AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT
between
THE INSURANCE SUBSIDIARIES OF BUSINESS INSURANCE GROUP, INC.,
ACTING SOLELY ON BEHALF OF THE FOLLOWING SUBSIDIARIES:
CALIFORNIA COMPENSATION INSURANCE COMPANY
BUSINESS INSURANCE COMPANY
COMBINED BENEFITS INSURANCE COMPANY
COMMERCIAL COMPENSATION INSURANCE COMPANY
and
INTER-OCEAN REINSURANCE COMPANY LTD.
INDEX
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. AGGREGATE RETENTION, NET RETENTION AND AGGREGATE LIMIT . 3
ARTICLE III. REPORTS . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV. REMITTANCES . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V. PREMIUM . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI. COMMUTATIONS OF CEDED REINSURANCE . . . . . . . . . . . 6
ARTICLE VII. CREDIT FOR REINSURANCE . . . . . . . . . . . . . . . . . 6
ARTICLE VIII. FUNDS WITHHELD . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IX. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . .10
ARTICLE X. RESERVING, TAXES, RIGHT OF INSPECTION AND
PARTICIPATION, CLAIMS MANAGEMENT, TERRITORY . . . . . .10
ARTICLE XI. EXCLUSIONS . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE XII. EXTRA CONTRACTUAL OBLIGATIONS; LOSSES
IN EXCESS OF POLICY LIMITS . . . . . . . . . . . . . . .12
ARTICLE XIII. DECLARATORY JUDGMENT EXPENSES . . . . . . . . . . . . .13
ARTICLE XIV. ERRORS AND OMISSIONS . . . . . . . . . . . . . . . . . .13
ARTICLE XV. INSOLVENCY . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE XVI. TERM AND TERMINATION . . . . . . . . . . . . . . . . . .14
ARTICLE XVII. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . .14
ARTICLE XVIII. NOTICES . . . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE XIX. ASSIGNMENTS AND SURVIVAL . . . . . . . . . . . . . . . .15
ARTICLE XX. FEDERAL EXCISE TAX . . . . . . . . . . . . . . . . . . .15
ARTICLE XXI. CURRENCY . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE XXII. ACTUARIAL REVIEW CLAUSE . . . . . . . . . . . . . . . .15
ARTICLE XXIII. ARBITRATION . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE XXIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . .17
SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
ATTACHMENT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT
THIS AGREEMENT is made and entered into as of September 3, 1998 by
and between BUSINESS INSURANCE GROUP, INC. (the "Company") solely on behalf
of its subsidiaries CALIFORNIA COMPENSATION INSURANCE COMPANY, BUSINESS
INSURANCE COMPANY, COMBINED BENEFITS INSURANCE COMPANY, COMMERCIAL
COMPENSATION INSURANCE COMPANY (hereinafter collectively referred to as the
"Reinsured") and INTER-OCEAN REINSURANCE COMPANY LTD., a Bermuda stock
insurance company (the "Reinsurer").
WHEREAS, the Reinsurer desires to reinsure the Reinsured, and the
Company desires that the Reinsurer reinsure the Reinsured, to the extent and
upon the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I. DEFINITIONS
As used herein, the following terms shall have the following
respective meanings:
"ACCIDENT YEAR" as used herein shall refer to each 12-month period
commencing January 1 and ending December 31 in which covered claims occur.
For purposes of this Agreement, the period from the immediately preceding
January 1 to, but not including the Effective Date also shall be considered
an Accident Year.
"AGGREGATE ULTIMATE NET LOSSES" shall mean the aggregate sums paid
or to be paid by the Reinsured in settlement of losses under contracts and
policies that are the Subject Business reinsured hereunder, including
Allocated Loss Adjustment Expenses, plus any Extra Contractual Obligations
and Losses in Excess of Policy Limits and any Declaratory Judgment Expenses,
all as respects covered losses attributable to claims made (for claims made
policies) and losses occurring during the Accident Years prior to the
Effective Date and paid or payable by the Reinsured while the Agreement is in
effect for which the Reinsured is liable, after making proper deductions for,
all Ceded Reinsurance, whether collectible or not, and all salvages, and all
recoveries of every nature.
Aggregate Ultimate Net Losses does not include any of the
following: (i) all net losses or ALAE paid by the Reinsured before the
Effective Date, (ii) all net losses or ALAE incurred by the Reinsured for
losses occurring, on or after the Effective Date, (iii) all net losses or
ALAE under insurance or reinsurance contracts and policies written by the
Reinsured on or
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after the Effective Date, (iv) all net losses or ALAE under contracts and
policies written by the Reinsured before the Effective Date but amended,
effective on or after the Effective Date but only to the extent that such
losses would not have been covered prior to the effective date of such
amendments, (v) all net losses or ALAE for which the Reinsured becomes
obligated to pay as a result of a merger with or acquisition of any other
insurance or reinsurance company, (vi) all unallocated loss adjustment
expenses of the Reinsured, and (vii) all costs and expenses of the Reinsured
incurred in connection with Ceded Reinsurance collection activities.
"AGGREGATE RETENTION" shall have the meaning and be determined as
set forth in Attachment A.
"ALLOCATED LOSS ADJUSTMENT EXPENSES" or "ALAE" shall mean all
expenses including but not limited to court costs, attorney fees, medical
cost containment expenses, outside adjuster fees, and prejudgment and
postjudgment interest that are incurred by the Reinsured and are allocable to
specific losses that are or would be covered under this Agreement in each
case as determined in accordance with the Company's standard practice in
effect as of the Effective Date of this Agreement. However, such amounts
shall not include office expenses of the Reinsured, including salaries of
their officials and employees, and loss adjustment expenses unallocable to
claims recoverable under contracts and policies reinsured hereunder.
"CEDED REINSURANCE" shall mean those contracts of reinsurance in
effect on the Effective Date as to which the Reinsured is a party as a ceding
insurer and that reinsures the obligations of the Reinsured with respect to
any portion of Aggregate Ultimate Net Losses hereunder. Ceded Reinsurance
shall specifically not include the Quota Share Reinsurance Contract entered
into by the Reinsured with affiliates of Superior National Insurance Group,
Inc. effective May 1, 1998.
"COMMUTATION" shall mean a commutation, release of liability, loss
portfolio transfer or other similar transaction, which is consummated or is
effective on or after the Effective Date with respect to any Ceded
Reinsurance.
"DECLARATORY JUDGMENT EXPENSES" shall have the meaning set forth in
Article XIII hereof.
"EFFECTIVE DATE" shall mean the date of consummation of the closing
of a private sale of the Company.
"EXTRA CONTRACTUAL OBLIGATIONS" shall have the meaning set forth in
Article XII hereof.
"INCURRED BUT NOT REPORTED" or "IBNR" shall refer to that amount of
reserves for outstanding losses and Allocated Loss Adjustment Expenses
arising from insured losses that have already occurred prior to the Effective
Date but have not yet been reported to and/or recorded as losses recoverable
under contracts and policies reinsured hereunder by the Reinsured.
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Such amounts shall contemplate the ultimate valuation of such
losses and Allocated Loss Adjustment Expenses.
"LOSSES IN EXCESS OF POLICY LIMITS" shall have the meaning set
forth in Article XII hereof.
"PREMIUM" shall have the meaning set forth in Article V hereof.
"QUARTERLY REPORT" shall have the meaning set forth in Article III
hereof.
"SUBJECT BUSINESS" shall mean all contracts and policies where the
related insurance and reinsurance premium has been written and earned by the
Reinsured before the Effective Date for claims made, or losses occurring,
during all Accident Years prior thereto, subject to the exclusions set forth
in Article XI herein.
