FACULTATIVE REINSURANCE AGREEMENT
between
NATIONAL UNION FIRE INSURANCE COMPANY OF PlTTSBURGH, PA.
(hereinafter called the "Company")
and
CONSOLIDATED AMERICAN RENTAL INSURANCE COMPANY, LTD.
(hereinafter called "the Reinsurer")
WITNESSETH:
WHEREAS, the Company is willing to cede to the Reinsurer certain
insurance under the terms and conditions hereinafter set forth; and
WHEREAS, the Reinsurer is willing to reinsure such insurance on said
terms and conditions:
NOW, THEREFORE, in consideration of the premiums Schedule(s) and of the
mutual covenants and agreements herein set forth, the parties hereto hereby
covenant and agree as follows:
ARTICLE I
POLICY(IES) REINSURED:
----------------------
As per Schedule(s) attached hereto and made a part hereof.
[Confidential Treatment sought for Schedule I]
ARTICLE II
TERM:
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This Agreement is effective at 12:01 A.M. Eastern Standard Time, the
1st day of March, 1997.
This Agreement shall continue in effect until terminated.
ARTICLE III
TERRITORY:
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This Agreement shall cover Losses occurring within the territorial
limits provided by the Policies reinsured hereunder and listed in Schedule(s).
ARTICLE IV
DEFINITIONS:
------------
A. The term "Policies" as used in this Agreement shall mean any and all
binders, certificates, policies and contracts of insurance, accepted or
held covered provisionally or otherwise and issued to the Insured named
in Schedule(s) hereof.
B. The term "Ultimate Net Loss" as used in this Agreement shall mean the
actual Loss sustained by the Company, but salvages and all other
recoveries, including recoveries under all other reinsurance except
catastrophe excess reinsurance of the Company, shall be deducted from
such Loss to arrive at the amount of liability, if any, attached
hereunder. All salvages, recoveries, or payments recovered or received
subsequent to loss settlement hereunder, shall be applied as if
recovered or received prior to the aforesaid settlement, and all
necessary adjustments shall be made by the parties hereto. Nothing in
this clause shall be construed to mean that Losses are not recoverable
hereunder, until the Company's Ultimate Net Loss has been ascertained.
C. The term "Gross Premiums Written" as used in this Agreement shall mean
Direct Written Premiums for Policies covered hereunder, adding all
other Additional Premiums and subtracting all other Return Premiums and
cancellations; however, Direct Premiums written on installment premium
payment policies shall be deemed to be the installment due in the
period for which the account is rendered, in accordance with the
Reports and Remittances article contained in this Agreement.
D. The term "Unearned Premiums Reserve" as used in this Agreement shall
mean the premium represented by the unexpired portion of the policy in
force as of any specified date.
E. The term "Losses Paid" as used in this Agreement shall mean Losses Paid
less Recoveries for Salvage and Subrogation.
F. The term "Allocated Loss Expenses" as used in this Agreement shall mean
all court costs and court expenses; pre- and postjudgment interest;
fees for service of process; attorneys' fees; cost of undercover
operative and detective services; costs of employing experts; costs for
legal transcripts; costs for copies of any public records; costs of
depositions and court-reported or recorded statements; costs and
expenses of subrogation and any similar fee, cost or expense reasonably
chargeable to the investigation, negotiation, settlement or defense of
a claim or loss or to the protection and perfection of the subrogation
rights of the Company and/or of the Client. "Allocated Loss Expenses"
shall not mean fees for attorneys who are employees of the Company or
on permanent retainer.
G. The term "Unallocated Loss Expense" as used in this Agreement shall
mean the Claims Service Fees charged hereunder as per Schedule(s)
hereof.
H. The term "AIGRM Supervision Fee" shall mean the fee for services
provided in serving as liaison between the Reinsurer and the Claims
Administrator, reviewing claims in accordance with the Claims Handling
Guidelines issued by AIG Risk Management, Inc. (AIGRM) and monitoring
and evaluating performance of the Claims Administrator, and shall be
adjusted as shown in the Schedule(s).
