Subsequent Events	3 Months Ended
Mar. 31, 2020
Subsequent Events
Subsequent Events	22. Subsequent Events: On May 5, 2020, a lawsuit styled Schulze v. Hallmark Financial Services, Inc., et. al (Case No. 3:20-cv-01130) was filed in the U.S. District Court for the Northern District of Texas, Dallas Division. The Company, its Chief Executive Officer and its Chief Financial Officer are named defendants in the lawsuit brought on behalf of a putative class of shareholders who acquired Hallmark securities between March 5, 2019 and March 17, 2020. In general, the complaint alleges that the defendants violated the Securities Exchange Act of 1934 by failing to disclose that (a) the Company lacked effective internal controls over financial reporting related to its reserves for unpaid losses, (b) the Company improperly accounted for reserves for unpaid losses, (c) the Company would be forced to report $63.8 million of prior year net adverse loss development, (d) the Company would exit the contract binding line of its commercial automobile primary insurance business, and (e) the defendants’ positive statements about the Company’s business, operations and prospects were materially misleading and/or lacked a reasonable basis. Defendants’ responsive pleading is not yet due and has not been filed. The litigation is in its initial stages and we are unable to reasonably predict its potential outcome. The Company, however, believes that the lawsuit is without merit and intends to vigorously defend the claims. The Company’s current policy is to expense legal costs as incurred. Historically, the Company has not carried director and officer liability insurance and does not currently hold such a policy. On July 16, 2020, five of the property/casualty insurance subsidiaries of Hallmark, American Hallmark Insurance Company of Texas, Hallmark Specialty Insurance Company, Hallmark Insurance Company, Hallmark County Mutual Insurance Company and Hallmark National Insurance Company (collectively, the “Hallmark Insurers”), entered into a Loss Portfolio Transfer Reinsurance Contract effective as of January 1, 2020 (the “LPT Contract”) with DARAG Bermuda Ltd. (“DARAG Bermuda”) and DARAG Insurance (Guernsey) Limited (“DARAG Guernsey” and, collectively with DARAG Bermuda, the “Reinsurers”). The LPT Contract is anticipated to close on or before August 31, 2020, subject to regulatory approval and other customary closing conditions. Pursuant to the LPT Contract, (a) the Hallmark Insurers will cede to the Reinsurers all existing and future claims for losses occurring on or prior to December 31, 2019 on the binding primary commercial automobile liability insurance policies and the brokerage primary commercial automobile liability insurance policies issued by the Hallmark Insurers (the “Subject Business”) up to an aggregate limit of $240.0 million, with (i) the first layer of $151.2 million in reinsurance provided by DARAG Bermuda, (ii) the Hallmark Insurers retaining a loss corridor of the next $24.9 million in losses on the Subject Business, (iii) DARAG Bermuda reinsuring a second layer of $27.8 million above the first layer and the Hallmark Insurers’ loss corridor, and (iv) DARAG Guernsey reinsuring the top layer of $36.1 million in losses on the Subject Business, in each case net of third-party reinsurance and other recoveries; (b) the Hallmark Insurers will continue to manage and retain the benefit of other third-party reinsurance on the Subject Business; (c) the Hallmark Insurers will pay the Reinsurers a reinsurance premium calculated as $172.9 million less net claims paid prior to the closing date on the subject business; and (d) at closing, the parties will enter into a Trust Agreement and a Services Agreement, the forms of which are exhibits to the LPT Contract . Pursuant to the LPT Contract and the Trust Agreement, the Reinsurers will initially deposit into a collateral trust account as security for the Reinsurers’ obligations to the Hallmark Insurers the sum of $179.0 million less losses paid from January 1, 2020 through the closing date, which amount is subject to subsequent adjustment to be not less than 120% of the Hallmark Insurers’ net reserves on the Subject Business less any amounts due from third-party reinsurers. Pursuant to the LPT Contract and the Services Agreement, the Reinsurers will assume responsibility for certain administrative services, including claims handling, for the Subject Business.

