[E008]

ECO—extra contractual obligations
A clause in a reinsurance agreement providing coverage of the reinsured company for obligations (such as punitive damages levied against the company) that arise outside of, but which are related to a policy issued by the company. In pro rata treaties, coverage is usually for the same percentage share of the extra contractual loss as of the contractual loss. In excess agreements, coverage usually provides for 80% of the extra contractual obligation to be added to the contractual loss prior to deducting the retention. Both pro rata and excess contracts usually provide that inclusion of ECO will not serve to increase the reinsurer's exposure beyond the limit of the applicable agreement.