Exhibit 10-14-iv
PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE PROGRAM N0. 26-000
REINSURANCE CONTRACT NOS. 36881/36882/36883/36884-000
(hereinafter referred to as the "Contract")
between
PENN-AMERICA INSURANCE COMPANY
PENN-STAR INSURANCE COMPANY
Hatboro, Pennsylvania
And any additional company established or acquired by the Company
(hereinafter collectively referred to as the "Company")
and
THE SUBSCRIBING REINSURER(S) EXECUTING THE
INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED HERETO
(hereinafter referred to as the "Reinsurer")
ARTICLE I
BUSINESS COVERED
The Reinsurer shall indemnify the Company as provided herein
for the amounts specified in Exhibit A, attached to and made
part of this Contract, in respect of the net excess liability
which may accrue to the Company as a result of any loss or
losses which may occur during the term of this Contract under
any and all binders, policies and contracts of insurance and
reinsurance (hereinafter referred to as "Policies") heretofore
or hereafter issued by or on behalf of the Company and
classified by the Company as Property Business, including but
not limited to:
Fire and Allied Lines
Inland Marine
Commercial Multiple Peril (Property Coverages)
PAGE 1 of 19
Business Owner's Policies (BOPs) (Property Coverages)
Automobile Physical Damage (excluding Collision but
including Garage Keepers and Garage Physical Damage)
ARTICLE II
ORIGINAL CONDITIONS
The liability of the Reinsurer shall follow that of the
Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and
modifications of the Company's policies and any endorsements
thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set
forth in this Contract.
Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
ARTICLE III
EXCLUSIONS
The following shall be excluded from the scope of this
Contract:
▇. ▇▇▇▇▇▇▇ Treaty Reinsurance other than:
(1) Reinsurance from affiliates,
(2) Local agency reinsurance on a share basis
accepted in the normal course of business,
(3) Reinsurance assumed from State and County
Mutuals;
B. Pools, Associations and Syndicates pursuant to the
"Pools, Associations and Syndicates Exclusion
Clause", attached hereto;
C. Insolvency Funds pursuant to the "Insolvency Fund
Exclusion Clause", attached hereto;
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D. War Risks pursuant to the "War Exclusion Clause",
attached hereto;
E. Nuclear Incident pursuant to the "Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance -
U.S.A.", attached hereto;
F. Losses arising out of Extra Contractual Obligations
and/or Excess of Original Policy Limits Judgments,
which judgment(s) have been finally adjudicated.
The term "Extra Contractual Obligations" is defined
as those liabilities not covered under any other
provision of this Contract and which arise from the
handling of any claim on business covered hereunder,
such liabilities arising because of, but not limited
to, the following: failure by the Company to settle
within the Policy limit, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the
defense or in the trial of any action against its
insured or in the preparation or prosecution of an
appeal consequent upon such action.
The term "Excess of Original Policy Limits" is
defined as those liabilities which arise in
connection with any judgment in excess of the limit
of the original Policy, such loss in excess of the
limit having been incurred because of failure by the
Company to settle within the Policy limit or by
reason of alleged or actual negligence, fraud, or bad
faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any
action against its insured or in the preparation or
prosecution of an appeal consequent upon such action.
G. Losses in respect of overhead transmission and
distribution lines and their supporting structures,
other than those on or within 300 meters (or 1,000
feet) of the insured premises. It is understood and
agreed that public utilities extension and/or
suppliers extension and/or contingent business
interruption coverages are not subject to this
exclusion, provided that these are not part of a
transmitters' or distributors' Policy;
▇. ▇▇▇▇▇▇▇▇▇ to the extent that it is excluded under the
Company's original Policies;
I. Rolling stock;
J. Satellite business;
K. Insurance on growing crops;
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▇. ▇▇▇▇▇▇▇▇▇▇ In Conditions Insurance, however styled;
M. Boiler and Machinery.
ARTICLE IV
TERM AND CANCELLATION
The term of this Contract shall be from 12:01 A.M., January 1,
2000 to 12:01 A.M., January 1, 2002 at the location of the
Loss Occurrence.
The Company shall have the option to cancel and rewrite this
Contract at terms to be agreed as of 12:01 A.M., Eastern Time,
January 1, 2001.
