1
Exhibit 10(g)
PROPERTY AND CASUALTY EXCESS OF LOSS
REINSURANCE AGREEMENT
between
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.
and
AMERICAN RE-INSURANCE COMPANY
2
TABLE OF CONTENTS
ARTICLE PAGE
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I PARTIES TO THIS AGREEMENT 1
II EXHIBITS COVERED 1
III MANAGEMENT OF CLAIMS
AND LOSSES 2
IV SALVAGE AND SUBROGATION 2
V SPECIAL ACCEPTANCES 3
VI EXTRA CONTRACTUAL
OBLIGATIONS AND/OR EXCESS
JUDGMENTS 4
VII DECLARATORY JUDGMENT
EXPENSES 5
VIII ERRORS AND OMISSIONS 5
IX OFFSET AND SECURITY CLAUSE 6
X ACCESS TO RECORDS 6
XI RESERVES AND TAXES 7
XII INSOLVENCY CLAUSE 7
3
PROPERTY AND CASUALTY EXCESS OF LOSS
------------------------------------
REINSURANCE AGREEMENT
---------------------
THIS AGREEMENT made and entered into by and between MERCHANTS MUTUAL INSURANCE
COMPANY, Buffalo, New York and MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE,
INC., Concord, New Hampshire (hereinafter collectively referred to as "Company")
and AMERICAN RE-INSURANCE COMPANY, a Delaware Corporation with Administrative
Offices in Princeton, New Jersey (hereinafter referred to as "Reinsurer").
WITNESSETH:
The Reinsurer hereby reinsures the Company to the extent and on the terms and
conditions and subject to the exceptions, exclusions and limitations hereinafter
set forth and nothing hereinafter shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any third parties or any
persons not parties to this Agreement.
ARTICLE I
---------
PARTIES TO THIS AGREEMENT
-------------------------
A. This Agreement is solely between the Company and the Reinsurer. When
more than one Company is named as a party to this Agreement, the first
reinsured company named shall be the agent of the other reinsured
companies as to all matters pertaining to this Agreement. Any payments
by the Reinsurer to any of the parties comprising the Company shall
constitute payment due from the Reinsurer to the Company under this
Agreement.
B. The retention of the Company and the liability of the Reinsurer and all
other benefits accruing to the Company as provided in this Agreement or
any amendments hereto, shall apply to the reinsured companies
comprising the Company as a group and not separately to each of the
reinsured companies named in this Agreement.
C. Performance of the obligations of each party to this Agreement shall be
rendered solely to the other party; however, if the Company becomes
insolvent, the liability of the Reinsurer shall be modified to the
extent set forth in the Article entitled INSOLVENCY CLAUSE.
ARTICLE II
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EXHIBITS COVERED
----------------
The Company will reinsure with the Reinsurer and the Reinsurer will accept
reinsurance
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from the Company as set forth in Exhibits A, B and C, which are
attached hereto and made a part of this Agreement, such Exhibits being entitled
for purposes of identification as follows:
EXHIBIT A - CASUALTY EXCESS OF LOSS
REINSURANCE COVER
EXHIBIT B - PROPERTY PER RISK EXCESS OF LOSS
REINSURANCE COVER
EXHIBIT C - EACH CLAIMANT WORKERS' COMPENSATION
EXCESS OF LOSS REINSURANCE COVER
ARTICLE III
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MANAGEMENT OF CLAIMS AND LOSSES
-------------------------------
The Company shall investigate and settle or defend all claims and losses. When
requested by the Reinsurer, the Company shall permit the Reinsurer, at the
expense of the Reinsurer, to be associated with the Company in the defense or
control of any claim, loss, or legal proceeding which involves or is likely to
involve the Reinsurer. All payments of claims or losses by the Company within
the limits of its policies which are within the limits set forth in the
applicable Exhibit shall be binding on the Reinsurer, subject to the terms of
this Agreement.
ARTICLE IV
----------
SALVAGE AND SUBROGATION
-----------------------
A. The Reinsurer shall be subrogated, as respects any loss for which the
Reinsurer shall actually pay or become liable, but only to the extent
of the amount of payment by or the amount of liability to the
Reinsurer, to all the rights of the Company against any person or other
entity who may be legally responsible in damages for said loss. The
Company hereby agrees to enforce such rights, but in case the Company
shall refuse or neglect to do so the Reinsurer is hereby authorized and
empowered to bring any appropriate action in the name of the Company or
its policyholders, or otherwise to enforce such rights.
B. Any recoveries, salvages or reimbursements applying to risks covered
under this Agreement shall always be used to reimburse the excess
carriers (from the last to the first, beginning with the carrier of the
last excess), according to their participation, before being used in
any way to reimburse the Company for its primary loss.
C. If loss expense is pro rated in the attached Exhibits, then in the
event there are any
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recoveries, salvages or reimbursements recovered subsequent to a loss
settlement, it is agreed that if the expenses incurred in obtaining
salvage or other recoveries are less than the amount recovered, such
expenses shall be borne by each party in the proportion that each party
benefits from the recoveries. Otherwise, the amount recovered shall
first be applied to the reimbursement of the expense of recovery and
the remaining expense shall be borne by the Company and the Reinsurer
in proportion to the liability of each party for the loss before such
recovery had been obtained.
D. If loss expense is included in the ultimate net loss in the attached
Exhibits, all salvages recoveries or reimbursements, after deduction of
expenses applicable thereto, recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or
received prior to the aforesaid settlement and all necessary
adjustments shall be made by the parties hereto, provided always, that
nothing in this clause shall be construed to mean that losses under
this Agreement are not recoverable until the Company's ultimate net
loss has been ascertained.
E. Expenses hereunder shall exclude all office expenses of the Company and
all salaries and expenses of its officials and employees. However,
should litigation be necessary in order to effect recovery and the
Company use its in-house counsel to conduct or monitor the litigation,
the Company may include the salary of said in-house counsel while so
engaged and any direct costs incurred by or on behalf of said in-house
counsel associated with the litigation.
ARTICLE V
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SPECIAL ACCEPTANCES
-------------------
A. Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer,
shall be subject to all of the terms of this Agreement except as
modified by the special acceptance.
B. Notwithstanding the above, it is agreed that the following business
shall be covered under this Agreement, subject to all of the terms of
this Agreement except as otherwise indicated below, until the
expiration, cancellation or next anniversary date of the Company's
policies covering said business.
1. Business specially accepted under the Company's Agreement of
Reinsurance No. 8009 (hereinafter the "prior reinsurance
agreement") with General Reinsurance Corporation. Such
specially accepted business shall be subject to all of the
terms of this Agreement except as modified by the special
acceptance made by General Reinsurance Corporation under the
prior reinsurance agreement.
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2. Business covered under the prior reinsurance agreement.
ARTICLE VI
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EXTRA CONTRACTUAL OBLIGATIONS AND/OR EXCESS JUDGMENTS
-----------------------------------------------------
A. This Agreement shall indemnify the Company, within the limits of this
Agreement, for Extra Contractual Obligations and/or Excess Judgments
awarded by a court of competent jurisdiction against the Company that
arise from policies that are reinsured hereunder. Such Extra
Contractual Obligation and/or Excess Judgment shall be added to the
amount of the loss within the Company's policy limit and the sum
thereof shall be considered one loss subject to the exclusions and
limitations set forth in this Agreement and its Exhibits.
B. "Extra Contractual Obligations" are defined as damages paid by the
Company that are not covered under any other provision of this
Agreement, including legal costs and expenses in connection therewith,
that arise as a result of the Company's handling of any claim on the
policy reinsured 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 or bad
faith or alleged fraud in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its
insured or in the preparation or prosecution of an appeal consequent
upon such action.
C. "Excess Judgments" are defined as those damages paid by the Company
which amounts are in excess of its policy limits, but otherwise within
the coverage terms of the policy reinsured hereunder, including legal
costs and expenses in connection therewith, as a result of an action
against it by its insured or its insured's assignee to recover damages
awarded by a court of competent jurisdiction to a third party claimant,
arising out of, but not limited to, the Company's alleged or actual
negligence or bad faith or alleged fraud in rejecting a settlement, in
discharging its duty to defend, in preparing the defense in an action
against its insured or discharging its duty to prepare or prosecute an
appeal consequent upon such action.
D. The date on which an Extra Contractual Obligation and/or an Excess
Judgment award is incurred by the Company shall be deemed, in all
circumstances, to have arisen on the same date as the original loss
occurrence that gave rise to the Extra Contractual Obligation and/or an
Excess Judgment.
E. 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 or any other employee of the Company with claims
settlement authority 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.
F. Recoveries, collectibles or retentions from any form of insurance
and/or reinsurance, including but not limited to, deductibles or
self-insured retentions, that protect the Company against claims the
subject matter of this clause, will inure to the benefit of the
Reinsurer and shall be deducted from the total amount
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of Extra Contractual Obligation and/or Excess Judgment award for
purposes of determining the amount recoverable hereunder, whether
collectible or not.
G. If any provision of this Article shall be rendered illegal or
unenforceable by the laws, regulations or public policy of any state,
such provision shall be considered void in such state, but this shall
not affect the validity or enforceability of any other provision of
this Agreement or the enforceability of such provision in any other
jurisdiction.
ARTICLE VII
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DECLARATORY JUDGMENT EXPENSES
-----------------------------
A. This Agreement shall indemnify the Company, within the limits of this
Agreement, for Declaratory Judgment Expenses paid by the Company, as
provided in this Agreement, under policies reinsured hereunder.
B. "Declaratory Judgment Expenses" as used herein shall mean legal
expenses paid by the Company for the investigation, analysis,
evaluation, and/or resolution of litigation of coverage by the Company
and any other party to determine if there is coverage to indemnify
and/or pay to its insured(s) under the policies issued by the Company
and reinsured hereunder for a specific loss which loss is not
specifically excluded under this Agreement.
C. Recoveries from any form of insurance and/or reinsurance that protect
the Company against claims the subject matter of this clause will inure
to the benefit of the Reinsurer and shall be deducted from the total
amount of Declaratory Judgment Expenses for purposes of determining the
amount recoverable hereunder.
ARTICLE VIII
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ERRORS AND OMISSIONS
--------------------
Errors or omissions on the part of the Company shall not invalidate the
reinsurance under this Agreement, provided such errors or omissions are
corrected promptly after discovery thereof, but the liability of the Reinsurer
under this Agreement or any exhibits or endorsements attached thereto shall in
no event exceed the limits specified therein, nor be extended to cover any
risks, perils or classes of insurance generally or specifically excluded
therein.
ARTICLE IX
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OFFSET AND SECURITY CLAUSE
--------------------------
A. Each party hereto has the right, which may be exercised at any time, to
offset any amounts, whether on account of premiums or losses or
otherwise, due from such party to another party under this Agreement or
any other reinsurance agreement heretofore or hereafter entered into
between them, against any amounts, whether on account of premiums or
losses or otherwise due from the latter party to the former party. The
party asserting the right of offset may exercise this right, whether as
assuming or ceding insurer or in both roles in the relevant agreement
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or agreements.
B. Each party hereby assigns and pledges to the other party (or to each
other party, if more than one) all of its rights under this Agreement
to receive premium or loss payments at any time from such other party
("Collateral"), to secure its premium or loss obligations to such other
party at any time under this Agreement and any other reinsurance
agreement heretofore or hereafter entered into by and between them
("Secured Obligations"). If at any time a party is in default under any
Secured Obligation or shall be subject to any liquidation,
rehabilitation, reorganization or conservation proceeding, each other
party shall be entitled in its discretion, to apply, or to withhold for
the purpose of applying in due course, any Collateral assigned and
pledged to it by the former party and otherwise to realize upon such
Collateral as security for such Secured Obligations.