"SUBJECT NET EARNED PREMIUM" shall mean gross premium earned by the
Reinsured less earned premium ceded for Ceded Reinsurance that inures to the
benefit of this Agreement, and less earned premium derived from any Pool,
Association, Syndicate, Exchange Plan, Fund or other facility described in
Article XI, from January 1, 1998 through and including the Effective Date.
"YEARLY REPORT" shall have the meaning set forth in Article III
hereof.
ARTICLE II. AGGREGATE RETENTION, NET RETENTION AND AGGREGATE LIMIT
(a) COVER. Commencing on the Effective Date, the Reinsurer hereby
agrees to indemnify the Reinsured in respect of all Aggregate Ultimate Net
Losses in excess of the Aggregate Retention up to but not exceeding the
Aggregate Limit.
(b) AGGREGATE RETENTION. The Reinsured shall retain all Aggregate
Ultimate Net Losses in an amount equal to the Aggregate Retention. The
Reinsured shall first pay the entire amount of its Aggregate Retention under
Subject Business and the Reinsurer shall thereafter pay its Aggregate Limit
on Subject Business to the extent Aggregate Ultimate Net Losses exceed the
Reinsured's Aggregate Retention.
(c) AGGREGATE LIMIT. THE MAXIMUM AMOUNT OF AGGREGATE ULTIMATE NET
LOSSES THAT MAY BE CEDED UNDER THIS AGREEMENT SHALL NOT EXCEED $175,000,000.
UNDER NO CIRCUMSTANCES WILL THE REINSURER'S INDEMNITY OBLIGATION HEREUNDER
EXCEED $175,000,000 IN TOTAL IN EXCESS OF THE REINSURED'S AGGREGATE RETENTION.
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ARTICLE III. REPORTS
(a) YEARLY REPORTS. During the term of this Agreement, the
Reinsured shall deliver to the Reinsurer, within ninety-five (95) calendar
days after the end of each calendar year, a report (a "Yearly Report")
setting forth (i) its calculation of Aggregate Ultimate Net Losses cumulative
to date, (ii) the annual convention statements of the Reinsured as filed
hereafter with the appropriate insurance regulatory authority, and (iii) if
applicable, a statement of any amount payable by the Reinsurer pursuant to
Articles II and IV hereof and a demand for payment of such amount. Paid and
outstanding losses including a provision for Incurred But Not Reported
losses, contemplating the ultimate valuation of losses and ALAE shall be
provided by reserve category, line of business and Accident Year.
(b) QUARTERLY REPORTS. During the term of this Agreement, the
Reinsured shall deliver to the Reinsurer, within sixty (60) calendar days
after the end of each calendar quarter, a report (a "Quarterly Report")
setting forth (i) its calculation of Aggregate Ultimate Net Losses cumulative
to date, and (ii) if applicable, a statement of any amount payable by the
Reinsurer pursuant to Articles II and IV hereof and a demand for payment of
such amount. Paid and outstanding losses including a provision for Incurred
But Not Reported losses, contemplating the ultimate valuation of losses and
ALAE shall be provided by reserve category, line of business and Accident
Year.
(c) ADDITIONAL REPORTS. In addition, the Reinsured shall include
in Quarterly Reports or any Yearly Reports during the term of this Agreement
such additional information and documentation as the Reinsurer may reasonably
request and specify (including, but not limited to, data supporting reserve
reviews (to the extent available in the ordinary course of business of the
Reinsured), Ceded Reinsurance monitoring and collection activity,
Commutations, loss activity on asbestos, pollution and other categories with
respect to Incurred But Not Reported loss calculations, and all adjustments
to net losses).
(d) CONFIDENTIALITY OF REPORTS. Except as otherwise required by
law, by governmental or regulatory authorities, or in response to a court
order, or upon the prior written consent of the Reinsured, all non-public
information included in all Yearly Reports, Quarterly Reports and Additional
Reports and amendments thereto shall be kept confidential by the Reinsurer
and its directors, officers, employees, agents and representatives, shall not
be disclosed to any other person or entity, and shall only be used for the
purposes provided herein. Notwithstanding the foregoing, non-public
information included in a Yearly Report, Quarterly Report and Additional
Reports or amendments thereto may be disclosed to any retrocessionaire of the
Reinsurer to the extent such disclosure is necessary for the Reinsurer to
retrocede any of its liabilities hereunder to such retrocessionaire.
ARTICLE IV. REMITTANCES
(a) COVERAGE PAYMENTS. Except as provided in paragraph (b) of
this Article IV, the Reinsurer shall pay to the Company on behalf of the
Reinsured any and all amounts
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payable hereunder, as shown and demanded in each Yearly Report, Quarterly
Report or amendments thereto, within thirty (30) calendar days following
receipt by the Reinsurer of each such Yearly Report, Quarterly Report or
amendments thereto from the Reinsured. Any payments by the Reinsurer to the
Company or other entity or person designated by the Reinsured to receive
payment of amounts due hereunder on behalf of the Reinsured shall constitute
payment to the Reinsured under this Agreement.
(b) NO SETTLEMENTS UNTIL PAYMENT BY REINSURED. Except in the event
of insolvency of the Reinsured as described in Article XV, no settlements
shall be payable by the Reinsurer to the Reinsured for Aggregate Ultimate Net
Losses recoverable hereunder until the Reinsured has effected cumulative
payments of Aggregate Ultimate Net Losses during the term of this Agreement
in an amount equal to the Aggregate Retention hereunder.
(c) REPAYMENT TO REINSURER. If the Reinsurer shall have paid any
amounts under this Agreement that are subsequently deemed not to be due by
the Reinsurer, then the Reinsured shall promptly remit such amounts to the
Reinsurer.
ARTICLE V. PREMIUM
A premium in the amount of twenty eight million five hundred
thousand dollars ($28,500,000) in immediately available funds shall be paid
to the Reinsurer in consideration of the coverage provided hereunder as
follows: (i) a nonrefundable premium installment of $300,000 will have been
paid within five (5) days after the binders pertaining to this Agreement
shall have been signed by the Reinsurer and delivered to the Reinsured, and
an additional non-refundable premium installment of $300,000 will have been
paid on or before August 10,1998, and (ii) the remaining premium of
$27,900,000 on the Effective Date.
This Agreement will automatically expire if the Effective Date does
not occur on or before September 30, 1998. On September 30, 1998, the
Agreement shall automatically extend for an additional period expiring on
December 31, 1998 upon receipt of an additional non-refundable payment of
$300,000 in which case the remaining premium due on the Effective Date will
be $27,850,000. On the last day of each of the 4 calendar quarters subsequent
to September 30, 1998, the Agreement shall automatically extend for an
additional quarter upon receipt of an additional non-refundable premium
installment of $50,000 for each quarterly extension. The premium installments
for each extension shall be due and payable five (5) days prior to each
extension. The remaining premium due on the Effective Date will be reduced by
the cumulative amount of premium installments paid for all extensions other
than the payment for the extension from September 30, 1998 to December 31,
1998, which payment shall reduce the remaining premium due to the Reinsurer
by only $50,000. In no event will the premium due on the Effective Date ever
be reduced below $27,650,000. This Agreement will automatically expire if the
Effective Date does not occur on or before December 31, 1999.
