EXHIBIT 10.40
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▇▇▇▇▇▇▇ AMERICA, INC.
The Pinnacle, Suite 375
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TITLE EXCESS CESSION REINSURANCE CONTRACT
BETWEEN DARWIN NATIONAL ASSURANCE COMPANY, DARWIN
SELECT INSURANCE COMPANY, CAPITOL INDEMNITY
CORPORATION, CAPITOL SPECIALTY INSURANCE
CORPORATION, PLATTE RIVER INSURANCE COMPANY
AND/OR ANY OTHER ASSOCIATED, AFFILIATED OR
SUBSIDIARY COMPANIES OF ALLEGHANY INSURANCE
HOLDING LLC, BUT ONLY IN RESPECT OF BUSINESS
UNDERWRITTEN BY DARWIN PROFESSIONAL
UNDERWRITERS, INC.
AND
THE REINSURERS SIGNATORY HERETO
COMMENCING SEPTEMBER 1, 2005
U.S. CLASSIFICATION U.S. REINSURANCE
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CONTENTS
PREAMBLE IDENTITY OF PARTIES
ARTICLE 1 BUSINESS REINSURED
ARTICLE 2 EXCLUSIONS
ARTICLE 3 COVER, LIMIT AND RETENTION
ARTICLE 4 TERRITORIAL SCOPE
ARTICLE 5 PERIOD
ARTICLE 6 SPECIAL TERMINATION CLAUSE
ARTICLE 7 FOLLOW THE FORTUNES
ARTICLE 8 EXCESS OF ORIGINAL POLICY LIMITS
ARTICLE 9 EXTRA-CONTRACTUAL OBLIGATIONS
ARTICLE 10 PREMIUM
ARTICLE 11 CEDING COMMISSION
ARTICLE 12 ACCOUNTS AND REPORTS
ARTICLE 13 NOTICE OF LOSS AND LOSS SETTLEMENTS
ARTICLE 14 INTEREST PENALTY
ARTICLE 15 UNEARNED PREMIUM AND LOSS RESERVES
ARTICLE 16 CURRENCY
ARTICLE 17 TAX PROVISIONS
ARTICLE 18 INSOLVENCY OF THE REASSURED
ARTICLE 19 OFFSET
ARTICLE 20 DELAYS, ERRORS AND OMISSIONS
ARTICLE 21 AMENDMENTS AND ALTERATIONS
ARTICLE 22 ACCESS TO RECORDS AND CLAIMS REVIEW
ARTICLE 23 ARBITRATION
ARTICLE 24 SERVICE OF SUIT
ARTICLE 25 CONFIDENTIALITY
ARTICLE 26 REGULATORY COMPLIANCE
ARTICLE 27 INTERMEDIARY
ARTICLE 28 GOVERNING LAW
ARTICLE 29 PARTICIPATION
ARTICLE 30 SEVERAL LIABILITY NOTICE
ATTACHMENTS:
1. NUCLEAR INCIDENT EXCLUSION CLAUSES - LIABILITY - REINSURANCE U.S.A/CANADA
2. NUCLEAR ENERGY RISKS EXCLUSION CLAUSE - REINSURANCE - 1994 (WORLDWIDE
excluding U.S.A and CANADA)
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EXCESS CESSION REINSURANCE CONTRACT
PREAMBLE
This Contract is made and entered into between Darwin National Assurance
Company, Darwin Select Insurance Company, Capitol Indemnity Corporation, Capitol
Specialty Insurance Corporation, Platte River Insurance Company and/or any other
associated, affiliated or subsidiary companies of Alleghany Insurance Holding
LLC, but only in respect of business underwritten by Darwin Professional
Underwriters Inc. of ▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (NAIC
Group Code 10472) (hereinafter referred to as "the Reassured") and the
Reinsurers signatory hereto (hereinafter referred to as "the Reinsurers"), on
the following terms and conditions:
ARTICLE 1
BUSINESS REINSURED
This Contract applies to policies of insurance classified by the Reassured as
Managed Care Organizations Errors and Omissions Liability.
It is understood and agreed all accounts covered hereon are to be approved prior
to binding by the Darwin Professional Underwriters Chief Underwriting Officer,
Senior Vice President of Underwriting or Healthcare Practice Leader.
For the purposes of this Contract, the terms "policy", "policies" or "original
policies" as used herein shall be understood to mean all binders, policies,
contracts, endorsements or other evidence of insurance issued in the name of the
Reassured.
ARTICLE 2
EXCLUSIONS
This Contract does not apply to and absolutely excludes the following:
1. Nuclear Incidents, in accordance with the attached Nuclear Incident
Exclusion Clauses - Liability - Reinsurance - U.S.A./Canada.
2. Nuclear Energy Risks, in accordance with the attached Nuclear Energy Risks
Exclusion Clause (Reinsurance) (1994) (Worldwide excluding U.S.A. and
Canada).
