemper Re under a 1991 Stop Loss Treaty. Home paid $218.9 million
under the Stop Loss Treaty. and received $303.5 million under the treaty, It was
commuted in stages by Centre Re Limited and Zurich Insurance Bermuda Limited in
1995. Trygg-Hansa in 1996, and Kemper Re in 2000. The commutation payments Home
received trom these reinsurers were used to pay premiums on the AEOLA, In entering
the AEOLA. Iome assigned to Centre Re {nternational certain rights and recoveries
under the Stop Loss Treaty; in addition to the commutation payments. this included any
recoveries including claim payments and unpaid premium.
Under Amendment No. | to the AEOLA, the obligations of Centre Re International were
transferred to Centre Reinsurance Dublin. another wholly-owned Zurich subsidiary. and
the predecessor of Orange Stone Reinsurance.
At the time of the approval of the Home Holdings bankruptcy. Amendment No. 2 to the
AEOLA was executed: its purpose was to adjust the limits of the AEOLA in the event a
Zurich company derived any benefit from its affiliation with the former Home Holdings.
Home Insurance Company drew on the AEOLA beginning in 1999 ona funds-withdrawn
basis.
The February 2000 Modification Agreement was intended to put the proceeds of any sale
of Home’s interest in Gruntal “behind the AEOLA limit.
Under the Portfolio Swap Agreement, Orange Stone Reinsurance or its predecessors
guaranteed Home a 7.5 percent return on certain assets while keeping any return on those
assets over 7.5 percent, al least until 2003, when Orange Stone Reinsurance made a final
payment of approximately $256 million.
The February 2000 Modification Agreement replaced Article VII] of the Portfolio Value
Swap Agreement with a note. which provided for 7.5 percent return on Gruntal Financial.
LLC to Home: an Amended and Restated Funding Commitment was executed. under
1BW21991520.2which Zurich Centre Investment Limited guaranteed Orange Stone Reinsurance’s
performance on the note.
1BI/21991520.2STEVEN GLUCKSTERN
Zurich PMQ Designated Personnel
Recapitalization Transactions
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Founding Partner of Centre Reinsurance in 1988. Zurich ultimately purchased the
majority of outstanding shares ot Centre Reinsurance in 1993, and thereafter Mr.
Gluckstern became part of Zurich Group’s “executive board”.
Principal for Zurich regarding the Form A Application for Acquisition of Control of
Home Insurance Company and was a member of the Board of Directors of Home
Holdings, Inc. as of June 12. 1995.
Ceased working for Zurich in1998. returned to become Chairperson of Scudder
Investments (a Zurich owned entity) from 2000 — 2001, and then left the insurance
industry in 2001.
Mr, Gluckstern provided substanual testimony on the complex structure of the
~Recapitalization” transactions, including identification of the various Zurich
owned/controlled subsidiaries and the roles/transactions in which they were involved
(including Zurich International Bermuda Limited. Center Reinsurance Holdings Limited.
Centre Reinsurance Bermuda Limited, Zurich Insurance US Branch. Centre Reinsurance
International Company. Zurich Centre Investments Limited, Centre Investment Services
Limited. Risk Enterprise Management. Zurich Home investments Limited. Zurich
Holding Company of America. Centre Re New York, Centre ReSource. Centre
Reinsurance Dublin. ZC Advisors )
Risk Enterprise Management (REM) was a Zurich controlled entity. created specifically
in connection with the Recapitalization transactions to handle the claims management
and operational responsibilities of Home.
Under the Renewal Rights Agreement, Zurich received the right to access Home's books.
records and employees to assist Zurich in underwriting policies for insureds that were
previously insured with Home. The right to access Home's information and people had
value.
“Renewal rights” {access to books. records, other customer information) can be sold by
an insurance company.
The acquisition of 700 experienced employees was a benefit to Zurich.
The primary value Zurich obtained as a result of the Recapitalization transaction was (i)
the [lome’s “renewal rights” and (i) the expansion of Zurich presence and market share
in the United States.
DB229 ATHalf of the increase in premium growth for Zurich in 1995 resulted trom the Form A
Transaction; this “incumbency"-- or existing customer relationship -- has value and the
expectation of future renewals.
‘The 1995 Aggregate Excess of Loss (AEOLA) replaced the 1991 Stop Loss Agreement.
Mr. Gluckstern was involved in the drafting of the AEOLA, and noted that there were
scenarios tested in which the stop loss would have provided more benefit to Home
shareholders than the AEOLA.
Zurich knew in 1995 that there were scenarios that were modeled that identified the
Home would not be able to pay all policyholder claims in full, even with the AEOLA
funds in place.
In connection with the Recapitalization. Mr, Gluckstern considered his primary
responsibility to increase the returns of Zurich's shareholders.
Zurich makes no effort to determine whether the recapitalization discriminated between
Jong-tail and short-tail policyholders.
DBYMIVLLLATPETER JOHNSON
REM CEO
Personal
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Founder of REM; Chairman and CEO of REM until 2003; Member of Home Board of
Directors from 1995 until liquidation
Mr. Johnson has substantial experience in the insurance industry, and in his years in the
industry has encountered insurance companies selling their renewal rights to other
insurance companies.
Prior to the recapitalization, REM’s intent was to take all of Home’s claims staff, though
eventually some transitioned to Zurich American. It was valuable to REM to have an
existing work force in the form of Home’s staff that was available, knew the business,
and was already handling the business.
Prior to the Recapitalization transaction, he estimated that it would cost $350 to $450
million to run off the Home, excluding costs of paying claims. It actually cost several
hundred million dollars more.
When Home was placed in liquidation, its primary reserve deficiencies were in workers’
compensation and mass tort, specifically asbestos. In hindsight, Home was under
reserved in 1995.
REM, which was essentially Zurich-owned, was formed to run Home in run-off until the
claims were all paid and to create an independent TPA with additional clients in the
future with the intent of generating profit. REM failed to achieve the first goal, but did
achieve the second.
Mr. Johnson reported to individuals within the Zurich organization.
From the recapitalization in 1995 until liquidation in 2003, REM ran every aspect of
Home’s business operations. Though David Nichols, a representative of NHID,
monitored the Home in run-off, he did not tell REM how to run Home’s business.
REM had about 1800 employees in 1995, virtually all of whom were from Home.
REM also assisted in transitioning Home’s underwriting business to Zurich American.
Zurich had access to Home’s underwriters, its underwriting policies, and certain other
documents relevant to underwriting.
1DB2/21991082.1BRUCE LERNER
Zurich PMQ Designee
Real Estate Leases/Space
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
. Currently Vice President of Zurich American Insurance Company. serves as head of real
estate services for North America; prior to the “Recapitalization transaction.” served as
Home’s vice president responsible for real estate and procurement: then worked for REM
from 2001 to 2002.
° Subsequent to the “Recapitalization transaction,” Zurich has been assigned or subleased
office leases of the Home
. Home transterred. pursuant to negotiated agreements, office furniture and telephone
equipment. to Zurich.