In addition, in the event of a loss to the program during the
first Annual Period, the Reinsurer has the option to cancel
and rewrite this Contract at terms to be agreed as of 12:01
A.M., Eastern Time, January 1, 2001.
If the liability of the Reinsurer under this Contract
terminates while a Loss Occurrence giving rise to a claim
hereunder is in progress, then the Reinsurer shall be liable
as if the whole Loss Occurrence had occurred during the term
of this Contract, provided that no part of that Loss
Occurrence is claimed against any renewal or replacement of
this Contract.
ARTICLE V
TERRITORY
The territorial limits of this Contract will follow those of
the Company's Policies.
ARTICLE VI
DEFINITION OF ANNUAL PERIOD
"Annual Period" shall mean the two separate twelve month
periods, 12:01 A.M., January 1, 2000 through 12:01 A.M.,
January 1, 2001 and 12:01 A.M., January 1, 2001 through 12:01
A.M., January 1, 2002.
PAGE 4 of 19
ARTICLE VII
AMOUNT OF COVERAGE AND RETENTION
First and Second Excesses
For each Loss Occurrence, the Reinsurer shall be liable for
each excess layer for the amount of Ultimate Net Loss in
excess of the "Company Retention" for such excess layer stated
in Item 1 of Exhibit A.
The limit of liability of the Reinsurer under each excess
layer in respect of any one Loss Occurrence shall not exceed
ninety-seven and one-half percent (97.50%) of the "Each Loss
Occurrence Limit" as stated in Item 2 of Exhibit A for such
excess layer.
The limit of liability of the Reinsurer under each excess
layer in respect of all Loss Occurrences during each Annual
Period of this Contract shall not exceed ninety-seven and
one-half percent (97.50%) of the "Limit for all Loss
Occurrences" as stated in Item 3 of Exhibit A for such excess
layer.
The coverage hereunder is subject to at least two risks being
involved in the same Loss Occurrence.
The Company shall be the sole judge of what constitutes each
risk.
"Company Retention" shall be satisfied if this amount is
retained by the Company or any affiliated company under common
management or common ownership.
Third and Fourth Excesses
For each Loss Occurrence, the Reinsurer shall be liable for
each excess layer for the amount of Ultimate Net Loss in
excess of the "Company Retention" for such excess layer stated
in Item 1 of Exhibit A.
The limit of liability of the Reinsurer under each excess
layer in respect of any one Loss Occurrence shall not exceed
one hundred percent (100.00%) of the "Each Loss Occurrence
Limit" as stated in Item 2 of Exhibit A for such excess layer.
The limit of liability of the Reinsurer under each excess
layer in respect of all Loss Occurrences during each Annual
Period of this Contract shall not exceed one hundred percent
(100.00%) of the "Limit for all Loss Occurrences" as stated in
Item 3 of Exhibit A for such excess layer.
PAGE 5 of 19
The coverage hereunder is subject to at least two risks being
involved in the same Loss Occurrence.
The Company shall be the sole judge of what constitutes each
risk.
"Company Retention" shall be satisfied if this amount is
retained by the Company or any affiliated company under common
management or common ownership.
ARTICLE VIII
ULTIMATE NET LOSS
The term "Ultimate Net Loss" shall mean the amount that the
Company pays, or becomes liable to pay, such loss to include
all expenses incurred by the Company in connection with the
settlement of losses or resistance to or negotiations
concerning a loss (including expenses for claim specific
Declaratory Judgment Actions whether or not successful) and
including salaries and expenses of employees of the Company
while diverted from their normal duties to the service of
field adjustment, but shall not include office expenses of the
Company.
All salvages and recoveries and payments (net of the cost of
obtaining any salvage, recovery or payment), whether recovered
or received prior or subsequent to loss settlement under this
Contract, including amounts recoverable under all reinsurances
whether collected or not, shall be applied as if recovered or
received prior to the aforesaid settlement and shall be
deducted from the actual loss incurred to arrive at the amount
of Ultimate Net Loss.
Nothing in this Article shall be construed to mean losses are
not recoverable under this Contract until the Ultimate Net
Loss to the Company has been ascertained.
ARTICLE IX
NET RETAINED LINES
This Contract applies to only that portion of any Policy which
the Company retains net for its own account and, in
calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this
Contract attaches, only loss or losses in respect of that
portion of any Policy which the Company retains net for its
own account shall be included.