3. All liability of the Reassured arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any
guarantee 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 Reassured
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
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otherwise deemed unable to meet any claim, debt, charge, fee or other
obligation in whole or in part.
4. Liability assumed by the Reassured as a Member or Reinsurer of any Pool,
Association or Syndicate.
5. Financial Guarantee and Insolvency Insurance.
6. Surety Business.
7. Reinsurance Assumed Business, other than policies "fronted" by another
carrier and individually underwritten by Darwin Professional Underwriters,
Inc, and Inter-Company Pooling Arrangements.
8. Retrospectively rated business.
9. Any account where the Reassured does not provide USD10,000,000 in
underlying MCO E&O coverage on either a primary or on an underlying excess
basis.
10. The following accounts: Aetna Inc., Cigna Corp., United Healthgroup Inc.
and Wellpoint Inc..
It is understood and agreed that for all accounts submitted for special
acceptance, the Reassured will provide to Reinsurers the following information
only:
- A copy of the underwriting work-up on the account.
- An account loss history.
- The terms, conditions and pricing of the program the Reassured
expect to quote or have quoted already using their USD10,000,000 of
net and treaty capacity.
- The terms, conditions and pricing of all other carriers' underlying
layers.
- The terms, conditions and pricing that the Reassured propose to
offer within this Contract.
Upon receipt of the above information, the Reinsurers will provide their
underwriting decision on any account submitted for special acceptance within 2
working days it being understood that if not received within the allotted
timeframe the account will be automatically approved and accepted under this
Contract.
ARTICLE 3
COVER, LIMIT AND RETENTION
This contract applies to all original policies coming within the scope of this
Contact which are issued by the Reassured for limits up to USD10,000,000 each
and every loss, each Insured, each
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policy/program excess of a minimum underlying of USD10,000,000 each and every
loss, each Insured, each policy/program.
Reinsurers hereon to bear their proportional share of all loss adjustment and
defense cost expenses, as per the original policy. Original policies may provide
for costs inclusive or costs in addition coverage. Where coverage is issued on a
costs inclusive basis, costs shall be included within the limit hereon. Where
coverage is issued on a cost in addition basis, pro rata costs shall be payable
in addition to the limit hereon.
The Reassured shall be at liberty to omit cessions hereunder, when they consider
it in the best interests of the Reinsurers to do so.
The meaning of "each and every loss", "claim", "claim made" and "losses
discovered" shall follow the definitions in the policies covered hereunder, as
finally determined by the Reassured. The Reassured shall also be the determinant
of what constitutes "each Insured", "each coverage", "each section" and "each
policy".
Where the Reassured issues more than one policy to the same original insured
covering the same class of business, (such as on a layered basis), then the
combination of such policies shall be considered a program for the purposes
hereof, as reasonably determined by the Reassured.
It is warranted that the Reassured shall retain not less than 10.0% of liability
and premium in respect of each cession hereunder, net and unreinsured, except
for internal reinsurance and/or Catastrophe Excess of Loss Reinsurance.
Notwithstanding any other provision of this Contract, the maximum recoverable
hereon shall not exceed (for 100%) USD50,000,000.
ARTICLE 4
TERRITORIAL SCOPE
This Contract shall cover wherever the original policies cover.
ARTICLE 5
PERIOD
This Contract shall cover claims made on original policies issued or renewed
during the period September 1, 2005 12:01 a.m. Standard Time to October 1st,
2006 12:01 a.m. Standard Time at the place and location of risks insured.
The maximum original policy period shall be 12 months plus odd time not to
exceed 18 months in all, plus extended reporting period coverage or
endorsements, as original. Such extended reporting period coverage or
endorsements shall be limited to 36 months or so deemed, or such longer period
as required by State Regulations.
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For the purposes of this Contract, any extension, discovery period or extended
reporting endorsement attaching to a policy covered hereunder shall be
considered as part of the period of the said policy, subject to the provision
that a separate limit of liability will not apply in respect thereof.
Upon expiry of this Contract, policies in force at the effective time and date
of expiration hereof shall continue to be covered hereunder until their
individual natural expiration or termination dates, whichever sooner, including
extensions, discovery periods or other similar extended reporting endorsements
attaching to such policies. The Reassured may however, subject to agreement by
Reinsurers hereon, terminate the liability of the Reinsurers for claims made or
losses discovered, as applicable on or after the effective time and date of
expiration hereof and, in such event, the unearned premium on all ceded policies
attaching hereunder shall be returned to the Reassured by the Reinsurer less any
ceding commission previously allowed on unearned premium.
ARTICLE 6
SPECIAL TERMINATION CLAUSE
A. Either party may terminate this Contract upon 30 days notice in the event
that the other party's surplus has been reduced by 30% or more of the
amount of surplus at June 30th, 2005.