DBY2OV1961 4° .
MARK LYONS
Zurich PMQ Designee
“Cut-Through” and “Fronting™ Arrangements
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Mr. Lyons was employed by Zurich American Insurance Company trom 1992 to 2001.
his final position was Executive Vice President of Product Services.
Under the December 24, 1994 Facultative Reinsurance Facility Agreement. Zurich would
provide Home with a facultative reinsurance certificate reinsuring Home on new or
renewed policies, subject to Zurich's underwriting guidelines, and Zurich would provide
Home policyholders with a ~cut-through” endorsement on such policies.
The December 24, 1994 Services Agreement was a mechanisin for implementing the
December 24. 1994 Facultative Reinsurance Facility Agreement.
Under the “cut-through” Home issued policies and Zurich reinsured them: the
arrangement was not well accepted by the marketplace.
Amendment No. 1 to Facultative Reinsurance Facility Agreement. dated February 12.
1998, added a “fronting” option. Under the “fronting” arrangement, Zurich agreed to
issue policies on its paper and the policies would be reinsured 100% by Home.
Under the “fronting” arrangement. Zurich retained all premiums on policies it issued ona
“funds withheld” basis, meaning that. instead of paying Home for its reinsurance. Zurich
would hold the money. crediting Home 7.5% interest. until all policy losses had been
resolved.
The February 9, 1995 Master Facultative Agreement was entered to address the “cul-
through” and “fronting” arrangements on a “collective” basis.
Amendment No 2 to December 24, 1994 Facultative Reinsurance Facility Agreement.
dated June 12. 1995, addressed termination of any new policies issued under “cut-
through” or “fronting” arrangements and how future funds would be handled.
All facultative certificates issued to Home under the “cut-through™ arrangement were
issued through Zurich American
HB 2V9IS.2PAUL MELINYSHYN
Zurich PMQ Designee
Policy Renewal
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Currently Senior Vice President of Zurich Insurance. Mr. Melinyshyn testified regarding
the creation and source of Zurich's Renewal Spreadsheet. (Trial Ex. 1014.)
Zurich's Data Management Organization created the Renewal Spreadsheet in response to
plaintiffs’ discovery requests. which sought the identification of “each former
policyholder of the Home Insurance Company to whom [Zurich] issued policies afier
June 12, 1995."
The policies issued by Zurich to former Home policyholders were issued by Zurich
American insurance Company, American Guaranty and liability Insurance Company.
Steadfast Insurance Company. and American Zurich Insurance Company.
The Renewal Spreadsheet identities policies written by the Zurich entities to former
Home policyholders in effect from June 12. 1995 through at least June 2007
Zurich manages and tracks its retention rates.
DRU2IULLEL» ©
GRANT MURRAY
Zurich PMQ Designee and Personnel
Sterling Forest
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
. Senior Vice President for Real Estate Investments. Zurich Alternative Asset Management
(7k/a Zurich Global Investment Advisors).
. At the time of the “Recapitalization transaction,” Sterling Forest Corporation was a
wholly-owned subsidiary of the Home Insurance Company. At that time. the real estate
held by Sterling Forest Corporation generated income.
° On September 29, 1995, a $30 million loan facility with Centre Finance Dublin as lender
and Sterling Forest Corporation as borrower was executed: the proceeds of the loan could
be used by Sterling Forest Corporation to pay for any expenses approved by the lender,
. On February 18. 1997, an agreement was reached for the sale of approximately 15.280
acres of Sterling Forest to “the state,” for conservation purposes, at a price of $55 million.
This sale occurred in stages over a period of time.
. On June 27, 1997, Sterling Forest Corporation became Sterling Forest LEC, with Home
{Insurance Company as its sole member. Sterling Forest LLC was then divided into
Series A and Series B interests: the Series B interest consisted of approximately 2.200
acres of the Sterling Forest real estate plus other assets. and the Series A interest
consisted of the 15.280 acres of real estate to be sold to the state and the right 10 receive
proceeds trom the sale.
. In around July 1998, Zurich Centre Group Holdings came to own the shares of the
reorganized Home Holdings, Inc.. and Home Holdings. Inc. owned Sterling Forest LLC
as its sole member. In December 1999. Home Holdings Inc. came to be owned by Zurich
American Insurance Company.
. Portions of the Series B interest were sold by Sterling Forest LLC in 2001. 2002. and
2004.
. On December 31, 2004, Sterling Forest LLC, Sterling Forest Management LLC. and
Zurich SF Holdings LLC were merged into Sterling Forest LLC.
. Zurich American Insurance Company is currently the sole member of Sterling Forest
LLC. and owns the Series B interest in Sterling Forest, which currently includes
approximately 50 acres of Sterling Forest real estate. Sterling Forest LLC is carried on
Zurich American Insurance Company's books as an asset with value.
[2152/2199 158 1é
@
FRANK PIERSON
Zurich PMQ Designee
1991 Stop Loss and AEOLA Reinsurance
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Former chief actuary and underwriter (property. casualty insurance and other lines of
insurance) for Centre Reinsurance Company in Barbados beginning in 1988. He
continued working with Centre (and after Zurich's acquisition of Centre Reinsurance. its
parent company Zurich Centre Investments) from 1988 to 2003.
Mr. Pierson testified about the 199] Aggregate Excess of Loss Cover Agreement (“Stop
Loss”), the 1993 Interest and Liabilities Agreement to the Aggregate Excess of Loss
Cover Agreement, the 1995 Aggregate Excess of Loss agreement (AEOLA), and the June
1995 Assignment Agreement on behalf of all Defendants.
Mr. Pierson was involved with both the 1991 Stop Loss Reinsurance and the 1995
AEOLA Reinsurance.
The 1991 Stop Loss was a reinsurance contract issued to Home by four reinsurers:
Centre Reinsurance. Zurich Insurance Bermuda (°ZIB”). Trygg Hansa. and Kemper
Reinsurance. The 1991 Stop Loss provided $590,000,000 in reinsurance. The agreement
was amended in 1993. The 1993 amendment was made to ensure compliance with new
accounting regulations regarding “risk transfer”.
Reinsurance recoveries are “assets” that must be listed as such under Generally Accepted
Accounting principles.
While at Centre Re from 1991 to 1995, Mr. Pierson developed procedures to evaluate
asbestos and environmental exposures that were documented in the form of Lotus
spreadsheets. Center Re conducted an analysis of the Home reserves as of December 31.
1990 in connection with the 1991 Stop Loss Agreement. concluding that the Home was
under-reserved.
Centre Re performed models of the AEOLA’s possible outcomes, Centre Re’s
September 1995 model included. as a possible outcome, the insolvency and liquidation of
Home.