22. Subsequent Events:

On May 5, 2020, a lawsuit styled Schulze v. Hallmark Financial Services, Inc., et. al (Case No. 3:20-cv-01130) was filed in the U.S. District Court for the Northern District of Texas, Dallas Division. The Company, its Chief Executive Officer and its Chief Financial Officer are named defendants in the lawsuit brought on behalf of a putative class of shareholders who acquired Hallmark securities between March 5, 2019 and March 17, 2020. In general, the complaint alleges that the defendants violated the Securities Exchange Act of 1934 by failing to disclose that (a) the Company lacked effective internal controls over financial reporting related to its reserves for unpaid losses, (b) the Company improperly accounted for reserves for unpaid losses, (c) the Company would be forced to report $63.8 million of prior year net adverse loss development, (d) the Company would exit the contract binding line of its commercial automobile primary insurance business, and (e) the defendants’ positive statements about the Company’s business, operations and prospects were materially misleading and/or lacked a reasonable basis. Defendants’ responsive pleading is not yet due and has not been filed. The litigation is in its initial stages and we are unable to reasonably predict its potential outcome. The Company, however, believes that the lawsuit is without merit and intends to vigorously defend the claims. The Company’s current policy is to expense legal costs as incurred. Historically, the Company has not carried director and officer liability insurance and does not currently hold such a policy.

On July 16, 2020, five of the property/casualty insurance subsidiaries of Hallmark, American Hallmark Insurance Company of Texas, Hallmark Specialty Insurance Company, Hallmark Insurance Company, Hallmark County Mutual Insurance Company and Hallmark National Insurance Company (collectively, the “Hallmark Insurers”), entered into a Loss Portfolio Transfer Reinsurance Contract effective as of January 1, 2020 (the “LPT Contract”) with DARAG Bermuda Ltd. (“DARAG Bermuda”) and DARAG Insurance (Guernsey) Limited (“DARAG Guernsey” and, collectively with DARAG Bermuda, the “Reinsurers”). The LPT Contract is anticipated to close on or before August 31, 2020, subject to regulatory approval and other customary closing conditions.

Pursuant to the LPT Contract, (a) the Hallmark Insurers will cede to the Reinsurers all existing and future claims for losses occurring on or prior to December 31, 2019 on the binding primary commercial automobile liability insurance policies and the brokerage primary commercial automobile liability insurance policies issued by the Hallmark Insurers (the “Subject Business”) up to an aggregate limit of $240.0 million, with (i) the first layer of $151.2 million in reinsurance provided by DARAG Bermuda, (ii) the Hallmark Insurers retaining a loss corridor of the next $24.9 million in losses on the Subject Business, (iii) DARAG Bermuda reinsuring a second layer of $27.8 million above the first layer and the Hallmark Insurers’ loss corridor, and (iv) DARAG Guernsey reinsuring the top layer of $36.1 million in losses on the Subject Business, in each case net of third-party reinsurance and other recoveries; (b) the Hallmark Insurers will continue to manage and retain the benefit of other third-party reinsurance on the Subject Business; (c) the Hallmark Insurers will pay the Reinsurers a reinsurance premium calculated as $172.9 million less net claims paid prior to the closing date on the subject business; and (d) at closing, the parties will enter into a Trust Agreement and a Services Agreement, the forms of which are exhibits to the LPT Contract . Pursuant to the LPT Contract and the Trust Agreement, the Reinsurers will initially deposit into a collateral trust account as security for the Reinsurers’ obligations to the Hallmark Insurers the sum of $179.0 million less losses paid from January 1, 2020 through the closing date, which amount is subject to subsequent adjustment to be not less than 120% of the Hallmark Insurers’ net reserves on the Subject Business less any amounts due from third-party reinsurers. Pursuant to the LPT Contract and the Services Agreement, the Reinsurers will assume responsibility for certain administrative services, including claims handling, for the Subject Business.