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ARTICLE VI. COMMUTATIONS OF CEDED REINSURANCE
In the event that the Reinsured commutes, amends or terminates any
reinsurance agreement which was in place as of the Effective Date pertaining
to the Subject Business, the parties hereto will amend this Agreement in such
a manner so as to put each party in the same relative economic position as it
would have been in the absence of any such commutation, amendment or
termination. For example, a reinsurance agreement pertaining to the Subject
Business which was in place as of the Effective Date may be deemed to remain
in place irrespective of any commutation, release of liability, loss
portfolio transfer or other similar transaction with respect thereto.
ARTICLE VII. CREDIT FOR REINSURANCE
(a) As regards contracts and policies or bonds issued by the
Reinsured coming within the scope of this Agreement, the Reinsured agrees
that when it shall file with the insurance regulatory authority or set up on
its books, reserves for losses covered hereunder which it shall be required
by law to set up, it will forward to the Reinsurer a statement showing
reserves ceded to the Reinsurer. Within fifteen (15) days of its receipt of
an Annual Report or a Quarterly Report, the Reinsurer hereby agrees that it
will apply for and secure delivery to the Reinsured of a clean, irrevocable
and unconditional Letter of Credit, issued by a qualified bank acceptable to
insurance regulatory authorities having jurisdiction over the Reinsured, or
establish a Trust Account for the benefit of the Reinsured, in each case
containing provisions acceptable to the insurance regulatory authorities
having jurisdiction over the Reinsured in an amount equal to the Aggregate
Ultimate Net Losses including IBNR ceded to the Reinsurer, as shown in the
statement prepared by the Reinsured (hereinafter referred to as "Reinsurer's
Obligations").
(b) If a Letter of Credit is to be used to satisfy the
requirements of this Article VII, the Letter of Credit shall be issued for a
period of not less than one year, and shall be automatically extended for one
year from its date of expiration or any future expiration date. The Letter of
Credit shall remain in effect to the extent necessary to fulfill the
Reinsurer's Obligations as described in paragraph (a) above; however,
Reinsurer may substitute a Letter of Credit from a new qualified bank if,
thirty (30) days prior to any expiration date, the issuing bank shall notify
the Reinsured by certified or registered mail that the issuing bank elects
not to consider the Letter of Credit extended for any additional period and
the new qualified bank simultaneously confirms that it will issue a Letter of
Credit under the same terms upon expiration of the existing Letter of Credit.
(c) The Reinsurer and Reinsured agree that the Letters of Credit
or Trust Account provided by the Reinsurer pursuant to the provisions of this
Agreement may be drawn upon at any time, and be utilized by the Reinsured or
any successor of the Reinsured including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Reinsured. Notwithstanding the
unconditional nature of the obligation represented by the Letter of Credit or
the Trust Account, the Reinsurer and the Reinsured agree that the Letter of
Credit or Trust Account proceeds be used only as follows:
6
(i) to reimburse the Reinsured for the Reinsurer's Obligations,
the payment of which is due under the terms of this Agreement
and which has not been otherwise paid;
(ii) to make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's Obligations under this
Agreement; and
(iii) to fund an account with the Reinsured for the Reinsurer's
Obligations. Such cash deposit shall be held in an interest
bearing account separate from the Reinsured's other assets,
and interest thereon not in excess of the prime rate shall
accrue to the benefit of the Reinsurer.
(d) With respect to the Reinsurer's Obligations, to the extent
that any special security deposits are required of the Reinsured to be
maintained with state insurance regulatory authorities under the laws of any
jurisdiction in which the Reinsured is licensed to issue contracts and
policies or bonds, the Reinsurer shall provide, at the expense of the
Reinsurer, a Letter of Credit to or a Trust Account deposit for the benefit
of the state insurance regulatory authorities in an amount equal to such
special security deposit requirement ("Special Deposit Requirement"). Upon
notification by the Reinsured that such Special Deposit Requirement exists,
the Reinsurer shall promptly establish such special security deposit and
provide evidence on the date of such establishment and within forty-five (45)
days of the expiration of each calendar quarter thereafter that the Reinsurer
or an affiliate of the Reinsurer has satisfied such Special Deposit
Requirement. In addition, upon establishing the security deposit, the
Reinsurer shall provide written confirmation that the insurance regulatory
authority has accepted such security deposit in lieu of the Reinsured
providing such security deposit. In the event that any insurance regulatory
authority denies or rejects any such security deposit, the Reinsured shall
have the right to immediately draw down the Letter of Credit held by the
Reinsured or Trust Account established for the benefit of the Reinsured,
issued in each case pursuant to Article VII (a)-(c) above for the purpose of
satisfying such Special Deposit Requirement. The Reinsurer shall immediately
thereafter replace the Letter of Credit or Trust Account to secure the
entirety of Reinsurer's Obligations without diminution for the funding of the
Special Deposit Requirement, if required by the applicable insurance
regulatory authority.
(e) In the event the amount drawn by the Reinsured or any
insurance regulatory authority on any Letter of Credit or Trust Account is in
excess of the actual amount of the Reinsurer's Obligations, the Reinsured
shall be deemed to be holding such funds in trust for the benefit of the
Reinsurer and shall promptly return to the Reinsurer the excess amount so
drawn. All of the foregoing shall be applied without diminution because of
insolvency on the part of the Reinsured or the Reinsurer.
(f) The issuing or trustee bank shall have no responsibility
whatsoever in connection with the priority of withdrawals made by the
Reinsured or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized
representatives of the Reinsured.
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(g) At annual intervals, or more frequently as agreed but never more
frequently than semi-annually, the Reinsured shall prepare a specific statement
of the Reinsurer's Obligations, for the sole purpose of amending the Letter of
Credit or adjusting the Trust Account balance, in the following manner:
(i) If the statement shows that the cumulative balance of the
Reinsurer's Obligations and any Special Deposit Requirement
exceed the balance of the Letter of Credit or market value of
the eligible assets held in the Trust Account as of the
statement date, the Reinsurer shall, within thirty (30) days
after receipt of notice of such excess, secure delivery to
the Reinsured of an amendment to the Letter of Credit
increasing the amount of credit by the amount of such
difference or add eligible assets to the Trust Account with a
market value equal to such difference.
(ii) If, however, the statement shows that the Reinsurer's
Obligations and any Special Deposit Requirement are less than
the balance of the Letter of Credit or market value of the
eligible assets held in the Trust Account as of the statement
date, the Reinsured shall, within thirty (30) days after
receipt of written request from the Reinsurer, release such
excess credit or excess assets by agreement to secure an
amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit or
withdraw assets from the Trust Account with such excess value
and deliver them to the Reinsurer.
ARTICLE VIII. FUNDS WITHHELD
(a) It is hereby agreed that the Reinsurer shall be allowed to
pay to the Reinsured, and the Reinsured shall thereafter retain, Aggregate
Ultimate Net Losses, in whole or in part, in advance of the date due and
payable hereunder. The advance Aggregate Ultimate Net Losses so retained
shall be defined as Funds Withheld under this Agreement, and the cumulative
amount of retained advance Aggregate Ultimate Net Losses, subject to the
adjustments described below, shall be referred to as the Funds Withheld
Balance. The Reinsurer may terminate this Funds Withheld provision in whole
or in part, at its sole option, at any time, subject to the re-institution,
in advance of such termination, of all security and deposit requirements set
forth elsewhere in this Agreement. This Funds Withheld provision does not
relieve the Reinsurer of its obligations to provide security and/or make
deposits required elsewhere in this Agreement to the extent that Funds
Withheld are insufficient to satisfy such requirements.