In 1995, as part of the ~Recapitalization” transactions, the 1991 Stop Loss Agreement
was commuted. The commutation of the 1991 Stop Loss resulted in a payment to Home
of the “present value” of the reinsurance payments expected under the Stop Loss-~
$177.500.00 ($127,000.000 in cash and $50,000,000 in premium forgiveness) by Centre
Re and Zurich Insurance Bermuda. A new reinsurance contract. the AEOLA, was
entered by and between Home and Centre Re. The AEOLA did not trigger until the
DRILLHome ran out of cash. The premium for the AEOLA was the amount “paid” out under
the 1991 Stop Loss.
. While the 1991 Stop Loss was issued by four reinsurers. only two (Centre Re and ZIB)
commuted the policy and paid out the “present value” of the reinsurance under the 1991
Stop Loss. As a result. Home assigned the rights to future recoveries trom Trygg Hansa
and Kemper Reinsurance under the 1991 Stop Loss to Centre Re and ZIB to satisty the
premium owed for the AEOLA. This was accomplished through the June 1995
Assignment Agreement.
BVA LALMICHAEL C. POREMBA
Zurich PMQ Designee
~Cut-Through” and “Fronting™ Policies
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Since 2008, Director of the Ceded Reinsurance Department of Zurich; has been
employed by Zurich since 2004.
Under the “cut-through” arrangement. Home issued direct insurance policies with
attached endorsements indicating that if Home became insolvent Zurich would be lable
on the policies. Under the fronting arrangement. Zurich placed policies, but the policies
were reinsured and administered by Home.
Under the Master Facultative Agreement, Zurich held premiums on “fronting” policies. a
“funds withheld” basis to pay for future losses. Zurich held money under this
arrangement until the April 10. 2010 commutation date, with interest accruing.
As of April 5. 1995, 800 policyholders had been issued policies with a cut-through
endorsement or certificate. Zurich collected $29,017,271 of premium on these policies.
Additionally. Home retained a ceding commission of $6.078.461 tor these policies.
Facultative reinsurance payments of $26.656.722 were made to Home, and an additional
$814,300 in claim payments were made to policyholders. Zurich has ongoing obligations
with respect to these policies.
Approximately 3.000 policyholders received “fronting” policies. These policies were
issued by Steadfast Insurance Company, Zurich Insurance Company U.S. Branch, and
Zurich-American Insurance Company of Illinois. Approximately $620,329,719 in
premium was collected on the fronted policies. $868.91 1,955 in funds withheld have
been disbursed.
[B22991961 1JOEL ROSS
PMQ REM Designee
REM Operations
SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY
Associate General Counsel for REM; former in-house attorney at Home.
REM was formed to manage the runoff of Home and was owned in part or entirely by
one or more Zurich entities from 1995 through 2007.
REM used both Home’s offices and its employees to run the Home in run-off. It also
used Home’s facilities to run its non-Home business.
As of June 12, 1995, when REM executed the Services Agreement, REM had no offices,
no payroll, no benefits and its sole client was Home. Over 1000 former Home employees
became REM employees, accounting for over 90% of REM’s workforce. After they
transitioned to being REM employees, they did the same jobs in the same offices with the
same equipment, same records, same processes, same people, and same vendors for the
most part.
Some former Home employees went straight from Home to Zurich, others went to REM
first then went to Zurich.
REM continued to provide services even after the Home was placed in liquidation. The
Home in Liquidation, however, ended up purchasing from REM certain intellectual
property that was developed in the run-off of Home to manage the Home.
Some of the former Home employees, including Mr. Ross, eventually were moved over
to handle non-Home business and continue there today, and REM believed that its
experience managing Home positioned it to acquire new business.
DB2/21991081.1PROOF OF SERVICE
San Francisco Superior Court Case No. CGC 04-431719
Fuller-Austin Asbestos Settlement Trust, et al. v. Zurich-American Insurance Company, et al.
San Francisco Superior Court Case No. CGC-04-436181
Western Asbestos Settlement Trust, et al. v. Zurich-American Insurance Co., et al.
San Francisco Superior Court Case No. CGC 05-442140
PepsiAmericas, Inc., et al. v. Zurich-American Insurance Company, et al.
San Francisco Superior Court Case No. Case No. CGC 05-442745
Pneumo Abex LLC, et al. v. Zurich-American Insurance Company, et al.
1, Mary C. Wong, declare, | am a resident of the State of California and over the age of
eighteen years, and not a party to the within action; my business address is One Market, Spear
Street Tower, San Francisco, CA 94105-1126. On October 19, 2010, 1 served the within
document(s):
NOTICE OF ERRATA REGARDING PLAINTIFFS’ TRIAL BRIEF
NOTICE OF LODGING PLAINTIFFS’ FINAL TRIAL BRIEF
(Via Electronic Mail) by e-mailing the document(s) listed above to the addressees noted
below:
Albert P. Bedecarre, Esq. eZurich-American Insurance Company
Peter Klivans, Esq. eZurich-American Insurance Company Of
QUINN EMANUEL URQUHART & Hlinois
SULLIVAN, LLP Steadfast Insurance Company
50 Califomia Street, 22nd Floor Zurich Insurance Company. Ltd.
San Francisco, CA 94111 American Guarantee and Liability
Tel: (415) 875-6600
Fax: (415) 875-6700
albedecarre(@)quinnemanuel.com
peterklivans@quinnemanuel.com
reddingcates@quinnemanuel.com
Insurance Company
*Orange Stone Reinsurance
1DB2/21273326 5
PROOF OF SERVICE.Richard Mancino, Esq.
Samuel M. Leaf, Esq.
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
Tel: 212.728.8000
Fax: 212.728.8111
Email: rmancino@willkie.com
sleaf@willkie.com
mao-ny@willkie.com
eZurich-American Insurance Company
eZurich-American Insurance Company Of
Illinois
Steadfast Insurance Company
«Zurich Insurance Company, Ltd.
eAmerican Guarantee and Liability
Insurance Company
eOrange Stone Reinsurance
Joseph G. Davis, Esq.
WILLKIE FARR & GALLAGHER LLP
1875 K. Street, N.W.
Washington, DC 20006
Tel: 202.303.1000
Fax: 202.303.2000
Email: jdavis@wilkie.com
eZurich-American Insurance Company
eZurich-American Insurance Company Of
Illinois
Steadfast Insurance Company
«Zurich Insurance Company. Ltd.
American Guarantee and Liability
Insurance Company
eOrange Stone Reinsurance
Randy Branitsky, Esq.
Themis, PLLC
2305 Calvert Street, N.W.
Washington, DC 20008
Tel: 202.824.0600
Fax: 202.657.1433
Email: rbranitsky@themis.us.com
eZurich-American Insurance Company
eZurich-American Insurance Company Of
Illinois
Steadfast Insurance Company
@Zurich Insurance Company, Ltd.
eAmerican Guarantee and Liability
Insurance Company
*Orange Stone Reinsurance
Rodney L. Eshelman, Esq.
Geoffrey David Godwin, Esq.
Sarah Marie Shields, Esq.
Robert A. Binion, Esq.