B. The Reassured may terminate the Reinsurer's participation hereon at any
time by giving 30 days' prior written notice to the Reinsurer in the event
that:
(1) A State Insurance Department or other legal authority has ordered
the subscribing Reinsurer to cease writing business; or
(2) The subscribing Reinsurer has become insolvent or has been placed
into liquidation or receivership or proceedings have been instituted
against the subscribing Reinsurer for the appointment of a receiver,
liquidator, rehabilitator, conservator or trustee in bankruptcy, or
other agents known by whatever name, to take possession of its
assets or control of its operation; or
(3) The subscribing Reinsurer has reinsured its entire liability under
this Contract without the Reassured's prior written consent.
However, the Reinsurer shall be at liberty to effect catastrophe
excess and/or aggregate stop loss excess reinsurance; or
(4) The subscribing Reinsurer has ceased assuming new and renewal treaty
reinsurance business; or
(5) The subscribing Reinsurer experiences a downgrading in their
financial strength rating from Standard and Poor's Group below BBB
or a downgrading in rating from A.M. Best Company below A-.
In the event of such termination, the liability of the Reinsurer shall be
terminated as follows:
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Policies in force at the effective time and date of termination of this Contract
shall continue to be covered hereunder until their individual expiration dates,
including extensions, discovery periods or other such similar reporting
endorsements or provisions attached thereto. For rating purposes, the applicable
Original Gross Net Written Premium Income shall be calculated on policies issued
or renewed from the inception date of this Contract to the effective time and
date of termination of this Contract.
The Reassured may however terminate the liability of the Reinsurer for claims
made or losses discovered, as original, after the effective time and date of
termination of this Contract and, in such event, the unearned premium at the
termination date applicable to in force policies, including extensions,
discovery periods or other similar extended reporting endorsements or provisions
attached thereto, shall be returned to the Reassured by the Reinsurer less any
ceding commission previously allowed on unearned premium.
ARTICLE 7
FOLLOW THE FORTUNES
This Contract shall be construed as an honorable undertaking between the
Reassured and the Reinsurers and shall not be defeated by technical legal
restrictions, it being the intention of this Contract that the fortunes of the
Reinsurers shall follow in all respects the fortunes of the Reassured on all
original policies and contracts of insurance ceded to this Contract.
It is understood however, that this Contract is a contract of reinsurance
separate and distinct from the original policies issued by the Reassured. Except
as provided for in INSOLVENCY OF THE REASSURED the Reinsurers will not, under
any circumstances whatsoever, be directly liable to the original insureds.
ARTICLE 8
EXCESS OF ORIGINAL POLICY LIMITS
In addition to the coverage afforded under COVER, LIMIT AND RETENTION should the
Reassured incur additional liability as the result of an award in excess of
their original policy limit as defined below, the Reinsurers shall accept the
additional liability incurred solely on cessions made hereunder, up to an
additional Contract limit in addition to any contractual loss hereunder (subject
to the Reassured's 10.0% co-participation hereon), it being understood the
maximum additional recoverable in respect of specific excess of original policy
limits and extra contractual obligations coverage shall be USD10,000,000 any one
claim. However, specific Excess of Original Policy Limits coverage afforded
under the Reassured's underlying Excess of Loss and Excess Cession Reinsurance
Contracts shall inure to the benefit of Reinsurers hereon. No separate
underlying retention of USD10,000,000 shall apply to such additional Excess of
Original Policy Limits coverage hereunder.
Awards in excess of the original policy limit are defined as contractual losses
which the Reassured may be legally liable to pay, but in excess of the original
policy limit, such losses in excess of the original policy limit having been
incurred because of, but not limited to, the
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following: failure by the Reassured to settle within the original 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 an insured or in the preparation or prosecution of an appeal
consequent upon such action.
The date on which any liability in excess of original policy limits is incurred
by the Reassured shall be deemed, in all circumstances, to be the date the
original claim was made or occurred.
However, this Article shall not apply where such awards in excess of original
policy limit have been incurred due to the fraud of a member of the Board of
Directors or a corporate officer of the Reassured 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.
ARTICLE 9
EXTRA-CONTRACTUAL OBLIGATIONS
In addition to the coverage afforded under COVER, LIMIT AND RETENTION should the
Reassured incur additional liability as the result of an award in respect of any
extra-contractual obligations, as defined below, the Reinsurers shall accept the
additional liability incurred solely on cessions made hereunder, up to an
additional Contract limit in addition to any contractual loss hereunder (subject
to the Reassured's 10.0% co-participation hereon), it being understood the
maximum additional recoverable in respect of specific excess of original policy
limits and extra contractual obligations coverage shall be USD$10,000,000 any
one claim. However, specific Extra Contractual Obligations coverage afforded
under the Reassured's underlying Excess of Loss and Excess Cession Reinsurance
Contracts shall inure to the benefit of Reinsurers hereon. No separate
underlying retention of USD10,000,000 shall apply to such additional Extra
Contractual Obligations coverage hereunder.
"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 Reassured 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 an insured 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 Reassured
shall be deemed, in all circumstances, to be the date the original claim was
made or occurred.