I. The term "Outstanding Loss Reserves" as used in this Agreement shall
mean losses reported to the Company which have been reserved but unpaid
at any specified date.
J. The term "Losses" as used in this Agreement shall mean payments to
claimants under Policies reinsured hereunder.
K. The term "Loss Escrow Fund" as used in this Agreement shall mean a
non-interest bearing escrow fund established in the amount shown in the
Schedule(s) and adjusted in accordance with Article VII.
L. The term "IBNR" (Incurred But Not Reported) as used in this Agreement
shall mean a reserve for liability for future payment on Losses which
have already occurred but have not
yet been reported to the Company and shall also include expected future
development on Outstanding Loss Reserves.
M. The term "Obligations" as used in this Agreement shall mean:
(a) Losses and Allocated Loss Expenses paid by the Company but not
recovered from the Reinsurer;
(b) Outstanding Loss Reserves;
(c) Reserves for Losses Incurred But Not Reported;
(d) Reserves for Allocated Loss Expenses; and
(e) Reserves for Unearned Premium.
(f) Plus the difference between (a) through (e) above and the
amount of Security set by the Company.
N. Deductible Loss(es) as used in this Agreement shall mean those Losses
paid by the original insured under the Policy(ies) reinsured hereunder.
ARTICLE V
REINSURING CLAUSE: As per Schedule(s).
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ARTICLE VI
PREMIUM AND COMMISSION:
-----------------------
The Premiums due the Reinsurer for the Reinsurance hereunder shall be
calculated in accordance with the Schedule(s).
ARTICLE VII
CLAIMS:
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The Reinsurer agrees to abide by the loss settlements of the Company,
it being understood, however, that when so requested, the Company will afford
the Reinsurer an opportunity to be associated with the Company, at the expense
of the Reinsurer, in the defense of any claim or suit or proceeding involving
this reinsurance, and that the Reinsurer may cooperate in every respect in the
defense or control of such claim, suit or proceeding.
For the payment of Losses and Loss Expenses the Reinsurer will fund a
Loss Escrow Fund in the amount shown in the Schedule(s) or two and one half (2
1/2) months estimated Ultimate Net Loss which will be replenished by the
Reinsurer at the same time as the account current shown in Schedule(s).
The Company may deduct paid loss and loss expenses paid as provided for
in the REPORTS AND REMITTANCES ARTICLE, and the Company shall record and advise
the Reinsurer of these deductions as provided in the REPORTS AND REMITTANCES
ARTICLE. The Company may, at its option, demand prompt payment of any loss where
the Reinsurer's share exceeds the amount shown in the Schedule(s) where the
Reinsurer will promptly pay such amounts.
ARTICLE VIII
CLAIMS SERVICE FEES: Adjustable as per Schedule(s).
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ARTICLE IX
REPORTS AND REMITTANCES:
-----------------------
Within the time shown in the Schedule(s) while this Agreement remains
in effect, the Company shall render to the Reinsurer an account current and the
balance due shall be paid by the debtor party to the other within the time shown
in the Schedule(s) after the close of the month or as soon as reasonably
practicable thereafter.
ARTICLE X
RESERVE DEPOSIT (NON-ADMITTED REINSURER):
-----------------------------------------
With respect to the premium derived from any jurisdiction in which an
insured risk is located and in which the Reinsurer is not admitted, the Company
shall be entitled to require from the Reinsurer any one or a combination of the
following; (1) a Letter of Credit complying with 11 NYCRR 79 (Regulation 133),
(2) A Security Trust complying with 11 NYCRR 126 (Regulation 114) and/or (3)
Cash as security for the payment of the latter's Obligations hereunder.
The amount required shall initially equal the amount shown in the
Schedule(s). The amount shall be adjusted to equal the Reinsurer's Obligations.