CARROLL, BURDICK & MCDONOUGH
44 Montgomery Street, Suite 400
San Francisco, CA 94104
Tel: (415) 989-5900
Fax: (415) 989-0932
reshelman@cbmlaw.com
dgodwin@cbmlaw.com
sshields@cbmlaw.com
rbinion@cbmlaw.com
eContinental Casualty Company
DB2/21273326.3
PROOF OF SERVICEDonald A. Vogelsang (pro hac vice}
GRIPPO & ELDEN, LLC
111 South Wacker Drive
Chicago, IL 60606
Tel: (312) 704-7700
Fax: (312) 558-1195
jgitzlaff@grippoelden.com
dvogelsang@grippoelden.com
eContinental Casualty Company
C. Guerry Collins, Esq.
Conrad V. Sison, Esq.
LOCKE LORD BISSELL & LIDDELL LLP
300 South Grand Avenue, 8th Floor
Los Angeles, CA 90071
Tel: (213) 485-1500
Fax: (213) 485-1200
gcollins@lockelord.com
csison@lockelord.com
California Insurance Guarantee
Association
Executed on October 19, 2010 at San Francisco, California.
I declare under penalty of perjury, under the laws of the State of California and the United
States of America, that the foregoing is true and correct.
0B2/21273326.5
Mary C. Wong
PROOF OF SERVICE
Preview
IONE SUPERIOR COURT OF CALIFORNIA COUNTY OF SAN FRANCISCO Document Scanning Lead Sheet Oct-26-2010 8:14 am Case Number: CGC-04-431719 Filing Date: Oct-19-2010 1:46 Juke Box: 001 Image: 03006603 NOTICE J ASBESTOS SETTLEMENT TRUST et al VS. ZURICH-AMERICAN INSURANCE COMPAN 001C03006603 Instructions: Please place this sheet on top of the document to be scanned.B BW oN o New MORGAN, LEWIS & BOCKIUS LLP Paut A. Zevnik, State Bar No. 75343 Michel Y. Horton, State Bar No. 114243 Aaron S. Dutra, State Bar No. 216971 One Market, Spear Street Tower San Francisco, California 94105 Tel: (415) 442-1000 Fax: (415) 442-1001 Attorneys for Plaintiffs SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO FULLER-AUSTIN ASBESTOS SETTLEMENT TRUST, er al., Plaintiffs, vs. ZURICH-AMERICAN INSURANCE COMPANY, individually and as successor to Zurich insurance Company, ef al., Defendants. WESTERN ASBESTOS SETTLEMENT TRUST, eral, Plaintiffs, VS. ZURICH-AMERICAN INSURANCE COMPANY, individually and as successor to Zurich Insurance Company, ef al., Defendants. PEPSIAMERICAS, INC.. ef ai, Plaintiffs, VS. DB2/21996225.1 LED San Francisco Coumty Superior Court ULT 19 2010 mone F THE COURT Dapaly Cia Case No. CGC 04-431719 Case No. CGC 04-436181 Case No. CGC 05-442140 Case No. CGC 05-442745 NOTICE OF ERRATA REGARDING PLAINTIFFS’ TRIAL BRIEF Date: October 19, 2010 Time: Dept. 304 Judge: Hon. Richard A. Kramer PLAINTIFFS’ NOTICE OF ERRATA REGARDING TRIAL BRIEFB WN o ~ we ZURICH-AMERICAN INSURANCE COMPANY, individually and as successor to Zurich Insurance Company, ef al., Defendants. PNEUMO ABEX LLC, Plaintiff, vs. ZURICH-AMERICAN INSURANCE COMPANY, individually and as successor to Zurich Insurance Company, ef al., Defendants. DB2/21996225.1 PLAINTIFFS’ NOTICE OF ERRATA REGARDING TRIAL BRIEFoN ON ” oe tw . Plaintiffs Fuller-Austin Asbestos Settlement Trust, Fuller-Austin {nsulation Company, Kraft Foods Global. Inc., National Dairy Products Corporation, Krafteo Corporation, Kraft, Inc., General Foods Company, Nabisco Brands Co., PubliCard, Inc., Somerset Oil, Inc., Southland Oil Company, Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric Iluminating Company, Toledo Edison Company, ITT Corporation, Swan Transportation Company, Swan Asbestos & Silica Settlement Trust, Monongahela Power Company. West Penn Power Company, the Potomac Edison Company, Rohm and Haas Company, Deere & Company, Plaintiffs Western Asbestos Settlement Trust. Western Mac Arthur Company, Mac Arthur Company, Western Asbestos Company, Plaintiffs PepsiAmericas, Inc.. Southern Natural Gas Company, El Paso Production Company, Petro-Tex Chemical Corporation Dissolution. Distribution, Liquidating, And Recovery Trust, Tennessee Gas Pipeline Company, and Pneumo Abex LLC (collectively, “Plaintiffs”), timely filed and served their Trial Brief on October 18, 2010. Plaintiffs inadvertently omitted from their Trial Brief the names of three witnesses that Plaintiffs intend to present by way of deposition testimony, Peter Bengelsdorf, Peter Johnson. and Joel Ross. The additional information is found at pages 69 and 70 of the Trial Brief, as well as Exhibit D. Attached hereto as Exhibit 1 are corrected pages that include the additional information. Upon discovery of this omission, Plaintiffs notified Defendants and timely served a final Trial Brief that includes the additional information on October 18, 2010. Plaintiffs are concurrently lodging a copy of the final Trial Brief with the Court, and will serve all parties with a copy of same. Dated: October 19, 2010 MORGAN, LEWIS & BOCKIUS LLP » Mae Lele Aaron S$. Dutra Attorneys for Plaintiffs DB2/21996225.1Ceo nt DH BN RP NN NM NR Be Be Be se Be ee es ee Se RRR S&B F&F &awe BADE BEH ARS 27 MorcaN, Lew Bockius LLP ATTORNEYS AT LAW SAN FRaNcIsco think that the fact that the Order [May 1995 Order] was not the product, from the standpoint of Zurich and ITT, of litigation between opposing parties ... that point was and is binding on me here.” (August 26, 2010 hearing transcript at 61:22-26.) The Court also noted that while the J7T Industries decision might not be due preclusive effect, the plaintiffs will be able to establish at trial that the May 26, 1995 Order does not bar or otherwise affect plaintiffs’ Phase One claims: One thing the Court said was Zurich could not overcome the allegations of the complaint through collateral estoppel because the May 1995 Order was not the product of litigation between opposing parties as it would apply to Zurich and ITT. And I think that finding is binding on me here. And even if it's not binding on me here, it's all but axiomatic. You know, the Court was right. And if I were to say, well, I'm not bound by that determination, it would take plaintiffs about ten minutes to -- well, less than ten minutes, just show me what was going on in 1995, But I think it is binding. (August 26, 2010 hearing transcript at p. 61.) Without this critical element, the May 1995 Order is not entitled to any preclusive effect. Barker v. Hull, 191 Cal. App. 3d 221, 226 (1987). IX. PLAINTIFFS’ PHASE ONE TRIAL PRESENTATION Plaintiffs’ direct case for the Phase One trial will consists of the following witnesses, live and by deposition: Live Testimony Witnesses: Alan W. Faigin, expert, custom and practice. Larry S. Murphy, expert, accounting principles. (Summaries of the experts’ opinions are set forth as Exhibit C.) Deposition Testimony Witnesses: Reuben Arrambide, Zurich PMQ, REM relationship to Zurich. Peter Bengelsdorf, New Hampshire Insurance Department E. Randall Clouser, Zurich PMQ, Home customer lists. John Cross, Zurich PMQ (6/4/09), Gruntal Financial. John Cross, Zurich PMQ (3/23/10), recapitalization transactions. Steven Gluckstern, Zurich PMQ and personal, recapitalization transactions. Peter Johnson, REM DB221905328.4 69 PLAINTIFFS’ TRIAL BRIEFw 27 MORGAN, Lewict & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO Bruce Lerner, Zurich PMQ, real estate leases/space. Mark Lyons, Zurich PMQ, “cut through” and “fronting” policies. Paul Melinyshyn, Zurich PMQ, Zurich policy renewals. Grant