Recoveries, collectibles or retentions from any other form of insurance or
reinsurance including deductibles or self insured retentions that protect the
Company against Extra Contractual Obligations shall inure to the benefit of the
Reinsurers and shall be deducted from the total amount of Extra Contractual
Obligations for purposes of determining the loss hereunder.
However, this Article shall not apply where such extra-contractual obligations
have been incurred due to the fraud of a member of the Board of Directors or a
corporate officer of the
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Reassured 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.
ARTICLE 10
PREMIUM
In consideration of the liabilities undertaken by the Reinsurers in accordance
with the terms of this Contract, the Reassured shall pay to the Reinsurers their
proportion of the Reassured's Original Gross Net Written Premium for limits
attaching hereon, generated in accordance with the Increased Limit Factors
(ILF's) established by the Reassured for each class of business covered
hereunder.
All accounts covered hereunder will be subject to the following minimum premium
criteria or so deemed:
1. Any account with 2,500,000 or less enrollees - minimum USD12,500 per
million of policy limit.
2. Any account with 2,500,001 - 7,500,000 enrollees - minimum USD15,000
per million of policy limit.
3. Any account with more than 7,500,000 enrollees - minimum USD25,000
per million of policy limit.
Reference to number of enrollees above shall be in respect of the number of
enrollees at the time the account is bound.
ARTICLE 11
CEDING COMMISSION
The Reinsurers shall allow the Reassured to deduct and retain for their own
benefit as ceding commission the original acquisition costs plus 12.5% of ceded
Original Gross Net Written Premium payable to the Reinsurers in accordance with
the terms of the PREMIUM Article, not to exceed 22.5% in the aggregate for all
cessions covered hereunder. A commission calculation will be prepared by the
Reassured within 60 days of the expiry of this Contract, and in the event the
commission charged exceeds the maximum allowed the difference will be returned
to the Reinsurers with the commission calculation. There shall be a further
adjustment 12 months after the expiry hereof.
ARTICLE 12
ACCOUNTS AND REPORTS
Accounts shall be rendered quarterly in arrears. Premium and bordereaux of
cessions shall be rendered by the Reassured within 45 days of the end of each
calendar quarter, that is within 45 days of September 30, 2005 and quarterly
thereafter.
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ARTICLE 13
NOTICE OF LOSS AND LOSS SETTLEMENTS
The Reinsurers agree to abide by all loss settlements of the Reassured which at
its sole discretion shall adjust, settle or compromise all losses and all such
adjustments, settlements or compromises shall be binding upon Reinsurers subject
to the terms, conditions and limitations of the original policies and this
Contract.
The Reassured shall provide individual loss reports to the Reinsurers of all
claims reserved at or above USD5,000,000, and in the event of loss settlements
by the Reassured, the Reinsurers agree to settle to the Reassured their
proportion of such loss settlements immediately upon receipt of satisfactory
proof of loss.
Where the Reassured's original policies and/or specific coverage parts of their
original policies provide for loss adjustment expenses in addition to limit, all
loss adjustment expenses paid by the Reassured shall be apportioned in
proportion to the respective interests in the loss of the parties hereto as such
interests finally appear and shall be in addition to their share of the loss
recoverable hereunder. In the event a verdict or judgment is reduced by an
appeal or a settlement, subsequent to the entry of the judgment, resulting in an
ultimate saving on such verdict or judgment, or a judgment is reversed outright,
the expense incurred in securing such final reduction or reversal shall be
pro-rated between the Reinsurers and the Reassured in the proportion that each
benefits from such reduction or reversal; and the expenses incurred up to the
time and date of the original verdict or judgment shall be pro-rated in
proportion to each party's interest in such verdict or judgment.
Notwithstanding the foregoing, in the event that the Reassured's original
policies and/or specific coverage parts of their original policies are issued
with loss adjustment expenses included within the original policy limit, such
loss adjustment expenses shall be included as Loss for the purposes of recovery
hereunder.
In the event of external legal or external adjustment expenses, including
outside monitoring counsel expenses, which are incurred by the Reassured in
connection with a claim or potential claim hereunder and which are not the
subject of the Reassured's original policy, then Reinsurers shall also be liable
for their proportion of such expenses in addition to their share of the loss
recoverable hereunder.
The Reinsurers shall also accept additional liability, solely on cessions made
hereunder, for legal expenses incurred in respect of coverage questions and
legal actions in connection with a claim or potential claim hereunder
(hereinafter referred to as "declaratory judgment and/or rescission expenses").
It being understood and agreed that:
1. When there is no contractual loss, other than declaratory judgment
and/or rescission expenses, the declaratory judgment and/or
rescission expenses shall be considered a Loss for the purposes of
recovery hereunder.