(b) The Reinsured agrees that any Funds Withheld under this
Agreement shall be applied to satisfy, in whole or in part, to the maximum
extent possible given the amount of the Funds Withheld Balance, any security
and deposit requirements associated with this Agreement imposed by any
regulatory authority having jurisdiction over the Reinsured. If
8
this Funds Withheld provision is not acceptable to any such regulatory
authority, upon receipt of a written demand from such regulatory authority to
eliminate all or part of the Funds Withheld Balance, the Reinsurer agrees
that the Reinsured shall have the right to return to the Reinsurer that part
of the then current Funds Withheld Balance that is at issue, at which time
the Reinsurer shall provide security for the reinsurance herein, and other
statutorily prescribed security deposits, satisfactory to the regulatory
authorities, at the Reinsurer's expense.
At the end of each calendar quarter the Funds Withheld Balance
shall be equal to:
(i) The Funds Withheld Balance at the end of the prior quarter
plus,
(ii) Increases in Aggregate Ultimate Net Losses ceded under this
Agreement that the Reinsurer chooses to pay in advance as
Funds Withheld, minus
(iii) Decreases in Aggregate Ultimate Net Losses ceded under this
Agreement that the Reinsurer chooses to apply as a credit
against Funds Withheld, minus
(iv) Aggregate Ultimate Net Losses paid by Reinsurer's Set-Off
(as defined below) for the quarter, minus
(v) Funds Withheld Balance repaid, if any, by the Reinsured
to the Reinsurer, plus
(vi) Interest at the rate of interest actually earned (gross
of taxes) by the Reinsured on the Funds Withheld Balance
during the quarter.
(c) The Reinsured agrees that the Funds Withheld Balance may, at
the Reinsurer's option, be set off by the Reinsurer (the "Reinsurer's
Set-Off") against liability of any nature whatsoever (whether then
contingent, due and payable, or in the future becoming due) that it may then
have, or in the future may have under this Agreement, and such set off shall
occur as a condition precedent to any further payments by the Reinsurer
hereunder. The Reinsurer shall have no obligation whatsoever to pay Aggregate
Ultimate Net Losses ceded under this Agreement directly to the Reinsured to
the extent of the Funds Withheld Balance already held by the Reinsured.
(d) To secure its obligations hereunder, the Reinsured agrees to
pay the Funds Withheld into the Reinsured's statutory workers' compensation
pledged asset trust account (or such other account as may be agreed from time
to time by the Reinsurer), and that the Funds Withheld shall be maintained in
a segregated account and shall not be co-mingled with the Reinsured's general
account assets. The Reinsured agrees that the Funds Withheld Balance shall be
invested pursuant to investment guidelines agreed to from time to time by the
Reinsurer. Funds Withheld paid to the Reinsured through the
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Reinsurer's Set-Off shall be immediately transferred from the segregated account
to the Reinsured's general accounts. To the extent the Funds Withheld Balance
exceeds the Aggregate Ultimate Net Losses ceded under this Agreement, the
Reinsured shall, on five (5) days advance written notice from the Reinsurer, pay
such excess to the Reinsurer in accordance with the Reinsurer's instructions.
ARTICLE IX. REPRESENTATIONS AND WARRANTIES
The Reinsured represents and warrants to the Reinsurer as of the
Effective Date that (i) there are no discounted reserves held by the
Reinsured, and (ii) all Subject Net Earned Premium will have been recorded on
the Reinsured's books within 60 days after the Effective Date.
ARTICLE X. RESERVING, TAXES, RIGHT OF INSPECTION AND PARTICIPATION,
CLAIMS MANAGEMENT, TERRITORY
(a) RESERVING. For insurance regulatory accounting purposes, (i)
the Reinsured shall determine the amount of its reserves and those of its
subsidiaries on the Subject Business and may change those reserves from time
to time as it, in its sole discretion, deems necessary or appropriate, (ii)
the Reinsurer shall determine the amount of its reserves on its liability
hereunder and may change those reserves from time to time as it, in its sole
discretion, deems necessary or appropriate. Notwithstanding the amount of
reserves carried by the Reinsurer, if Reinsurer's Obligations are subject to
any special security deposit under which an insurance regulatory authority
requires identical assumed and ceded reserves for purpose of computing the
amount of the special security deposit, the Reinsurer or Reinsurer's
affiliate shall satisfy the special security deposit by reference to the
reserve amount required by the insurance regulatory authority.
(b) TAXES. The Reinsured will be liable for all taxes on
premiums (except Federal Excise Taxes) reported to the Reinsurer hereunder
and will reimburse the Reinsurer for such taxes where the Reinsurer is
required to pay the same.
(c) RIGHT OF INSPECTION. At all reasonable times during the term
of this Agreement, the Reinsurer shall have the right to inspect and copy,
through its duly authorized representatives, the books, records and accounts
of the Reinsured and its subsidiaries pertaining to the Subject Business and
the calculation of Aggregate Ultimate Net Losses and all claims under this
Agreement.
(d) COMPANY CLAIMS MANAGEMENT. The Reinsured shall manage the
payment of losses and ALAE and the defense of pending or threatened claims,
suits or proceedings relating to the Subject Business in good faith and in
accordance with its existing practices on the date of this Agreement and
consistent with the Reinsured's payment of its losses and ALAE in general and
its defense of claims, suits or proceedings in general.
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(e) CERTAIN RIGHTS OF PARTICIPATION IN EXTRAORDINARY CLAIMS.
During the term of this Agreement, the Reinsured shall advise the Reinsurer
of any claim or group of related claims pertaining to the Subject Business
which exceeds or is reasonably likely to exceed seven hundred fifty thousand
dollars ($750,000) on a net basis, and any material subsequent developments
pertaining thereto. In each case, the Reinsured shall furnish to the
Reinsurer within thirty (30) days of receipt of notice of such claim,
dispute, litigation or other matter, a written statement setting forth a
reasonable amount of pertinent information respecting the same; provided,
however, that a failure to furnish such written statement to Reinsurer within
such thirty (30) day period shall not relieve Reinsurer of its obligations
under the Agreement. Upon the written request of the Reinsurer, the Reinsured
will afford the Reinsurer an opportunity to participate with the Reinsured,
at the sole expense of the Reinsurer, in the settlement of such claim, and
the Reinsured and the Reinsurer shall cooperate in every respect in such
settlement. Notwithstanding the foregoing, all final determinations as to the
handling, defense, settlement or any other matter relating to any such claim
shall be made by the Reinsured, in its reasonable discretion.
(f) TERRITORY. The Reinsurer's liability shall be limited to
losses occurring within the territorial limits covered by the original
contracts and policies reinsured hereunder.
ARTICLE XI. EXCLUSIONS
This Agreement does not apply to and specifically excludes:
(a) Business derived from any Pool, Association, including Joint
Underwriting Association, Syndicate, Exchange, Plan, Fund or other facility
directly as a member, subscriber or participant, or indirectly by way of
reinsurance or assessments. This exclusion shall not apply to intercompany
reinsurances among the Reinsured and affiliated and/or member companies of
the Reinsured.
(b) Liability of the Reinsured arising from its participation or
membership, whether voluntary or involuntary, in any insolvency fund,
including any guarantee fund, association, pool, plan or other facility which
provides for the assessment of, payment by, or assumption by the Reinsured of
a part or the whole of any claim, debt, charge, fee or other obligations of
an insurer, or its successors or assigns, which has been declared insolvent
by any authority having jurisdiction.
(c) Liability excluded by the provisions of the following clauses
attached hereto. The word "Reassured" used therein means "Reinsured."