Murray, Zurich PMQ, Sterling Forest. Frank Pierson, Zurich PMQ, 1991 Stop Loss Treaty and AEOLA. Michael C. Poremba, Zurich PMQ, “cut through” and “fronting” policies. Joel Ross, REM PMQ, REM operations (Summaries of the deponents testimony designated by plaintiffs are set forth as Exhibit D.) X. CONCLUSION The plaintiffs look forward to presenting their case at the Phase One trial. Dated: October 18, 2010 MORGAN, LEWIS & BOCKIUS LLP By: a = Michel Y. Horton Attorneys for Plaintiffs DB2/21905328.4 70 PLAINTIFFS’ TRIAL BRIEPh C>« e& REUBEN ARRAMBIDE Zurich PMQ Designee REM Relationship to Zurich SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY First Vice President of Shared Services Operations for Zurich American Insurance Company; joined Zurich American as a claim manager in January of 1995. At the time of the closing of the “Recapitalization transaction,” Zurich American Insurance Company planned for an increase in claims activity. Zurich American planned for a 10 to 30 percent increase in claims-handling volume as the result of new business from Home policyholders. Zurich had discretion to choose which Home policies to renew. Zurich American rented Home’s office space. including furnishings and equipment. Zurich American employed between 100 and 200 former claims personnel from Home. Risk Enterprise Management (REM”) was created to facilitate the run-off of Home. It also provided claims services and other services for “fronted” and “cut-through” policies. From 1995 to 2000. REM was majority-owned by various Zurich entities. From 2001 until its sale in 2007. REM was wholly-owned by Zurich Insurance Company. It was sold for $13.2 million in 2007. 1982/21991 $20 2PETER BENGELSDORF New Hampshire Insurance Department Special Deputy Commissioner SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Retained by NHID on March 3, 1997 as an examiner to review accounting, operational and economic aspects of the Home and report back to NHID; became Special Deputy Commissioner for NHID in connection with Supervision of the Home; became Special Deputy Liquidator of the Home after Liquidation. The Home in Liquidation does not anticipate being able to pay policyholder claims in full. Home’s estimated liabilities are approximately $4 billion; its estimated assets are $1 billion. There is no order by the NHID precluding Home policyholders from bringing claims against Zurich. Prior to the Rehabilitation, the NHID did not dictate how claims were paid. REM determined such matters. During this time, the NHID did not run the Home, nor did it have control over Home’s assets. Other than the fact that it imposes certain discovery burdens on the Home in Liquidation, this litigation does not interfere with the liquidation or the Liquidator’s possession of or rights to the assets and property of the Home. Nobody within the NHID intends at this time to bring the claims asserted in this litigation. Nobody within the NHID involved with the liquidation has taken a position that Plaintiffs are not permitted to bring the claims in this lawsuit against Zurich. DB2/21991083.1E. RANDALL CLOUSER Zurich PMQ Designee Home Customer Lists SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY . Executive Vice President for Zurich North America. . Home did not have a master customer list, but Home maintained renewal lists and other partial lists; some customer lists were transferred to Zurich. ° Because the “Recapitalization transaction” was priced “in its entirety,” does not know the value placed by Zurich on the use of Home’s customer lists. DB2219ALV6IJOHN CROSS Zurich PMQ Designeee Gruntal Financial SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Former Chief Financial Officer for Zurich Global Assets and Zurich Centre Group: employed by Zurich-related entities from 1996 to 2003. Gruntal Financial Corporation, a retail broker/dealer, was a wholly- or majority-owned subsidiary of Home Insurance Company: at the time of the “Recapitalization transaction.” Zurich estimated its worth was $300 million. In 1997, Gruntal Financial Corporation was reorganized as Gruntal Financial. LLC. Asa result, Home Insurance became the owner of the Preferred A Interest in Gruntal Financial. LLC: the value of which was estimated at $155 to $160 million. A 1997 amendment added Article VIII to the Portfolio Value Swap Agreement. specifying that Orange Stone Reinsurance would provide Home a 7.5 percent return on its Preferred A Interest in Gruntal. Article VIII was replaced by the February 29, 2000 Modification Agreement. under which a Note was issued, which provided that Orange Stone Reinsurance would pay Home a 7.5 percent return on its Preferred A Interest in Gruntal LLC in the event ofa “liquidity event”. A portion of the Gruntal Financial assets were sold in 2002 (so-called “Ryan Beck” transaction); the proceeds of this transaction were not disclosed. On March [4. 2003. Orange Stone Reinsurance paid Home $234.363.833 to satisfy its obligation to pay Home for its Preferred A Interest in Gruntal LLC. plus 7.5% annual interest. [BIZ SRL3% JOHN CROSS Zurich PMQ Designee Recapitalization Transactions SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Former Chief Financial Officer of Zurich Global Assets and Zurich Centre Group: employed by Zurich-related entities from 1996 to 2003. Zurich Insurance Company obtained access to the books and records of Home Insurance Company under the Renewal Rights Agreement: consideration paid for obtaining this access was the Aggregate Excess of Loss Agreement ("AEOLA”). ‘The Home was reinsured by Centre Re Limited. Zurich Insurance Bermuda Limited. Trygg-Hansa and Kemper Re under a 1991 Stop Loss Treaty. Home paid $218.9 million under the Stop Loss Treaty. and received $303.5 million under the treaty, It was commuted in stages by Centre Re Limited and Zurich Insurance Bermuda Limited in 1995. Trygg-Hansa in 1996, and Kemper Re in 2000. The commutation payments Home received trom these reinsurers were used to pay premiums on the AEOLA, In entering the AEOLA. Iome assigned to Centre Re {nternational certain rights and recoveries under the Stop Loss Treaty; in addition to the commutation payments. this included any recoveries including claim payments and unpaid premium. Under Amendment No. | to the AEOLA, the obligations of Centre Re International were transferred to Centre Reinsurance Dublin. another wholly-owned Zurich subsidiary. and the predecessor of Orange Stone Reinsurance. At the time of the approval of the Home Holdings bankruptcy. Amendment No. 2 to the AEOLA was executed: its purpose was to adjust the limits of the AEOLA in the event a Zurich company derived any benefit from its affiliation with the former Home Holdings. Home Insurance Company drew on the AEOLA beginning in 1999 ona funds-withdrawn basis. The February 2000 Modification Agreement was intended to put the proceeds of any sale of Home’s interest in Gruntal “behind the AEOLA limit. Under the Portfolio Swap Agreement, Orange Stone Reinsurance or its predecessors guaranteed Home a 7.5 percent return