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After January 1, 1984, petitioner continued to perform all these
functions and activities. This continuity in petitioner's EVC
activity after January 1, 1984, was consistent with a plan
petitioner had formulated during 1983.
During 1983 petitioner asked AIG to submit a proposal for
restructuring petitioner's excess value program. AIG's proposal
contemplated that NUF would perform in a "fronting" capacity; a
capacity in which NUF would receive excess value income under the
Shippers Interest contract and reinsure its liability under the
Shippers Interest contract with OPL. In his letter dated April
27, 1983, Mr. Corde, of Hall, stated that NUF would exist "in a
fronting capacity with essentially no risk or exposure to loss
under the program." NUF retained an even $1 million in 1984 as a
fronting service fee for agreeing to reinsure the Shippers
Interest contract with OPL.27
Mr. Smetana of AIG proposed that petitioner would continue
to collect EVC's from shippers, administer and pay all valid
claims, and remit excess value amounts to NUF net of claims. Mr.
Smetana also proposed that petitioner be responsible for
uncollectible EVC's. Mr. Smetana reasoned that "since * * *
27A front has been generally described as an arrangement
whereby an insurance company allows another company to use its
name for a fee. See Old Sec. Life Ins. Co. v. Continental Ill.
Natl. Bank & Trust, 740 F.2d 1384, 1387 n.2 (7th Cir. 1984); see
also Northwestern Natl. Ins. Co. v. Marsh & McLennan, Inc., 817
F. Supp. 1424, 1426 (E.D. Wis. 1993).
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