Upon default by the Reinsurer of sums due and owing to the Company, the
Company may appropriate as much of the Letter of Credit, Security Trust and/or
Cash as necessary to eliminate the default. The Company may, however, at its
discretion, require payment of any sum in default, and it shall be no defense to
any such claim that the Company might have had recourse to the Letter of Credit,
Security Trust and/or Cash.
The Company and the Reinsurer hereby agree that the Letter of Credit,
Security Trust and/or Cash, provided pursuant to this Agreement may be drawn
upon at any time, notwithstanding any other provisions herein contained. The
Letter of Credit, Security Trust and/or Cash may be utilized by Company or any
successor by operation of law, including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Company for any of the following
reasons:
(i) To reimburse the Company for the Reinsurer's share of premiums
returned to the owners of the Policy(ies) reinsured hereunder
due to cancellations of said Policy(ies);
(ii) To reimburse the Company for the Reinsurer's share of
surrenders and benefits or losses paid by the Company under
the terms and provisions of the Policy(ies) reinsured
hereunder;
(iii) 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 Policy(ies) ceded hereunder. Such
amount shall include, but not be limited to, amounts for
policy reserves, reserves for claims and losses incurred
(including IBNR, Allocated Loss Expenses and Unearned
Premiums); and
(iv) To pay any other amounts due to the Company under this
Agreement.
All of the foregoing apply without diminution because of the insolvency
of the Company or the Reinsurer.
ARTICLE Xl
INDEMNIFICATION AND ERRORS AND OMISSIONS:
-----------------------------------------
Any recitals in this Agreement of the terms and provisions of the
original policy or policies are merely descriptive and the Reinsurer is
reinsuring, to the amount herein provided, the obligations of the Company under
the original policy or policies. The Company shall be the sole judge as to what
shall constitute a claim or loss covered under the Company's original policy or
policies and as to the Company's liability thereunder and as to amount or
amounts which it shall be proper for the Company to pay thereunder and the
Reinsurer shall be bound by the judgement of the Company as to the liability and
obligation of the Company under its policy or policies.
Any inadvertent delay, omission or error shall not be held to relieve
either party hereto from any liability which would attach to it hereunder if
such delay, omission, or error had not been made, provided such delay, omission
or error is rectified as soon as possible.
ARTICLE XII
TAXES:
------
The Company will be liable for taxes (except Federal Excise Tax) on
premiums reported to the Reinsurer hereunder.
Federal Excise Tax applies only to those reinsurers which are not
exempt from Federal Excise Tax.
The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax one percent (1%) of the subject premium shown in Schedule(s), or such
other rate that may be in effect from time to time, to the extent such premium
is subject to Federal Excise Tax.
ARTICLE XIII
INSPECTION:
-----------
The Company shall place at the disposal of the Reinsurer, and the
Reinsurer shall have the right to inspect, at all reasonable times, through its
authorized representatives, all books, records and papers of the Company in
connection with the reinsurance hereunder, or any claims in connection herewith.
ARTICLE XIV
FOLLOW THE FORTUNES CLAUSE:
---------------------------
The Reinsurer's liability shall attach simultaneously with that of the
Company and all reinsurance for which the Reinsurer shall be liable by virtue of
this Agreement shall be subject in all respects to the same risks, terms, rates,
conditions, interpretations, assessments, waivers, and to the same
modifications, alterations and cancellations, as the respective insurances (or
reinsurances) of the Company to which such reinsurances relate. This Agreement
shall further protect the Company in connection with any loss for which the
Company may be legally liable to pay 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 their Insured or in the preparation or prosecution of an appeal
consequent upon such action.
The true intent of the Agreement being that the Reinsurer shall, in
every case to which this Agreement applies and in the Proportions specified
herein, follow the fortunes of the Company.
This Article shall not apply insofar as it can be shown that the
Company has been negligent or guilty of bad faith in handling a claim which is
the subject matter of this Agreement.