Nuclear Incident Exclusion Clause Liability - Reinsurance - No. 1B
Nuclear Incident Exclusion Clauses - Physical Damage - Reinsurance -
No. 2
Nuclear Incident Exclusion Clause - Reinsurance - No. 4
11
(d) The Reinsured's liability for punitive, exemplary or
consequential damages or compensatory damages, including incurred expenses,
resulting from a legal action of the Insured or assignee against the
Reinsured, other than an action arising from insurance coverage or claim
handling.
(e) Losses arising from the perils of earthquake, landslide and
other earth movement.
(f) Contracts and policies issued by the Reinsured to insurance
or reinsurance companies (each hereafter referred to as the "insurer") which
provides insurance against liability of the insurer for any damages resulting
from the alleged or actual tortious conduct of the insurer in the handling of
claims made by any of its policyholders or in the handling of any other
business matters with any of its policyholders.
ARTICLE XII. EXTRA CONTRACTUAL OBLIGATIONS; LOSSES IN EXCESS OF POLICY LIMITS
(a) This Agreement shall protect the Reinsured within the limits
hereof, where its Aggregate Ultimate Net Losses include any Extra Contractual
Obligations. "Extra Contractual Obligations" shall mean those liabilities not
covered under any other provision of this Agreement and which arise from the
handling of any claim on Subject Business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by the Reinsured
to settle within the policy limit, or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement or in the preparation of
the defense or in the trial or any action against its insured or reinsured, or
in the preparation or prosecution of an appeal consequent upon such action, but
only to the extent that liability for such failure, negligence, bad faith, etc.
arose from acts or omissions by the Reinsured taking place prior to the
Effective Date.
(b) This Agreement shall also protect the Reinsured, within the
limits hereof, where Aggregate Ultimate Net Losses include Losses in Excess
of Policy Limits. Losses in Excess of Policy Limits shall mean those losses
in excess of policy limits, but otherwise within the coverage terms of the
policy reinsured hereunder, including legal costs and expenses in connection
therewith, incurred by the Reinsured 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 because of alleged
failure by the Reinsured to settle within the policy limit or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer of
settlement or in the preparation of the defense or in the trial of any action
against its insured or in the preparation of prosecution of an appeal
consequent upon such action but only to the extent that such failure,
negligence, fraud, etc. occurred prior to the Effective Date.
(c) However, coverage under this Agreement shall not apply where
any Extra Contractual Obligation or Loss in Excess of Policy Limits has been
incurred due to fraud by a member of the Board of Directors or a corporate
officer of the Reinsured 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.
12
ARTICLE XIII. DECLARATORY JUDGMENT EXPENSES
(a) This Agreement shall indemnify the Reinsured, within the
limits of this Agreement, for Declaratory Judgment Expenses paid by the
Reinsured that arise from the business reinsured hereunder.
(b) "Declaratory Judgment Expenses" shall mean legal expenses
paid by the Reinsured for the investigation, analysis, evaluation, and/or
resolution of litigation of coverage issues between the Reinsured and any
other party to determine the Reinsured's obligation to defend, indemnify
and/or pay on behalf of its insured(s) under contracts and policies reinsured
hereunder arising from a specific claim or claims.
(c) The date on which Declaratory Judgment Expenses are incurred
by the Reinsured shall be deemed, in all circumstances, to be the same date
as the specific claim or claims under the policy reinsured hereunder.
(d) Recoveries from any form of insurance and/or reinsurance that
protect the Reinsured 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 XIV. ERRORS AND OMISSIONS
Errors or omissions on the part of the Reinsured 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 herein or
therein, nor be extended to cover any risks, perils or classes of insurance
generally or specifically excluded therein.
ARTICLE XV. INSOLVENCY
In the event of the insolvency of any of the Reinsured and the
appointment of a conservator, liquidator or statutory successor, the
appropriate amount of reinsurance provided by this Agreement shall be payable
by the Reinsurer directly to such Reinsured or to its liquidator, receiver or
statutory successor on the basis of the liability of the Reinsured 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 such Reinsured. The
liquidator, receiver or statutory successor of such subsidiary shall give
written notice of the pendency of each claim against such Reinsured 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,
13
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 such Reinsured, its liquidator or receiver or
statutory successor. Subject to court approval, any expense thus incurred by the
Reinsurer shall be chargeable against such Reinsured as part of the expense of
liquidation to the extent of such proportionate share of the benefit as shall
accrue to the Reinsured solely as a result of the defense undertaken by the
Reinsurer. The reinsurance shall be payable as set forth above except where this
Agreement specifically provides for the payment of reinsurance proceeds to
another party in the event of the insolvency of such subsidiary. The provisions
of this Article XV shall only apply to the insolvent company or companies that
are the Reinsured hereunder.
ARTICLE XVI. TERM AND TERMINATION
This Agreement shall be binding as of the date hereof and shall
remain bound until the natural expiry or prior termination of all liabilities
on the Subject Business, unless it shall have automatically expired in
accordance Article V of this Agreement.
ARTICLE XVII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to its principles of
choice of law. The provision for choice of law in this Agreement is being
made pursuant to Section 5-1401 of the General Obligations Law of the State
of New York.
ARTICLE XVIII. NOTICES
Any notice or other communication hereunder shall be in writing and
delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or mailed by certified mail, postage prepaid, return receipt
requested, as follows:
If to the Company: BUSINESS INSURANCE GROUP
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Vice President Finance
If to the Reinsurer: INTER-OCEAN REINSURANCE COMPANY LTD.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ FX
Bermuda
Attention: President
or to such other place as the Reinsurer or the Reinsured may designate as to the
Reinsurer or the Reinsured, respectively, by written notice to the other.
14
ARTICLE XIX. ASSIGNMENTS AND SURVIVAL
(a) ASSIGNMENTS AND DELEGATIONS. Except as otherwise provided
herein, this Agreement is not intended to confer any rights upon any person
or persons other than the parties hereto. This Agreement may not be assigned
or delegated, in whole or in part, by the Reinsurer without the prior
written consent of the Reinsured. With the prior written consent of the
Reinsurer (which shall not be unreasonably withheld), the terms, conditions,
rights and obligations under the Agreement shall be fully assignable in the
event the Reinsured cedes, sells or otherwise transfers all or part of the
reserves which are subject of the Agreement. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
(b) SURVIVAL. Notwithstanding anything herein to the contrary,
the provisions of this Agreement shall survive any direct or indirect sale or
exchange of capital stock, merger, consolidation, sale or transfer of
substantially all assets, business combination or other change in control of,
or change in the form of business conducted by, the Reinsured or the
Reinsurer.
ARTICLE XX. FEDERAL EXCISE TAX
(a) The Reinsurer agrees to allow for the purpose of paying the
Federal Excise Tax the applicable percentage of the premium payable hereon
(as imposed under Section 4371 of the Internal Revenue Code) to the extent
such premium is subject to the Federal Excise Tax.
(b) In the event of any return of premium becoming due hereunder
the Reinsurer will deduct the applicable percentage from the return premium
payable hereon and the Reinsured or its agent is responsible for recovering
the tax from the United States Government.
ARTICLE XXI. CURRENCY
Whenever the word "Dollar" or the "$" sign appears in this
Agreement, they shall be construed to mean United States Dollars and all
transactions under this Agreement shall be in United States Dollars.
ARTICLE XXII. ACTUARIAL REVIEW CLAUSE
(a) After the Effective Date the Reinsurer shall have the right
to review the Reinsured's determination of the Aggregate Ultimate Net Losses.