C. The security interest described herein, and the term "Collateral,"
shall apply to all payments and other proceeds in respect of the rights
assigned and pledged. A party's security interest in Collateral shall
be deemed evidenced only by the counterpart of this Agreement delivered
to such party.
D. Each right under this Article is a separate and independent right,
exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no
waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article
shall survive any cancellation or other termination of this Agreement.
E. In the event of the insolvency of a party hereto, offsets shall only be
allowed in accordance with the laws of the insolvent party's state of
domicile.
ARTICLE X
---------
ACCESS TO RECORDS
-----------------
The Company shall place at the disposal of the Reinsurer and the Reinsurer shall
have the right to inspect, through its authorized representatives, at all
reasonable times during the currency of this Agreement and thereafter, the
books, records and papers of the Company pertaining to the reinsurance provided
hereunder and all claims made in connection therewith.
ARTICLE XI
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RESERVES AND TAXES
------------------
A. The Reinsurer shall maintain legal reserves with respect to claims
hereunder.
B. The Company will be liable for all taxes on premiums reported to the
Reinsurer hereunder and will reimburse the Reinsurer for such taxes
where the Reinsurer is required to pay the same.
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ARTICLE XII
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INSOLVENCY CLAUSE
-----------------
(If more than one reinsured company is included in the designation of "Company"
this Article shall apply only to the insolvent company or companies)
In the event of the insolvency of the Company and the appointment of a
conservator, liquidator or statutory successor, the reinsurance provided by this
Agreement shall be payable by the Reinsurer directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of the
Company under the contract or contracts reinsured. Subject to the right of
offset and the verification of coverage, the Reinsurer shall pay its share of
the loss without diminution because of the insolvency of the Company. The
liquidator, receiver or statutory successor of the Company shall give written
notice of the pendency of each claim against the Company on a policy or bond
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Reinsurer may, at its own
expense, investigate such claim and interpose in the proceeding where such claim
is to be adjudicated any defense or defenses which it may deem available to the
Company, its liquidator or receiver or statutory successor. Subject to court
approval, any expense thus incurred by the Reinsurer shall be chargeable against
the Company as part of the expense of liquidation to the extent of such
proportionate share of the benefit as shall accrue to the Company solely as a
result of the defense undertaken by the Reinsurer. The reinsurance shall be
payable as set forth above except where (i) the Agreement specifies another
payee of such reinsurance in the event of the insolvency of the Company and (ii)
the Reinsurer with the consent of the direct insureds has assumed such policy
obligations of the Company as its direct obligations to the payees under such
policies, in substitution for the obligations of the Company to such payees; or
where the Reinsurer has guaranteed performance of a contract insuring against
physical damage to property for the benefit of mortgagees or other loss payees
named in this Agreement in accordance with Section 1114(c) of the New York
Insurance Law.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
in duplicate this day of , 19 .
ACCEPTED:
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.
-----------------------
----------------------- Attested by:
AMERICAN RE-INSURANCE COMPANY
---------------------------------
---------------------------------
Attested by:
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EXHIBIT A
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CASUALTY EXCESS OF LOSS
REINSURANCE COVER
-----------------
Section 1
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COVER
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The Reinsurer agrees to reimburse the Company, on an excess of loss basis, for
the amounts of ultimate net loss which the Company may pay as a result of losses
occurring on and after 12:01 A.M., January 1, 1998, as respects the Company's
policies in force as of said date and new and renewal policies becoming
effective on and after said date, covering the Company's Casualty Business,
subject to the limitations and exclusions hereinafter set forth.
Section 2
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LIMITS OF COVER
---------------
A. With respect to the business covered under this Exhibit, the Reinsurer
shall pay to the Company the amount of ultimate net loss each
occurrence in excess of the Company Retention but not exceeding the
Reinsurer's Limits of Liability as set forth in the Schedule of
Reinsurance below.
SCHEDULE OF REINSURANCE
-----------------------------------------------------------------------
Company Retention Reinsurer's Limits of Liability
Each Occurrence Each Occurrence
-----------------------------------------------------------------------
First Excess Second Excess Third Excess
Cover Cover Cover
$500,000 $1,500,000 $3,000,000 $5,000,000
B. If an occurrence takes place which involves the classes of business
reinsured under this Exhibit and one risk reinsured under Exhibit B to
this Agreement in combination, the Reinsurer shall pay to the Company
the amount of ultimate net loss in excess of a Company Retention of
$500,000 with respect to such occurrence, but not exceeding a Limit of
Liability to the Reinsurer of $500,000. The Reinsurer's Limit of
Liability specified in this Section shall be in addition to the Limits
of Liability of the Reinsurer set forth in the sections entitled
LIABILITY OF THE REINSURER of this Exhibit and said Exhibit B.
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Section 3
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COMPANY POLICY LIMITS
---------------------
For the purpose of determining the Company Retention and the Reinsurer's Limit
of Liability with respect to each layer specified in this Exhibit, the limits of
liability of the Company with respect to any one policy shall be deemed not to
exceed:
(a) Automobile Bodily Injury Liability $1,000,000 each person
$1,000,000 each occurrence
(b) Automobile Property Damage Liability $1,000,000 each occurrence
(c) Automobile Liability Combined Single Limit $1,000,000 each occurrence
(d) Uninsured/Underinsured Motorists Coverage $1,000,000 each person
$1,000,000 each occurrence
(e) Personal Injury Protection Coverage $1,000,000 each occurrence
(f) Other Bodily Injury Liability $2,000,000 each occurrence
(g) Other Property Damage Liability $2,000,000 each occurrence
(h) Other Liability Combined Single Limit $2,000,000 each occurrence
(i) Section II Liability under Commercial Multiple Peril $2,000,000 each occurrence
(j) Section II Liability under Businessowners $1,000,000 each occurrence
(k) Section II Liability under Homeowners Multiple Peril $1,000,000 each occurrence
(l) Section II Liability under Farmowners Multiple Peril $1,000,000 each occurrence
(m) Employers' Liability
(1) In all states with Statutory Limits Statutory Limits
(2) In All Other States
(i) Bodily Injury by Accident $1,000,000 each accident
(ii) Bodily Injury by Disease $1,000,000 policy limit
(iii) Bodily Injury by Disease $1,000,000 each employee
Section 4
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ULTIMATE NET LOSS
-----------------
A. The term "ultimate net loss" as used herein shall be understood to mean
the sum actually paid by the Company in settlement of losses for which
it is held liable, including 90% of any Extra Contractual Obligations
and/or Excess Judgments and/or Declaratory Judgment Expenses, in
accordance with their respective articles, after making proper
deductions for all recoveries, salvages, and claims upon other
reinsurance which inures to the benefit of the Reinsurer under this
Agreement whether collectible or not; provided, however, that in the
event of the insolvency of the Company, "ultimate net loss" shall mean
the amount of loss which the Company has incurred or for which it is
liable, and payment by the Reinsurer shall be made to the liquidator,
receiver or statutory successor of the Company in accordance with the
provisions of the Article entitled INSOLVENCY CLAUSE.
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B. All expenses incurred by the Company which are included as part of the
policy limit under the Company's original policies reinsured hereunder
shall be included in "ultimate net loss" as defined above.
C. All office expenses of the Company and all salaries and expenses of its
officials and employees shall be excluded under this Agreement, except
that the Company may include the costs and expenses of its in-house
counsel as provided in D. below.
D. All expenses other than as provided in B. and C. above, including taxed
court costs, prejudgment and postjudgment interest, and loss expenses
incurred in investigation, adjustment and litigation, defense and
settlement of claims made against the Company under its original
policies reinsured hereunder, including the costs and expenses of the
Company's in-house counsel while engaged in the litigation of claims
covered hereunder, shall be apportioned in proportion to the respective
interests of the parties hereto in the ultimate net loss.
E. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a 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 (1) be prorated between the Reinsurer and the Company in
proportion that each benefits from such reduction or reversal and the
expense incurred up to the time of the original verdict or judgment
shall be prorated in proportion to each party's interest in such
verdict or judgment; or (2) when the terms and conditions of the
Company's original policies reinsured hereunder include expenses as
part of the policy limit, be added to the Company's ultimate net loss.
Section 5
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DEFINITIONS
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A. Casualty Business
-----------------
This term shall mean insurance which is classified in the NAIC form of
annual statement as Farmowners Multiple Peril (Section II), Homeowners
Multiple Peril (Section II), Commercial Multiple Peril (Sections II and
III, including Section II of Business Owners), Workers' Compensation,
Other Liability, Automobile Liability, and Automobile Personal Injury
Protection, and described in the manuals of the Insurance Services
Office, or the standard workers' compensation form of policy, subject
to the Section of this Exhibit entitled EXCLUSIONS, as respects losses
occurring in the United States of America, its territories and
possessions, and Canada.
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B. Company Retention
-----------------
This term shall mean the amount the Company shall retain for its own
account; however, this requirement shall be satisfied if this amount is
retained by the Company or its affiliated companies under common
management or common ownership.
C. Occurrence
----------
This term shall mean each accident or occurrence or series of accidents
or occurrences arising out of one event regardless of the number of
policies involved, and as respects workers' compensation and employers'
liability policies, regardless of the number of employees or employers
involved, except as modified below:
(1) As respects exposures reinsured hereunder other than
occupational and other disease or cumulative injury under
workers' compensation policies, all bodily injury or property
damage arising out of continuous or repeated exposure to
substantially the same general conditions shall be considered
as arising out of one occurrence. The date of occurrence shall
be deemed to be the following:
(i) As respects a loss involving one or more policies
written on an occurrence basis, the date on which
bodily injury or property damage occurs.
(ii) As respects a loss involving one or more policies
written on a claimsmade basis, the date when notice
of claim is received and recorded by the Company or
the insured, whichever comes first, and any related
claims reported subsequent to such date shall be
included in such loss. However, if notice of claim is
received and recorded by the Company or the insured
during an Extended Reporting Period, the date of
occurrence shall be deemed to be the last day of the
policy period.
(iii) As respects a loss involving one or more policies
written on an occurrence basis and one or more
policies written on a claimsmade basis, the date on
which bodily injury or property damage occurs, and
any related claims reported subsequent to such date
shall be included in such loss whether they are
covered under occurrence or claims-made policies.
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(2) As respects an occupational or other disease or cumulative
injury under workers' compensation or employers' liability
policies for which the employer is liable:
(i) Which arises from a specific sudden and accidental
event limited in time and place, such occupational or
other disease suffered by one or more employees of
one or more employers shall be deemed to be an
occurrence within the meaning of this Exhibit and the
date of occurrence shall be deemed to be the date of
the sudden and accidental event.
(ii) Which does not arise from a specific sudden and
accidental event limited in time and place, such
occupational or other disease or cumulative injury
shall be deemed to be an occurrence within the
meaning of this Exhibit, and the date of occurrence
shall be deemed to be the date of the beginning of
the disability for which compensation is payable if
the case is compensable under the Workers'
Compensation law; or the date that disability due to
said disease actually began if the case is not
compensable under the Workers' Compensation law. Each
case of an employee contracting such occupational or
other disease or cumulative injury for which the
employer insured by the Company is held liable shall
be considered a separate occurrence regardless of the
date of loss.