2. When a contractual loss, exclusive of declaratory judgment and/or
rescission expenses, is incurred hereunder, the Reinsurers shall be
liable for their
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proportionate share of such declaratory judgment and/or rescission
expenses, as the respective interests in the loss of the parties
hereto finally appear, up to an additional limit of this Contract in
addition to any Loss recoverable hereunder.
Declaratory judgment expense as used in this Contract shall mean all expenses
incurred by the Reassured in connection with declaratory judgment actions
brought to determine the Reassured's defense and/or indemnification obligations
that are allocable to specific policies and claims subject to this Contract. Any
declaratory judgment expense shall be deemed to have been fully incurred by the
Reassured on the date of the actual or alleged loss under the Reassured's policy
giving rise to the action.
For the purposes of this Contract loss adjustment expenses shall include all
expenses of litigation, including post judgment interest, but shall exclude the
salaries of regular employees and all office expenses of the Reassured.
All salvages, recoveries or payments recovered or received subsequent to a loss
settlement under this Contract shall be applied as if recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the parties hereto.
ARTICLE 14
INTEREST PENALTY
The provisions of this Article shall not be implemented unless specifically
invoked, in writing, by the Reassured or Reinsurer. The interest amounts
provided for in this Article will apply to the Reinsurer or to the Reassured in
the following circumstances:
1. Loss payment owed by the Reinsurer to the Reassured shall have a due
date to the Reassured of 45 calendar days following the date of the
Reinsurer's receipt of the billing, but no later than 90 days from
the Reassured's date of the billing.
2. Payment of any premium installments shall be due to the Reinsurer
within 30 calendar days of the date specified in this Contract. Any
premium adjustments will be due by the debtor party within 60
calendar days of the date specified in this Contract.
3. Payment of return premiums, commissions, profit sharing, or any
other amounts not provided in paragraphs 1 or 2 above, shall be due
by the debtor party within 60 calendar days of the due date
specified in this Contract. If no due date is specified, the due
date shall be 60 days following the date of the debtor party's
receipt of the billing, but no later than 90 days from the creditor
party's date of the billing.
4. Failure by the Reinsurer or Reassured to comply with their
respective payment obligations within the time periods as herein
provided will result in a compound interest penalty payable at a
rate equal to the 90 day Treasury ▇▇▇▇ rate as published in the
Money Rate Section or any successor section of THE WALL STREET
JOURNAL on the first business day following the date a remittance
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becomes due, plus 2% per annum, to be compounded and adjusted
quarterly. Any interest which occurs pursuant to this Article shall
be calculated by the party to which it is owed. The accumulation of
the number of days that any payment is past due will stop on the
date the Intermediary, where applicable, receives payment.
5. The validity of any claim or payment may be contested under the
provisions of this Contract. If the debtor party prevails in such
action, there shall be no interest penalty due. Otherwise, any
interest will be calculated and due as outlined above.
6. If a Reinsurer advances payment of any claim it is contesting, and
prevails such action, the Reassured shall return such payment plus
pay interest on same, calculated as per the provisions of this
Article.
7. Any interest which occurs pursuant to this Article may be waived by
the party to which it is owed. Further, any interest which is
calculated pursuant to this Article that is USD100 or less shall be
waived. Waiver of such interest, however, shall not affect the
waiving party's right to similar interest for any other failure by
the other party to make payment when due under this Article.
8. Nothing in this Article shall diminish any legal remedies which
either party may have against the other.
ARTICLE 15
UNEARNED PREMIUM AND LOSS RESERVES
This Article applies only to those Reinsurers signatory hereto who do not
qualify for credit under the regulations of the State insurance authorities or
departments which have jurisdiction over the Reassured's reserves.
The Reassured agrees that when, for its Annual Convention Statement purposes, it
files with the authorities or departments mentioned above or sets up in its
books statutory reserves for known outstanding losses and allocated loss
expenses reinsured by this Contract, for unearned premium in respect of business
coming within the scope of this Contract, or for incurred but not reported
losses (IBNR), hereinafter "The Stated Reserves", it shall forward to the
Reinsurers a clear statement of the Reinsurers' proportion of The Stated
Reserves detailing separately the amounts involved for known outstanding losses
and allocated loss expenses and for unearned premium and IBNR, and also how
those amounts are calculated. Reserves for IBNR shall be equal to the actual
amount of IBNR carried on the books of the Reassured for statutory reporting
purposes.
The Reinsurers, promptly upon receipt of the Reassured's statement, shall apply
for, and secure delivery to the Reassured of, clean, irrevocable and
unconditional Letters of Credit or such equivalent funding acceptable to the
Reassured, for the benefit of the Reassured in amounts equal to their proportion
of The Stated Reserves.
All Letters of Credit procured pursuant to this Contract shall be issued by a
Bank which is a Member of the Federal Reserve and acceptable to the authorities
or departments mentioned in the
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first paragraph of this Article current at the date of the Reassured's
statement. Such Letter of Credit shall be in full conformity with the
requirements of such authorities or departments.
