INTERESTS AND LIABILITIES AGREEMENT
(hereinafter referred to as the "Agreement")
to the
NEW JERSEY HOMEOWNERS QUOTA SHARE TREATY
----------------------------------------
(hereinafter referred to as the "Contract")
between
SELECTIVE INSURANCE COMPANY OF AMERICA
SELECTIVE WAY INSURANCE COMPANY
SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST
SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA
EXCHANGE INSURANCE COMPANY
and/or any insurance affiliates which are now owned or hereafter may be
acquired by
The Selective Insurance Group
(hereinafter either individually or collectively referred to as the
"Company")
and
VARIOUS INSURANCE AND/OR REINSURANCE COMPANIES
(hereinafter referred to as the "Subscribing Reinsurer")
It is mutually agreed by and between the Company on the one part and the
Subscribing Reinsurer on the other part, that the Subscribing Reinsurer's
share in the interest and liabilities of the Reinsurers as set forth in the
Contract attached hereto and forming a part of this Agreement shall be for
% of the 85% Quota Share.
The share of the Subscribing Reinsurer in the interests and liabilities of
the Reinsurers in respect of the said Contract shall be separate and apart
from the shares of the other reinsurers in the said Contract, and the
interests and liabilities of the Subscribing Reinsurer shall not be joint
with those of the other reinsurers and in no event shall the Subscribing
Reinsurer participate in the interests and liabilities of the other
reinsurers.
Effective: January 1, 1996
3645-24
PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, in duplicate, by their duly authorized representatives this day
of , 199__.
SELECTIVE INSURANCE COMPANY OF AMERICA
SELECTIVE WAY INSURANCE COMPANY
SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST
SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA
EXCHANGE INSURANCE COMPANY
and/or any insurance affiliates which are now owned or hereafter
may be acquired by
The Selective Insurance Group
-----------------------------------------------------------------------------
and on this day of , 199__.
Effective: January 1, 1996
3645-24
PAGE
NEW JERSEY HOMEOWNERS QUOTA SHARE TREATY
TABLE OF CONTENTS
-----------------
Article Page
------- ----
1 Business Covered 1
2 Exclusion 1
3 Term and Cancellation 2
4 Territory 3
5 Contract Detail 3
6 Definition of Loss Occurrence 3
7 Extra Contractual Obligations 5
8 Excess of Original Policy Limits 5
9 Indemnification and Errors and Omissions 6
10 Reinsurance Follows Original Policies 6
11 Notice of Loss 6
12 Losses 7
13 Loss Expenses 7
14 Premium and Commissions 8
15 Currency 10
16 Accounts, Reports and Payments 10
17 Loss and Unearned Premium Reserves 11
18 Sunset and Commutation 13
19 Federal Excise Tax 13
20 Service of Suit (U.S.A.) 14
21 Insolvency 15
22 Access to Company's Records 15
23 Arbitration 16
24 Intermediary 16
Effective: January 1, 1996
3645-24
PAGE
NEW JERSEY HOMEOWNERS QUOTA SHARE TREATY
----------------------------------------
(hereinafter referred to as the "Contract")
In consideration of the mutual covenants hereinafter contained and subject to
all the terms and conditions hereinafter set forth
VARIOUS INSURANCE AND/OR REINSURANCE COMPANIES AND/OR
UNDERWRITING MEMBERS OF LLOYD'S
(hereinafter collectively referred to as the "Reinsurers")
one of whom is
THE "SUBSCRIBING REINSURER" WHOSE NAME
APPEARS ON THE INTERESTS AND LIABILITIES AGREEMENT
ATTACHING TO AND FORMING A PART OF THIS CONTRACT
do hereby indemnify, as herein provided and specified, the
SELECTIVE INSURANCE COMPANY OF AMERICA
SELECTIVE WAY INSURANCE COMPANY
SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST
SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA
EXCHANGE INSURANCE COMPANY
and/or any insurance affiliates which are now owned or hereafter may be
acquired by
The Selective Insurance Group
(hereinafter either individually or collectively referred to as the
"Company")
ARTICLE 1
---------
BUSINESS COVERED
----------------
This Contract applies to risks located in the State of New Jersey with
respect to all sections of coverage written and classified by the Company as
Homeowners, Condominium, Tenants and Mobile Homeowners insurances.