Section 6
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EXCLUSIONS
----------
This Exhibit shall not apply to:
A. Business accepted by the Company as reinsurance from other
insurers other than its affiliates;
B. Nuclear incident per the Nuclear Incident Exclusion Clause
Liability Reinsurance attached hereto;
C. Policies covering liability of any insurer or reinsurer for
its acts or omissions in the negotiation, settlement, or
defense of claims or any act or omission in dealings with its
policyholders;
D. Any loss or liability accruing to the Company directly or
indirectly from any insurance written by or through any pool
or association including pools or associations in which
membership by the Company is required under any statutes or
regulations and including automobile assigned risk
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pools and voluntary or involuntary market assistance programs;
however, this exclusion shall not apply to individual risks
under this Agreement which are assigned to the Company as a
result of the business reinsured hereunder;
E. Any liability of the Company arising from its participation or
membership in any insolvency fund;
F. Any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority;
however, this exclusion shall not apply to workers'
compensation and employers liability nor to any policy which
contains a standard war exclusion;
G. Business written on a coindemnity basis not controlled by the
Company;
H. Business written to apply in excess of a deductible or self
insured amount of more than $25,000 or business written to
apply specifically in excess over underlying insurance;
I. Automobile liability insurance relating to the ownership,
maintenance (but this shall not apply to Garage Liability or
Garagekeepers Liability), or use of:
(1) Emergency vehicles including police and fire
department vehicles; however, this exclusion shall
not apply to renewal business;
(2) Automobiles used in organized speed contests;
(3) Vehicles leased or rented to others, except customer
rental exposures for garage risks;
(4) Commercial automobiles, as defined in the manuals of
the Insurance Services Office, which customarily
operate beyond a 500 mile radius;
(5) Public automobiles, other than school or church buses
or funeral home vehicles, as defined in the manuals
of the Insurance Services Office;
(6) Motor vehicles used for transporting explosives,
munitions, corrosives, flammable and nonflammable
gas, flammable liquid, poison, radioactive materials
and hazardous waste;
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J. Liability insurance written by the aviation
underwriting unit of the Company, howsoever styled;
K. Liability insurance issued to any state or
governmental agency or any political subdivision
whatsoever; however, this exclusion shall not apply
to school districts and school boards nor to renewal
business. This exclusion shall also not apply to
Owners and Contractors Protective policies issued to
any such entities;
L. Liability insurance relating to premises or
operations involving:
(1) Aircraft or airports, as respects coverage
for all liability arising out of the
ownership, maintenance, or use of any
aircraft or flight operations;
(2) Amusement parks or devices, carnivals or
circuses, sports or other entertainment
events, arenas, grandstands, or stadiums;
however, this exclusion shall not apply to
coverage for locations or events with daily
admissions of 1,000 or less or seating
capacity of 1,000 or less;
(3) Manufacturing, packing, handling, shipping,
or storage of explosives, ammunitions,
fuses, arms, magnesium, fireworks,
nitroglycerine, celluloid, pyroxylin or
explosive substances intended for use as an
explosive; however, this exclusion shall not
apply to incidental handling and storage in
connection with the sale of such substances;
(4) Gas or public utility companies, gas or
public utility works, or gas lease
operations;
(5) Production, refining, handling, shipping, or
storage of natural or artificial fuel
gasses, synthetic or coal or shale based
fuel, butane, propane, gasoline, or
liquefied petroleum gas; however this
exclusion shall not apply to gasoline
service stations, convenience stores and
fuel oil dealers;
(6) Oil or gas pipelines, ▇▇▇▇▇, or drilling
operations;
(7) Railroad operations; however, this exclusion
shall not apply to Railroad Protective
policies;
(8) Ship building, boat manufacturing, ship
repair yards, dry docks, stevedoring, or
watercraft; however, this exclusion shall
not apply to watercraft commonly insured
under homeowners polices, nor to
-17-
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non-owned watercraft up to 51 feet in length
for commercial policies;
(9) Underground work, including underground
mining and quarrying, tunneling, and subway
construction; however, this exclusion shall
not apply to underground work up to a depth
of 12 feet;
(10) Offshore and subaqueous work;
(11) Wrecking or demolition of structures over 3
stories in height, or marine wrecking;
(12) Chemical manufacturing; however, this
exclusion shall not apply to operations with
annual gross receipts from chemical
manufacturing of $500,000 or less;
M. Liability insurance relating to products or completed
operations involving the manufacture or importation
of:
(1) Cosmetics, hair, and skin products, but this
exclusion shall not apply if the total
annual receipts from this exposure are
$250,000 or less;
(2) Drugs, pharmaceuticals, and agricultural
chemicals;
(3) Aircraft, aircraft parts, or aircraft
engines, all motorized vehicles, or mobile
equipment (critical parts only).
"Critical parts" shall mean
1. Safety equipment, including but not
limited to airbags, and seat belts;
but "critical parts" shall not
include mirrors or other such
items;
2. Operating parts, including but not
limited to brakes, tires,
suspension, engines, head lights,
and steering columns; but "critical
parts" shall not include steering
wheel, gearshift knobs, seat
upholstery or similar items;
(4) Heavy machinery and equipment, home power
tools, or oil drilling equipment:
N. Insurance covering damages claimed for the
withdrawal, inspection, repair, replacement, or loss
of use of the insured's products or of any property
of which such products form a part, or if such
products or property are withdrawn from the market or
from use because of any
-18-
19
known or suspected defect or deficiency therein;
O. Malpractice insurance, directors and officers
liability insurance, or any other form of errors and
omissions or professional liability insurance;
however, this exclusion shall not apply to druggists
operating outside the State of Florida, funeral
directors, veterinarians', beauty and ▇▇▇▇▇▇ shops',
hearing aid service specialists', cemetery operators'
liability, opticians' or printers' liability
business, nor to employee benefits liability
business;
P. Insurance written for governmental bodies to afford
protection against liability arising out of riot,
civil commotion, or mob action or out of any act or
omission in connection with the prevention or
suppression of any riot, civil commotion, or mob
action;
Q. Liability insurance relating to or involving
satellites, spacecraft, and launch vehicles,
including cargo and freight carried therein, in all
phases of operation (including but not limited to
manufacturing, transit, pre-launch, launch and
inorbit);
R. Pollution liability insurance or environmental
impairment liability, howsoever styled; however, this
exclusion shall not apply to herbicide or pesticide
use by landscapers and/or gardeners in commercial
landscaping or gardening operations;
S. Pollution under any commercial multiple peril policy,
farmowners multiple peril policy, farm liability
policy or any other commercial other liability policy
written by the Company which does not contain the
pollution exclusion set forth in ISO Commercial
General Liability Form CG 00 01 (Ed. 11/88) or as
subsequently amended or under any garage liability
policy written by the Company which does not contain
the pollution exclusion set forth in ISO Garage
Coverage Form CA 00 05 (Ed. 1/87) or as subsequently
amended. However, this exclusion does not apply to:
(1) pollution coverage under the Motor Carriers
Act of 1980 as contained within the MCS-90
endorsement attached to the Company's
commercial automobile liability policies, or
(2) any risk located in a jurisdiction which has
not approved the Insurance Services Office
exclusion or where other regulatory
constraints prohibit the Company from
attaching such endorsement. If the Company
elects to file an endorsement independent of
ISO, such endorsement will be deemed a
suitable substitute provided the Company has
submitted the wording to the Reinsurer and
received the Reinsurer's prior approval.
-19-
20
T. Workers' compensation and employers' liability
insurance with respect to operations principally
involving:
(1) Aircraft flight and ground operations or
operations in which the flying hazard is a
major part;
(2) Amusement parks or devices, exhibitions
(including fireworks), carnivals or
circuses, sports events and/or participants;
however, this exclusion shall not apply to
coverage for locations or events with daily
admissions of 1,000 or less or seating
capacity of 1,000 or less;
(3) Manufacturing, packing, handling, shipping,
or storage of explosives, substances
intended for use as an explosive,
ammunitions, fuses, arms, magnesium,
propellant charges, detonating devices,
fireworks, nitroglycerine, celluloid, or
pyroxylin; however, this exclusion shall not
apply to the incidental packing, handling or
storage of same in connection with the sale
of such substances;
(4) Gas companies, dealers, or distributors,
except those in the gasoline service
station, convenience store or fuel oil
dealer business; oil or gas operators, lease
operators or contractors; oil or gas well
works; oil or gas pipeline construction or
operations; oil rig and ▇▇▇▇▇▇▇ work;
onshore or offshore gas or oil drilling
operations;
(5) Manufacturing, packing, handling, shipping
or storage of natural gas or artificial fuel
gasses, butane, propane, gasoline, or
liquified petroleum gas; however, this
exclusion shall not apply to the incidental
packing, handling or storage of same in
connection with the sale of such substances:
(6) Railroad operation or construction, except
this exclusion shall not apply if the
excluded exposure is not normally associated
with the insured's operation and does not
present a larger exposure than the overall
unexcluded portion of the risk;
(7) Maritime or federal employments; steamship
lines, agencies, or stevedoring, navigation
or operation of vessels; operation of
drydocks; and including all United States
Longshoremen's and Harbor Workers'
exposures, except this exclusion shall not
apply if the excluded exposure (a) is
endorsed on an "if any" basis or (b) is not
normally associated with the insured's
operation and does not
-20-
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present a larger exposure than the overall
unexcluded portion of the risk;
(8) Subway construction, shaft sinking, or
tunneling;
(9) Wrecking or demolition of vessels or
buildings or structures of more than three
stories in height;
(10) Underground mining, strip mining, or
quarrying;
(11) Subaqueous work;
(12) Caisson or ▇▇▇▇▇▇ dam work; dam, dike, lock,
or revetment construction:
(13) Chemical manufacturing; however, this
exclusion shall not apply to operations with
annual gross receipts from chemical
manufacturing of $500,000 or less;
(14) Nuclear Regulatory Commission projects or
operations conducted under license from the
Nuclear Regulatory Commission;
(15) Asbestos removal contractors;
(16) Firefighters and police officers.
If the Company provides insurance for an insured with respect to the ownership,
maintenance, or use of items listed in exclusions I.(l) through I.(6) and if
such ownership maintenance, or use constitutes only a minor and incidental part
of the total ownership, maintenance, or use of such items of the insured, such
exclusion(s) shall not apply.
If the Company provides insurance for an insured with respect to any premises,
operations, products, or completed operations listed in exclusions L. and M.,
except exclusions L.(3) and L.(4), and if such premises, operations, products,
or completed operations constitute only a minor incidental part of the total
premises, operations, products, or completed operations of the insured, such
exclusion(s) shall not apply.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set forth in
this Section, these exclusions, except A. through G., L.(3), L.(4), N. through
R., T.(3) and T.(4) shall be suspended with respect to such business until the
greater of 30 days or the minimum period of time required by statute after an
underwriting supervisor of the Company acquires knowledge of such business.
-21-
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Section 8
---------
REINSURANCE PREMIUM
-------------------
A. First Excess Cover:
(1) With respect to business in force at the effective
time and date of this Exhibit, the Company shall pay
the Reinsurer a reinsurance premium equal to the
product of the applicable First Excess reinsurance
rate set forth in Appendix A attached hereto and the
Company's unearned premium for the classes of
business reinsured hereunder, calculated on the
monthly pro rata basis as of the effective time and
date of this Exhibit.