on certain assets while keeping any return on those assets over 7.5 percent, al least until 2003, when Orange Stone Reinsurance made a final payment of approximately $256 million. The February 2000 Modification Agreement replaced Article VII] of the Portfolio Value Swap Agreement with a note. which provided for 7.5 percent return on Gruntal Financial. LLC to Home: an Amended and Restated Funding Commitment was executed. under 1BW21991520.2which Zurich Centre Investment Limited guaranteed Orange Stone Reinsurance’s performance on the note. 1BI/21991520.2STEVEN GLUCKSTERN Zurich PMQ Designated Personnel Recapitalization Transactions SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Founding Partner of Centre Reinsurance in 1988. Zurich ultimately purchased the majority of outstanding shares ot Centre Reinsurance in 1993, and thereafter Mr. Gluckstern became part of Zurich Group’s “executive board”. Principal for Zurich regarding the Form A Application for Acquisition of Control of Home Insurance Company and was a member of the Board of Directors of Home Holdings, Inc. as of June 12. 1995. Ceased working for Zurich in1998. returned to become Chairperson of Scudder Investments (a Zurich owned entity) from 2000 — 2001, and then left the insurance industry in 2001. Mr, Gluckstern provided substanual testimony on the complex structure of the ~Recapitalization” transactions, including identification of the various Zurich owned/controlled subsidiaries and the roles/transactions in which they were involved (including Zurich International Bermuda Limited. Center Reinsurance Holdings Limited. Centre Reinsurance Bermuda Limited, Zurich Insurance US Branch. Centre Reinsurance International Company. Zurich Centre Investments Limited, Centre Investment Services Limited. Risk Enterprise Management. Zurich Home investments Limited. Zurich Holding Company of America. Centre Re New York, Centre ReSource. Centre Reinsurance Dublin. ZC Advisors ) Risk Enterprise Management (REM) was a Zurich controlled entity. created specifically in connection with the Recapitalization transactions to handle the claims management and operational responsibilities of Home. Under the Renewal Rights Agreement, Zurich received the right to access Home's books. records and employees to assist Zurich in underwriting policies for insureds that were previously insured with Home. The right to access Home's information and people had value. “Renewal rights” {access to books. records, other customer information) can be sold by an insurance company. The acquisition of 700 experienced employees was a benefit to Zurich. The primary value Zurich obtained as a result of the Recapitalization transaction was (i) the [lome’s “renewal rights” and (i) the expansion of Zurich presence and market share in the United States. DB229 ATHalf of the increase in premium growth for Zurich in 1995 resulted trom the Form A Transaction; this “incumbency"-- or existing customer relationship -- has value and the expectation of future renewals. ‘The 1995 Aggregate Excess of Loss (AEOLA) replaced the 1991 Stop Loss Agreement. Mr. Gluckstern was involved in the drafting of the AEOLA, and noted that there were scenarios tested in which the stop loss would have provided more benefit to Home shareholders than the AEOLA. Zurich knew in 1995 that there were scenarios that were modeled that identified the Home would not be able to pay all policyholder claims in full, even with the AEOLA funds in place. In connection with the Recapitalization. Mr, Gluckstern considered his primary responsibility to increase the returns of Zurich's shareholders. Zurich makes no effort to determine whether the recapitalization discriminated between Jong-tail and short-tail policyholders. DBYMIVLLLATPETER JOHNSON REM CEO Personal SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Founder of REM; Chairman and CEO of REM until 2003; Member of Home Board of Directors from 1995 until liquidation Mr. Johnson has substantial experience in the insurance industry, and in his years in the industry has encountered insurance companies selling their renewal rights to other insurance companies. Prior to the recapitalization, REM’s intent was to take all of Home’s claims staff, though eventually some transitioned to Zurich American. It was valuable to REM to have an existing work force in the form of Home’s staff that was available, knew the business, and was already handling the business. Prior to the Recapitalization transaction, he estimated that it would cost $350 to $450 million to run off the Home, excluding costs of paying claims. It actually cost several hundred million dollars more. When Home was placed in liquidation, its primary reserve deficiencies were in workers’ compensation and mass tort, specifically asbestos. In hindsight, Home was under reserved in 1995. REM, which was essentially Zurich-owned, was formed to run Home in run-off until the claims were all paid and to create an independent TPA with additional clients in the future with the intent of generating profit. REM failed to achieve the first goal, but did achieve the second. Mr. Johnson reported to individuals within the Zurich organization. From the recapitalization in 1995 until liquidation in 2003, REM ran every aspect of Home’s business operations. Though David Nichols, a representative of NHID, monitored the Home in run-off, he did not tell REM how to run Home’s business. REM had about 1800 employees in 1995, virtually all of whom were from Home. REM also assisted in transitioning Home’s underwriting business to Zurich American. Zurich had access to Home’s underwriters, its underwriting policies, and certain other documents relevant to underwriting. 1DB2/21991082.1BRUCE LERNER Zurich PMQ Designee Real Estate Leases/Space SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY . Currently Vice President of Zurich American Insurance Company. serves as head of real estate services for North America; prior to the “Recapitalization transaction.” served as Home’s vice president responsible for real estate and procurement: then worked for REM from 2001 to 2002. ° Subsequent to the “Recapitalization transaction,” Zurich has been assigned or subleased office leases of the Home . Home transterred. pursuant to negotiated agreements, office furniture and telephone equipment. to Zurich. DBY2OV1961 4° . MARK LYONS Zurich PMQ Designee “Cut-Through” and “Fronting™ Arrangements SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Mr. Lyons was employed by Zurich American Insurance Company trom 1992 to 2001. his final position was Executive Vice President of Product Services. Under the December 24, 1994 Facultative Reinsurance Facility Agreement. Zurich would provide Home with a facultative reinsurance certificate reinsuring Home on new or renewed policies, subject to Zurich's underwriting guidelines, and Zurich would provide Home policyholders with a ~cut-through” endorsement on such policies. The December 24, 1994 Services Agreement was a mechanisin for implementing the December 24. 