ARTICLE 2
---------
EXCLUSIONS
----------
A. As per original policy terms and conditions.
B. This Contract excludes all liability of the Company arising by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any
Effective: January 1, 1996 1 o 16
3645-24
PAGE
insolvency fund. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement,
howsoever denominated, established or governed; which provides for any
assessment of or payment or assumption by the Company of part or all of
any claim, debt, charge, fee, or other obligation of an insurer, or its
successors or assigns, which has been declared by any competent
authority to be insolvent, or which is otherwise deemed unable to meet
any claim, debt, charge, fee or other obligation in whole or in part.
ARTICLE 3
---------
TERM AND CANCELLATION
---------------------
This Contract shall apply to all cessions commencing on and after January 1,
1996, at 12:01 a.m., Eastern Standard Time, and shall be unlimited as to its
duration, but may be terminated as of any January 1 by either party giving to
the other not less than ninety (90) days' prior written notice of
cancellation. The Reinsurers shall continue to participate in all insurances
and reinsurances coming within the terms of this Contract granted or renewed
by the Company during the ninety (90) days aforesaid.
Notwithstanding the above, the portfolio of unearned premiums and unexpired
liability as of 12:01 a.m., Eastern Standard Time, January 1, 1996, shall be
assumed by the Reinsurers under this Contract and nothing herein contained
shall alter or affect the continuity granted, insofar as this portfolio
assumption is concerned, by the said preceding Contract. In consideration of
the foregoing, the Company shall pay to the Reinsurers hereunder the unearned
premiums calculated on the monthly pro rata basis as of January 1, 1996, less
provisional commission allowed the Company by the Reinsurers and in
consequence thereof, the Reinsurers hereunder shall be liable for all losses
under the said preceding Contract occurring subsequent to 12:01 a.m., Eastern
Standard Time, January 1, 1996.
In the event of termination of this Contract, the liability of the Reinsurers
shall remain in force to the natural expiration or cancellation or next
anniversary date whichever comes first. However, the Company has the option
to take back the unearned premium and unexpired liability at effective date
of termination. In the event of the Company exercising this option, the
Reinsurers shall incur no liability for losses occurring subsequent to the
date of termination, but shall remain liable for all losses outstanding as of
the date of termination. In the event of the Company withdrawing the
cessions as provided for herein, it shall debit the Reinsurers with a sum
equal to the pro rata unearned premiums on unexpired cessions at the
respective date, less the rate of commission allowed by the Reinsurers on
such cessions, provided such option is exercised prior to the termination of
this Contract.
If any law or regulation of the federal, state or local government of any
jurisdiction in which the Company is doing business should render illegal the
arrangements made in this Contract, the Contract can be terminated
immediately, insofar as it applies to such jurisdiction, by the Company
giving notice to the Reinsurers to such effect.
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PAGE
This Contract may be altered or amended in any of its terms and conditions by
mutual consent of the parties, either by endorsement hereof or by an
instrument in writing attached hereto and formally signed.
ARTICLE 4
---------
TERRITORY
---------
This Contract covers risks located in New Jersey and/or as provided in the
original policies.
ARTICLE 5
---------
CONTRACT DETAIL
---------------
The Company shall cede under this Contract and the Reinsurers shall accept by
way of reinsurance eighty five percent (85%) quota share of all business
covered hereunder.
The liability of the Reinsurers for any interest shall attach simultaneously
with the liability of the Company.
The maximum cession hereunder is $850,000 (being 85% of $1,000,000) per
policy as respects Coverage A, Section I, except with respect to Section II,
for which the Company agrees to a maximum cession of $425,000 (being 85% of
$500,000) per policy.
In no event, however, shall the Reinsurers' liability exceed $95,000,000 in
any one Loss Occurrence, as defined in Article 6, Definition of Loss
Occurrence.
The Company shall maintain net for its own account on each and every risk the
remaining 15% subject to Excess of Loss Reinsurances.
With respect to Extra Contractual Obligations, as defined in Article 7, Extra
Contractual Obligations, the Reinsurers shall be liable to pay up to 100% of
the Extra Contractual loss recoverable hereunder, but the contractual loss
plus the Extra Contractual Obligation shall not exceed Coverage A, Section I
Treaty Limits. Furthermore, the Extra Contractual loss recoverable hereunder
shall be the Reinsurers' pro rata share equal to the percentage ceded
hereunder.
ARTICLE 6
---------
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
Effective: January 1, 1996 3 of 16
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PAGE
which occurs within the state of New Jersey. However, 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 except that 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.