Further, all such Letters of Credit shall be "Evergreen" in that they shall be
issued for an initial period of not less than one year and shall be
automatically extended for one year from their original expiration dates and
subsequently from their extended expiration dates unless and until, at least
thirty days before any expiration date, the issuing bank gives notice to the
Reassured by registered mail that the issuing bank elects not to extend the life
of the Letter of Credit in question beyond its forthcoming expiration date.
In consideration of the contract of the Reinsurers to furnish such Letters of
Credit to the Reassured to enable it to obtain credit for the reinsurance
provided under this Contract, the Reassured hereby undertakes to hold such
Letters of Credit and the proceeds of any drawings made upon them in trust for
the Reinsurers and to use and apply the proceeds of any such drawings for the
following purposes only:
a. To pay the Reinsurers' share or to reimburse the Reassured for that share
of any liability for loss or allocated loss expense reinsured by this
Contract or for unearned premium in respect of business coming within the
scope of this Contract;
b. To refund to the Reinsurers any balance by which the amount of the Letter
of Credit exceeds the Reinsurers' proportion of any liability for loss or
allocated loss expense reinsured by this Contract, incurred but not
reported losses (IBNR) or for unearned premium in respect of business
coming within the scope of this Contract.
c. In the event that one or more of the Reinsurers participating in the
Letter of Credit gives timely notice of cancellation or non-renewal of
their participation in the Letter of Credit and provided that the
obligations secured by the Letter of Credit remain unliquidated and
undischarged at the time of receipt by the Reassured of such notice, the
Reassured shall create a cash deposit account, separate from its own
assets, in an amount equal to the participation of the canceling or
non-renewing Reinsurer(s) in the Letter of Credit. That cash deposit
account may then be used as in subparagraphs a. and b. above. It is
understood and agreed that this procedure may only be implemented before
the expiry of the notice period in respect of cancellation or non-renewal
and that if it is implemented, the Reassured will ensure that a rate of
interest is obtained for the Reinsurers on such a deposit account that is
at least equal to the rate which would be paid by Citibank N.A. in New
York, and further that the Reassured will account to the Reinsurers on an
annual basis for all interest accruing on the cash deposit account for the
benefit of the Reinsurers.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of drawings made by the Reassured on the Letters of Credit issued
under this Contract or in connection with the disposition of any funds so
withdrawn, except to ensure that drawings are made only upon the order of
properly authorized representatives of the Reassured.
All Letters of Credit procured for the Reassured under this Contract shall be
adjusted at annual intervals, or more frequently as agreed (but never more
frequently than quarterly), to reflect the
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current balance of the Reinsurers' proportion of the Reassured's known
outstanding loss and allocated loss expense reserves and unearned premium
reserves, and the Reassured shall produce a statement for this purpose detailed
in the same way as the original statement on the basis of which such Letters of
Credit were first issued. If the statement shows that the Reinsurers' proportion
of such losses and allocated expenses, IBNR or unearned premium reserves exceeds
the current amount of the Letters of Credit, the Reinsurers shall, within thirty
days after receipt of the statement, secure the amendment of the Letters of
Credit increasing their amount to the amount of the current balance of these
items. If, however, the statement shows that the Reinsurers' proportion of the
current balance of those items is less than the amount of the Letters of Credit
the Reassured shall, within thirty days of receipt of a written request from the
Reinsurers to do so, facilitate the release of the excessive security by
authorizing the amendment of the Letters of Credit so as to reduce their amount
to the current balance required.
All expenses incurred in the establishment or maintenance of such Letters of
Credit shall be paid by the Reinsurers.
ARTICLE 16
CURRENCY
The currency to be used for all purposes of this Contract shall be United States
Dollars. All amounts paid or received by the Reassured in any other currency
shall be converted into United States Dollars at the rates of exchange at which
such transactions are converted in the books of the Reassured.
ARTICLE 17
TAX PROVISIONS
The Reassured shall be liable for all taxes (except Federal Excise Tax) levied
on it with respect to premiums payable to the Reinsurers hereunder. Federal
Excise Tax applies only to those Reinsurers, excepting Underwriters at Lloyd's,
London and other Reinsurers exempt from the Federal Excise Tax, who are
domiciled outside the United States of America.
To the extent that such premium is subject to Federal Excise Tax, the Reinsurers
hereby agree to allow as a deduction from the premium, for the purpose of paying
Federal Excise Tax, all applicable percentages of the premium payable hereon.
In the event of any return premium becoming due hereunder the Reinsurers will
deduct all applicable percentages from the amount of the return, and the
Reassured or its agents shall take steps to recover the tax from the Government
of the United States of America.
In consideration of the terns under which this Contract is issued, the Reassured
undertakes not to claim any deduction in respect of premium payable hereon when
making tax returns, other than Income or Profits tax returns, to any fiscal
authority of the United States of America or any State or Territory thereof.