PAGE 6 of 19
The amount of the Reinsurer's liability hereunder in respect
of any loss shall not be increased by reason of the inability
of the Company to collect from any other Reinsurer, whether
specific or general, any amounts which may have become due
whether such inability arises from the insolvency of such
other Reinsurer or otherwise.
ARTICLE X
UNDERLYING EXCESS REINSURANCE
(Applicable to the Second, Third and Fourth Layers only)
The Company has in force underlying catastrophe excess of loss
reinsurance and recoveries thereunder shall be disregarded for
all purposes of this Contract and shall inure to the sole
benefit of the Company.
ARTICLE XI
DEFINITION OF LOSS OCCURRENCE
The term "Loss Occurrence" shall mean the sum of all
individual losses directly occasioned by any one disaster,
accident or loss, or series of disasters, accidents or losses
arising out of one event, which occurs anywhere in the world
but limited in the United States of America and the Dominion
of Canada to within the area of one state of the United States
or province of Canada and states or provinces contiguous
thereto and to one another. The duration and extent of any one
"Loss Occurrence" shall be limited to all individual losses
sustained by the Company occurring during any period of 168
consecutive hours arising out of and directly occasioned by
the same event. The term "Loss Occurrence" shall be further
defined as follows:
A. As regards windstorm, hail, tornado,
hurricane, cyclone, including ensuing
collapse and water damage, all individual
losses sustained by the Company occurring
during any period of 72 consecutive hours
arising out of and directly occasioned by
the same event. However, the event need not
be limited to one state or province or
states or provinces contiguous thereto.
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B. As regards riot, riot attending a strike,
civil commotion, vandalism and malicious
mischief, all individual losses sustained by
the Company occurring during any period of
72 consecutive hours within the area of one
municipality or county and the
municipalities or counties contiguous
thereto arising out of and directly
occasioned by the same event. The maximum
duration of 72 consecutive hours may be
extended in respect of individual losses
which occur beyond such 72 consecutive hours
during the continued occupation of an
insured's premises by strikers, provided
such occupation commenced during the
aforesaid period.
C. As regards earthquake (the epicentre of
which need not necessarily be within the
territorial confines referred to in the
opening paragraph of this Article) and fire
following directly occasioned by the
earthquake, only those individual fire
losses which commence during the period of
168 consecutive hours may be included in the
Company's "Loss Occurrence".
D. As regards "Freeze", only individual losses
directly occasioned by collapse, breakage of
glass and water damage (caused by bursting
of frozen pipes and tanks) may be included
in the Company's "Loss Occurrence".
For all "Loss Occurrences", except as referred to under
sub-paragraph B above, the Company may choose the date and
time when any such period of consecutive hours commences,
provided that it is not earlier than the date and time of the
occurrence of the first recorded individual loss sustained by
the Company arising out of that disaster, accident, or loss
and provided that only one such period of 168 consecutive
hours shall apply with respect to one event, except for those
"Loss Occurrences" referred to in sub-paragraph A above, where
only one such period of seventy-two (72) consecutive hours
shall apply with respect to one event, regardless of the
duration of the event.
As respect those "Loss Occurrences" referred to in
sub-paragraph B above, if the disaster, accident or loss
occasioned by the event is of greater duration than 72
consecutive hours, then the Company may divide that disaster,
accident, or loss into two or more "Loss Occurrences",
provided no two periods overlap and no individual loss is
included in more than one such period and provided that no
period commences earlier than the date and time of the
occurrence of the first recorded individual loss sustained by
the Company arising out of that disaster, accident or loss.
PAGE 8 of 19
No individual losses occasioned by an event that would be
covered by 72 hours clauses may be included in any "Loss
Occurrence" claimed under the 168 hours provision.
ARTICLE XII
NOTICE OF LOSS AND LOSS SETTLEMENT
The Company shall adjust, settle, or compromise all claims and
losses hereunder.
All loss settlements by the Company, including ex-gratia
payments, which comply with the terms hereof shall be
unconditionally binding upon the Reinsurer.
The Company shall advise the Reinsurer promptly of all claims
and any subsequent developments pertaining thereto, which may,
in the Company's opinion, develop into losses involving
reinsurance hereunder. Inadvertent omission or oversight in
dispatching such advices shall in no way affect the liability
of the Reinsurer under this Contract, provided the Company
informs the Reinsurer of such omission or oversight promptly
upon its discovery.