If the Reinsurer does not agree with the Reinsured's determination, and if
the difference between the Reinsured's determination of Aggregate Ultimate
Net Losses and the Reinsurer's determination of Aggregate Ultimate Net Losses
is irreconcilable between the parties to this Agreement, such difference
shall be referred
15
to an independent actuarial firm to be agreed upon by the parties to this
Agreement. To the extent that the parties fail to mutually agree on an
independent actuarial firm, they may agree to settle any difference by using
a panel of three actuaries, one to be chosen by each party and the third by
the two so chosen. The determinations of the three actuaries will be averaged
and the result shall be final and binding on the parties hereto. The cost of
any independent actuarial firm or firms shall be shared equally by the
Reinsurer and the Reinsured.
(b) Notwithstanding paragraph (a) above, in the event that any
regulatory authority having jurisdiction over the Reinsured requires in
writing that the Reinsured to establish reserves for any particular amount of
Aggregate Ultimate Net Losses, or adjusts the Reinsured's Aggregate Ultimate
Net Losses under an examination of the Reinsured's financial condition, the
reserves established for Aggregate Ultimate Net Losses as determined by the
regulatory authority shall be deemed by the Reinsured and Reinsurer to be the
Aggregate Ultimate Net Losses for the purposes of determining the sufficiency
of security deposits to be established by the Reinsurer and of funds withheld
from the Reinsurer under this Agreement.
ARTICLE XXIII. ARBITRATION
(a) As a condition precedent to any right of action hereunder, any
dispute arising out of this Agreement shall be submitted to the decision of a
board of arbitration composed of two arbitrators and an umpire, meeting in New
York, New York or such other place as the parties may agree.
(b) The members of the board of arbitration shall be active or
retired disinterested officials of property and casualty insurance or
reinsurance companies other than the parties or their affiliates. Each party
shall appoint its arbitrator, and the two arbitrators shall choose an umpire
before instituting the hearing. If the respondent fails to appoint its
arbitrator within two weeks after being requested to do so by the claimant,
the latter shall also appoint the second arbitrator. If the two arbitrators
fail to agree upon the appointment of an umpire within two weeks after their
nominations, each of them shall name three, of whom the other shall decline
two and the decision shall be made by drawing lots. If either arbiter shall
fail to submit three names to the other within the allowed time, the other
may choose the third arbiter without further consultation with the arbiter
that failed to submit names.
(c) The claimant shall submit its initial statement within twenty
(20) days from appointment of the umpire. The respondent shall submit its
statement within twenty (20) days after receipt of the claimant's statement,
and the claimant may submit a reply statement within ten (10) days after
receipt of the respondent's statement.
(d) The board shall make its decision with regard to the custom
and usage of the insurance and reinsurance business. The board shall issue
its decision in writing upon evidence introduced at a hearing or by other
means of submitting evidence in which strict rules of evidence need not be
followed, but in which cross examination and rebuttal shall be allowed if
requested. The board shall make its decision within forty-five (45) days
following the
16
termination of the hearings unless the parties consent to an extension. The
majority decision of the board shall be final and binding upon all parties to
the proceeding. Judgment may be entered upon the award of the board in any
court having jurisdiction thereof
(e) Each party shall bear the expense of its own arbitrator and
shall jointly and equally bear with the other party the expense of the
umpire. The remaining costs of the arbitration proceedings shall be allocated
by the board.
(f) This Article shall survive the termination of this Agreement.
ARTICLE XXIV. MISCELLANEOUS
(a) ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
together with the Aggregate Excess of Loss Retrocession Agreement and the
Assignment Agreement of even date herewith, constitute the entire agreement
between the parties pertaining to the subject matter hereof and supersedes
all prior agreements, understandings, negotiations and discussions, whether
oral or written, between the parties hereto. No supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
(b) COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
(c) HEADINGS. The headings of the Articles and the paragraphs
herein are inserted for convenience of reference only, and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
(d) SEVERABILITY. In the event any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder of
this Agreement shall not be affected thereby and each term of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
Further, any change to any term or provision of this Agreement required by
any insurance regulator having jurisdiction over any party shall be
incorporated into this Agreement and shall not invalidate the Agreement.
17
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on their behalf by their respective officers hereunto duly
authorized as of the date first written above.
INTER-OCEAN REINSURANCE COMPANY LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------
Title: Vice President
------------------------------------------
BUSINESS INSURANCE GROUP, INC.,
On behalf of each of the following subsidiaries:
CALIFORNIA COMPENSATION INSURANCE COMPANY
BUSINESS INSURANCE COMPANY
COMBINED BENEFITS INSURANCE COMPANY
COMMERCIAL COMPENSATION INSURANCE COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------
Title: President
------------------------------------------
18
ATTACHMENT A
"AGGREGATE RETENTION" shall mean Aggregate Ultimate Net Losses equal to
$495,000,000 as the sum of the Reinsured's carried loss and ALAE reserves
(including in each case IBNR) as of December 31, 1997, plus Aggregate
Ultimate Net Losses equal to 75.70% multiplied by Subject Net Earned Premium
for the period beginning January 1, 1998 and ending at the Effective Date of
the Agreement, less paid losses and ALAE for Subject Business for all
Accident Years through the Effective Date. The Aggregate Retention shall be
determined in accordance with Statutory Accounting Principles (SAP) and
applied on a basis consistent with past Reinsured practices.
19
NUCLEAR INCIDENT EXCLUSION CLAUSE -
LIABILITY - REINSURANCE - NO. 1B
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of insurers
or reinsurer formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (now, renewal and
replacement) of the classes specified in Clause II of this paragraph (2) from
the time specified in Clause III in this paragraph (2) shall be deemed to
include the following provision (specified as the Limited Exclusion
Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage,
to ( INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
( bodily injury or property damage
with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of Canada,
or would be an insured under any such policy for its termination
upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or policies
of similar nature; and the liability portion of combination forms
related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above;
provided this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies or
combination policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the Limited
Exclusion Provision by the Governmental Authority having jurisdiction
thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage, to ( INJURY SICKNESS, DISEASE, DEATH
( OR DESTRUCTION
( Bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by Nuclear
Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or
(b) resulting from the hazardous properties of nuclear material and
with respect to which (1) any person or organization is required
to maintain financial protection pursuant to the Atomic Energy
Act of 1954, or any law amendatory thereof, or (2) the insured
is, or had this policy not been issued would be, entitled to
indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United States of
America, or any agency thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating
to ( IMMEDIATE MEDICAL OR SURGICAL to expenses incurred with
( RELIEF, respect first aid,
to ( BODILY INJURY, SICKNESS, resulting from the hazardous
( DISEASE OR DEATH properties of bodily injury,
nuclear material and arising out of the operation of nuclear facility
by any person or organization.
III. Under any Liability Coverage, to ( INJURY, SICKNESS, DISEASE, DEATH
( OR DESTRUCTION bodily injury or
( property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by,
or operated by or on behalf of, an insured or (2) has been
discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
(c) the (INJURY, SICKNESS, DISEASE, DEATH OR DESTRUCTION
(bodily injury or property damage
arises out of the furnishing by an insured of services,
materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear
facility, but if such facility is located within the United
States of America, its territories, or possessions or Canada,
this exclusion (c) applies only to
(INJURY TO OR DESTRUCTION OF PROPERTY AT SUCH NUCLEAR FACILITY.