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 epicenter 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".
Except for those "Loss Occurrences" referred to in paragraphs A. and 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.
However, as respects those "Loss Occurrences" referred to in paragraphs A.
and 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.
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.
Effective: January 1, 1996 4 of 16
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PAGE
ARTICLE 7
---------
EXTRA CONTRACTUAL OBLIGATIONS
-----------------------------
This Contract shall protect the Company for any Extra Contractual Obligations
within the limitations of Article 5, Contract Detail. "Extra Contractual
Obligations" are 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 reinsured or in the
preparation or prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original
accident, casualty, disaster or loss occurrence.
However, this Article shall not apply where the loss has been incurred due to
the fraud of a member of the Board of Directors or a Corporate Officer of the
Company acting individually or collectively or in collusion with any
individuals or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
ARTICLE 8
---------
EXCESS OF ORIGINAL POLICY LIMITS
--------------------------------
This Contract shall protect the Company, within Coverage A, Section I Treaty
limits hereof, in connection with ultimate net loss in excess of the limit of
its original policy, such loss in excess of the limit having been incurred
because of failure by it 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 reinsured or in the preparation or prosecution of an
appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to
fraud by a member of the Board of Directors or a Corporate Officer of the
Company acting individually or collectively or in collusion with any
individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
For the purposes of this Article, the word "loss" shall mean any amounts for
which the Company would have been contractually liable to pay had it not been
for the limit of the original policy.
Effective: January 1, 1996 5 of 16
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ARTICLE 9
---------
INDEMNIFICATION AND ERRORS AND OMISSIONS
----------------------------------------
Any recitals in this Contract of the terms and provisions of any original
insurance or reinsurance are merely descriptive. The Reinsurers are
reinsuring, to the amount herein provided, the obligations of the Company
under any original insurance or reinsurance. The Company shall be the sole
judge as to:
A. what shall constitute a claim or loss covered under any original
insurance or reinsurance written by the Company;
B. the Company's liability thereunder;
C. the amount or amounts which shall be proper for the Company to pay
thereunder.
The Reinsurers shall be bound by the judgment of the Company as to the
obligation(s) and liability(ies) of the Company under any original insurance
or reinsurance, subject to the terms and conditions of this Contract.
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Contract shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such error, omission
or delay had not been made, provided such error, omission or delay is
rectified immediately upon discovery.
ARTICLE 10
----------
REINSURANCE FOLLOWS ORIGINAL POLICIES
-------------------------------------
All reinsurances for which the Reinsurers shall be liable by subscribing to
this Contract shall be subject in all respects to the same rates, terms,
conditions, interpretations, waivers, the exact proportion of premiums paid
to the Company and to the same modifications, alterations and cancellations
as the respective insurances of the Company to which such reinsurances
relate, the true intent of this Contract being that the Reinsurers shall, in
every case to which this Contract applies and in the proportion specified
herein, follow the fortunes of the Company.
ARTICLE 11
----------
NOTICE OF LOSS
--------------
In the event of loss which may cause a claim to the Reinsurers in the
estimated amount of $500,000 or more, notice of such loss shall be advised to
the Reinsurers as soon as possible.
Effective: January 1, 1996 6 of 16
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ARTICLE 12
----------
LOSSES
------
A. The Company alone and at its full discretion shall adjust, settle or
compromise all claims and losses. All such adjustments, settlements and
compromises, including ex gratia payments, shall be binding on the Reinsurers
in proportion to their participation. The Company shall likewise at its sole
discretion commence, continue, defend, compromise, settle or withdraw from
actions, suits or proceedings and generally do all such matters and things
relating to any claim or loss as in its judgement may be beneficial or
expedient; and all loss payments made shall be shared by the Reinsurers
proportionately. The Reinsurers shall, on the other hand, benefit
proportionately from all reductions of losses by salvage, compromise or
otherwise.
B. In respect of all business covered hereunder in the event of a loss
being intimated or reported to the Company or its agent before the Company's
net retention has been established, the Company, nevertheless, shall be
entitled to claim on the Reinsurers in conformity with the limits which the
Company usually retains net and cedes hereunder upon such risk or risks in
the same or similar localities as established by its books and/or practices.
However, upon request of the Reinsurers, the Company will produce evidence of
its practice applicable to any such case forming the subject of inquiry or
investigation.
