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Enron Mail |
Leslie:
Just 2 comments to this: 1. Should we mention their ability to exercise subrogation rights and the effect it may have on our counterparties? This is really not a risk as much as it is a relationship issue. 2. With respect to Section 6.1(a), based on last night's conversation, I doubt very much that they will remove the reference to counterparties. They really feel that this is a risk taht we should bear given our relationship to the counterparties. Bill is speaking with them about this issue this morning. Carol St. Clair EB 3892 713-853-3989 (Phone) 713-646-3393 (Fax) carol.st.clair@enron.com Leslie Hansen 06/28/2000 02:53 PM To: Carol St Clair/HOU/ECT@ECT cc: Subject: Legal risk factors for Dash Carol: Gaurav asked me to summarize all relevant risks associated with the Reliable Power Product for the Dash. Please let me know if you think I should add or revise anything: 1. Section 8.3 indemnity obligation -- We are required to indemnify the insurer from any third party claims arising out of the insurer's performance under the policy except for a claim by a swap counterparty based upon our refusal to pay out on the swap because the insurer denied coverage. We hope to have a one-year limitation on this obligation; however, this limitation would be subject to tolling in an insolvency situation. 2. The insurer is permitted to revoke coverage for up to one year if there is a fraud or material misrepresentation or omission by ENA in obtaining coverage. (The current version of the policy also provides for revocation if the insurer subsequently discovers fraud on the part of the swap counterparty. However, we intend to eliminate this from the insurance policy if possible.) ENA is not limited to the group of employees administering the auction but rather includes the entire organization. Therefore, we could pay out on a swap to a counterparty after the insurer had approved coverage and face a situation where the insurer changed its mind and decided to deny coverage based on, e.g., a material omission by ENA in failing to provide relevant information relating to coverage at the time the claim was presented. Absent counterparty fraud, we would not be able to go back to our counterparty and demand reimbursement on the swap. 3. Credit risk -- The insurer fails to pay out upon the occurrence of an Insured Event while we are required to pay out to our swap counterparty in the underlying swap. 4. Loss adjustment credit risk -- If the price we use to pay a counterparty under the swap is subsequently corrected by the floating price source, we may be require to make a payment to our counterparty under the swap before the insurer makes a payment to us for the loss adjustment. However, if the price adjustment results in a refund being owed to us by our counterparty, we may have to pay the insurer the amount of the refund before we actually get a refund from our counterparty. 5. Under Section 6.1(b), the insurer can deny coverage based upon any breach of our duties under the policy. For instance, if we fail to comply with the notice requirements for presenting a claim, we forego our right to coverage. However, we will still be required to pay out on the underlying swap. Leslie
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