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Commitments and Contingencies | 3 Months Ended
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Mar. 31, 2024
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Litigation We are involved in claims-related legal actions arising in the ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and LAE during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our estimates based on its analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation. On October 20, 2023, we received notice that the DFS filed a notice of claim and demand for tender of insurance policy limits under our director and officer insurance to carriers participating in our director and officer’s insurance program (the “Claim”). The Claim alleges that former officers and directors of UPC were involved in wrongful acts that resulted in UPCs insolvency and demands immediate tender of our director and officer’s policy limit of $40,000,000 where we have a retention of $1,500,000. The former directors and officers of UPC deny the allegations. Although no litigation has arisen from the Claim, litigation is anticipated. The directors and officers plan to vigorously defend against the Claim; however, due to our indemnification obligation, during 2023, we accrued the policy retention amount of $1,500,000. This claim remains open as of March 31, 2024. Commitments to fund partnership investments We have fully funded one limited partnership investment. We have no unfunded commitments at March 31, 2024 and December 31, 2023. Leases We, as lessee, have entered into leases of commercial office space of various term lengths. In addition to office space, we lease office equipment and a parking lot under operating leases. The classification of operating and lease asset and liability balances within the Unaudited Condensed Consolidated Balance Sheets was as follows:
|  | Financial Statement Line |  | March 31, 2024 |  | December 31, 2023
Assets |  |  |  |  |  |
Operating lease assets |  | Other assets |  | $ | 97 |  |  | $ | 593 |
Total lease assets |  |  |  | $ | 97 |  |  | $ | 593 |
Liabilities |  |  |  |  |  |
Operating lease liabilities |  | Operating lease liability |  | $ | 105 |  |  | $ | 776 |
Total lease liabilities |  |  |  | $ | 105 |  |  | $ | 776 |
The components of lease expenses were as follows:
|  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2024 |  | 2023
Operating lease expense |  |  |  |  |  | $ | 97 |  |  | $ | 222 |
Financing lease expense: |  |  |  |  |  |  |  |
Amortization of leased assets |  |  |  |  |  | — |  |  | 7 |
Net lease expense |  |  |  |  |  | $ | 97 |  |  | $ | 229 |
At March 31, 2024, future minimum gross lease payments relating to these non-cancellable operating lease agreements were as follows:
|  |  |  |  |  | March 31, 2024
Remaining in 2024 |  |  |  |  |  | $ | 59 |
2025 |  |  |  |  |  | 49 |
2026 |  |  |  |  |  | 8 |
2027 |  |  |  |  |  | — |
Total undiscounted future minimum lease payments |  |  |  |  |  | 116 |
Less: Imputed interest |  |  |  |  |  | (11) |
Present value of lease liabilities |  |  |  |  |  | $ | 105 |
Weighted average remaining lease term and discount rate related to operating leases were as follows:
|  | March 31, 2024 |  | December 31, 2023
Weighted average remaining lease term (months) |  | 20 |  |  | 17 |
Weighted average discount rate |  | 3.47 | % |  | 3.30 | %
There were no other cash or non-cash related activities during the three months ended March 31, 2024 and 2023. Capital lease amortization expenses are included in depreciation expense in our Unaudited Condensed Consolidated Statements of Comprehensive Income. See Note 7 of these Notes to Unaudited Condensed Consolidated Financial Statements for more information regarding depreciation expense, Note 11 for information regarding commitments related to long-term debt, and Note 14 for information regarding commitments related to regulatory actions. Subleases We previously leased and occupied office space in which we no longer operate. Effective October 1, 2022, this office space was subleased to a third-party. The sublease was effective from October 1, 2022 through July 31, 2025, with no option to extend. However, on February 29, 2024, this sublease was cancelled as a part of an agreement to terminate the original lease associated with the office space. During the three months ended March 31, 2024, we recognized $33,000 of income related to this sublease, exclusive of the lease expense associated with the original lease. Employee Retention Credit A series of legislation was enacted in the United States during 2020 and 2021 in response to the COVID-19 pandemic that provided financial relief for businesses impacted by government-mandated shutdowns, work stoppages, or other losses suffered by employers. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided an employee retention credit, which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee. During the second quarter of 2022, we evaluated our eligibility and filed for a $10,161,000 refund in connection with our Employee Retention Tax Credit for the tax year ended December 31, 2021. As of March 31, 2024, we have received $5,718,000 from the IRS related to this refund. A gain contingency is an uncertain situation that will be resolved in the future, possibly resulting in a gain. We have not recognized this gain contingency of $10,161,000 within our financial statements except for the $5,718,000 that has already been received. Quota Share Commission Loss Contingency AmCoastal participates in shared quota-share reinsurance agreements with our former subsidiary, UPC, which are subject to a variable ceding commission based on loss experience. With the receivership of UPC in 2023, we have not received data related to UPC losses that could unfavorably shift AmCoastal’s commission related to these contracts. In addition, we cannot reasonably determine how this shift will be allocated between the contracted parties. Until we receive this loss data and provide the updated calculations to both our reinsurance partners and the DFS, as receiver of UPC, we are unable to estimate the impact, however, we believe a loss contingency related to these commissions may exist as of March 31, 2024. We will continue to monitor the matter for further developments that could affect the outcome of these contingencies and will make any appropriate adjustments each quarter.

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