ARTICLE XV
INSOLVENCY:
-----------
In the event of the insolvency of the Company, reinsurance under this
Agreement shall be payable by the Reinsurer (on the basis of the liability of
the Company under contract or contracts reinsured without diminution because of
the insolvency of the Company) to the Company or to its liquidator, receiver, or
statutory successor, except as provided by Section 4118 of the New York
Insurance Law or except:
(1) where the Agreement specifically provides another payee of
such reinsurance in the event of the insolvency of the
Company, and
(2) where the Reinsurer, with the consent of the direct insured or
insureds, has assumed such policy obligations of the Company
as direct obligations, of the Reinsurer to the payees under
such policies and in substitution for the obligations of the
Company to such payees.
It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company shall give written notice to the Reinsurer of
the pendency of a claim against the insolvent Company on the contract or
contracts reinsured within a reasonable time after such claim is filed in the
insolvency proceeding and that, during the pendency of such claim the Reinsurer
may investigate such claim and interpose at their own expense in the proceeding
where such claim is to be adjudicated, any defense or defenses which they may
deem available to the Company or its liquidator or receiver or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable,
subject to court approval against the insolvent Company as part of the expense
of liquidation to the extent of a proportionate share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.
ARTICLE XVI
ARBITRATION CLAUSE:
-------------------
All disputes or differences arising out of the interpretation of this
Agreement shall be submitted to the decision of two (2) Arbitrators, one to be
chosen by each party, and in the event
the Arbitrators fail to agree, to the decision of an Umpire to be chosen by the
Arbitrators. The Arbitrators and Umpire shall be executive officials of Fire and
Casualty Insurance or Reinsurance Companies. If either of the parties fails to
appoint an Arbitrator within one (1) month after being required by the other
party in writing to do so, or if the Arbitrators fail to appoint an Umpire,
within one (1) month of a request in writing by either of them to do so, such
Arbitrator or Umpire, as the case may be, shall at the request of either party
be appointed by a Justice of the Supreme Court of the State of New York.
The Arbitration proceedings shall take place in New York, New York. The
applicant shall submit its case within one (1) month after the appointment of
the Court of Arbitration, and the respondent shall submit his reply within one
(1) month after receipt of a claim. The Arbitrators and Umpire are relieved from
all Judicial formality and may abstain from following the strict rules of law.
They shall settle any dispute under this Agreement according to an equitable
rather than a strictly legal interpretation of its terms and their decision
shall be final and not subject to appeal.
Each party shall bear the expenses of its Arbitrator and shall jointly
and equally share with the other the expenses of the Umpire and of the
Arbitration.
This Article shall survive the termination of this Agreement.
ARTICLE XVII
RESERVES:
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The Reinsurer will maintain legal reserves with respect to Outstanding
Losses and Loss Expenses and Unearned Premium Reserves.
ARTICLE XVIII
TERMINATION:
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A. Neither the Company nor the Reinsurer may terminate this Agreement
while the Policy(ies) listed in the Schedule(s), Item B are in force;
however, if the policy(ies)
listed in the Schedule(s), item B are in fact terminated then in that
event and that event only this Agreement may be terminated
simultaneously therewith.
B. However, the Company shall have the right to terminate this Agreement
immediately by giving the Reinsurer notice:
(1) If the performance of the whole or any part of this
Agreement be prohibited or rendered impossible de
jure or defacto in particular and without prejudice
to the generality of the preceding words in
consequence of any law or regulation which is or
shall be in force in any state or territory or if any
law or regulation shall prevent directly or
indirectly the remittance of any or all or any part
of the balance or payments due to or from the
Reinsurer.
(2) If the reinsurer at any time shall:
(a) Become insolvent, or
(b) Suffer any impairment of capital, or
(c) File a Petition in bankruptcy, or
(d) Go into liquidation or rehabilitation, or
(e) Have a receiver appointed, or
(f) Be acquired or controlled by any other
insurance company or organization.