(property damage to such nuclear facility and any property
(thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIALS" means source material, special nuclear
material or byproduct material; "SOURCE MATERIAL," "SPECIAL NUCLEAR
MATERIAL," "BYPRODUCT MATERIAL" have the meanings given them in the
Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing byproduct material other than
the tailings or wastes produced by the extraction or concentration
of uranium or thorium from any ore processed primarily for its source
material content and (2) resulting from the operation by any person or
organization of any nuclear facility included within the definition of
nuclear facility under paragraph (a) or (b) thereof; "NUCLEAR
FACILITY" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste,
and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or used
to sustain nuclear fission in a self-supporting chain reaction or
to contain a ▇▇▇▇▇▇▇▇ ▇▇▇▇ of fissionable material;
WITH RESPECT TO INJURY TO OR DESTRUCTION OF PROPERTY, THE WORD
"INJURY" OR "DESTRUCTION" INCLUDES ALL FORMS OF RADIOACTIVE
CONTAMINATION OF PROPERTY "Property damage" includes all forms of
radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on or
after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured on
New York risks, or
(ii) statutory liability insurance required under Chapter 90,
General Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision
by the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that paragraphs (2) and (3) above
are not applicable to original liability policies of the Reassured in Canada
and that with respect to such policies this Clause shall be deemed to include
the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian
Underwriters' Association or the Independent Insurance Conference of Canada.
-------------------------------------------------------------------------------
* NOTE: The words printed in italics in the Limited Exclusion Provision
and in the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
NUCLEAR INCIDENT EXCLUSION CLAUSE -
PHYSICAL DAMAGE - REINSURANCE - NO. 2
(1) This Reinsurance does not cover any loss or liability accruing to
the Reassured, directly or indirectly and whether as Insurer or Reinsurer,
from any Pool of Insurers or Reinsurers formed for the purpose of covering
Atomic or Nuclear Energy risks.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause, this Reinsurance does not cover any loss or liability accruing
to the Reassured, directly or indirectly and whether as Insurer or Reinsurer,
from any insurance against Physical Damage (including business interruption
or consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on the
site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material,"
and for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
(3) Without in any way restricting the operations of paragraphs (1) and
(2) hereof, this Reinsurance does not cover any loss or liability
by radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance
on property which is on the same site as a nuclear reactor power
plant or other nuclear installation and which normally would be
insured therewith except that this paragraph (3) shall not operate:
(a) where Reassured does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operations of paragraphs (1), (2)
and (3) hereof, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or indirectly,
and whether as Insurer or Reinsurer, when such radioactive contamination is a
named hazard specifically insured against.
(5) It is understood and agreed that this Clause shall not extend to
risks using radioactive isotopes in any form where the nuclear exposure is
not considered by the Reassured to be the primary hazard.
(6) The term "special nuclear material" shall have the meaning given it
in the Atomic Energy Act of 1954 or by any law amendatory thereof.
(7) Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
NOTE.--Without in any way restricting the operation of paragraph (1)
hereof, it is understood and agreed that:
(a) all policies issued by the Reassured on or before 31st December
1957 shall be free from the application of the other provisions of
this Clause until expiry date or 31st December 1960 whichever first
occurs whereupon all the provisions of this Clause shall apply,
(b) With respect to any risk located in Canada policies issued by
the Reassured on or before 31st December 1958 shall be free from
the application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of
insurers formed for the purpose of covering nuclear energy risks or
as a direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting the operations of Nuclear Incident
Exclusion Clause No. 1B - Liability, No. 2 - Physical Damage, No. 3 -
Boiler and Machinery and paragraph (1) of this clause, it is
understood and agreed that for all purposes as respects the
reinsurance assumed by the Reinsurer from the Reassured, all original
insurance policies or contracts of the Reassured (new, renewal and
replacement) shall be deemed to include the applicable existing
Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at the
time and any subsequent revisions thereto as agreed upon and approved
by the Insurance Industry and/or a qualified Advisory or Rating
Bureau.
Reinsurance Assignment Agreement
REINSURANCE ASSIGNMENT AGREEMENT
REINSURANCE ASSIGNMENT AGREEMENT, dated as of September 3, 1998 (this
"Assignment Agreement") between Inter-Ocean Reinsurance Company Ltd., a
Bermuda insurance company (the "Assignor"), and BUSINESS INSURANCE GROUP,
INC., ACTING SOLELY on behalf of its subsidiaries CALIFORNIA COMPENSATION
INSURANCE COMPANY, BUSINESS INSURANCE COMPANY, COMBINED BENEFITS INSURANCE
COMPANY, COMMERCIAL COMPENSATION INSURANCE COMPANY, (collectively the
"Assignee").
WHEREAS the Assignee and the Assignor are parties to an Aggregate Excess
of Loss Reinsurance Agreement (the "Original Contract"), dated as of
September 3, 1998, a copy of which is attached hereto as Appendix A, whereby
the Assignor has undertaken to make certain payments to the Assignee as
described in the Original Contract;
WHEREAS, the Assignor and American Re-Insurance Company ("American Re")
have entered into a retrocessional contract of reinsurance (the "Retrocession
Agreement"), a copy of which is attached hereto as Appendix B, whereby
American Re has undertaken to indemnify, in whole or in part, the Assignor
for amounts due by the Assignor to the Assignee pursuant to the Original
Contract;
WHEREAS, to secure the payment of all obligations of Assignor now or
hereafter existing under the Original Contract, the Assignor wishes to assign
to the Assignee the Assignor's rights of recovery from American Re under the
Retrocession Agreement dated the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Assignor and the Assignee agree as follows:
1. ASSIGNMENT. The Assignor hereby assigns to the Assignee all of the
Assignor's right, title and interest in and to any and all payments by
American Re under the Retrocession Agreement (the "Payments") as security for
the payment of all obligations of Assignor now or hereafter existing under
the Original Contract (the "Assignment"). As of the date hereof, the
Assignment vests and thereafter at all times will vest in the Assignee full
right and title in and to any of the Payments by American Re purported to be
conveyed hereby and such conveyance of the right, title and interest in and
to such Payments will constitute a valid assignment of such Payments
enforceable against the Assignor and all successors, assigns and creditors of
the Assignor.
2. ACCEPTANCE. Assignee hereby accepts the Assignment.
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3. APPOINTMENT OF BUSINESS INSURANCE GROUP, INC. AS AGENT. BUSINESS
INSURANCE GROUP, INC. is appointed agent to act on behalf of each and every
company herein collectively referred to as "Assignee" and the Assignor and
American Re are entitled to rely upon the instructions of BUSINESS INSURANCE
GROUP, INC. pertaining to all matters governed by this Assignment Agreement.
4. ASSIGNOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) the Assignor shall remain liable under the Original
Contract to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Assignment Agreement had
not been executed, (b) the exercise by the Assignee of any of the rights
hereunder shall not release the Assignor from any of its duties or
obligations under the Original Contract, and (c) the Assignee shall not have
any obligation or liability under the Original Contract by reason of this
Assignment Agreement, nor shall the Assignee be obligated to perform any of
the obligations or duties of the Assignor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
5. REASSIGNMENT. All of the Assignor's right, title and interest in
and to the Payments conveyed hereby to the Assignee may be reconveyed by the
Assignee upon written notice of assignment to the Assignor and American Re.