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ARTICLE 18
INSOLVENCY OF THE REASSURED
Amounts due to the Reassured under this Contract shall be payable by the
Reinsurers on the basis of the liability of the Reassured under the original
policies reinsured hereunder without diminution because of the insolvency of any
one or all of the Reassured Companies.
In the event of the insolvency of the Reassured, the Liquidator or Receiver or
Statutory Successor of the Reassured shall give written notice to the Reinsurers
of the pendency of any claim against the insolvent Reassured on the original
policies reinsured hereunder within a reasonable time after such claim is filed
in the insolvency proceedings. During the pendency of such claim the Reinsurers
may investigate such claim and intervene, at their own expense, in the
proceedings where such claim is to be adjudicated and interpose any defense or
defenses which they may deem available to the Reassured or its Liquidator or
Receiver or Statutory Successor. The expense thus incurred by the Reinsurers
shall be chargeable, subject to court approval, against the insolvent Reassured
as part of the expense of liquidation to the extent of a proportionate share of
the benefit which may accrue to the Reassured solely as a result of the defense
so undertaken by the Reinsurers.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to investigate the claim and/or to interpose defense to such
claim, the expense shall be apportioned in accordance with the terms of the
above paragraph as though such expense had been incurred by the Reassured.
Should the Reassured go into liquidation or should a receiver be appointed, the
Reinsurers shall be entitled to deduct from any sums which may be or may become
due to the Reassured under this Contract any sums which are due to the
Reinsurers from the Reassured under this Contract and which are payable at a
fixed or stated date, as well as any other sums due to the Reinsurers which are
permitted to be offset under applicable law.
In the event of the insolvency of the Reassured, the amounts due to the
Reassured under this Contract shall be payable by the Reinsurers directly to the
Reassured or to its Liquidator, Receiver or Statutory Successor.
It is the mutual intent of the parties that, in the event of the insolvency of
the Reassured, this Article shall be read to conform with the state or
regulatory requirements of the jurisdiction in which the liquidation or
receivership is conducted. In the event that any provision of this Article is in
conflict with such state or regulatory requirements, then such provision shall
be reformed to be in compliance with such state or regulatory requirements.
ARTICLE 19
OFFSET
Each party hereto shall have, and may exercise in the event of insolvency of the
other or the non-payment by the other of obligations when due hereunder, the
right to offset any balance or balances whether on account of premiums,
commissions, claims or losses, adjustment expenses,
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salvage or any amount due from that party to the other party hereto under this
Contract only against any balance or balances due or to become due to the
offsetting party from the other party under this Contract only. The terms of
this Article shall apply separately to this Contract and to each successive
renewal of this Contract.
ARTICLE 20
DELAYS, ERRORS AND OMISSIONS
No inadvertent delay, error or omission shall be held to relieve either party
hereto of any liability which would have attached to them under this Contract if
such delay, error or omission had not been made, provided that rectification is
made immediately upon discovery.
ARTICLE 21
AMENDMENTS AND ALTERATIONS
The terms herein contained comprise the whole Contract between the Reassured and
the Reinsurers and may only be changed in writing, signed by or on behalf of
both parties.
ARTICLE 22
ACCESS TO RECORDS AND CLAIMS REVIEW
All documents and records in the possession of the Reassured concerning this
Contract shall be made available upon reasonable notice at the request of the
Reinsurers for inspection at the Reassured's offices by the Reinsurers or their
nominated representatives for the purposes of obtaining information concerning
this Contract or the subject matter hereof.
Specifically, the Reinsurers shall be entitled to nominate a representative to
assess the Reassured's claims and claims procedures.
For the avoidance of doubt, it is hereby expressly agreed that the rights given
to the Reinsurers by this Article shall continue in effect notwithstanding the
expiration of this Contract and shall be exercised at the Reinsurers' own
expense.
ARTICLE 23
ARBITRATION
As a condition precedent to any right of action hereunder, all disputes or
differences arising out of or connected with this Contract (whether or not
arising before or after expiration) its interpretation or implementation, shall
be referred to arbitration in Farmington, Connecticut, U.S.A., the city in which
the Reassured's principal office is located.
Arbitration shall be initiated by the delivery of a written notice of demand for
arbitration by one party to the other within a reasonable time after the dispute
has arisen stating the nature of the dispute and the remedy sought. Those
Reinsurers involved in the dispute or other matter in
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controversy shall be considered as one party for the purpose of allocating the
cost of the arbitration.
Each party shall appoint an individual as arbitrator and the two so appointed
shall then appoint a third arbitrator. If either party refuses or neglects to
appoint an arbitrator within sixty (60) days, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third arbitrator
within sixty (60) days of their appointment, within ten (10) days thereafter the
two arbitrators will request the American Arbitration Association ("AAA") to
appoint a third arbitrator with the qualifications set forth below in this
Article without regard to the AAA's Commercial Arbitration Rules. If the AAA
fails to appoint a third arbitrator within thirty (30) days after its receipt of
the two arbitrators' request, either party may apply to a court of competent
jurisdiction to appoint a third arbitrator with the qualifications set forth
below in this Article. The third arbitrator will immediately notify each party
of his selection. In the event of the resignation or death of any member of the
arbitrator panel, a replacement will be appointed in the same manner as the
resigning or deceased member was appointed.