C. Losses due by the Reinsurers to the Company in an amount not exceeding
$500,000 on any one loss shall be carried to account; but when the amount due
from the Reinsurers as a result of any one loss and its expenses equals or
exceeds $500,000 any one loss or Loss Occurrence, as defined in Article 6,
Definition of Loss Occurrence, it will, at the option and upon demand of the
Company, be paid by special remittance immediately upon receipt of a special
loss account which shall be prepared by the Company and shall contain all
relevant details in connection with the loss.
ARTICLE 13
----------
LOSS EXPENSES
-------------
A. The Reinsurers shall be liable for their proportionate share of all
expenses incurred by the Company in connection with the investigation and
settlement or contesting the validity of specific claims or losses or alleged
losses (except as hereinafter provided). In addition, the Reinsurers shall
be liable for their proportional share of legal expenses and costs incurred
in connection with coverage questions and legal actions connected hereto.
B. When the Company uses its own field employees or officials instead of
outside adjusters to settle losses, the Company shall be permitted to include
a pro rata share of the salaries and expenses of the said field employees
according to the time occupied in adjusting such losses and also the expenses
of said officials incurred in connection with the losses, but no salaries of
such officials or any normal overhead charge, such as rent, postage,
lighting, cleaning, heating, etc., shall be included.
Effective: January 1, 1996 7 of 16
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C. Unallocated loss expenses, being operating expense classifications not
attributable to specific losses, are excluded hereunder. These are defined
as administrative expenses of personnel assigned to claims sections and the
expenses of non-claim departments involved in the administrative claim work
(other than the Company's Legal Department as specified above.)
ARTICLE 14
----------
PREMIUM AND COMMISSIONS
-----------------------
A. With respect to all business, the Reinsurers shall be paid premiums at
the gross rates applicable, less a provisional commission of 37%.
B. The provisional commission of 37% shall be adjusted annually on the
following basis:
Loss and Allocated Loss Adjustment Expense Ratio Commission
------------------------------------------------ ----------
60% or Higher 28.00%
59% 29.00%
58% 30.00%
57% 31.00%
56% 32.00%
55% 33.00%
54% 34.00%
53% 35.00%
52% 36.00%
51% 37.00%
50% 37.75%
49% 38.50%
48% 39.25%
47% 40.00%
46% 40.75%
45% 41.50%
44% 42.25%
43% or Lower 43.00%
If the ratio of losses incurred to premiums earned for the period January 1,
1996 to January 1, 1997 is greater than 60%, the difference in percent shall
be multiplied by the earned premium ceded during the period and the result
shall be carried forward.
The 1994 Contract year deficit shall be carried forward and included in the
Loss and Allocated Loss Adjustment Expense Ratio for the 1995, 1996 and 1997
Contract years according to the following schedule: 1/3 in 1995, 1/3 in 1996
and 1/3 in 1997. Deficits and Credits incurred during the 1995 Contract year
and subsequent Contract years shall be carried forward until extinction in
respect of ceded Loss and Allocated Loss Adjustment Expense Ratio percentages
over 60% and under 43%, respectively. The portion of the 1994 deficit
carried forward and included in the Loss and Allocated Loss Adjustment
Expense
Effective: January 1, 1996 8 of 16
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Ratio for the 1996 Contract year shall be reduced by an amount of 1.0% of the
"premiums earned" for the Contract year. The loss corridor retained net by
the Company shall not be considered as incurred or paid by the Reinsurers and
thus shall not be carried forward as a deficit.
The deficit and credit carry-forward calculations shall apply based on each
Reinsurers' individual experience.
"Premiums earned" for the purposes of the commission adjustment shall mean
the total premiums written during the Contract year, plus the reserve for
unearned premiums at the beginning of the Contract year, minus the reserve
for unearned premiums at the end of the Contract year.
"Losses incurred" shall mean the net loss and allocated loss adjustment
expenses recovered during any Contract year on losses occurring during that
Contract year, plus the outstanding loss reserve, including losses incurred
but not reported, at the end of that Contract year on losses occurring during
that Contract year, plus any deficit or minus any credit carried forward from
any prior Contract year. Extra Contractual Obligations losses, as defined in
Article 7, Extra Contractual Obligations, and losses in excess of original
policy limits, as defined in Article 8, Excess of Original Policy Limits, are
to be included in the losses incurred definition subject to the Contract
Limit, if applicable.