6. APPOINTMENT. The Assignee and its agents and representatives are
hereby irrevocably constituted and designated as the Assignor's
attorney-in-fact, which irrevocable power of attorney, coupled with an
interest, (a) to endorse or sign any of the Assignor's name to remittances,
invoices, assignments, checks, drafts, notices or other instruments in
respect of the Payments, (b) to notify American Re to make the Payments
directly to the Assignee pursuant to this Assignment Agreement; provided
that, Assignee shall simultaneously notify Assignor of its notification to
American Re to make payment hereunder, (c) to bring suit and to settle or
compromise such Payments as the Assignee may, in its sole discretion, deem
appropriate, and (d) to initiate and prosecute or defend, as the case maybe,
arbitration proceedings under the Retrocession Agreement.
7. SATISFACTION OF OBLIGATIONS. American Re is directed to make all
payments due under the Retrocession Agreement to BUSINESS INSURANCE GROUP,
INC. as agent for the Assignee. Payments to BUSINESS INSURANCE GROUP, INC.
pursuant this Assignment Agreement constitute appropriate payment to each and
every company herein collectively referred to as "Assignee".
8. NOTICE TO AMERICAN RE. By executing the "Acknowledgment and
Consent" on the signature page hereof, American Re accepts notification of
this Assignment Agreement and consents to the terms and conditions hereof.
9. JURISDICTION. Without limiting Section 10 hereof, in relation to any
legal action or proceedings arising out of or in connection with this
Assignment Agreement each party irrevocably submits to the jurisdiction of
the courts of the State of New York and the United
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Reinsurance Assignment Agreement
States District Court located in the Borough of Manhattan in New York City
and waives any objection to proceedings in any such court on the grounds of
venue or on the grounds that the proceedings have been brought in an
inconvenient forum. The provision for choice of forum in this Assignment
Agreement is being made pursuant to Section 5-1402 of the General Obligations
Law of the State of New York.
10. ARBITRATION CLAUSE. Any and all disputes and disagreements arising
out of or relating to this Agreement shall be submitted for resolution to an
independent arbitrator, mutually agreed to by the Assignee and the Assignor,
upon the written request of the Assignee or the Assignor. If the parties are
unable to mutually agree upon an arbitrator within ten (10) calendar days
after delivery of a written request for arbitration, the Assignee and the
Assignor shall each nominate three individuals of whom the other party shall
decline two of the three individuals nominated by the other, and the list of
the remaining two nominees shall be submitted to a court of competent
jurisdiction and the court shall select the third arbitrator from among the
names submitted. If a party fails to nominate three individuals within thirty
(30) calendar days after being requested to do so, the other party shall also
appoint the second arbitrator and the two arbitrators shall select the third
arbitrator. If the two arbitrators fail to agree upon the appointment of a
third arbitrator within thirty (30) calendar days after their nominations,
each of them shall name three (3), of whom the other shall decline two (2)
and the decision shall be made by drawing lots.
The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies who have never
been affiliated with the Assignor or Assignee, respectively. SUCH ARBITRATION
PROCEEDING SHALL BE HELD IN NEW YORK, NEW YORK UNLESS OTHERWISE AGREED BY THE
PARTIES HERETO.
Each party shall submit its case to the arbitrator(s) within thirty (30)
calendar days after the date of appointment of the arbitrator(s). The
arbitrator(s) shall make its determination with regard to the custom and
usage of the insurance and reinsurance business and render a written decision
solely as to the issue presented in the notice of arbitration within sixty
(60) calendar days after such submission. The majority decision of the
arbitrators shall be final and binding in all respects upon all parties
hereto. Judgment upon any award may only be entered in a Federal court of
competent jurisdiction located in the City, County and State of New York;
PROVIDED, HOWEVER, that if such judgment cannot be entered in such a Federal
court expeditiously, such judgment only then may be entered in a state court
of competent jurisdiction located in the City, County and State of New York.
Arbitration hereunder shall take place in New York unless the Assignee and
the Assignor agree otherwise. Except as otherwise provided herein, the
Assignee and the Assignor shall jointly and equally bear the costs, fees,
disbursements and other expenses of the arbitrator.
It is agreed that the jurisdiction of the arbitrators to make or render any
decision or award shall be limited by the limit of liability expressly set
forth in the Original Contract and in the Retrocession Agreement, and that
the arbitrators shall have no jurisdiction to make any decision or render any
award exceeding such expressly stated limits of liability, nor do they have
the
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Reinsurance Assignment Agreement
jurisdiction to authorize any punitive, exemplary or consequential damage awards
between the parties hereto.
11. COUNTERPARTS. This Assignment Agreement may be executed in
counterpart, each of which shall be an original, but both of which shall
constitute one instrument.
12. OTHER AGREEMENTS. Assignor and Assignee, on behalf of themselves and
their respective heirs, representatives, successors and assigns shall execute,
acknowledge or verify, and deliver any and all agreements, documents,
instruments, reports or filings, and take any and all other actions, which from
time to time may be reasonably requested by any other party to this Assignment
Agreement to carry out the purposes and intent of this Assignment Agreement.
13. ENTIRE AGREEMENT. This Assignment Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings, written or oral, among the
parties with respect to the matters which are the subject hereof.
14. AMENDMENT. Any term of this Assignment Agreement may be amended or
modified in whole or in part and the observance of any term of this Assignment
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by an instrument in writing and signed by
the party against whom such amendment or waiver is sought to be enforced.
15. RETROCESSION AGREEMENT AND ORIGINAL CONTRACT. The Retrocession
Agreement shall not be amended, modified or terminated by the Assignor without
the prior written consent of the Assignee. Notwithstanding Section 6 of this
Assignment Agreement, the Assignee agrees not to consent to the amendment,
modification or termination of the Original Contract without the prior written
consent of the Assignor.
16. THIRD PARTIES. Except as otherwise expressly provided herein, the
terms and conditions of this Assignment Agreement shall inure to the benefit of
and be binding upon the parties and their respective successors and permitted
assigns. Nothing in the Assignment Agreement, express or implied, is intended to
confer upon any person or entity other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations,
or liabilities under or by reason of this Assignment Agreement, except as may be
expressly provided in this Assignment Agreement.
17. INVALIDITY. If any provisions of this Assignment Agreement as applied
to any party or to any circumstance shall be adjudged by a court to be invalid
or unenforceable, the same shall in no way affect any other provision of this
Assignment Agreement, the application of such provision in any other
circumstances or the validity or enforceability of this Assignment Agreement.
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18. CONFIDENTIALITY. Each party agrees to keep the terms of this
Assignment Agreement confidential and not to divulge any of the same to any
third party; provided that nothing herein shall limit the disclosure of any such
information, (a) to the extent required by statute, rule, regulation, financial
reporting standards applicable to either party or by judicial process, (b) to
the extent requested by any regulatory agency having jurisdiction over either
party or (c) to the extent deemed appropriate by either party in any reports
required to be filed under securities or banking laws.
20. TERMINATION. This Assignment Agreement shall terminate upon the
termination of all obligations of Assignor under the Original Contract.
21. FILINGS. The Assignor hereby consents to any filings or other steps
reasonably taken to implement or perfect any charge or security interest of the
Assignee to effectuate and secure this Assignment Agreement.
[THIS SPACE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be duly executed as of the date first above written.
INTER-OCEAN REINSURANCE COMPANY LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
Title: Vice President
---------------------------------
BUSINESS INSURANCE GROUP, INC.
on behalf of its subsidiaries
CALIFORNIA COMPENSATION INSURANCE COMPANY
BUSINESS INSURANCE COMPANY
COMBINED BENEFITS INSURANCE COMPANY
COMMERCIAL COMPENSATION INSURANCE COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Title: President
---------------------------------
ACKNOWLEDGMENT AND CONSENT
AMERICAN RE-INSURANCE COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Title: Senior Vice President
---------------------------------
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