The Reinsurer shall tender all loss payments as soon as
practicable, but in no case longer than forty-five (45) days,
after receipt of a satisfactory proof of loss.
ARTICLE XIII
PREMIUM
The premium to be paid to the Reinsurer for each layer of
Property Catastrophe Excess of Loss Reinsurance provided by
this Contract shall be calculated by applying the
corresponding premium rate stated in Item 6 of Exhibit A to
the Gross Net Written Premium Income accounted for by the
Company during each Annual Period of this Contract on all
business the subject matter of this Contract.
"Gross Net Written Premium Income" is defined as gross written
premiums less return premiums and less premiums paid for
reinsurances, recoveries under which inure to the benefit of
this Contract.
PAGE 9 of 19
For each layer of Property Catastrophe Excess of Loss
Reinsurance provided by this Contract for the first Annual
Period, the Company shall pay to the Reinsurer the
corresponding annual deposit premium stated in Item 4 of
Exhibit A in quarterly installments of the amount stated in
Item 5 of Exhibit A, due January 1, 2000, April 1, 2000, July
1, 2000 and October 1, 2000.
For the second Annual Period, the annual deposit premium shall
be calculated at one hundred percent (100%) of the estimated
reinsurance premium and shall be payable in quarterly
installments of twenty-five percent (25%) of the annual
deposit premium, due at January 1, 2001, April 1, 2001, July
1, 2001 and October 1, 2001.
Within ninety (90) days following the expiration of each
Annual Period of this Contract, the Company shall render to
the Reinsurer a statement of premium due for each excess layer
calculated in accordance with the first paragraph of this
Article. An adjustment of premium shall thereupon be made in
accordance with the statement submitted by the Company,
subject to the corresponding annual minimum premium stated in
Item 7 of Exhibit A being due the Reinsurer for the first
Annual Period. For the second Annual Period, the annual
minimum premium shall be calculated at eighty percent (80%) of
the annual deposit premium.
ARTICLE XIV
REINSTATEMENT
Each claim under each layer of Property Catastrophe Excess
Reinsurance provided by this Contract reduces the amount of
indemnity for each Annual Period under such excess layer from
the time of occurrence of the loss by the amount of the claim
paid, but such amount is hereby reinstated on a pro rated
basis from the time of occurrence of the loss in consideration
of payment by the Company of an additional premium calculated
by applying to the final adjusted premium for each Annual
Period under such excess layer the percentage of the Reinsurer
limit stated in Item 2 of Exhibit A which is reinstated. Such
additional premium shall be paid by the Company when any loss
payments are made by the Reinsurer. Nevertheless, the
Reinsurer's liability under each excess layer shall never
exceed ninety-seven and one half percent (97.50%) for the
First and Second Excesses and one-hundred percent (100.00%)
for the Third and Fourth Excesses of the limit stated in Item
2 of Exhibit A in respect of any one Loss Occurrence and
ninety-seven and one half percent (97.50%) for the First and
Second Excesses and one-hundred percent (100.00%) for the
Third and Fourth Excesses of the limit stated in Item 3 of
Exhibit A in respect of all Loss Occurrences during each
Annual Period of this Contract.
PAGE 10 of 19
In the event a reinstatement premium becomes due hereunder
before such time as the actual premium has been calculated (as
provided for in Article XIII - Premium), the Company shall pay
to the Reinsurer a provisional reinstatement premium based on
the deposit premium hereunder. The provisional reinstatement
premium shall be adjusted as soon as the actual premium has
been established.
ARTICLE XV
CURRENCY
Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered on the books
of the Company.
ARTICLE XVI
UNAUTHORIZED REINSURANCE
(Applies only to a Reinsurer who does not qualify for full
credit with any insurance regulatory authority having
jurisdiction over the Company's reserves.)
As regards policies or bonds issued by the Company coming
within the scope of this Contract, the Company agrees that
when it shall file with the insurance regulatory authority or
set up on its books reserves for losses covered hereunder
which it shall be required by law to set up, it will forward
to the Reinsurer a statement showing the proportion of such
reserves which is applicable to the Reinsurer. The Reinsurer
hereby agrees to fund such reserves in respect of known
outstanding losses that have been reported to the Reinsurer
and allocated loss adjustment expense relating thereto, losses
and allocated loss adjustment expense paid by the Company but
not recovered from the Reinsurer, plus reserves for losses
incurred but not reported, as shown in the statement prepared
by the Company (hereinafter referred to as "Reinsurer's
Obligations") by funds withheld, cash advances or a Letter of
Credit. The Reinsurer shall have the option of determining the
method of funding provided it is acceptable to the insurance
regulatory authorities having jurisdiction over the Company's
reserves.