(2) With respect to business becoming effective at and
after the effective time and date of this Exhibit,
the Company shall pay the Reinsurer a reinsurance
premium equal to the product of the applicable First
Excess reinsurance rate set forth in Appendix A
attached hereto and the Company's written premium for
the classes of business reinsured hereunder.
B. Second Excess Cover:
(1) With respect to business in force at the effective
time and date of this Exhibit, the Company shall pay
the Reinsurer a reinsurance premium equal to 0.19% of
the Company's unearned premium for the classes of
business reinsured hereunder, calculated on the
monthly pro rata basis as of the effective time and
date of this Exhibit.
(2) With respect to business becoming effective at and
after the effective time and date of this Exhibit,
the Company shall pay the Reinsurer a reinsurance
premium equal to 0.19% of the Company's written
premium for the classes of business reinsured
hereunder, subject to an annual minimum and deposit
reinsurance premium of $200,000.
C. Third Excess Cover:
Unless otherwise mutually agreed, the Company shall pay the
Reinsurer an annual reinsurance premium of $40,000 for each
calendar year during which the Third Excess remains in force.
D. For the purpose of the calculation of the reinsurance premium
for business owners policies reinsured hereunder, the
reinsurances rates in A. and B. above shall be applied against
40% of the business owners policy premium
-22-
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unearned or written, as applicable.
Section 9
---------
CONTINGENT COMMISSION
---------------------
A. The Reinsurer shall pay the Company a contingent commission equal to
50% of the net profit, if any, accruing to the Reinsurer during each
accounting period defined herein. The first accounting period shall be
from the effective date of this Agreement through December 31, 2000 and
each subsequent 36-month period shall be a separate accounting period.
However, if this Agreement is terminated, the final accounting period
shall be from the beginning of the then current accounting period
through the date of termination if this Agreement is terminated on a
"cutoff" basis, or the end of the runoff period if this Agreement is
terminated on a "runoff" basis.
B. The Reinsurer's net profit for each accounting period shall be
calculated in accordance with the following formula, it being
understood that a positive balance equals net profit and a negative
balance equals net loss:
(1) Premiums earned for the accounting period; less
(2) Ceding commission allowed the Company on premiums earned for
the accounting period; less
(3) Expenses incurred by the Reinsurer at 12.5% of premiums earned
for the accounting period; less
(4) Losses incurred for the accounting period; less
(5) The Reinsurer's net loss, if any, from the immediately
preceding accounting period.
C. The Company shall calculate and report the Reinsurer's net profit
within 60 days after the end of each 12-month period within each
accounting period, within 60 days after the end of each accounting
period, and within 60 days after the end of each December 31 thereafter
until all losses subject hereto have been finally settled. Each such
calculation shall be based on cumulative transactions hereunder from
the beginning of the accounting period through the date of calculation,
including the Reinsurer's net loss, if any, from the immediately
preceding accounting period. As respects the initial calculation
referred to above, any contingent commission shown to be due the
Company shall be paid by the Reinsurer as promptly as possible after
receipt and verification of the Company's report. As respects each
subsequent calculation, any additional contingent commission shown to
be due the Company shall be paid by the Reinsurer as promptly as
possible after receipt and verification
-23-
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of the Company's report. Any return contingent commission shown to be
due the Reinsurer shall be paid by the Company with its report.
D. "Premiums earned" as used herein shall mean ceded unearned premiums at
the beginning of the accounting period, plus ceded net written premiums
during the period, less ceded unearned premiums at the end of the
period.
E. "Losses incurred" as used herein shall mean ceded losses and loss
adjustment expense paid as of the effective date of calculation, plus
the ceded reserves for losses and loss adjustment expense outstanding
as of the same date, all as respects losses occurring during the
accounting period under consideration.
Section 10
----------
REPORTS AND REMITTANCES
-----------------------
A. Reinsurance Premium
-------------------
(1) In Force Premium (Applicable to the First and Second
Excess Covers only):
Within 45 days after the commencement of this
Exhibit, the Company shall render to the Reinsurer a
report of the reinsurance premium with respect to the
business of the Company in force at the effective
time and date of this Exhibit, summarizing the
reinsurance premium by line of insurance, by term,
and by month and year of expiration; and the amount
due the Reinsurer shall be remitted within the
earlier of: (a) 180 days after the commencement of
this Exhibit, or (b) 5 days after receipt of General
Reinsurance Corporation's return premium under the
prior casualty reinsurance program.
(2) New and Renewal Premium:
a. First Excess Cover:
Within 25 days after the close of each month, the
Company shall render to the Reinsurer a report of the
reinsurance premium for the month with respect to
business of the Company written during the month,
summarizing the reinsurance premium by line of
insurance; and the amount due either party shall be
remitted within 60 days after the close of the month.
Within 25 days after the close of each calendar
quarter, the Company shall render to the Reinsurer a
report of the
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reinsurance premium unearned by line of insurance and
the contribution for the quarter to the reinsurance
premium in force by line of insurance, by term and by
month and year of expiration.
b. Second Excess Cover
Within 25 days after the beginning of each calendar
quarter, the Company shall pay to the Reinsurer one
quarter of the annual minimum and deposit reinsurance
premium stipulated in subparagraph B.2 of the section
entitled REINSURANCE PREMIUM.
Within 60 days after the close of each calendar year,
the Company shall render to the Reinsurer a report of
the premium written by the Company on the classes of
business reinsured hereunder during such calendar
year. The Company shall calculate the reinsurance
premium thereon and remit to the Reinsurer the amount
of reinsurance premium, if any, in excess of the
annual minimum and deposit reinsurance premium
previously paid.
c. Third Excess Cover
Within 25 days after the beginning of each calendar
quarter, the Company shall pay to the Reinsurer one
quarter of the annual reinsurance premium stipulated
in subparagraph C. of the section entitled
REINSURANCE PREMIUM.
B. Claims and Losses
-----------------
The Company shall report promptly to the Reinsurer each claim or loss
for which the Company's estimated amount of net loss is 50% or more of
the amount of the Company Retention and shall also report all cases of
serious injury which, regardless of considerations of liability or
coverage, might involve this reinsurance, including but not limited to
the following:
(1) Cord injury paraplegia, quadriplegia;
(2) Amputations requiring a prosthesis;
(3) Brain damage affecting mentality or central nervous system
such as permanent disorientation, behavior disorder,
personality change, seizures, motor deficit, inability to
speak (aphasia), hemiplegia or
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unconsciousness (comatose);
(4) Blindness;
(5) ▇▇▇▇▇ involving over 10% of body with third degree or 30% of
body with second degree;
(6) Multiple fractures involving more than one member or
non-union;
(7) Fracture of both heel bones (fractured bilateral or calcis);
(8) Nerve damage causing paralysis and loss of sensation in arm
and hand (brachial plexus nerve damage);
(9) Massive internal injuries affecting body organs;
(10) Injury to nerves at base of spinal canal (Cauda Equina) or any
other back injury resulting in incontinence of bowel and/or
bladder;
(11) Fatalities;
(12) Any other serious injury which, in the judgment of the
Company, might involve the Reinsurer.
The Company shall advise the Reinsurer of the estimated amount
of ultimate net loss and loss expense in connection with each
such claim or loss and of any subsequent changes in such
estimates.
Upon receipt of a definitive statement of ultimate net loss
and loss expense from the Company, the Reinsurer shall pay
promptly to the Company the Reinsurer's portion of ultimate
net loss and Reinsurer's portion of loss expense, if any. Any
subsequent changes shall be reported by the Company to the
Reinsurer and the amount due either party shall be remitted
promptly.
C. General
-------
In addition to the reports required in A. and B. above, the Company
shall furnish such other information as may be required by the
Reinsurer for the completion of the Reinsurer's quarterly and annual
statements and internal records.
All reports shall be rendered in forms acceptable to the Company and
the Reinsurer.
-26-
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Section 11
----------
REINSTATEMENT
-------------
A. First Excess Cover
In the event of any portion of the liability under the First
Excess Cover being exhausted by loss, the amount so exhausted
is automatically reinstated from the time of the occurrence of
the loss without payment of additional premium. Nevertheless,
the Reinsurer's liability shall not exceed $1,500,000 in
respect of all losses from any one occurrence.
B. Second Excess Cover
In the event of any portion of the liability under the Second
Excess Cover being exhausted by loss, the amount so exhausted
is automatically reinstated from the time of the occurrence of
the loss without payment of additional premium. Nevertheless,
the Reinsurer's liability shall not exceed $3,000,000 in
respect of all losses from any one occurrence.
C. Third Excess Cover
The limit of liability of the Reinsurer under the Third Excess
Cover with respect to each occurrence shall be reduced by an
amount equal to the amount of liability paid by the Reinsurer,
but that part of the liability of the Reinsurer that is so
reduced shall be automatically reinstated, subject to the
maximum payment of $20,000,000 with respect to all occurrences
taking place during each calendar year that the Third Excess
Cover is in effect. In consideration of this automatic
reinstatement, the Company shall pay to the Reinsurer:
(a) For the first $5,000,000 so reinstated an additional
reinsurance premium which shall be the product of the
annual reinsurance premium set forth in the section
entitled REINSURANCE PREMIUM and the amount so
reinstated divided by $5,000,000,
(b) For the next two full reinstatements of $5,000,000
each, an additional reinsurance premium which shall
be the product of 50% of the annual reinsurance
premium set forth in the section entitled REINSURANCE
PREMIUM and the amount so reinstated divided by
$5,000,000.
The reinsurance premium so developed for each amount
reinstated shall be in addition to the reinsurance premium set
forth in the section entitled REINSURANCE PREMIUM, and shall
be paid by the Company
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immediately following loss payment by the Reinsurer.
If at the time of loss payment, the adjusted annual
reinsurance premium is unknown, calculation of such additional
reinsurance premium shall be based upon the annual minimum and
deposit reinsurance premium subject to adjustment when the
adjusted annual reinsurance premium is established.
Section 12
----------
COMMENCEMENT AND TERMINATION
----------------------------
A. As respects policies written on a claimsmade basis, this
Exhibit shall apply to claims received and recorded by the
Company or the insured at and after 12:01 A.M., January 1,
1998, provided that each such policy includes a specific
retroactive date and the occurrence which results in each such
claim takes place on or after such retroactive date, and
provided further that such retroactive date is on or after the
inception date of the first of one or more consecutive
claimsmade policies issued by the Company or another
insurer(s) to the named insured. However, this Exhibit shall
not apply to claims received and recorded by the Company or
the insured during any Extended Reporting Period in force at
such time and date. As respects policies written on an
occurrence basis, this Exhibit shall apply to claims and
losses resulting from occurrences taking place at and after
12:01 A.M., January 1, 1998.
B. This Exhibit may be terminated by either party sending to the
other, by registered mail to its principal office, notice
stating the time and date when, not less than 90 days after
the date of mailing of such notice, termination shall be
effective.
C. Upon termination of this Exhibit, the Reinsurer's liability
hereunder will terminate on a cut-off basis. However, the
Company may elect to have the Reinsurer's liability terminate
on a run-off basis. The phrases "cut-off basis" and "run-off
basis" shall have the meanings set forth below:
(1) Cut-Off Basis:
As respects policies written on a claims-made basis,
the Reinsurer shall not be liable for claims received
and recorded by the Company or the insured at and
after the effective time and date of termination,
unless such claim is received and recorded by the
Company or the insured during an Extended Reporting
Period in force or provided under policy conditions
in effect at the time and date of termination. As
respects policies written on an occurrence basis, the
Reinsurer shall not be liable for claims and losses
resulting from occurrences taking place at and after
the effective time and date of termination.