The Company shall retain 100% of the Loss and Allocated Loss Adjustment
Expense Ratio between 65% and 70% for the 1996 Contract year.
C. An interim statement of adjusted commission shall be prepared and
submitted to the Reinsurers by the Company as soon as possible after the
close of the year under adjustment, and the difference between the adjusted
commission for the year as indicated by the interim statement and the
provisional commission shall be payable on the earned premiums for the year.
The first such statement shall be made as of January 1, 1997.
D. Annual statements of adjusted commission shall be prepared and submitted
to the Reinsurers by the Company as soon as possible after the January 1st
next succeeding the close of the year under adjustment, and the difference
between the adjusted commission for the year as indicated by the statement
and the previously submitted adjusted commission for the same year shall be
payable on the earned premiums for the year.
E. The final calculation of adjusted commission shall be prepared and
submitted by the Company 84 months after the close of the Contract year under
adjustment and in accordance with Article 18, Sunset and Commutation.
F. The commission allowances which the Reinsurers, in accordance with the
preceding stipulations, will pay to the Company, include provisions for all
taxes, assessments and expenses falling on the business transacted under this
Contract; and in the event of the Reinsurers being compelled to make returns
to the Insurance Departments or other departments of any state, District of
Columbia, province, county or city, or any board, bureau or association, and
consequently being obliged to pay taxes or assessments direct to
Effective: January 1, 1996 9 of 16
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such department, board, bureau or association on the premium received from
the Company under this Contract, such taxes or assessment shall be refunded
by the Company to the Reinsurers. This Section shall have no application to
federal or dominion government taxes or to any federal, dominion, state,
District of Columbia, province or municipal excess profits or income taxes.
G. If any amount of reserves for losses and loss expense that had been used
in any calculation of adjusted commission are indicated by subsequent
developments to have been underestimated or overestimated, such calculation
shall be revised at the request of either party. The Company shall refund to
the Reinsurers, or the Reinsurers shall pay to the Company, such amount as
will give effect to the revisions.
ARTICLE 15
----------
CURRENCY
--------
Wherever the word "Dollars" or the sign "$" appear in this Contract, they
shall be construed to mean United States Dollars, excepting in those cases
where the policies are issued by the Company in Canadian Dollars in which
cases they shall mean Canadian Dollars.
For purposes of this Contract, where the Company received premiums or pays
losses in currencies other than United States or Canadian currency, such
premiums and losses shall be converted into United States Dollars at the
actual rates of exchange at which these premiums and losses are entered in
the Company's books.
ARTICLE 16
----------
ACCOUNTS, REPORTS AND PAYMENTS
------------------------------
A. The Company shall furnish to the Reinsurers monthly accounts of business
ceded hereunder within 45 days after the close of each month, showing
premiums due the Reinsurers, adjustments to premium reserves, if any, and
commissions, Federal Excise Tax, if any, and paid losses due from the
Reinsurers, supported by statistical details as set forth herein. The
balance shown to be due by each account shall be payable by the debtor party
within 45 days after the close of the month accounted for.
B. The statistical details referred to in the preceding paragraph shall be
comprised of:
1. Premiums less return premiums summarized by major classes.
2. Paid loss and paid loss adjustment expense summarized by major
classes and segregated into years of occurrence.
3. Outstanding losses summarized by major classes and segregated into
years of occurrence.
Effective: January 1, 1996 10 of 16
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4. Total unearned premiums each month and at the end of each year
summarized by major classes.
C. In addition, the Company shall forward with its current account,
particulars of every loss and its expenses paid therein which are in excess
of $500,000 any one loss or Loss Occurrence, as defined in Article 6,
Definition of Loss Occurrence, to the Contract and also shall forward details
of the aggregate settlement made in respect of any event which is recognized
by the Reinsurers to be a catastrophe.
It is agreed, however, that when the amount due from the Reinsurers as a
result of any one loss exceeds their proportion of $500,000, they will at the
option and upon demand of the Company make payment by special remittance
immediately upon receipt of a special loss account which shall be prepared by
the Company and shall contain all relevant details in connection with the
loss.
ARTICLE 17
----------
Loss and Unearned Premium Reserves
----------------------------------
(This Article applies to those Reinsurers who do not qualify for credit by
any state or any other governmental authority having jurisdiction over the
Company's loss and unearned premium reserves.)