1994 Facultative Reinsurance Facility Agreement. Under the “cut-through” Home issued policies and Zurich reinsured them: the arrangement was not well accepted by the marketplace. Amendment No. 1 to Facultative Reinsurance Facility Agreement. dated February 12. 1998, added a “fronting” option. Under the “fronting” arrangement, Zurich agreed to issue policies on its paper and the policies would be reinsured 100% by Home. Under the “fronting” arrangement. Zurich retained all premiums on policies it issued ona “funds withheld” basis, meaning that. instead of paying Home for its reinsurance. Zurich would hold the money. crediting Home 7.5% interest. until all policy losses had been resolved. The February 9, 1995 Master Facultative Agreement was entered to address the “cul- through” and “fronting” arrangements on a “collective” basis. Amendment No 2 to December 24, 1994 Facultative Reinsurance Facility Agreement. dated June 12. 1995, addressed termination of any new policies issued under “cut- through” or “fronting” arrangements and how future funds would be handled. All facultative certificates issued to Home under the “cut-through™ arrangement were issued through Zurich American HB 2V9IS.2PAUL MELINYSHYN Zurich PMQ Designee Policy Renewal SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Currently Senior Vice President of Zurich Insurance. Mr. Melinyshyn testified regarding the creation and source of Zurich's Renewal Spreadsheet. (Trial Ex. 1014.) Zurich's Data Management Organization created the Renewal Spreadsheet in response to plaintiffs’ discovery requests. which sought the identification of “each former policyholder of the Home Insurance Company to whom [Zurich] issued policies afier June 12, 1995." The policies issued by Zurich to former Home policyholders were issued by Zurich American insurance Company, American Guaranty and liability Insurance Company. Steadfast Insurance Company. and American Zurich Insurance Company. The Renewal Spreadsheet identities policies written by the Zurich entities to former Home policyholders in effect from June 12. 1995 through at least June 2007 Zurich manages and tracks its retention rates. DRU2IULLEL» © GRANT MURRAY Zurich PMQ Designee and Personnel Sterling Forest SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY . Senior Vice President for Real Estate Investments. Zurich Alternative Asset Management (7k/a Zurich Global Investment Advisors). . At the time of the “Recapitalization transaction,” Sterling Forest Corporation was a wholly-owned subsidiary of the Home Insurance Company. At that time. the real estate held by Sterling Forest Corporation generated income. ° On September 29, 1995, a $30 million loan facility with Centre Finance Dublin as lender and Sterling Forest Corporation as borrower was executed: the proceeds of the loan could be used by Sterling Forest Corporation to pay for any expenses approved by the lender, . On February 18. 1997, an agreement was reached for the sale of approximately 15.280 acres of Sterling Forest to “the state,” for conservation purposes, at a price of $55 million. This sale occurred in stages over a period of time. . On June 27, 1997, Sterling Forest Corporation became Sterling Forest LEC, with Home {Insurance Company as its sole member. Sterling Forest LLC was then divided into Series A and Series B interests: the Series B interest consisted of approximately 2.200 acres of the Sterling Forest real estate plus other assets. and the Series A interest consisted of the 15.280 acres of real estate to be sold to the state and the right 10 receive proceeds trom the sale. . In around July 1998, Zurich Centre Group Holdings came to own the shares of the reorganized Home Holdings, Inc.. and Home Holdings. Inc. owned Sterling Forest LLC as its sole member. In December 1999. Home Holdings Inc. came to be owned by Zurich American Insurance Company. . Portions of the Series B interest were sold by Sterling Forest LLC in 2001. 2002. and 2004. . On December 31, 2004, Sterling Forest LLC, Sterling Forest Management LLC. and Zurich SF Holdings LLC were merged into Sterling Forest LLC. . Zurich American Insurance Company is currently the sole member of Sterling Forest LLC. and owns the Series B interest in Sterling Forest, which currently includes approximately 50 acres of Sterling Forest real estate. Sterling Forest LLC is carried on Zurich American Insurance Company's books as an asset with value. [2152/2199 158 1é @ FRANK PIERSON Zurich PMQ Designee 1991 Stop Loss and AEOLA Reinsurance SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Former chief actuary and underwriter (property. casualty insurance and other lines of insurance) for Centre Reinsurance Company in Barbados beginning in 1988. He continued working with Centre (and after Zurich's acquisition of Centre Reinsurance. its parent company Zurich Centre Investments) from 1988 to 2003. Mr. Pierson testified about the 199] Aggregate Excess of Loss Cover Agreement (“Stop Loss”), the 1993 Interest and Liabilities Agreement to the Aggregate Excess of Loss Cover Agreement, the 1995 Aggregate Excess of Loss agreement (AEOLA), and the June 1995 Assignment Agreement on behalf of all Defendants. Mr. Pierson was involved with both the 1991 Stop Loss Reinsurance and the 1995 AEOLA Reinsurance. The 1991 Stop Loss was a reinsurance contract issued to Home by four reinsurers: Centre Reinsurance. Zurich Insurance Bermuda (°ZIB”). Trygg Hansa. and Kemper Reinsurance. The 1991 Stop Loss provided $590,000,000 in reinsurance. The agreement was amended in 1993. The 1993 amendment was made to ensure compliance with new accounting regulations regarding “risk transfer”. Reinsurance recoveries are “assets” that must be listed as such under Generally Accepted Accounting principles. While at Centre Re from 1991 to 1995, Mr. Pierson developed procedures to evaluate asbestos and environmental exposures that were documented in the form of Lotus spreadsheets. Center Re conducted an analysis of the Home reserves as of December 31. 1990 in connection with the 1991 Stop Loss Agreement. concluding that the Home was under-reserved. Centre Re performed models of the AEOLA’s possible outcomes, Centre Re’s September 1995 model included. as a possible outcome, the insolvency and liquidation of Home. In 1995, as part of the ~Recapitalization” transactions, the 1991 Stop Loss Agreement was commuted. The commutation of the 1991 Stop Loss resulted in a payment to Home of the “present value” of the reinsurance payments expected under the Stop Loss-~ $177.500.00 ($127,000.000 in cash and $50,000,000 in premium forgiveness) by Centre Re and Zurich Insurance Bermuda. A new reinsurance contract. the AEOLA, was entered by and between Home and Centre Re. The AEOLA did not trigger until the DRILLHome ran out of cash. The premium for the AEOLA was the amount “paid” out under the 1991 Stop Loss. . While the 1991 Stop Loss was issued by four reinsurers. only two (Centre Re and ZIB) commuted the policy and paid out the “present value” of the reinsurance under the 1991 Stop Loss. As a result. Home assigned the rights to future recoveries trom Trygg Hansa and Kemper Reinsurance under the 1991 Stop Loss to Centre Re and ZIB to satisty the premium owed for the AEOLA. This was accomplished through the June 1995 Assignment Agreement. BVA LALMICHAEL C. POREMBA Zurich PMQ Designee ~Cut-Through” and “Fronting™ Policies SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Since 2008, Director of the Ceded Reinsurance Department of Zurich; has been employed by Zurich since 2004. Under the “cut-through” arrangement. Home issued direct insurance policies with attached endorsements indicating that if Home became insolvent Zurich would be lable on the policies. Under the fronting arrangement. Zurich placed policies, but the policies were reinsured and administered by Home. Under the Master Facultative Agreement, Zurich held premiums on “fronting” policies. a “funds withheld” basis to pay for future losses. Zurich held money under this arrangement until the April 10. 