-28-
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(2) Run-Off Basis:
The Reinsurer shall continue to be liable, with
respect to policies in force at the time and date of
termination, for occurrences taking place until the
expiration, cancellation, or next anniversary date,
not to exceed one year, of each such policy of the
Company, whichever occurs first, provided that with
respect to policies written on a claims-made basis,
the claim is received and recorded by the Company or
the insured before such expiration, cancellation, or
next anniversary date. However, if the Company
provides an Extended Reporting Period within one year
after the termination date of this Exhibit on any
claims-made policy which is in force at such
termination date or if an Extended Reporting Period
is in force at the time and date of termination, the
Reinsurer shall continue to be liable for claims
received and recorded by the Company or the insured
during such Extended Reporting Period, provided
always that the occurrence which results in any such
claim takes place prior to the expiration or
cancellation date of the policy.
For the First and Second Excess Covers, the
reinsurance premium for policies in force at the time
and date of termination shall be calculated by
applying the provisions of the Section entitled
REINSURANCE PREMIUM to the quarterly earned premiums
that derive from the unearned premium applicable to
policies in force at the time and date of
termination, provided such reinsurance premium is at
least 50% of the reinsurance premium for the prior
calendar year. Further, the reinsurance premium for
any unlimited Extended Reporting Period provided
within one year after the termination date of this
Exhibit on any claims-made policy which is in force
at such termination date shall be calculated in
accordance with the provisions of the Section
entitled REINSURANCE PREMIUM. For the Third Excess
Cover, the run-off reinsurance premium shall be
mutually agreed by the parties.
D. When all reinsurance is expired or terminated, the Reinsurer
shall return to the Company the reinsurance premium unearned,
if any, calculated on the monthly pro rata basis, less the
commission previously allowed thereon.
-29-
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APPENDIX A
----------
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.
CASUALTY EXCESS OF LOSS REINSURANCE EXHIBIT
-------------------------------------------
FIRST EXCESS COVER REINSURANCE RATES
Class of Business Rate
-----------------------------------------------------
Private Passenger Automobile 0.05%
Liability (including PIP)
Commercial Automobile Liability 1.76%
(including PIP)
Workers' Compensation and 2.80%
Employers' Liability
Commercial Multiple Peril 3.07%
(Section II) and
Business Owners (Section II)
Homeowners Multiple Peril No Charge
(Section II) and Farmowners
Multiple Peril (Section II)
-30-
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EXHIBIT B
---------
PROPERTY PER RISK EXCESS OF LOSS
REINSURANCE COVER
-----------------
Section 1
---------
COVER
-----
The Reinsurer agrees to reimburse the Company, on an excess of loss basis, for
the amounts of ultimate net loss which the Company may pay as a result of losses
occurring on and after 12:01 A.M., January 1, 1998, as respects:
(1) First Excess Cover:
the Company's policies in force as of said date, and new and
renewal policies becoming effective on and after said date;
(2) Second Excess Cover:
new and renewal policies of the Company becoming effective on
and after said date,
covering the Company's Property Business, subject to the limitations and
exclusions set forth.
Section 2
---------
LIMITS OF COVER
---------------
A. With respect to the business covered under this Exhibit, the Reinsurer
shall pay to the Company the amount of ultimate net loss each risk,
each occurrence sustained by the Company in excess of the Company
Retention but not exceeding the Reinsurer's Limit of Liability as set
forth in the Schedule of Reinsurance below.
The Reinsurer's Limit of Liability for the First Excess Cover of this
Exhibit shall not exceed a total payment of $3,000,000 on all risks
involved in one occurrence.
-31-
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SCHEDULE OF REINSURANCE
--------------------------------------------------------------------
COMPANY RETENTION REINSURER'S LIMIT OF LIABILITY
EACH RISK, EACH EACH RISK, EACH OCCURRENCE
OCCURRENCE
--------------------------------------------------------------------
FIRST SECOND
EXCESS COVER EXCESS COVER
$ 500,000 $1,500,000 $8,000,000
--------------------------------------------------------------------
B. All insurance written under one or more policies of the Company against
the same peril on the same risk shall be combined, and Company
Retention and Reinsurer's Limit of Liability shall be determined on the
basis of the sum of all insurance against the same peril and on the
same risk which is in force at the time of a claim or loss.
C. If an occurrence takes place which involves one risk reinsured under
this Exhibit and the classes of business reinsured under Exhibit A to
this Agreement in combination, the provisions of paragraph C. of the
section entitled LIMITS OF COVER of said Exhibit A shall apply.
Section 3
---------
ULTIMATE NET LOSS
-----------------
A. The term "ultimate net loss" as used herein shall be understood to mean
the sum actually paid by the Company in settlement of losses for which
it is held liable, including 90% of any Extra Contractual Obligations
and/or Excess Judgments and/or Declaratory Judgment Expenses, in
accordance with their respective articles, after making proper
deductions for all recoveries, salvages, and claims upon other
reinsurance which inures to the benefit of the Reinsurer under this
Agreement whether collectible or not; provided, however, that in the
event of the insolvency of the Company, "ultimate net loss" shall mean
the amount of loss which the Company has incurred or for which it is
liable, and payment by the Reinsurer shall be made to the liquidator,
receiver or statutory successor of the Company in accordance with the
provisions of the Article entitled INSOLVENCY CLAUSE.
B. All expenses incurred by the Company which are included as part of the
policy limit under the Company's original policies reinsured hereunder
shall be included in "ultimate net loss" as defined above.
-32-
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C. All office expenses of the Company and all salaries and expenses of its
officials and employees shall be excluded under this Agreement, except
that the Company may include the costs and expenses of its in-house
counsel as provided in D. below.
D. All expenses other than as provided in B. and C. above, including taxed
court costs, prejudgment and postjudgment interest, and loss expenses
incurred in investigation, adjustment and litigation, defense and
settlement of claims made against the Company under its original
policies reinsured hereunder, including the costs and expenses of the
Company's in-house counsel while engaged in the litigation of claims
covered hereunder, shall be apportioned in proportion to the respective
interests of the parties hereto in the ultimate net loss.
E. In the event a verdict or judgment is reduced by an appeal or a
settlement, subsequent to the entry of a 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 (1) be prorated between the Reinsurer and the Company in
proportion that each benefits from such reduction or reversal and the
expense incurred up to the time of the original verdict or judgment
shall be prorated in proportion to each party's interest in such
verdict or judgment; or (2) when the terms and conditions of the
Company's original policies reinsured hereunder include expenses as
part of the policy limit, be added to the Company's ultimate net loss.
F. Recoveries from catastrophe reinsurance shall be deemed not to reduce
the amount required with respect to the Company Retention.
Section 4
---------
DEFINITIONS
-----------
A. Property Business
-----------------
This term shall mean insurance which is classified in the NAIC
form of annual statement as Fire, Allied Lines, Farmowners
Multiple Peril (Section I), Homeowners Multiple Peril (Section
I), Commercial Multiple Peril (Section I including Section I
of Business Owners), Inland Marine, and Automobile Physical
Damage (including collision, water damage, fleet dealers' and
garagekeepers' legal liability) except those lines
specifically excluded in the section entitled EXCLUSIONS, on
risks wherever located in the United States of America, its
territories and possessions, and Canada.
B. Company Retention
-----------------
This term shall mean the amount the Company shall retain for
its own
-33-
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account; however, this requirement shall be satisfied if this
amount is retained by the Company or its affiliated companies
under common management or common ownership.
C. Property Risk
-------------
The Company shall establish what constitutes one risk,
provided:
(1) a building and its contents, including time element
coverages, shall never be considered more than one
risk:
(2) when two or more buildings and their contents are
situated at the same general location, the Company
shall identify on its records at the time of
acceptance by the Company those individual buildings
and their contents that are considered to constitute
each risk; if such identification is not made, each
building and its contents shall be considered to be a
separate risk.
D. Building
--------
This term shall mean each structure that is considered by the
local fire insurance rating organization to be a separate
building for rate making purposes. With reference to
structures not rated specifically by the local fire insurance
rating organization, the term building shall mean each
separately roofed structure enclosed within exterior walls.
E. Automobile Physical Damage Risk
-------------------------------
The Company shall establish what constitutes one automobile
physical damage risk, provided:
(1) a tractor and trailer(s) or a tractor and
semi-trailer(s) shall never be considered more than
one risk;
(2) with respect to fleet dealers' business and garage
keepers legal liability business, all vehicles housed
in one building shall never be considered more than
one risk;
(3) with respect to fleet dealers' business and garage
keepers legal liability business, any location where
all vehicles are situated out-of-doors shall never be
considered more than one risk.
F. Occurrence
----------
This term shall mean each occurrence or series of occurrences
arising out
-34-
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of one event.
Section 5
---------
EXCLUSIONS
----------
This Exhibit shall not apply to:
A. Reinsurance accepted by the Company other than:
(1) Facultative reinsurance on a share basis of risks
accepted individually and not forming part of any
agreement, or
(2) Local agency reinsurance on a share basis accepted in
the normal course of business, or
(3) From its affiliates;
B. Nuclear incident per the Nuclear Incident Exclusion - Physical
Damage Reinsurance attached hereto;
C. Any loss or liability accruing to the Company directly or
indirectly from any insurance written by or through any pool
or association including pools or associations in which
membership by the Company is required under any statutes or
regulations; however, this exclusion shall not apply to
individual risks under this Agreement which are assigned to
the Company as a result of the business reinsured hereunder;
D. Any liability of the Company arising from its participation or
membership in any insolvency fund;
E. Any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority;
however, this exclusion shall not apply to workers'
compensation and employers liability nor to any policy which
contains a standard war exclusion;
F. Policies written to apply in excess of underlying insurance or
policies written with a deductible or franchise of more than
$25,000; however, this exclusion shall not apply to policies
which provide a percentage of deductibles or franchise in
connection with windstorm;
G. Insurance against earthquake, except when written in
conjunction with fire and otherwise eligible perils;
-35-
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H. Insurance on growing crops;
I. Insurance against flood, surface water, waves, tidal water or
tidal wave, overflow of streams or other bodies of water or
spray from any of the foregoing, all whether driven by wind or
not, except when written in conjunction with fire and
otherwise eligible perils;
J. Business classified as fidelity;
K. Liability under coverage afforded for loss or damage resulting
from failure to account or pay for any goods or merchandise
sold on credit, delivered under deferred payment agreements,
consigned for sale, or delivered under any trust or floor plan
agreements, except under standard accounts receivable
policies;
L. Any loss or damage caused by or resulting from explosion,
rupture, or bursting of steam boilers, steam pipes, steam
turbines, steam engines, or rotating parts of machinery caused
by centrifugal force; if owned by, leased by, or actually
operated under the control of the insured. This exclusion
shall not apply to ensuing loss by fire not otherwise
excluded;
M. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled, providing coverage to an insured with
respect to its mortgagee interest in property or its owner
interest in foreclosed property;
N. Difference in conditions insurance and similar kinds of
insurance, howsoever styled, except when written in
conjunction with fire and otherwise eligible perils;
O. Risks which have a total insurable value of more than
$250,000,000;
P. Any collection of fine arts with an insurable value of
$5,000,000 or more;
Q. Mobile homes; however, this exclusion shall not apply to
dealers' physical damage renewal business;
R. Inland marine business with respect to the following:
(1) All bridges and tunnels;
(2) Cargo insurance when written as such with respect to
ocean, lake, or inland waterways vessels, except
transit insurance with a limit of $100,000 each or
less;
(3) Commercial negative film insurance and cast
insurance;
-36-
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(4) Oil drilling rigs;
(5) Furriers' customers policies;
(6) Garment contractors policies;
(7) Insurance on livestock under so-called "mortality
policies";
(8) Jewelers block policies and furriers' block policies;
(9) Mining equipment while underground;
(10) Motor truck cargo insurance written for common
carriers operating beyond a radius of 300 miles;
(11) Radio and television broadcasting towers in excess of
100 feet in height;
(12) Registered mail insurance when the limit of any one
addressee on any one day is more than $50,000;
(13) Watercraft, other than watercraft insured under a
standard homeowners policy and non-owned watercraft
up to 51 feet in length for commercial policies;
S. Loss of, damage to, or failure of, or consequential loss
resulting therewith (including but not limited to earnings and
extra expense) of satellites, spacecraft, and launch vehicles,
including cargo and freight carried therein, in all phases of
operation (including but not limited to manufacturing,
transit, pre-launch, launch, and in orbit);
T. Coverage afforded by ISO Pollutant Clean Up and Removal
Additional Aggregate Limit of Insurance Endorsement CP 04 07
(Ed. 4/86) or as subsequently amended or by any similar
endorsement affording such coverage;
U. Pollutant clean up or removal under any commercial property
policy or any inland marine policy written by the Company
which does not contain ISO ChangesPollutants Endorsement CP 01
86 (Ed. 4/86) or as subsequently amended; however, this
exclusion does not apply to any risk located in a jurisdiction
which has not approved the Insurance Services Office exclusion
or where other regulatory constraints prohibit the Company
from attaching such endorsement. If the Company elects to file
-37-
38
an endorsement independent of ISO, such endorsement will be
deemed a suitable substitute provided the Company has
submitted the wording to the Reinsurer and received the
Reinsurer's prior approval.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set forth in
this Section, these exclusions, except A. through F., J., K., P., S., T and U.