PAGE 11 of 19
When funding by a Letter of Credit, the Reinsurer agrees to
apply for and secure for timely delivery to the Company (in
accordance with the Company's reporting requirements) a clean,
irrevocable and unconditional Letter of Credit issued by a
bank and containing provisions acceptable to the insurance
regulatory authorities having jurisdiction over the Company's
reserves in an amount equal to the Reinsurer's proportion of
said reserves. Such Letter of Credit shall be issued for a
period of not less than one year, and shall be automatically
extended for one year from its date of expiration or any
future expiration date unless thirty (30) days (sixty (60)
days where required by insurance regulatory authorities) prior
to any expiration date the issuing bank shall notify the
Company by certified or registered mail that the issuing bank
elects not to consider the Letter of Credit extended for any
additional period.
The Reinsurer and Company agree that the Letters of Credit
provided by the Reinsurer pursuant to the provisions of this
Contract may be drawn upon at any time, notwithstanding any
other provision of this Contract, and be utilized by the
Company or any successor, by operation of law, of the Company
including, without limitation, any liquidator, rehabilitator,
receiver or conservator of the Company for the following
purposes, unless otherwise provided for in a separate Trust
Agreement:
A. to reimburse the Company for the Reinsurer's
Obligations, the payment of which is due under the
terms of this Contract and which has not been
otherwise paid;
B. to make refund of any sum which is in excess of the
actual amount required to pay the Reinsurer's
Obligations under this Contract;
C. to fund an account with the Company for the
Reinsurer's Obligations. Such cash deposit shall be
held in an interest bearing account separate from the
Company's other assets, and interest thereon not in
excess of the prime rate shall accrue to the benefit
of the Reinsurer;
D. to pay the Reinsurer's share of any other amounts the
Company claims are due under this Contract.
In the event the amount drawn by the Company on any Letter of
Credit is in excess of the actual amount required for A. or
C., or in the case of D., the actual amount determined to be
due, the Company shall promptly return to the Reinsurer the
excess amount so drawn. All of the foregoing shall be applied
without diminution because of insolvency on the part of the
Company or the Reinsurer.
PAGE 12 of 19
The issuing bank shall have no responsibility whatsoever in
connection with the propriety of withdrawals made by the
Company or the disposition of funds withdrawn, except to
ensure that withdrawals are made only upon the order of
properly authorized representatives of the Company.
At annual intervals, or more frequently as agreed but never
more frequently than quarterly, the Company shall prepare a
specific statement of the Reinsurer's Obligations, for the
sole purpose of amending the Letter of Credit, in the
following manner.
A. If the statement shows that the Reinsurer's
Obligations exceed the balance of credit as of the
statement date, the Reinsurer shall, within thirty
(30) days after receipt of notice of such excess,
secure delivery to the Company of an amendment to the
Letter of Credit increasing the amount of credit by
the amount of such difference.
B. If, however, the statement shows that the Reinsurer's
Obligations are less than the balance of credit as of
the statement date, the Company shall, within thirty
(30) days after receipt of written request from the
Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing
the amount of credit available by the amount of such
excess credit.
ARTICLE XVII
ACCESS TO RECORDS
The Company shall place at the disposal of the Reinsurer and
the Reinsurer shall have the right to inspect through its
authorized representative, at all reasonable times during the
term of this Contract and thereafter, the books, records and
papers of the Company pertaining to the reinsurance provided
hereunder and all claims made in connection therewith.
ARTICLE XVIII
OFFSET
The Company and the Reinsurer, each at its option, may offset
any balance or balances, whether on account of premiums,
claims and losses, loss expenses or salvages due from one
party to the other under this Contract; provided, however,
that in the event of the insolvency of a party hereto, offsets
shall only be allowed in accordance with applicable statutes
and regulations.