Each arbitrator shall be an active or retired officer of an insurance or
reinsurance company or Underwriter at Lloyd's London; no arbitrator shall have a
personal or financial interest in the result of the arbitration, and shall not
be a present or former officer, attorney, or consultant of the Reassured or the
Reinsurer or either's affiliates.
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, and shall make any award
with a view to effecting the general purpose of this Contract in a reasonable
manner with due regard to the custom and usage of the insurance and reinsurance
business.
The arbitrators shall have full discretion to make such orders as they think fit
in connection with all procedural matters in the Arbitration, including but not
limited to the conduct of the reference by written or oral submissions, the
production of documents, the examination of witnesses, and the imposition of
time limits for the taking of necessary procedural steps. The arbitrators shall
also have full discretion to make such orders as they think fit with regard to
the payment of the costs of the Arbitration including attorneys' costs and fees.
If more than one Reinsurer is involved in the same dispute, all such Reinsurers
shall constitute and act as one party for purposes of this Article and
communications shall be made by the Reassured to each of the Reinsurers
constituting the one party, provided 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 Reinsurers under the terms of this
Contract from several to joint.
Any Award or order of the arbitrators or a majority thereof shall be binding on
the parties and there shall be no right of appeal therefrom. For the purpose of
enforcement of any Award, an action may be brought in any Court of competent
jurisdiction.
Except as provided above, arbitration shall be based, insofar as applicable,
upon the procedures of the American Arbitration Association.
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ARTICLE 24
SERVICE OF SUIT
It is agreed that in the event of the failure of the Reinsurer to pay any amount
awarded by the arbitration tribunal referred to in the Arbitration Clause
herein, the Reinsurers hereon, at the request of the Reassured, will submit to
the jurisdiction of a court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to constitute a
waiver of 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. It is
further agreed that service of process in such suit may be made upon Mendes &
Mount, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and that in any suit
instituted against any one of them upon this Contract, Reinsurers 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 Reinsurers in any such suit and/or upon the request of the Reassured
to give a written undertaking to the Reassured that they will enter a general
appearance upon Reinsurers' behalf in the event such a suit shall be instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, Reinsurers hereon 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 Reassured or any beneficiary hereunder arising out of this Contract of
reinsurance, and hereby designate the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.
ARTICLE 25
CONFIDENTIALITY
The confidential nature of this Contract is acknowledged by all parties.
Moreover, the Reinsurers will only disclose to third parties, such as
regulators, auditors, rating agencies, shareholders, reinsurers and the like,
such details of this Contract as are necessary to comply with their obligations
to such third parties as part of their normal business practice.
It is a condition binding on Reinsurers hereon that they may not disclose any
details of this Contract at any time to any other third party without the
agreement of the Reassured.
ARTICLE 26
REGULATORY COMPLIANCE
If any provision of this Contract shall be rendered illegal or unenforceable by
the laws, regulations or public policy of any State in the United States, such
provision shall be considered
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void in such State, but this shall not affect the validity or enforceability of
any other provision of this Contract, or the validity or enforceability of such
provision in any other jurisdiction.
ARTICLE 27
INTERMEDIARY
▇▇▇▇▇▇▇ America Incorporated is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications
including notices, premiums, return premiums, commissions, taxes, losses, loss
adjustment expenses, salvages and loss settlements relating thereto shall be
transmitted to the Reinsurer or the Reassured through ▇▇▇▇▇▇▇ America
Incorporated at The Pinnacle, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇. Payments by the Reassured to the Intermediary will be deemed to
constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary will be deemed only to constitute payment to the Reassured to the
extent that such payments are actually received by the Reassured.
ARTICLE 28
GOVERNING LAW
This Contract shall be governed by and construed in accordance with the laws of
the State of Connecticut.
ARTICLE 29
PARTICIPATION
This Contract obligates each of the Reinsurers for their proportion of the
interests and liabilities set forth under this Contract, such proportions being
shown in the attached Schedules.
ARTICLE 30
SEVERAL LIABILITY NOTICE
The subscribing Reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent of
their individual subscriptions. The subscribing Reinsurers are not responsible
for the subscription of any co-subscribing Reinsurer who for any reason does not
satisfy all or part of its obligations.
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IN WITNESS WHEREOF the parties hereto have, by their duly authorized
representative, executed this Contract as follows:
Signed in Farmington, Connecticut, this 19th day of January 2006.
For and on behalf of the Reassured:
Signed by: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
Officers Title: CEO
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Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
And for the Reinsurer(s) by means of and in accordance with the attached
Schedule(s), which shall be considered to form an integral part of this
Contract.
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