2010 commutation date, with interest accruing. As of April 5. 1995, 800 policyholders had been issued policies with a cut-through endorsement or certificate. Zurich collected $29,017,271 of premium on these policies. Additionally. Home retained a ceding commission of $6.078.461 tor these policies. Facultative reinsurance payments of $26.656.722 were made to Home, and an additional $814,300 in claim payments were made to policyholders. Zurich has ongoing obligations with respect to these policies. Approximately 3.000 policyholders received “fronting” policies. These policies were issued by Steadfast Insurance Company, Zurich Insurance Company U.S. Branch, and Zurich-American Insurance Company of Illinois. Approximately $620,329,719 in premium was collected on the fronted policies. $868.91 1,955 in funds withheld have been disbursed. [B22991961 1JOEL ROSS PMQ REM Designee REM Operations SUMMARY OF PLAINTIFF DESIGNATED TESTIMONY Associate General Counsel for REM; former in-house attorney at Home. REM was formed to manage the runoff of Home and was owned in part or entirely by one or more Zurich entities from 1995 through 2007. REM used both Home’s offices and its employees to run the Home in run-off. It also used Home’s facilities to run its non-Home business. As of June 12, 1995, when REM executed the Services Agreement, REM had no offices, no payroll, no benefits and its sole client was Home. Over 1000 former Home employees became REM employees, accounting for over 90% of REM’s workforce. After they transitioned to being REM employees, they did the same jobs in the same offices with the same equipment, same records, same processes, same people, and same vendors for the most part. Some former Home employees went straight from Home to Zurich, others went to REM first then went to Zurich. REM continued to provide services even after the Home was placed in liquidation. The Home in Liquidation, however, ended up purchasing from REM certain intellectual property that was developed in the run-off of Home to manage the Home. Some of the former Home employees, including Mr. Ross, eventually were moved over to handle non-Home business and continue there today, and REM believed that its experience managing Home positioned it to acquire new business. DB2/21991081.1PROOF OF SERVICE San Francisco Superior Court Case No. CGC 04-431719 Fuller-Austin Asbestos Settlement Trust, et al. v. Zurich-American Insurance Company, et al. San Francisco Superior Court Case No. CGC-04-436181 Western Asbestos Settlement Trust, et al. v. Zurich-American Insurance Co., et al. San Francisco Superior Court Case No. CGC 05-442140 PepsiAmericas, Inc., et al. v. Zurich-American Insurance Company, et al. San Francisco Superior Court Case No. Case No. CGC 05-442745 Pneumo Abex LLC, et al. v. Zurich-American Insurance Company, et al. 1, Mary C. Wong, declare, | am a resident of the State of California and over the age of eighteen years, and not a party to the within action; my business address is One Market, Spear Street Tower, San Francisco, CA 94105-1126. On October 19, 2010, 1 served the within document(s): NOTICE OF ERRATA REGARDING PLAINTIFFS’ TRIAL BRIEF NOTICE OF LODGING PLAINTIFFS’ FINAL TRIAL BRIEF (Via Electronic Mail) by e-mailing the document(s) listed above to the addressees noted below: Albert P. Bedecarre, Esq. eZurich-American Insurance Company Peter Klivans, Esq. eZurich-American Insurance Company Of QUINN EMANUEL URQUHART & Hlinois SULLIVAN, LLP Steadfast Insurance Company 50 Califomia Street, 22nd Floor Zurich Insurance Company. Ltd. San Francisco, CA 94111 American Guarantee and Liability Tel: (415) 875-6600 Fax: (415) 875-6700 albedecarre(@)quinnemanuel.com peterklivans@quinnemanuel.com reddingcates@quinnemanuel.com Insurance Company *Orange Stone Reinsurance 1DB2/21273326 5 PROOF OF SERVICE.Richard Mancino, Esq. Samuel M. Leaf, Esq. WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue New York, NY 10019 Tel: 212.728.8000 Fax: 212.728.8111 Email: rmancino@willkie.com sleaf@willkie.com mao-ny@willkie.com eZurich-American Insurance Company eZurich-American Insurance Company Of Illinois Steadfast Insurance Company «Zurich Insurance Company, Ltd. eAmerican Guarantee and Liability Insurance Company eOrange Stone Reinsurance Joseph G. Davis, Esq. WILLKIE FARR & GALLAGHER LLP 1875 K. Street, N.W. Washington, DC 20006 Tel: 202.303.1000 Fax: 202.303.2000 Email: jdavis@wilkie.com eZurich-American Insurance Company eZurich-American Insurance Company Of Illinois Steadfast Insurance Company «Zurich Insurance Company. Ltd. American Guarantee and Liability Insurance Company eOrange Stone Reinsurance Randy Branitsky, Esq. Themis, PLLC 2305 Calvert Street, N.W. Washington, DC 20008 Tel: 202.824.0600 Fax: 202.657.1433 Email: rbranitsky@themis.us.com eZurich-American Insurance Company eZurich-American Insurance Company Of Illinois Steadfast Insurance Company @Zurich Insurance Company, Ltd. eAmerican Guarantee and Liability Insurance Company *Orange Stone Reinsurance Rodney L. Eshelman, Esq. Geoffrey David Godwin, Esq. Sarah Marie Shields, Esq. Robert A. Binion, Esq. CARROLL, BURDICK & MCDONOUGH 44 Montgomery Street, Suite 400 San Francisco, CA 94104 Tel: (415) 989-5900 Fax: (415) 989-0932 reshelman@cbmlaw.com dgodwin@cbmlaw.com sshields@cbmlaw.com rbinion@cbmlaw.com eContinental Casualty Company DB2/21273326.3 PROOF OF SERVICEDonald A. Vogelsang (pro hac vice} GRIPPO & ELDEN, LLC 111 South Wacker Drive Chicago, IL 60606 Tel: (312) 704-7700 Fax: (312) 558-1195 jgitzlaff@grippoelden.com dvogelsang@grippoelden.com eContinental Casualty Company C. Guerry Collins, Esq. Conrad V. Sison, Esq. LOCKE LORD BISSELL & LIDDELL LLP 300 South Grand Avenue, 8th Floor Los Angeles, CA 90071 Tel: (213) 485-1500 Fax: (213) 485-1200 gcollins@lockelord.com csison@lockelord.com California Insurance Guarantee Association Executed on October 19, 2010 at San Francisco, California. I declare under penalty of perjury, under the laws of the State of California and the United States of America, that the foregoing is true and correct. 0B2/21273326.5 Mary C. Wong PROOF OF SERVICE