PAGE 13 of 19
ARTICLE XIX
ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to
relieve either party hereto from any liability which would
attach to either party if such delay, omission or error had
not been made, provided such delay, omission or error is
rectified as soon as practicable after discovery.
ARTICLE XX
BINDING ARBITRATION
If any dispute shall arise between the parties to this
Contract, either before or after its termination, with
reference to the interpretation of this Contract, including
the formation or validity thereof, or the rights of either
party with respect to any transactions under this Contract,
the dispute shall be referred to three (3) arbitrators. One
arbitrator is to be chosen by each party and the third by the
two so chosen. If either party refuses or neglects to appoint
an arbitrator within thirty (30) days after the receipt of
written notice from the other party requesting it to do so,
the requesting party may nominate two (2) arbitrators who
shall choose the third.
In the event the arbitrators do not agree on the selection of
the third arbitrator within thirty (30) days, each arbitrator
shall name three (3), of whom the other arbitrator shall
decline two (2) and the decision shall be made by drawing
lots. All arbitrators shall be executive or retired officers
of insurance or reinsurance companies or underwriters at
Lloyd's of London, not under the control of either party to
this Contract.
If more than one Reinsurer is involved in the same dispute,
all such Reinsurers shall constitute and act as one party for
the purposes of this Article, provided, however, that nothing
herein shall impair the rights of such Reinsurers to assert
several, rather than joint, defenses or claims, nor be
construed as changing the liability of the Reinsurer under the
terms of this Contract from several to joint.
Each party shall submit its case to the arbitrators within
thirty (30) days of the appointment of the arbitrators. The
arbitrators shall consider this Contract an honorable
engagement rather than merely a legal obligation; they are
relieved of all judicial formalities and may abstain from
following the strict rules of law. The decision of a majority
of the arbitrators shall be final and binding on both the
Company and the Reinsurer. Judgment may be entered upon the
award of the arbitrators in any court having jurisdiction.
PAGE 14 of 19
Each party shall bear the fee and expenses of its own
arbitrator, one half of the fees and the expenses of the third
arbitrator and one half of the other expenses of the
arbitration. In the event both arbitrators are chosen by one
party, the fees of the arbitrators shall be equally divided
between parties.
Any such arbitration shall take place in Hatboro,
Pennsylvania, unless some other location is mutually agreed
upon by the parties.
ARTICLE XXI
INSOLVENCY
The reinsurance under this Contract shall be payable by the
Reinsurer on the basis of the liability of one or more of the
Companies under the Policy or Policies reinsured without
diminution because of the insolvency of one or more of the
Companies reinsured or because the liquidator, receiver,
conservator or statutory successor of the Company(ies) has
failed to pay all or a portion of any claim.
In the event of the insolvency of one or more of the Companies
reinsured, the liquidator, receiver, conservator or statutory
successor of the Company(ies) shall give written notice to the
Reinsurer of the pendency of a claim against the insolvent
Company(ies) on the Policy or Policies reinsured within a
reasonable time after such claim is filed in the insolvency
proceeding and during the pendency of such claim the Reinsurer
may investigate such claim and interpose, at its own expense,
in the proceeding where such claim is to be adjudicated any
defense or defenses which it may deem available to the Company
(ies) or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to court approval, against the insolvent
Company(ies) as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may
accrue to the Company(ies) solely as a result of the defense
undertaken by the Reinsurer.
Where two or more Reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the Company(ies).
PAGE 15 of 19
In the event of the insolvency of one or more of the Companies
reinsured, the reinsurance under this Contract shall be
payable by the Reinsurer directly to the Company(ies) or to
the liquidator, receiver, conservator or statutory successor,
except as provided by Subsection (A) of Section 4118 of the
Insurance Law of New York or except where (I) the Contract
specifies another payee of such reinsurance in the event of
the insolvency of the Company(ies) and (II) the Reinsurer with
the consent of the direct insureds and, with the prior
approval of the Superintendent of Insurance of New York to the
certificate of assumption issued to New York direct insureds,
has assumed such Policy obligations of the Company(ies) as its
direct obligations to the payees under such Policies, in
substitution for the obligations of the Company(ies) to such
payees.
ARTICLE XXII
SERVICE OF SUIT
(This Article only applies to reinsurers domiciled outside of
the United States and/or unauthorized in any state, territory,
or district of the United States having jurisdiction over the
Company).