shall be suspended with respect to such business until 30 days after an
underwriting supervisor of the Company acquires knowledge of such business.
Section 7
---------
REINSURANCE PREMIUM
-------------------
The Company shall Pay to the Reinsurer:
A. First Excess Cover:
(1) With respect to business becoming in force at the effective
time and date of this Exhibit:
a. 0.36% of the Company's unearned premium on homeowners
multiple peril (Section I) after deducting that
portion, if any, paid for share reinsurance,
calculated on the monthly pro rata basis as of the
effective time and date of this Exhibit; and
b. 4.86% of the Company's unearned premium on all other
classes of business reinsured hereunder (except
automobile physical damage), after deducting that
portion, if any, paid for share reinsurance,
calculated on the monthly pro rata basis as of the
effective time and date of this Exhibit.
(2) With respect to business becoming effective at and after the
effective time and date of this Exhibit:
a. 0.36% of the Company's written premium on homeowners
multiple peril (Section I) after deducting that
portion, if any, paid for share reinsurance; and
b. 4.86% of the Company's written premium on all other
classes of business reinsured hereunder (except
automobile physical damage), after deducting that
portion, if any, paid for share reinsurance.
B. Second Excess Cover:
-38-
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For each risk ceded hereunder, the Company shall pay to the
Reinsurer a reinsurance premium equal to the product of the
applicable reinsurance rate set forth in Appendix B attached
hereto and the Company's written premium for the risk being
reinsured. The applicable reinsurance rate shall be determined
based on the total insured value and construction of the
reinsured risk.
C. For the purpose of the calculation of the reinsurance premium
for business owners policies reinsured hereunder, the
reinsurance rate above shall be applied against business
owners policy written premium.
Section 8
---------
CONTINGENT COMMISSION
---------------------
The Reinsurer's underwriting experience under the First Excess Cover of this
Exhibit and under the First Excess Cover and the Combination Cover of Exhibit A
to this Agreement shall be combined for the purposes of calculating the
contingent commission on accordance with the provisions of the section entitled
CONTINGENT COMMISSION of said Exhibit A.
Section 9
---------
REPORTS AND REMITTANCES
-----------------------
A. Reinsurance Premium
-------------------
(1) In Force Premium (Applicable to the First Excess Cover only):
Within 45 days after the commencement of this Exhibit, the
Company shall render to the Reinsurer a report of the
reinsurance premium with respect to the business of the
Company in force at the effective time and date of this
Exhibit, summarizing the reinsurance premium by line of
insurance, by term, and by month and year of expiration; and
the amount due the Reinsurer shall be remitted within the
earlier of (a) 180 days after the commencement of this
Exhibit, or (b) 5 days after receipt of General Reinsurance
Corporation's return premium under the prior property
reinsurance program.
(2) New and Renewal Premium:
Within 25 days after the close of each month, the Company
shall render to the Reinsurer a report of the reinsurance
premium for the month with respect to business of the Company
written during the month, summarizing the reinsurance premium
by line of insurance; and the amount due either party shall be
remitted within 60 days after the close of
-39-
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the month.
Within 25 days after the close of each calendar quarter, the
Company shall render to the Reinsurer a report of the
reinsurance premium unearned by line of insurance and the
contribution for the quarter to the reinsurance premium in
force by line of insurance, by term, and by month and year of
expiration.
B. Claims and Losses
-----------------
The Company shall report promptly to the Reinsurer each claim or loss
which, in the Company's opinion, may involve the reinsurance afforded
by this Exhibit. The Company shall advise the Reinsurer of the
estimated amount of ultimate net loss in connection with each such
claim or loss and of any subsequent changes in such estimates.
Upon receipt of a definitive statement of ultimate net loss from the
Company, the Reinsurer shall promptly pay to the Company the
Reinsurer's portion of ultimate net loss and the Reinsurer's portion of
loss expense, if any. Any subsequent changes in the amount of ultimate
net loss shall be reported by the Company to the Reinsurer and the
amount due either party shall be remitted promptly.
C. General
-------
In addition to the reports required in A., B. and C. above, the Company
shall furnish such other information as may be required by the
Reinsurer for the completion of the Reinsurer's quarterly and annual
statements and internal records.
All reports shall be rendered in forms acceptable to the Company and
the Reinsurer.
Section 10
----------
COMMENCEMENT AND TERMINATION
----------------------------
A. This Exhibit shall apply to new and renewal policies of the Company
becoming effective at and after 12:01 A.M., January 1, 1998, and to
policies of the Company in force at 12:01 A.M., January 1, 1998, with
respect to claims or losses resulting from occurrences taking place at
and after the aforesaid time and date.
B. This Exhibit may be terminated by either party sending to the other, by
registered mail to its principal office, notice stating the time and
date when, not less than 90 days after the date of mailing of such
notice, termination shall be effective.
-40-
41
C. Upon termination of this Exhibit, the Reinsurer's liability hereunder
will terminate on a cut-off basis. However, the Company may elect to
have the Reinsurer's liability terminate on a run-off basis. The
phrases "cut-off basis" and "run-off basis" shall have the meanings set
forth below:
(1) Cut-Off Basis:
The Reinsurer shall not be liable for claims and losses
resulting from occurrences taking place at and after the
effective time and date of termination.
(2) Run-Off Basis:
The Reinsurer shall continue to be liable, with respect to
policies in force at the time and date of termination, for
occurrences taking place until the expiration, cancellation,
or next anniversary date, not to exceed one year, of each such
policy of the Company, whichever occurs first.
The reinsurance premium for policies in force at the time and
date of termination shall be calculated by applying the
provisions of the Section entitled REINSURANCE PREMIUM to the
quarterly earned premiums that derive from the unearned
premium applicable to policies in force at the time and date
of termination, provided such reinsurance premium is at least
50% of the reinsurance premium for the prior calendar year.
D. When all reinsurance is expired or terminated, the Reinsurer shall
return to the Company the reinsurance premium unearned, if any,
calculated on the monthly pro rata basis.
-41-
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APPENDIX B
----------
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.
PROPERTY EXCESS OF LOSS REINSURANCE EXHIBIT
Second Excess Reinsurance Rates
-------------------------------
Total Insured Value Protection Class 1-8 Protection Class 9-10
------------------- -------------------- ---------------------
Greater than $2.0 - $2.5 million 1% 3%
Greater than $2.5 - $3.0 million 2% 7%
Greater than $3.0 - $3.5 million 4% 10%
Greater than $3.5 - $4.0 million 5% 12%
Greater than $4.0 - $4.5 million 6% 14%
Greater than $4.5 - $5.0 million 7% 16%
Greater than $5.0 - $5.5 million 9% 18%
Greater than $5.5 - $6.0 million 10% 19%
Greater than $6.0 - $6.5 million 11% 21%
Greater than $6.5 - $7.0 million 12% 22%
Greater than $7.0 - $7.5 million 13% 23%
Greater than $7.5 - $8.0 million 14% 24%
Greater than $8.0 - $8.5 million 15% 25%
Greater than $8.5 - $9.0 million 16% 26%
Greater than $9.0 - $9.5 million 17% 27%
Greater than $9.5 - $10.0 million 18% 28%
-42-
43
EXHIBIT C
---------
EACH CLAIMANT WORKERS' COMPENSATION EXCESS OF LOSS
REINSURANCE COVER
-----------------
Section 1
---------
COVER
-----
The Reinsurer agrees to reimburse the Company, on an excess of loss basis, for
the amounts of ultimate net loss which the Company may pay as a result of losses
occurring on and after 12:01 A.M., January 1, 1998, as respects the Company's
policies in force as of said date and new and renewal policies becoming
effective on and after said date, covering the Company's Workers' Compensation
Business, subject to the limitations and exclusions hereinafter set forth.
Section 2
---------
LIMITS OF COVER
---------------
A. With respect to the business covered under this Exhibit, the Reinsurer
shall pay to the Company the amount of ultimate net loss for each
claimant, each occurrence in excess of the Company Retention but not
exceeding the Reinsurer's Limits of Liability as set forth in the
Schedule of Reinsurance below.
SCHEDULE OF REINSURANCE
-------------------------------------------------------------------------------------
COMPANY RETENTION REINSURER'S LIMITS OF LIABILITY ALL OCCURRENCES
EACH CLAIMANT, EACH CLAIMANT, DURING EACH
EACH OCCURRENCE EACH OCCURRENCE CALENDAR YEAR
-------------------------------------------------------------------------------------
$10,000,000 $5,000,000 $20,000,000
-------------------------------------------------------------------------------------
Section 3
---------
ULTIMATE NET LOSS
-----------------
A. The term "ultimate net loss" as used herein shall be understood to mean
the sum actually paid by the Company in settlement of losses for which
it is held liable, including:
(1) 90% of any Extra Contractual Obligations and/or Excess
Judgments and/or Declaratory Judgment Expenses, in accordance
with their respective articles; and
(2) All expenses, other than as provided in B. below, including
taxed court
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costs, prejudgment and postjudgment interest, and loss
expenses incurred in investigation, adjustment and litigation,
defense and settlement of claims made against the Company
under its original policies reinsured hereunder, including the
costs and expenses of the Company's in-house counsel while
engaged in the litigation of claims covered hereunder;
after making proper deductions for all recoveries, salvages, and claims
upon other reinsurance which inures to the benefit of the Reinsurer
under this Agreement whether collectible or not; provided, however,
that in the event of the insolvency of the Company, "ultimate net loss"
shall mean the amount of loss which the Company has incurred or for
which it is liable, and payment by the Reinsurer shall be made to the
liquidator, receiver or statutory successor of the Company in
accordance with the provisions of the Article entitled INSOLVENCY
CLAUSE.