(3) In the event of the severance or obstruction of free
and unfettered communication and/or normal commercial
and/or financial intercourse between the United
States of America and the country in which the
Reinsurer is incorporated or has its principal office
as a result of war, currency regulations, or any
circumstances arising out of political, financial or
economic emergency.
All notices of termination in accordance with any of the provisions of
this paragraph may be by Telex or Telegram and shall be deemed to be
served upon dispatch, or where communications between the parties are
interrupted, upon attempt dispatch.
C. All notices of termination served in accordance with any of the
provisions of this Article shall be addressed to the party concerned at
its head office or at any other address previously designated by that
party herein.
D. In the event of this Agreement being terminated the rights and
obligations of both parties to this Agreement shall remain in full
force until the effective date of termination.
E. As respects coverage hereunder, it is understood and agreed that upon
termination of this Agreement, coverage will continue hereunder beyond
such termination date until the natural expiration date, the
cancellation date, or the date which the Company, as a matter of law,
may terminate coverage under the Policy(ies) listed in Article I
hereof.
F. Should this Agreement terminate while a loss occurrence is in progress,
the Reinsurer shall be liable to the extent of their interest, subject
to the other conditions of this contract, for all losses resulting from
such loss occurrence whether such losses arise before or after such
termination.
ARTICLE XIX
SERVICE OF SUIT:
----------------
It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of any court of
competent jurisdiction within the United States and will comply with all
requirements necessary to give such court jurisdiction and all matter arising
hereunder shall be determined in accordance with the law and practice of such
court.
It is further agreed that service of process in such suit may be made
upon the parties indicated in the Schedule(s) and that in any suit instituted
against any of them upon this contract, the Reinsurer will abide by the final
decision of such court or appellate court in the event of an appeal.
The Reinsurer will abide by the final decision of such court or of any
appellate court in the event of an appeal.
The party(ies) listed in the Schedule(s) are authorized and directed to
accept service of process on behalf of the Reinsurer in any such suit and/or
upon the request of the Company to give a written undertaking to the Company
that they will enter a general appearance upon the Reinsurer's behalf in the
event such a suit shall be instituted.
Further, pursuant to any statute of any state, territory, or district
of the United States which makes provisions therefor, Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as 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 Agreement of
reinsurance, and hereby designate the above named as the person to whom the said
office is authorized to mail such process or a true copy thereof.
ARTICLE XX
FOREIGN EXCHANGE:
-----------------
All premium and loss payments hereunder shall be in United States
Currency.
Premiums due hereunder in other than United States Currency shall be
paid by the Company in United States Dollars at the rates of exchange at which
the original accounts were settled. Failing this the rate of exchange applied
shall be that used by the Company in their own books of account or in accordance
with any subsequent adjustments thereto.
The amounts recoverable for losses in other than United Stales Currency
shall be converted into United States Dollars at the same rates of exchange as
were applied in the settlement of the original losses. Failing this the rate of
exchange applied shall be that used by the Company in their own books either at
the time of the settlement or in accordance with any subsequent adjustment
thereto.
ARTICLE XXI
OFFSET CLAUSE:
--------------
The Company and the Reinsurer shall have the right to offset any
balance(s) due from one to the other under this Agreement. The party asserting
the right of offset may exercise such right at any time whether the balance(s)
due are on account of premiums or losses or otherwise.
In the event of the insolvency of a party hereto, offsets shall only be
allowed in accordance with the provisions of Section 7427 of the Insurance Law
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives in New York, New York this 5th
day of May, 1998.
NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA.
BY: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
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TITLE: Attorney in Fact
--------------------------------
ADDRESS: ▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
and in Bermuda this 30 day of April, 1998
CONSOLIDATED AMERICAN RENTAL INSURANCE
CO., LTD.
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BY: /s/ [Illegible]
-----------------------------------
TITLE: DIRECTOR
--------------------------------
ADDRESS: ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇, BERMUDA
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