It is agreed that in the event of the failure of the Reinsurer
hereon to pay any amount claimed to be due hereunder, the
Reinsurer hereon, at the request of the Company, will submit
to the jurisdiction of a court of competent jurisdiction
within the United States. Nothing in this clause constitutes
or should be understood to constitute a waiver of the
Reinsurer's rights to commence an action in any court of
competent jurisdiction in the United States, to remove an
action to a United States District Court, or to seek a
transfer of a case to another court as permitted by the laws
of the United States or of any state in the United States. It
is further agreed that service of process in such suit may be
made upon Mendes & Mount, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, and that in any suit instituted against the
Reinsurer upon this Contract, the Reinsurer will abide by the
final decision of such court or of any appellate court in the
event of an appeal.
The above-named are authorized and directed to accept service
of process on behalf of the Reinsurer in any such suit and/or
upon the request of the Company to give a written undertaking
to the Company, that they will enter a general appearance upon
the Reinsurer's behalf in the event such a suit shall be
instituted.
PAGE 16 of 19
Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereon hereby designates the Superintendent,
Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon
whom may be served any lawful process in any action, suit or
proceeding instituted by or on behalf of the Company or any
beneficiary hereunder arising out of this Contract of
reinsurance, and hereby designates the above-named as the
person to whom the said officer is authorized to mail such
process or a true copy thereof.
ARTICLE XXIII
TAXES
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of
the premium hereon when making tax returns, other than income
or profits tax returns, to any state or territory of the
United States of America or the District of Columbia.
ARTICLE XXIV
FEDERAL EXCISE TAX
(Applicable to those Reinsurers, excepting underwriters at
Lloyd's London and other Reinsurers exempt from Federal Excise
Tax, who are domiciled outside the United States of America.)
The Reinsurer has agreed to allow for the purpose of paying
the Federal Excise Tax the applicable percentage of the
premium payable hereon (as imposed under Section 4371 of the
Internal Revenue Code) to the extent such premium is subject
to the Federal Excise Tax.
In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the
return premium payable hereon and the Company or its agent
should take steps to recover the tax from the United States
Government.
PAGE 17 of 19
ARTICLE XXV
GOVERNING LAW
This Contract shall be governed as to performance,
administration and interpretation by the laws of the State of
Pennsylvania, exclusive of the rules with respect to conflicts
of law, except as to rules with respect to credit for
reinsurance in which case the applicable rules of all states
shall apply.
ARTICLE XXVI
CONFIDENTIALITY
The Reinsurer, except with the express prior written consent
of the Company, shall not directly or indirectly, communicate,
disclose or divulge to any third party, any knowledge or
information that may be acquired either directly or indirectly
as a result of the inspection of the Company's books, records
and papers. The restrictions as outlined in this Article shall
not apply to communication or disclosures that the Reinsurer
is required to make to its statutory auditors,
retrocessionaires, legal counsel, arbitrators involved in any
arbitration procedures under this Contract or disclosures
required upon subpoena or other duly-issued order of a court
or other governmental agency or regulatory authority so long
as the Reinsurer shall have given the Company sufficient
advance written notice (to the President of the Company) of
required disclosures pursuant to a subpoena or other duly
issued order of a court or other governmental agency or
regulatory authority.
ARTICLE XXVII
SEVERABILITY
If any provision of this Contract should be invalid under
applicable laws, the latter shall control but only to the
extent of the conflict without affecting the remaining
provisions of this Contract.
PAGE 18 of 19
ARTICLE XXVIII
INTERMEDIARY
▇▇▇▇▇▇ Re Inc., ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ is hereby recognized
as the intermediary negotiating this Contract and through whom
all communications relating thereto shall be transmitted to
the Company or the Reinsurer. However, all communications
concerning accounts, claim information, funds and inquiries
related thereto shall be transmitted to the Company or the
Reinsurer through ▇▇▇▇▇▇ Re Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇.▇. Box 2500, Stoney Creek, North Carolina, 27377-2500.
Payments by the Company to ▇▇▇▇▇▇ Re Inc. shall be deemed to
constitute payment to the Reinsurer and payments by the
Reinsurer to ▇▇▇▇▇▇ Re Inc. shall be deemed to constitute
payment to the Company only to the extent that such payments
are actually received by the Company.
MKB/JAF - 2/9/00
PAGE 19 of 19