B. All office expenses of the Company and all salaries and expenses of its
officials and employees shall be excluded under this Agreement, except
that the Company may include costs and expenses of the Company's
in-house counsel while engaged in the litigation of claims covered
hereunder.
Section 5
---------
DEFINITIONS
-----------
A. Workers' Compensation Business
------------------------------
This term shall mean insurance afforded by Parts One and Three
of the Company's Workers' Compensation and Employers'
Liability Policy and any endorsements included therein or
attached thereto.
B. Company Retention
-----------------
This term shall mean the amount the Company shall retain for
its own account; however, this requirement shall be satisfied
if this amount is retained by the Company or its affiliated
companies under common management or common ownership.
C. Occurrence
----------
This term shall mean each accident or occurrence or series of
accidents or occurrences arising out of one event regardless
of the number of policies involved, and as respects workers'
compensation and employers' liability policies, regardless of
the number of employees or employers involved, except as
modified below:
(1) As respects exposures reinsured hereunder other than
occupational
-44-
45
and other disease or cumulative injury under workers'
compensation policies, all bodily injury or property
damage arising out of continuous or repeated exposure
to substantially the same general conditions shall be
considered as arising out of one occurrence. The date
of occurrence shall be deemed to be the following:
(i) As respects a loss involving one or more
policies written on an occurrence basis, the
date on which bodily injury or property
damage occurs.
(ii) As respects a loss involving one or more
policies written on a claimsmade basis, the
date when notice of claim is received and
recorded by the Company or the insured,
whichever comes first, and any related
claims reported subsequent to such date
shall be included in such loss. However, if
notice of claim is received and recorded by
the Company or the insured during an
Extended Reporting Period, the date of
occurrence shall be deemed to be the last
day of the policy period.
(iii) As respects a loss involving one or more
policies written on an occurrence basis and
one or more policies written on a claimsmade
basis, the date on which bodily injury or
property damage occurs, and any related
claims reported subsequent to such date
shall be included in such loss whether they
are covered under occurrence or claims-made
policies.
(2) As respects an occupational or other disease or
cumulative injury under workers' compensation or
employers' liability policies for which the employer
is liable:
(i) Which arises from a specific sudden and
accidental event limited in time and place,
such occupational or other disease suffered
by one or more employees of one or more
employers shall be deemed to be an
occurrence within the meaning of this
Exhibit and the date of occurrence shall be
deemed to be the date of the sudden and
accidental event.
(ii) Which does not arise from a specific sudden
and accidental event limited in time and
place, such occupational or other disease or
cumulative injury shall be deemed to be an
occurrence within the meaning of this
Exhibit, and the date of occurrence shall be
deemed to be the date of the
-45-
46
beginning of the disability for which
compensation is payable if the case is
compensable under the Workers' Compensation
law; or the date that disability due to said
disease actually began if the case is not
compensable under the Workers' Compensation
law. Each case of an employee contracting
such occupational or other disease or
cumulative injury for which the employer
insured by the Company is held liable shall
be considered a separate occurrence
regardless of the date of loss.
Section 6
---------
EXCLUSIONS
----------
This Exhibit shall not apply to:
A. Business accepted by the Company as reinsurance from other
insurers other than its affiliates;
B. Nuclear incident per the Nuclear Incident Exclusion Clause -
Liability - Reinsurance attached hereto;
C. Any loss or liability accruing to the Company directly or
indirectly from any insurance written by or through any pool
or association including pools or associations in which
membership by the Company is required under any statutes or
regulations and including automobile assigned risk pools and
voluntary or involuntary market assistance programs; however,
this exclusion shall not apply to individual risks under this
Agreement which are assigned to the Company as a result of the
business reinsured hereunder;
D. Any liability of the Company arising from its participation or
membership in any insolvency fund;
E. War, Civil War;
F. Business written with a deductible of more than $25,000
(unless the deductible is $100,000 or more and ceded to
Exhibit A of this Agreement in accordance with its terms) or
written to apply in excess of a self-insured amount of more
than $25,000 (unless the self-insured amount is $100,000 or
more and ceded to Exhibit A of this Agreement in accordance
with its terms) or business written to apply specifically in
excess over underlying insurance;
G. Workers' compensation and employers' liability insurance with
respect to operations principally involving:
-46-
47
(1) Aircraft flight and ground operations or operations
in which the flying hazard is a major part;
(2) Amusement parks or devices, exhibitions (including
fireworks), carnivals or circuses, sports events
and/or participants; however, this exclusion shall
not apply to coverage for locations or events with
daily admissions of 1,000 or less or seating capacity
of 1,000 or less;
(3) Manufacturing, packing, handling, shipping, or
storage of explosives, substances intended for use as
an explosive, ammunitions, fuses, arms, magnesium,
propellant charges, detonating devices, fireworks,
nitroglycerine, celluloid, or pyroxylin; however,
this exclusion shall not apply to the incidental
packing, handling or storage of same in connection
with the sale of such substances;
(4) Gas companies, dealers, or distributors, except those
in the gasoline service station, convenience store or
fuel oil dealer business; oil or gas operators, lease
operators or contractors; oil or gas well works; oil
or gas pipeline construction or operations; oil rig
and ▇▇▇▇▇▇▇ work; onshore or offshore gas or oil
drilling operations;
(5) Manufacturing, packing, handling, shipping or storage
of natural gas or artificial fuel gasses, butane,
propane, gasoline, or liquified petroleum gas;
however, this exclusion shall not apply to the
incidental packing, handling or storage of same in
connection with the sale of such substances;
(6) Railroad operation or construction, except this
exclusion shall not apply if the excluded exposure is
not normally associated with the insured's operation
and odes not present a larger exposure than the
overall unexcluded portion of the risk;
(7) Maritime or federal employments; steamship lines,
agencies, or stevedoring, navigation or operation of
vessels; operation of drydocks; and including all
United States Longshoremen's and Harbor Workers'
exposures, except this exclusion shall not apply if
the excluded exposure (a) is endorsed on an "if any"
basis or (b) is not normally associated with the
insured's operation and does not present a larger
exposure than the overall unexcluded portion of the
risk;
-47-
48
(8) Subway construction, shaft sinking, or tunneling;
(9) Wrecking or demolition of vessels or buildings or
structures of more than three stories in height;
(10) Underground mining, strip mining, or quarrying;
(11) Subaqueous work;
(12) Caisson or ▇▇▇▇▇▇ dam work; dam, dike, lock, or
revetment construction;
(13) Chemical manufacturing; however, this exclusion shall
not apply to operations with annual gross receipts
from chemical manufacturing of $500,000 or less;
(14) Nuclear Regulatory Commission projects or operations
conducted under license from the Nuclear Regulatory
Commission;
(15) Asbestos removal contractors;
(16) Firefighters and police officers.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set forth in
this Section, these exclusions, except A. through E., G.(3) and G.(4) shall be
suspended with respect to such business until the greater of 30 days or the
minimum period of time required by statute after an underwriting supervisor of
the Company acquires knowledge of such business.
Section 7
---------
REINSURANCE PREMIUM
-------------------
Unless otherwise mutually agreed, the Company shall pay the Reinsurer an annual
reinsurance premium of $30,000 for each calendar year during which this Exhibit
remains in force.
Section 8
---------
REPORTS AND REMITTANCES
-----------------------
A. Reinsurance Premium
-------------------
Within 25 days after the beginning of each calendar quarter,
the Company shall pay to the Reinsurer one quarter of the
annual reinsurance premium stipulated in the section entitled
REINSURANCE PREMIUM.
-48-
49
B. Claims and Losses
-----------------
The Company shall report promptly to the Reinsurer each claim
or loss for which the Company's estimated amount of net loss
is 50% or more of the amount of the Company Retention and
shall also report all cases of serious injury which,
regardless of considerations of liability or coverage, might
involve this reinsurance, including but not limited to the
following:
(1) Cord injury paraplegia, quadriplegia;
(2) Amputations requiring a prosthesis;
(3) Brain damage affecting mentality or central nervous
system such as permanent disorientation, behavior
disorder, personality change, seizures, motor
deficit, inability to speak (aphasia), hemiplegia or
unconsciousness (comatose);
(4) Blindness;
(5) ▇▇▇▇▇ involving over 10% of body with third degree or
30% of body with second degree;
(6) Multiple fractures involving more than one member or
non-union;
(7) Fracture of both heel bones (fractured bilateral or
calcis);
(8) Nerve damage causing paralysis and loss of sensation
in arm and hand (brachial plexus nerve damage);
(9) Massive internal injuries affecting body organs;
(10) Injury to nerves at base of spinal canal (Cauda
Equina) or any other back injury resulting in
incontinence of bowel and/or bladder;
(11) Fatalities;
(12) Any other serious injury which, in the judgment of
the Company, might involve the Reinsurer.
The Company shall advise the Reinsurer of the
estimated amount of ultimate net loss and loss
expense in connection with each such claim or loss
and of any subsequent changes in such estimates.
Upon receipt of a definitive statement of ultimate
net loss and loss
-49-
50
expense from the Company, the Reinsurer shall pay
promptly to the Company the Reinsurer's portion of
ultimate net loss and Reinsurer's portion of loss
expense, if any. Any subsequent changes shall be
reported by the Company to the Reinsurer and the
amount due either party shall be remitted promptly.
C. General
-------
In addition to the reports required in A. and B. above, the
Company shall furnish such other information as may be
required by the Reinsurer for the completion of the
Reinsurer's quarterly and annual statements and internal
records.
All reports shall be rendered in forms acceptable to the
Company and the Reinsurer.
Section 9
---------
REINSTATEMENT
-------------
A. The limit of liability of the Reinsurer under this Exhibit with respect to
each occurrence shall be reduced by an amount equal to the amount of
liability paid by the Reinsurer, but that part of the liability of the
Reinsurer that is so reduced shall be automatically reinstated, subject to
the maximum payment of $20,000,000 with respect to all occurrences taking
place during each calendar year this Exhibit is in effect. In consideration
of this automatic reinstatement, the Company shall pay to the Reinsurer:
(a) For the first $5,000,000 so reinstated an additional reinsurance
premium which shall be the product of the annual reinsurance
premium set forth in the section entitled REINSURANCE PREMIUM and
the amount so reinstated divided by $5,000,000,
(b) For the next two full reinstatements of $5,000,000 each, an
additional reinsurance premium which shall be the product of 50%
of the annual reinsurance premium set forth in the section
entitled REINSURANCE PREMIUM and the amount so reinstated divided
by $5,000,000.
The reinsurance premium so developed for each amount reinstated shall be in
addition to the reinsurance premium set forth in the section entitled
REINSURANCE PREMIUM, and shall be paid by the Company immediately following
loss payment by the Reinsurer.
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51
Section 10
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COMMENCEMENT AND TERMINATION
----------------------------
A. This Exhibit shall apply to claims and losses resulting from occurrences
taking place at and after 12:01 A.M., January 1, 1998.
B. This Exhibit may be terminated by either party sending to the other, by
registered mail to its principal office, notice stating the time and date
when, not less than 90 days after the date of mailing of such notice,
termination shall be effective.