A: Where a Letter of Credit Trust Agreement is used, the following clause
shall apply:
It is agreed that when the Company files with the Insurance Department or
establishes reserves for claims covered hereunder and unearned premium, as
required by law, the Company shall forward to the Reinsurers a statement
showing the proportion of such loss and unearned premium reserves which is
applicable to the Reinsurers. The Reinsurers hereby agree to apply for and
secure delivery to the Company of a clean, irrevocable and unconditional
Letter of Credit, with a minimum term of one year, that is issued or
confirmed, and presentable and payable in the United States by any bank or
trust company, and is in a format acceptable to the governmental authority
having jurisdiction over the Company's reserves in an amount equal to the
Reinsurers' proportion of said loss and unearned premium reserves.
The Company and the Reinsurers agree that such Letter of Credit shall be
subject to the terms of a separate Letter of Credit Trust Agreement, and that
said trust agreement shall be in a form acceptable to the governmental
authority having jurisdiction over the Company's loss and unearned premium
reserves.
The designated 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 see that withdrawals are made only upon the order
of properly authorized representatives of the Company.
Effective: January 1, 1996 11 of 16
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B: Where a Letter of Credit Trust Agreement is not used, the following
clause shall apply:
It is agreed that when the Company files with the Insurance Department or
establishes reserves for claims covered hereunder and unearned premium, as
required by law, the Company shall forward to the Reinsurers a statement
showing the proportion of such loss and unearned premium reserves which is
applicable to the Reinsurers. The Reinsurers hereby agree to apply for and
secure delivery to the Company of a clean, irrevocable and unconditional
Letter of Credit, with a minimum term of one year, that is issued or
confirmed, and presentable and payable in the United States by any bank or
trust company, and is in a format acceptable to the governmental authority
having jurisdiction over the Company's reserves in an amount equal to the
Reinsurers' proportion of said loss and unearned premium reserves.
The Company and the Reinsurers agree that the Letter of Credit provided by
the Reinsurers under this provision may be drawn upon at any time,
notwithstanding any other provisions in 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
such Company for the following purposes:
1. to reimburse the Company for the Reinsurers' share of surrenders and
benefits or losses paid by the Company under the terms and
provisions of the policies reinsured under this Contract;
2. to reimburse the Company for the Reinsurers' share of premium
returned to the owners of policies reinsured under this Contract on
account of cancellation of such policies;
3. to fund an account with the Company in an amount at least equal to
the deduction, for reinsurance ceded, from the Company's liabilities
for policies ceded under this Contract. Such amount shall include,
but not be limited to, amounts for policy reserves, reserves for
claims and losses incurred (including losses incurred but not
reported), loss adjustment expenses, and unearned premiums;
4. to pay any other amounts the Company claims are due under this
Contract;
5. to return any amounts drawn down on Letters of Credit in excess of
the actual amounts required for 1., 2. and 3. above, or in case of
4. above, any amounts which are subsequently determined not to be
due.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Company or the Reinsurers.
The designated 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 see that withdrawals are made only upon the order
of properly authorized representatives of the Company.
Effective: January 1, 1996 12 of 16
3645-24
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ARTICLE 18
----------
SUNSET AND COMMUTATION
----------------------
A. Not later than 84 months after the close of the Contract year, the
Company shall advise the Reinsurers of all claims reported for said Contract
year not finally settled which are likely to result in a claim under this
Contract. The Company and the Reinsurers or their respective representatives
shall, by mutual agreement, determine and capitalize such claims. Payment by
the Reinsurers of their proportion of the amount or amounts so mutually
agreed, shall constitute a complete and final release of the Reinsurers of
liability in respect of such claim (or claims).
B. If agreement cannot be reached, the Company and the Reinsurers shall
mutually appoint an Actuary or Appraiser to investigate, determine and
capitalize such claims. If both parties then agree, the Reinsurers shall pay
their proportion of the amount so determined to be the capitalized value of
such claims.
C. If the parties fail to agree, then any difference shall be settled by a
panel of three Actuaries, one to be chosen by each party and the third by the
two so chosen. If either party refuses or neglects to appoint an Actuary
within thirty days, the other party may appoint two Actuaries. If the two
Actuaries fail to agree on the selection of a third Actuary within thirty
days of their appointment, each of them shall name two, of whom the other
shall decline one and the decision shall be made by drawing lots. All the
Actuaries shall be Fellows of the Casualty Actuarial Society or of the
American Academy of Actuaries. None of the Actuaries shall be under the
control of either party to this Contract.
Each party shall submit its case to its Actuary within thirty days of the
appointment of the third Actuary. The decision in writing of any two
Actuaries, when filed with the parties hereto, shall be final and binding on
both parties. The expense of the Actuaries and of the Commutation shall be
equally divided between the two parties. Said Commutation shall take place
in Branchville, New Jersey, unless some other place is mutually agreed upon
by the Company and the Reinsurers.
ARTICLE 19
----------
FEDERAL EXCISE TAX
------------------
(This Article applies only to those Reinsurers, domiciled outside the United
States of America who are not exempt from the Federal Excise Tax.)
The Reinsurers have agreed to allow for the purpose of paying the Federal
Excise Tax the percentage specified by United States law of the premium
payable hereon to the extent such premium is subject to Federal Excise Tax.
Effective: January 1, 1996 13 of 16
3645-24
PAGE
In the event of any return of premium becoming due hereunder, the Reinsurers
will deduct the percentage specified by United States law from the amount of
the return and the Company or its agent should take steps to recover the Tax
from the United States Government.
ARTICLE 20
----------
SERVICE OF SUIT (U.S.A.)
------------------------
(This Article applies only to those Reinsurers not domiciled in the United
States of America, and/or not authorized in any state, territory and/or
district of the United States where authorization is required by insurance
regulatory authorities.)
It is agreed that in the event of the failure of the Reinsurers to pay any
amount claimed to be due under this Contract, the Reinsurers, at the request
of the Company, will submit to the jurisdiction of any court of competent
jurisdiction within the United States of America and will comply with all
requirements necessary to give such court jurisdiction; and all matters
arising hereunder shall be determined in accordance with the law and practice
of such court. Nothing in this Article constitutes or should be understood
to constitute a waiver of the Reinsurers' 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.
Service of process in such suit may be made upon Mendes and Mount, ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (hereinafter, "agent for
service of process") and in any suit instituted against any Reinsurer(s) upon
this Contract, the Reinsurer(s) 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 Reinsurers in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that the agent for
service of process will enter a general appearance on behalf of the
Reinsurers in the event such a suit shall be instituted.
Further, pursuant to any statute of any state, territory or district of the
United States of America which makes provision therefor, the Reinsurers
hereby designate 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 their 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 and hereby designate the agent for service of process as the firm to
whom the said officer is authorized to mail such process or a true copy
thereof.
Effective: January 1, 1996 14 of 16
3645-24
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ARTICLE 21
----------
INSOLVENCY
----------
In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company, or to its liquidator, receiver, conservator
or statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of the Company shall
give written notice to the Reinsurers of the pendency of a claim against the
Company indicating the policy or bond reinsured, which claim would involve a
possible liability on the part of the Reinsurers within a reasonable time
after such claim is filed in the conservation or liquidation proceeding or in
the receivership, and that during the pendency of such claim, the Reinsurers
may investigate such claim and interpose, at their own expense, in the
proceeding where such claim is to be adjudicated any defense or defenses that
they may deem available to the Company or its liquidator, receiver,
conservator or statutory successor. The expense thus incurred by the
Reinsurers shall be chargeable, subject to the approval of the court, against
the Company as part of the expense of conservation or liquidation to the
extent of a pro rata share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurers.
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 the reinsurance Contract as
though such expense had been incurred by the Company.
As to all reinsurance made, ceded, renewed or otherwise becoming effective
under this Contract, the reinsurance shall be payable as set forth above by
the Reinsurers to the Company or to its liquidator, receiver, conservator or
statutory successor, except as provided by Sections 4118(a)(1)(A) and 1114(c)
of the New York Insurance Law or except (1) where the Contract specifically
provides another payee in the event of the insolvency of the Company, and (2)
where the Reinsurers, with the consent of the direct insured or insureds,
have assumed such policy obligations of the Company as direct obligations of
the Reinsurers to the payees under such policies and in substitution for the
obligations of the Company to such payees. Then, and in that event only, the
Company, with the prior approval of the certificate of assumption on New York
risks by the Superintendent of Insurance of the State of New York, is
entirely released from its obligation and the Reinsurers pay any loss
directly to payees under such policy.
ARTICLE 22
----------
ACCESS TO COMPANY'S RECORDS
---------------------------
The Reinsurers or their duly designated representatives shall have access to
the books, documents and records of the Company at all reasonable times for
the purpose of obtaining information concerning this Contract or the subject
matter thereof.
Effective: January 1, 1996 15 of 16
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ARTICLE 23
----------
ARBITRATION
-----------
As a precedent to any right of action hereunder, if any dispute shall arise
between the parties to this Contract with reference to the interpretation of
this Contract or their rights with respect to any transaction involved,
whether such dispute arises before or after termination of this Contract,
such dispute, upon the written request of either party, shall be submitted to
three arbitrators, one 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 days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If
the two arbitrators fail to agree in the selection of a third arbitrator
within thirty days of their appointment, each of them shall name two, of whom
the other shall decline one and the decision shall be made by drawing lots.
All arbitrators shall be active or retired disinterested officers of
insurance or reinsurance companies or Underwriters at Lloyd's, London not
under the control of either party to this Contract.
The arbitrators shall interpret this Contract as an honorable engagement and
not as merely a legal obligation. They are relieved of all judicial
formalities and may abstain from following the strict rules of law. They
shall make their award with a view to effecting the general purpose of this
Contract in a reasonable manner rather than in accordance with a literal
interpretation of the language. Each party shall submit its case to its
arbitrator within thirty days of the appointment of the third arbitrator.
The decision in writing of any two arbitrators, when filed with the parties
hereto, shall be final and binding on both parties. Judgment may be entered
upon the final decision of the arbitrators in any court having jurisdiction.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the third arbitrator and of
the arbitration. Said arbitration shall take place in the city in which the
Company's Head Office is located unless some other place is mutually agreed
upon by the parties to this Contract.
ARTICLE 24
----------
INTERMEDIARY
------------
▇▇▇ ▇▇▇▇▇▇▇▇▇ & Company, Inc. is hereby recognized as the intermediary
negotiating this Contract for all business hereunder. All communications
(including but not limited to notices, statements, premiums, return premiums,
commissions, taxes, losses, loss adjustment expenses, salvages, and loss
settlements) relating thereto shall be transmitted to the Company or the
Reinsurers through ▇▇▇ ▇▇▇▇▇▇▇▇▇ & Company, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. Payments by the Company to the intermediary shall be
deemed to constitute payment to the Reinsurers. Payments by the Reinsurers
to the intermediary shall be deemed to constitute payment to the Company only
to the extent that such payments are actually received by the Company.
Effective: January 1, 1996 16 of 16
3645-24
PAGE
SUMMARY OF CHANGES
------------------
to the
SELECTIVE INSURANCE COMPANY
---------------------------
NEW JERSEY HOMEOWNERS QUOTA SHARE TREATY
----------------------------------------
This Contract effective January 1, 1996 differs from the previous Contract
effective January 1, 1995 in the following manner:
1. Throughout the Contract, all dates have been amended to reflect the
current term. All references to "Agreement", "Contract", "Company", and
"Reinsurers" have been amended to read "the Agreement", "the Contract",
"the Company", "the Reinsurers", and "the Subscribing Reinsurer" (in
the Interests and Liabilities Agreement), to correct grammatical errors.
Also, cross references to other Articles have been added and editorial
corrections (such as capitalization) have been made. All major sections
and subsections have been renamed to appear in the following order for
the sake of consistency: A., 1., (a), (i).
2. Preamble; Has been amended to follow the language contained in all
other Selective Contracts.
3. Article 2, Exclusions; The full definition of Insolvency Funds has been
included within the wording and excluded as an attachment.
4. Article 3, Term and Cancellation; The third paragraph has been amended
to clarify each party's responsibilities in the event of a cancellation
on a cut-off basis.
5. Article 5, Contract Detail; The third paragraph has been amended to
read "(being 85% of $1,000,000) per policy" and "maximum cession of
$425,000 (being 85% of $500,000)". The fourth paragraph has been
amended to reflect the increased occurrence limit of $95,000,000.
6. Article 11, Notice of Loss; The reference to ▇▇▇ ▇▇▇▇▇▇▇▇▇ has been
deleted, as all obligations of the Intermediary are covered in the
Intermediary Article.
7. Article 14, Premium and Commissions; The provisional commission has
been amended to be 37%. The subheading in Section B. has been amended
to read "Loss and Allocated Loss Adjustment Expense Ratio" and the
Sliding Scale Commissions and subsequent paragraphs of Section B. have
been amended in accordance with the terms of the firm order.
8. Article 17, Loss and Unearned Premium Reserves; This Article has been
amended to allow funding for Unearned Premium Reserves.