C. Upon termination of this Exhibit, the Reinsurer's liability hereunder will
terminate on a cut-off basis. However, the Company may elect to have the
Reinsurer's liability terminate on a run-off basis. The phrases "cut-off
basis" and "run-off basis" shall have the meanings set forth below:
(1) Cut-Off Basis:
The Reinsurer shall not be liable for claims and losses resulting from
occurrences taking place at and after the effective time and date of
termination.
(2) Run-Off Basis:
The Reinsurer shall continue to be liable, with respect to policies in
force at the time and date of termination, for occurrences taking
place until the expiration, cancellation, or next anniversary date,
not to exceed one year, of each such policy of the Company, whichever
occurs first.
The reinsurance premium for policies in force at the time and date of
termination shall be mutually agreed by the parties.
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52
ENDORSEMENT
Page 1 of 6
ENDORSEMENT
Attached to and forming part of the PROPERTY AND CASUALTY EXCESS OF LOSS
REINSURANCE AGREEMENT NO. 2530-0004 (hereinafter referred to as the "Agreement")
between MERCHANTS MUTUAL INSURANCE COMPANY, Buffalo, New York and MERCHANTS
INSURANCE COMPANY OF NEW HAMPSHIRE, INC., Concord, New Hampshire (hereinafter
collectively referred to as the "Company") and AMERICAN REINSURANCE COMPANY, a
Delaware Corporation with Administrative Offices in Princeton, New Jersey
(hereinafter referred to as the "Reinsurer").
It is hereby mutually understood and agreed that the following changes are made
in the Agreement effective 12:01 A.M., January 1, 1998.
I. EXHIBIT A IS AMENDED AS FOLLOWS:
(A) SECTION 8, REINSURANCE PREMIUM, IS DELETED IN ITS ENTIRETY AND REPLACED
BY THE FOLLOWING:
Section 8
REINSURANCE PREMIUM AND COMMISSION
A. First Excess Cover:
(1) With respect to business in force at the effective time and date of this
Exhibit, the Company shall pay the Reinsurer a reinsurance premium equal to the
product of the applicable First Excess reinsurance rate set forth in Appendix A
attached hereto and the Company's unearned premium for the classes of business
reinsured hereunder, calculated on the monthly pro rata basis as of the
effective time and date of this Exhibit.
(2) With respect to business becoming effective at and after the effective time
and date of this Exhibit, the Company shall pay the Reinsurer a reinsurance
premium equal to the product of the applicable First Excess reinsurance rate set
forth in Appendix A attached hereto and the Company's written premium for the
classes of business reinsured hereunder.
B. Second Excess Cover:
(1) With respect to business in force at the effective time and date of this
Exhibit, the Company shall pay the Reinsurer a reinsurance premium equal to
0.38% of the Company's unearned premium for the classes of business reinsured
hereunder, calculated on the
monthly pro rata basis as of the effective time and date of this Exhibit.
(2) With respect to business becoming effective at and after the effective time
and date of this Exhibit, the Company shall pay the Reinsurer a reinsurance
premium equal to 0.38% of the Company's written premium for the classes of
business reinsured hereunder, subject to an annual minimum and deposit
reinsurance premium of $400,000.
53
ENDORSEMENT
Page 2 of 6
C. Third Excess Cover:
Unless otherwise mutually agreed, the Company shall pay the Reinsurer an annual
reinsurance premium of $40,000 for each calendar year during which the Third
Excess remains in force.
D. The Reinsurer shall allow the Company (and the Company shall allow the
Reinsurer, in the event of return premiums) a flat ceding commission of 50% on
all premiums ceded under the First and Second Excess Covers. There shall be no
commission on the premiums ceded under the Third Excess Cover. The commission
will include premium taxes of all kinds, local board assessments, and all other
expenses and charges whatsoever based on the premium for business ceded under
this Agreement.
E. For the purpose of the calculation of the reinsurance premium for business
owners policies reinsured hereunder, the reinsurances rates in A. and B. above
shall be applied against 60% of the business owners policy premium unearned or
written, as applicable.
(B) PARAGRAPH A OF SECTION 10, REPORTS AND REMITTANCES, IS DELETED AND REPLACED
BY THE FOLLOWING:
Section 10
REPORTS AND REMITTANCES
A. Reinsurance Premium
(1) In Force Premium (Applicable to the First and Second Excess Covers only):
Within 45 days after the commencement of this Exhibit, the Company shall render
to the Reinsurer a report of the reinsurance premium with respect to the
business of the Company in force at the effective time and date of this Exhibit,
summarizing the reinsurance premium by line of insurance, by term, and by month
and year of expiration; and the amount due the Reinsurer, less ceding
commission, shall be remitted within the earlier of: (a) 180 days after the
commencement of this Exhibit, or (b) 5 days after receipt of General Reinsurance
Corporation's return premium under the prior casualty reinsurance program.
(2) New and Renewal Premium:
a. First Excess Cover:
Within 25 days after the close of each month, the Company shall render to the
Reinsurer a report of the reinsurance premium for the month with respect to
business of the Company written during the month, summarizing the reinsurance
premium by line of insurance; and the amount due either party, less ceding
commission, shall be remitted within 60 days after the close of the month.
Within 25 days after the close of each calendar quarter, the Company shall
render to the Reinsurer a report of the reinsurance premium unearned by line of
insurance and the contribution for the quarter to the reinsurance premium in
force by line of insurance, by term and by month and year of expiration.
54
ENDORSEMENT
Page 3 of 6
b. Second Excess Cover
Within 25 days after the beginning of each calendar quarter, the Company shall
pay to the Reinsurer one quarter of the annual minimum and deposit reinsurance
premium stipulated in subparagraph B.2 of the section entitled REINSURANCE
PREMIUM, less ceding commission thereon.
Within 60 days after the close of each calendar year, the Company shall render
to the Reinsurer a report of the premium written by the Company on the classes
of business reinsured hereunder during such calendar year. The Company shall
calculate the reinsurance premium thereon and remit to the Reinsurer the amount
of reinsurance premium, if any, in excess of the annual minimum and deposit
reinsurance premium previously paid, less ceding commission thereon.
c. Third Excess Cover
Within 25 days after the beginning of each calendar quarter, the Company shall
pay to the Reinsurer one quarter of the annual reinsurance premium stipulated in
subparagraph C. of the section entitled REINSURANCE PREMIUM.
(C) PARAGRAPH D OF SECTION 12, COMMENCEMENT AND TERMINATION, IS DELETED AND
REPLACED BY THE FOLLOWING:
D. When all reinsurance is expired or terminated, the Reinsurer shall return to
the Company the reinsurance premium unearned, if any, calculated on the monthly
pro rata basis, less any commission previously allowed thereon.
(D) APPENDIX A IS DELETED IN ITS ENTIRETY AND REPLACED BY THE FOLLOWING:
APPENDIX A
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.
CASUALTY EXCESS OF LOSS REINSURANCE EXHIBIT
FIRST EXCESS COVER REINSURANCE RATES
Class of Business Rate
Private Passenger Automobile 0.10%
Liability (including PIP)
Commercial Automobile Liability 3.52%
55
ENDORSEMENT
Page 4 of 6
(including PIP)
Workers' Compensation and 5.60%
Employers' Liability
Commercial Multiple Peril 6.14%
(Section II) and
Business Owners (Section II)
Homeowners Multiple Peril No Charge
(Section II) and Farmowners
Multiple Peril (Section II)
II. EXHIBIT B IS AMENDED AS FOLLOWS:
(A) SECTION 7, REINSURANCE PREMIUM, IS DELETED IN ITS ENTIRETY AND REPLACED BY
THE FOLLOWING:
Section 7
REINSURANCE PREMIUM AND COMMISSION
The Company shall pay to the Reinsurer:
A. First Excess Cover:
(1) With respect to business becoming in force at the effective time and date of
this Exhibit:
a. 0.72% of the Company's unearned premium on homeowners multiple peril (Section
I) after deducting that portion, if any, paid for share reinsurance, calculated
on the monthly pro rata basis as of the effective time and date of this Exhibit;
and
b. 9.72% of the Company's unearned premium on all other classes of business
reinsured hereunder (except automobile physical damage), after deducting that
portion, if any, paid for share reinsurance, calculated on the monthly pro rata
basis as of the effective time and date of this Exhibit.
(2) With respect to business becoming effective at and after the effective time
and date of this Exhibit:
a. 0.72% of the Company's written premium on homeowners multiple peril (Section
I) after deducting that portion, if any, paid for share reinsurance; and
b. 9.72% of the Company's written premium on all other classes of business
reinsured hereunder
56
ENDORSEMENT
Page 5 of 6
(except automobile physical damage), after deducting that portion, if any, paid
for share reinsurance.
B. Second Excess Cover:
For each risk ceded hereunder, the Company shall pay to the Reinsurer a
reinsurance premium equal to the product of the applicable reinsurance rate set
forth in Appendix B attached hereto and the Company's written premium for the
risk being reinsured. The applicable reinsurance rate shall be determined based
on the total insured value and construction of the reinsured risk.
C. The Reinsurer shall allow the Company (and the Company shall allow the
Reinsurer, in the event of return premiums) a flat ceding commission of 50% on
all premiums ceded under the First Excess Cover. There shall be no commission on
premiums ceded under the Second Excess Cover. The commission will include
premium taxes of all kinds, local board assessments, and all other expenses and
charges whatsoever based on the premium for business ceded under this Agreement.
D. For the purpose of the calculation of the reinsurance premium for business
owners policies reinsured hereunder, the reinsurance rate above shall be applied
against 40% of business owners policy written premium.
(B) PARAGRAPH A OF SECTION 9, REPORTS AND REMITTANCES, IS DELETED AND REPLACED
BY THE FOLLOWING:
Section 9
REPORTS AND REMITTANCES
A. Reinsurance Premium
(1) In Force Premium (Applicable to the First Excess Cover only):
Within 45 days after the commencement of this Exhibit, the Company shall render
to the Reinsurer a report of the reinsurance premium with respect to the
business of the Company in force at the effective time and date of this Exhibit,
summarizing the reinsurance premium by line of insurance, by term, and by month
and year of expiration; and the amount due the Reinsurer, less ceding
commission, shall be remitted within the earlier of (a) 180 days after the
commencement of this Exhibit, or (b) 5 days after receipt of General Reinsurance
Corporation's return premium under the prior property reinsurance program.
(2) New and Renewal Premium:
Within 25 days after the close of each month, the Company shall render to the
Reinsurer a report of the reinsurance premium for the month with respect to
business of the Company written during the month, summarizing the reinsurance
premium by line of insurance; and the amount due either party, less ceding
commission, shall be remitted within 60 days after the close of the month.
Within 25 days after the close of each calendar quarter, the Company shall
render to the Reinsurer a report of the reinsurance premium unearned by line of
insurance and the contribution for the quarter to the reinsurance premium in
force by line of insurance, by term, and by month and year of expiration.
57
ENDORSEMENT
Page 6 of 6
(C) PARAGRAPH D OF SECTION 10, COMMENCEMENT AND TERMINATION, IS DELETED AND
REPLACED BY THE FOLLOWING:
D. When all reinsurance is expired or terminated, the Reinsurer shall return to
the Company the reinsurance premium unearned, if any, calculated on the monthly
pro rata basis, less any ceding commission previously allowed thereon.
Nothing herein contained shall alter, vary or extend any provision or condition
of the Agreement other than as above stated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized officers.
In Buffalo, New York, this 6th day of October, 1998.
ACCEPTED:
MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Attested by:
And in Princeton, New Jersey this 6th day of October, 1998.
AMERICAN RE-INSURANCE COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
Attested by: