Exhibit 2.3
QUOTA SHARE REINSURANCE AGREEMENT
BY AND BETWEEN
[SELLER INSURER PARTY]
(as Cedent)
and
TRAVELERS CASUALTY AND SURETY COMPANY
(as Reinsurer)
DATED: May 31, 2000
QUOTA SHARE REINSURANCE AGREEMENT
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
Section 1.1. "Administrative Services Agreement"...................3
Section 1.2. "Affiliates"..........................................3
Section 1.3. "Applicable Law"......................................3
Section 1.4. "Assumed Reinsurance".................................3
Section 1.5. "Business Day"........................................3
Section 1.6. "Closing".............................................3
Section 1.7. "Closing Date"........................................3
Section 1.8. "Contractholder(s)"...................................3
Section 1.9. "Damages".............................................3
Section 1.10. "Effective Date"......................................3
Section 1.11. "Excluded Liabilities"................................4
Section 1.12. "Extra Contractual Liabilities".......................4
Section 1.13. "Governmental Entity".................................4
Section 1.14. "Inter-Company Reinsurance Agreement".................4
Section 1.15. "Reinsurance Recoverables"............................4
Section 1.16. "Reinsured Liabilities"...............................5
Section 1.17. "Reinsured Contracts".................................5
Section 1.18. "Unaffiliated Reinsurers".............................5
ARTICLE II BASIS OF REINSURANCE
Section 2.1. Cession...............................................5
Section 2.2. Basis of Net Cession..................................6
Section 2.3. Effect of Reinsured Contracts.........................6
Section 2.4. Other Reinsurance.....................................6
ARTICLE III PREMIUMS AND ALLOWANCES
Section 3.1. Cedent's Payment Obligations..........................7
Section 3.2. Reinsurer's Payment Obligations. Reinsurer agrees to
reimburse, or cause its Designee to reimburse, Cedent
as ceding commission for the following:...............7
Section 3.3. Amounts Due to Third Party Reinsurers.................8
ARTICLE IV ACCOUNTING AND REINSURANCE SETTLEMENT
Section 4.1. Delivery of Accounting and Settlement Reports.........8
Section 4.2. Report of Allowances..................................8
Section 4.3. Payment of Amounts Indicated in Accounting and
Settlement Reports....................................8
Section 4.4. Offset................................................8
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ARTICLE V REINSURED CONTRACT ADMINISTRATION
Section 5.1. Administrative Services...............................9
Section 5.2. Exclusive Authority...................................9
Section 5.3. Administration of Excluded Liabilities................9
ARTICLE VI OVERSIGHTS, ERRORS AND OMISSIONS
Section 6.1. Continuing Liability.................................10
ARTICLE VII INSOLVENCY
Section 7.1. Insolvency...........................................10
Section 7.2. Notice of Pendency of Claim..........................10
Section 7.3. Notice of Insolvency.................................11
ARTICLE VIII DURATION AND TERMINATION
Section 8.1. Section Effective Date...............................11
Section 8.2. Termination..........................................11
ARTICLE IX DELINQUENCY PROCEEDINGS
9.1 (a) Payment in the Event of Delinquency Proceedings......11
9.1 (b) Liquidation Proceedings..............................12
ARTICLE X DUTY OF COOPERATION
Section 10.1. Full Cooperation.....................................12
Section 10.2. Furnishing of Relevant Information...................12
ARTICLE XI INDEMNIFICATION
Section 11.1. Indemnification by Reinsurer.........................13
Section 11.2. Indemnification by Cedent............................13
ARTICLE XII REINSURANCE CREDIT
Section 12.1. Reinsurance Credit...................................13
Section 12.2. Notification.........................................13
ARTICLE XIII ARBITRATION
Section 13.1. Arbitration..........................................14
Section 13.2. Notice of Arbitration................................14
Section 13.3. Arbitration Panel....................................14
Section 13.4. Submission of Briefs.................................14
Section 13.5. Arbitration Board's Decision.........................15
Section 13.6. Jurisdiction.........................................15
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Section 13.7. Expenses.............................................15
Section 13.8. Production of Documents and Witnesses................15
Section 13.9. Relief Available.....................................16
Section 13.10 Consolidation........................................16
ARTICLE XIV MISCELLANEOUS PROVISIONS
Section 14.1. Amendment, Modification and Waiver...................16
Section 14.2. Entire Agreement.....................................16
Section 14.3. GOVERNING LAW........................................16
Section 14.4. Severability.........................................17
Section 14.5. Counterparts.........................................17
Section 14.6. Consent to Jurisdiction, Etc.........................17
Section 14.7. Third Party Beneficiaries............................17
Section 14.8. Binding; Assignment..................................17
Section 14.9. Specific Performance.................................18
Section 14.10 Descriptive Headings.................................18
Section 14.11 Reasonableness.......................................18
Section 14.12 Expenses.............................................18
Section 14.13 Survival.............................................18
Section 14.14 Notices..............................................18
Section 14.15 Construction.........................................19
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THIS QUOTA SHARE REINSURANCE AGREEMENT (together with all Exhibits
and Schedules hereto, the "Quota Share Reinsurance Agreement") is made as of the
Effective Date (as defined herein), by and between [Seller Insurer Party],
property and casualty insurance company organized under the laws of the State of
[ ] ("Cedent"), and Travelers Casualty and Surety Company, a property and
casualty insurance company organized under the laws of the State of Connecticut
("Reinsurer").
WHEREAS, Cedent and Reinsurer have entered into an Asset Transfer
Agreement, dated as of April 10, 2000 (the "Asset Transfer Agreement") pursuant
to which Reinsurer will purchase Cedent's fidelity, (including burglary),
fiduciary liability and surety business on the terms and conditions set forth
herein.
WHEREAS, as part of such Asset Transfer Agreement, Cedent and
Reinsurer have agreed to enter into this Quota Share Reinsurance Agreement
pursuant to which Cedent will cede, and Reinsurer will assume, on a 100% quota
share basis, the liabilities and obligations arising out of Reinsured Contracts
issued by the Reinsurer in Cedent's name with an effective date (new or renewal
term) on and after the Effective Date pursuant to the terms of this Quota Share
Reinsurance Agreement and the Administrative Services Agreement.
WHEREAS, Cedent and Reinsurer wish to transfer to the Reinsurer the
net liability (net of collectible reinsurance obtained from Unaffiliated
Reinsurers [and after any cessions to the Cedent under any Inter-Company
Reinsurance Agreement](1)) relating to certain fidelity, fiduciary liability and
surety business pursuant to this Quota Share Reinsurance Agreement.
WHEREAS, the Reinsurer will administer all aspects of the Reinsured
Contracts and the Reinsured Liabilities (all as herein defined) under the
Administrative Services Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
promises and the mutual agreements hereinafter set forth and set forth in the
Asset Transfer Agreement and Administrative Services Agreement (as defined
below), the parties hereto, intending to be legally bound, covenant and agree as
follows:
ARTICLE I
DEFINITIONS
-----------
Capitalized and uncapitalized terms used but not defined herein and
which are defined in the Asset Transfer Agreement and/or the Administrative
Services Agreement, shall have the meanings ascribed to them in the Asset
Transfer Agreement
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(1) The bracketed language will only be included in the Quota Share
Reinsurance Agreement between Reliance Insurance Company and Travelers Casualty
and Surety Company.
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and/or the Administrative Services Agreement, as the context requires. As used
in this Quota Share Reinsurance Agreement, the following terms shall have the
meanings set forth herein:
Section 1.1. "Administrative Services Agreement" means the
Administrative Services Agreement effective as of the Effective Date hereof
between Reinsurer and Cedent relative to this Quota Share Reinsurance Agreement.
Section 1.2. "Affiliates" shall have the meaning set forth in the
Asset Transfer Agreement.
Section 1.3. "Applicable Law" means any applicable order, law,
regulation, rule, ordinance, order, writ, injunction, directive, judgment,
decree, principle of common law, constitution or treaty enacted, promulgated,
issued, enforced or entered by any Governmental Entity applicable to the parties
hereto, or any of their respective businesses, properties or assets.
Section 1.4. "Assumed Reinsurance" means any reinsurance on risks
assumed on or after the Effective Date by Cedent at the direction of the
Reinsurer (or any Affiliate of Reinsurer) and reinsurance assumed by Cedent from
its Affiliates on (i) bonds, policies, contracts of insurance and assumed
reinsurance issued in the name of an Affiliate of Cedent at the direction of
Reinsurer (or any Affiliate of Reinsurer) with an effective date, new or
renewal, on or after the Effective Date, and on (ii) bonds, policies, contracts
of insurance and assumed reinsurance which would have been Reinsured Contracts
if issued in the name of Cedent.
Section 1.5. "Business Day" means any day other than a Saturday,
Sunday or a day on which banking institutions in New York are permitted or
obligated by law to be closed for regular banking business.
Section 1.6. "Closing" means the closing of the transactions
contemplated by the Asset Transfer Agreement by and among Cedent, Reliance Group
Holdings, Inc., Seller Insurer Parties and Reinsurer, dated as of April 10,
2000.
Section 1.7. "Closing Date" shall have the meaning set forth in the
Asset Transfer Agreement.
Section 1.8. "Contractholder(s)" means the owner(s) and designated
indemnitee(s) of the Reinsured Contracts and includes any original cedent under
any Assumed Reinsurance that is a Reinsured Contract.
Section 1.9. "Damages" means all costs, expenses, fines, penalties,
losses, judgments, damages, Reinsured Liabilities and other amounts (including
attorneys', actuaries', accountants' and experts' fees and settlement amounts)
arising out of any suit, claim or proceeding.
Section 1.10. "Effective Date" means the Closing Date.
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Section 1.11. "Excluded Liabilities" means any liability or
obligation of Cedent that arises under or as a result of the issuance of a
Reinsured Contract for:
(1) Extra Contractual Liabilities and any related attorneys' fees
and other expenses incurred by Cedent to the extent caused by acts, errors or
omissions by Cedent or any of its officers, employees, agents or
representatives, other than Reinsurer and its officers, employees, agents or
representatives, unless such acts, errors or omissions were taken upon the
recommendation of the Reinsurer; and
(2) any liability or obligation arising out of or relating to
Cedent's failure to follow in all material respects any written recommendation
made by the Administrator (as defined in the Administrative Services Agreement)
pursuant to the Administrative Services Agreement unless by following such
recommendation Cedent would not comply in all material respects with Applicable
Law (as defined in the Asset Transfer Agreement) or the terms of the Reinsured
Contracts, in which case all Reinsured Liabilities and obligations arising from
changes necessary to conform the conduct contemplated by such recommendation in
all material respects to Applicable Law and the terms of the Reinsured Contracts
shall not be Excluded Liabilities.
Section 1.12. "Extra Contractual Liabilities" means all liabilities
or obligations, other than those arising under the express terms of and within
the express limits of the Reinsured Contracts, whether to Contractholders,
Governmental Entities or any other Person, which liabilities and obligations
shall include, without limitation, any liability for punitive, exemplary,
special or any other form of extracontractual damages relating to the Reinsured
Contracts which arises from any act, error or omission, whether or not
intentional, in bad faith or otherwise, including, without limitation, any act,
error or omission relating to (i) the marketing, underwriting, production,
issuance, cancellation or administration of the Reinsured Contracts, (ii) the
investigation, defense, trial, settlement or handling of claims, benefits, or
payments arising out of or relating to the Reinsured Contracts or (iii) the
failure to pay or the delay in payment of benefits, claims or any other amounts
due or alleged to be due under or in connection with the Reinsured Contracts.
Section 1.13. "Governmental Entity" means any foreign, domestic,
federal, territorial, state or local U.S. or non-U.S. governmental authority,
quasi-governmental authority, instrumentality, court or government,
self-regulatory organization, commission, tribunal or organization or any
political or other subdivision, department, branch or representative of any of
the foregoing.
Section 1.14. "Inter-Company Reinsurance Agreement" means
reinsurance agreements between Cedent and any of its Affiliates set forth on
Schedule 1.14.
Section 1.15. "Reinsurance Recoverables" means all amounts when due
under Third Party Reinsurance Contracts including all receivables, recoverables,
returns, amounts in respect of profit sharing and all other sums to which Seller
Insurer Party may
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be entitled under the Third Party Reinsurance Contracts except to the extent
related to reinsurance recoverables for Excluded Liabilities.
Section 1.16. "Reinsured Liabilities" means all liabilities and
obligations, including without limitation any loss or allocated loss expense
arising from the Reinsured Contracts and any right to purchase additional
coverage, Extra Contractual Liabilities, allowances as described in Section 3.2
and obligations arising under legal or regulatory requirements, but excluding
Excluded Liabilities, arising out of or relating to the Reinsured Contracts, net
of any and all collectible reinsurance procured from Unaffiliated Reinsurers.
Section 1.17. "Reinsured Contracts" means (i) all bonds, policies
and contracts of insurance issued in Cedent's name by or on behalf of Reinsurer
(or any Affiliate of Reinsurer) with an effective date, new or renewal, on or
after the Effective Date; (ii) Assumed Reinsurance; and (iii) all bonds,
policies, contracts of insurance or Assumed Reinsurance covering risks
classified as surety, fidelity, burglary or fiduciary liability, issued in
Cedent's name and covering risks with an effective date on or after the
Effective Date and bound or authorized by the Reliance Surety Profit Center
which can be identified exclusively by the code or policy prefixes of "B", "P"
or "U"; provided, however, that, with respect to the foregoing clause (iii), in
no event shall "Reinsured Contracts" include any business written by any other
Reliance profit center including, but not limited to, the Reliance National
Profit Center and the Reliance Profit Center; any coverages written by the
Reliance Surety Profit Center or any other profit center of a Seller Party or
its Affiliates for financial guaranty insurance (as defined in Section 6901 of
the New York Insurance Law as in effect on the Effective Date, except that for
purposes hereof, Section 6901(a)(1)(E) of the New York Insurance Law shall be
deemed to read as follows: "other events which the Office of General Counsel of
the New York Insurance Department has determined, in a written opinion issued
prior to the Effective Date, are substantially similar to any of the
foregoing"), general liability, workers compensation, directors and officers
liability, employment practices liability, property or any other coverages that
are not classified as fidelity (including burglary), fiduciary liability or
surety; any bond or insurance product provided through Environmental Consulting
Services, Inc.; any and all obligations underwritten by the Reliance Surety
Profit Center for any other Profit Center or Affiliate at the time written in
which such other Profit Center or Affiliate is a Principal or Insured.
Notwithstanding any provision of this Agreement, in no event shall a Reinsured
Contract that was rescinded or voided prior to the Effective Date be a Reinsured
Contract.
Section 1.18. "Unaffiliated Reinsurers" means reinsurers
unaffiliated with the Cedent other than the Reinsurer under this Quota Share
Reinsurance Agreement.
ARTICLE II
BASIS OF REINSURANCE
--------------------
Section 2.1. Cession. As of the Effective Date, Cedent hereby cedes
on an indemnity basis to Reinsurer, and Reinsurer hereby accepts and agrees to
reinsure and
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indemnify Cedent for, one hundred percent (100%) of all Reinsured Liabilities.
The Reinsurer shall follow the fortunes of the Cedent with respect to the
Reinsured Contracts and the Reinsured Liabilities being assumed by the Reinsurer
under this Quota Share Reinsurance Agreement.
Section 2.2. Basis of Net Cession. The reinsurance provided by this
Quota Share Reinsurance Agreement applies after application of any collectible
inuring treaty or facultative reinsurance with Unaffiliated Reinsurers [and
after any cession to Cedent under any Inter-Company Reinsurance Agreement.](2)
Section 2.3. Effect of Reinsured Contracts. Except as otherwise set
forth in this Quota Share Reinsurance Agreement or the Administrative Services
Agreement, reinsurance provided under this Quota Share Reinsurance Agreement
shall be subject to the same clauses, terms, limits, conditions, endorsements,
modifications, and waivers of or affecting the Reinsured Contracts, it being the
intent of the parties that Reinsurer shall follow the fortunes and settlements
made by or on behalf of the Cedent in all respects.
Section 2.4. Other Reinsurance.
(a) In the event that Reinsurer, under the terms of the
Administrative Services Agreement, places or causes to be placed or renewed any
facultative or treaty reinsurance on the Reinsured Contracts, the amount of
Reinsurer's liability under this Quota Share Reinsurance Agreement shall be
increased by reason of the inability of Cedent or its designee to apply or
collect any inuring facultative or treaty reinsurance from any reinsurer,
whether specific or general, that may have become due from them, whether that
inability arises from insolvency or otherwise.
(b) In the event that Reinsurer's liability under this Agreement is
increased by the lack of collectibility of any inuring facultative or treaty
reinsurance, upon the written request of Reinsurer, the Cedent will cause to be
assigned to Reinsurer any and all rights of Cedent to collect that inuring
reinsurance from the non-paying reinsurer.
(c) Reinsurer will disclose to any facultative or treaty reinsurer
the effect of the terms and conditions of this Quota Share Reinsurance
Agreement.
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(2) The bracketed language will only be included in the Quota Share
Reinsurance Agreement between Reliance Insurance Company and Travelers Casualty
and Surety Company.
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ARTICLE III
PREMIUMS AND ALLOWANCES
-----------------------
Section 3.1. Cedent's Payment Obligations. Cedent agrees to pay
Reinsurer or its Designee one hundred percent (100%) of the following amounts
which, except for those amounts described in subsection (g) hereof, are actually
received by Cedent on or after the Effective Date:
(a) premiums and other receivables to the extent they relate to the
Reinsured Contracts;
(b) litigation and claim recoveries from third parties pursuant to
litigation instituted on or after the Effective Date to the extent they relate
to the Reinsured Contracts and the Reinsured Liabilities;
(c) premium tax and commission refunds relating to premiums to the
extent they relate to the Reinsured Contracts;
(d) reinsurance recoveries from third party reinsurers to the extent
they relate to the Reinsured Contracts;
(e) repayment and settlement on advances on contracts;
(f) any and all Reinsurance Recoverables and other recoveries from
third parties to the extent they relate to the Reinsured Contracts and the
Reinsured Liabilities; and
(g) any and all amounts paid by Reinsurer relating to the Reinsured
Contracts which are not Reinsured Liabilities.
Section 3.2. Reinsurer's Payment Obligations. Reinsurer agrees to
reimburse, or cause its Designee to reimburse, Cedent as ceding commission for
the following:
(a) any and all state and local premium taxes on premiums written on
or after the Effective Date and relating to the Reinsured Contracts, and any and
all guaranty fund or other assessments, incurred by Cedent with respect to
premiums written or losses paid on or after the Effective Date and relating to
the Reinsured Contracts and the Reinsured Liabilities for periods on or after
the Effective Date. The amount of tax incurred by Cedent that is eligible for
reimbursement hereunder shall be net of tax credits relating to the Reinsured
Contracts, but no reduction shall be made for tax credits or other amounts
allowed for guaranty fund assessments paid by Cedent with respect to premiums
written prior to the Effective Date; and
(b) producer compensation to the extent based on premiums arising
from the Reinsured Contracts;
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(c) ceding commissions paid to the extent based on premiums written
on or after the Effective Date arising from Reinsured Contracts; and
(d) dividends actually paid to Contractholders by Cedent at the
request of Reinsurer.
Section 3.3. Amounts Due to Third Party Reinsurers. Reinsurer or its
Designee shall pay all amounts due to reinsurers under third party reinsurance
agreements covering the Reinsured Contracts and any Reinsured Liabilities.
ARTICLE IV
ACCOUNTING AND REINSURANCE SETTLEMENT
-------------------------------------
Section 4.1. Delivery of Accounting and Settlement Reports. Within
thirty (30) days following the end of each calendar month, Reinsurer shall
provide Cedent with accounting and settlement reports (including underlying
journal entries contemplated by the Administrative Services Agreement) in a
format to be mutually agreed upon by the parties. Cedent shall have the right to
change the format of the reports upon thirty (30) days' prior written notice to
Reinsurer; provided, however, that the change shall involve no material
additional cost to Reinsurer except to the extent reasonably required by Cedent
to prepare, make or file necessary or required financial and statistical
reports.
Section 4.2. Report of Allowances. Within thirty (30) days following
receipt of the report required to be provided to Cedent by Reinsurer under
Section 4.1 hereof, Cedent shall provide Reinsurer with a report of the
allowances set forth in Section 3.2 in a format to be mutually agreed upon by
the parties.
Section 4.3. Payment of Amounts Indicated in Accounting and
Settlement Reports. Simultaneously with Reinsurer's delivery of the accounting
and settlement reports required to be provided to Cedent by Reinsurer under
Section 4.1 hereof, Reinsurer shall pay any amounts due to Cedent indicated by
such accounting and settlement reports. Reinsurer shall pay any allowances due
to the Cedent shown on the report required to be provided to Reinsurer by Cedent
under Section 4.2 hereof on or before the thirtieth (30th) Business Day
following its receipt of such report. Cedent shall pay any amount due to
Reinsurer on or before the thirtieth (30th) Business Day following its receipt
of the accounting and settlement reports required to be provided to Cedent by
Reinsurer under Section 4.1 hereof. Any late payment of an amount required by
this Quota Share Reinsurance Agreement to be paid or remitted by Cedent to
Reinsurer or by Reinsurer to Cedent shall bear simple interest from and
including the date such payment is due under this provision until, but
excluding, the date of payment, at a rate per annum equal to the 90-Day Treasury
Rate.
Section 4.4. Offset. Any debts or credits incurred on and after the
Effective Date in favor of or against either Cedent or Reinsurer with respect to
this Quota Share Reinsurance Agreement, the Loss and Unearned Premium Reserve
Portfolio
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Reinsurance Agreement and the Administrative Services Agreement, are deemed
mutual debts or credits, as the case may be, and shall be set off, and only the
balance shall be allowed or paid.
ARTICLE V
REINSURED CONTRACT ADMINISTRATION
---------------------------------
Section 5.1. Administrative Services. The Reinsured Contracts shall
be administered by the Reinsurer pursuant to the Administrative Services
Agreement.
Section 5.2. Exclusive Authority. (a) Subject to the terms and
conditions set forth herein and in the Administrative Services Agreement, Cedent
agrees that, on and after the Effective Date, Reinsurer shall have the exclusive
authority to revise and amend Reinsured Contracts.
(b) Reinsurer shall have the authority to issue Reinsured Contracts
in the United States on and before the second anniversary of the Effective Date.
In addition, Reinsurer shall have the authority to issue Reinsured Contracts
outside the United States for risks outside the United States on or before the
fifth anniversary of the Effective Date, subject to Applicable Law.
(c) In administering the Reinsured Contracts and the Reinsured
Liabilities, Reinsurer shall conduct itself in accordance with the terms and
conditions of the Administrative Services Agreement.
Section 5.3. Administration of Excluded Liabilities(a) . (a) Cedent
shall retain liability and administrative responsibility for all Excluded
Liabilities. Cedent shall reimburse Reinsurer for all reasonable out-of-pocket
costs and expenses incurred by Reinsurer in connection with the administration
of Excluded Liabilities.
(b) With respect to any claims (including claims for reinsurance
recoveries) presented in which both Reinsured Liabilities and Excluded
Liabilities are alleged and where the predominant claim activities and costs
relate to Excluded Liabilities, Reinsurer shall notify Cedent and Cedent will
either assume the administration of such claim activities or fund the
out-of-pocket costs and expenses of such claim activities to the extent they
relate to Excluded Liabilities.
(c) In the event claims (including claims for reinsurance
recoveries) are presented in connection with Reinsured Liabilities, and it is in
question whether a Reinsured Liability or an Excluded Liability is at issue,
Reinsurer shall defend or prosecute such claim and Cedent and Reinsurer shall
resolve the responsibility for any amount of loss, allocated loss expense or
other costs and expenses pursuant to the provisions of this Quota Share
Reinsurance Agreement. In the event that, during the course of a claim, it
becomes clear that the claim is an Excluded Liability, Reinsurer shall notify
Cedent and Cedent will either assume the administration of such claim or fund
the out-of-pocket costs and expenses of such claim activities to the extent they
relate to Excluded Liabilities.
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(d) In the event that a claim (including claims for reinsurance
recoveries) presented in connection with a Reinsured Contract is not a Reinsured
Contract or is an Excluded Liability, Cedent shall have the sole responsibility
to defend or prosecute such claim.
(e) With respect to those matters described in (b), (c) and (d) of
this Section 5.3, the party administering the claim shall be provided the full
cooperation of the other party and shall be responsible for reimbursing such
other party for any out-of-pocket costs and expenses incurred by such party in
providing such cooperation.
ARTICLE VI
OVERSIGHTS, ERRORS AND OMISSIONS
--------------------------------
Section 6.1. Continuing Liability. Inadvertent delays, errors or
omissions made in connection with this Quota Share Reinsurance Agreement or any
transaction hereunder shall not relieve either party from any liability which
would have attached had such delay, error or omission not occurred, provided
always that such error or omission is sought to be rectified as soon as possible
after discovery, and provided that the party making such error or omission or
responsible for such delay shall be responsible for any additional liability
which attaches as a result.
ARTICLE VII
INSOLVENCY
----------
Section 7.1. Insolvency. In the event of the insolvency of Cedent,
all reinsurance under this Quota Share Reinsurance Agreement shall be payable by
Reinsurer on the basis of the liability of Cedent under the Reinsured Contracts
without diminution because of the insolvency of Cedent. In the event of
insolvency and the appointment of a conservator, liquidator or statutory
successor of Cedent, except as provided in Article IX hereunder all amounts
payable by Reinsurer hereunder to Cedent shall be payable directly to Cedent or
to such conservator, liquidator or statutory successor.
Section 7.2. Notice of Pendency of Claim. It is understood, however,
that in the event of the insolvency of Cedent the liquidator or receiver or
statutory successor of Cedent shall give written notice to Reinsurer of the
pendency of a claim against Cedent on the Reinsured Contracts reinsured
hereunder within a reasonable time after such claim is filed in the insolvency
proceeding and during the pendency of such claim. Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such claim is
to be adjudicated, any defense or defenses which it may deem available to Cedent
or its liquidator or receiver or statutory successor. It is further understood
that the expense thus incurred by Reinsurer shall be chargeable, subject to
court approval, against Cedent as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to Cedent as a
result of the defense undertaken by Reinsurer.
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Section 7.3. Notice of Insolvency. If either Cedent or Reinsurer
becomes insolvent, such party shall notify the other party of the insolvency
within five (5) Business Days thereof.
ARTICLE VIII
DURATION AND TERMINATION
------------------------
Section 8.1. Section Effective Date. This Quota Share Reinsurance
Agreement shall commence on the Effective Date. This Quota Share Reinsurance
Agreement shall remain in effect until all Reinsured Liabilities have been
finally settled or expire unless earlier terminated according to the provisions
of Section 8.2.
Section 8.2. Termination. (a) This Quota Share Reinsurance Agreement
may be terminated by a writing stating the effective date of termination:
(i) by mutual written agreement of the parties at the time specified
in such written agreement;
(ii) at the option of Cedent upon the issuance of an order of
liquidation or rehabilitation against Reinsurer; provided, however, that in
the event an order of liquidation or rehabilitation is issued against
Reinsurer, before Cedent may terminate this Quota Share Reinsurance
Agreement, Reinsurer shall have an opportunity to contest or appeal such
order for a period of sixty (60) days from the date of issuance;
(b) In the event that this Quota Share Reinsurance Agreement is
terminated under Section 8.2(a)(ii), Reinsurer shall return or cause to be
returned, within twenty (20) days by wire transfer of immediately available
funds to an account designated by Cedent in writing, all Reinsured Liabilities,
evaluated as of the effective date of termination, and assets equal to those
Reinsured Liabilities, less any amounts actually allowed to Cedent by Reinsurer
as a ceding commission on that portion of the Reinsured Liabilities being
returned as unearned premium reserve, and upon payment of such, Reinsurer shall
be released of all liability for its Reinsured Liabilities under this Agreement.
In such event, Reinsurer shall also assign or cause to be assigned back to
Cedent any Reinsurance Recoverables (to the extent related to Reinsured
Liabilities) not yet collected as of the date of termination hereof.
ARTICLE IX
DELINQUENCY PROCEEDINGS
-----------------------
Section 9.1. (a) Payment in the Event of Delinquency Proceedings.
Notwithstanding any other provision of this Quota Share Reinsurance Agreement to
the contrary, (i) in the event that a delinquency proceeding (as such term is
defined in 40 P.S.
11
ss.221.3)(3) is initiated against the Cedent, the Reinsurer shall pay any
amounts otherwise due to the Cedent hereunder (including, but not limited to,
amounts due under Article II and Section 2.4 hereof) to, or on behalf of, any
named insureds under the Reinsured Contracts, a list of which has been provided
in electronic format by the Cedent to the Reinsurer (as such list may be updated
from time to time), claimants or obligees in accordance with the terms and
conditions of the Reinsured Contracts; and (ii) any such payments shall
discharge of the Reinsurer's obligations to the Cedent for such payments under
this Quota Share Reinsurance Agreement.
(b) Liquidation Proceedings. In the event the Cedent is placed in
liquidation, Reinsurer shall (i) issue assumption certificates to the named
insureds or reinsureds (including principals, as applicable) of any Reinsured
Contracts which are in force (namely, those Reinsured Contracts whose contract
term has not expired or been terminated) on the date such order of liquidation
is issued pursuant to which the Reinsurer will assume all of the obligations
arising under such in-force Reinsured Contracts, (ii) assume the responsibility,
if necessary, for complying with any relevant state assumption reinsurance
requirements and (iii) issue notifications to claimants under all other
Reinsured Contracts that, until further notice, all claims under such Reinsured
Contracts shall continue to be presented to the Reinsurer, in its capacity as
Administrator, under the Administrative Services Agreement.
ARTICLE X
DUTY OF COOPERATION
-------------------
Section 10.1. Full Cooperation. The parties hereto shall cooperate
in a commercially reasonable manner in order to accomplish the objectives of
this Quota Share Reinsurance Agreement including, without limitation, making
available to each other their respective officers and employees for interviews
and meetings with governmental authorities and furnishing any additional
assistance, information and documentation as may be reasonably requested by the
other party from time to time.
Section 10.2. Furnishing of Relevant Information. Upon request, each
party hereto shall furnish to the other relevant information concerning the
Reinsured Contracts and Reinsured Liabilities, including but not limited to
studies used in the determination of reserves and other Reinsured Liabilities,
and each shall have the right to review and copy the books and records of the
other concerning such Reinsured Contracts and Reinsured Liabilities upon
reasonable notice, during normal business hours and at the requesting party's
own cost and expense.
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(3) To be conformed to the definition of "delinquency proceedings" in the
domiciliary states of each Cedent.
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ARTICLE XI
INDEMNIFICATION
Section 11.1. Indemnification by Reinsurer. Reinsurer hereby
indemnifies Cedent and its affiliates and its and their respective officers,
directors, employees, agents and representatives against and agrees to hold each
of them harmless from any and all Damages incurred or suffered by any of them
arising out of or relating to (i) Reinsured Liabilities (ii) any breach or
nonfulfillment by Reinsurer of, or any failure by Reinsurer to perform, any of
the terms or conditions of, or any duties or obligations under, this Quota Share
Reinsurance Agreement, and (iii) any enforcement of this indemnity.
Section 11.2. Indemnification by Cedent. Cedent hereby indemnifies
Reinsurer and its affiliates and its and their respective officers, directors,
employees, agents and representatives against and agrees to hold each of them
harmless from any and all Damages incurred or suffered by any of them arising
out of or relating to (i) Excluded Liabilities, (ii) any breach or
nonfulfillment by Cedent of, or any failure by Cedent to perform, any of the
terms or conditions of, or any duties or obligations under, this Quota Share
Reinsurance Agreement, and (iii) any enforcement of this indemnity.
ARTICLE XII
REINSURANCE CREDIT
------------------
Section 12.1. Reinsurance Credit. Notwithstanding any other
provision of this Quota Share Reinsurance Agreement to the contrary, if
Reinsurer becomes unauthorized or otherwise unaccredited in any State, the
District of Columbia, Canada or any other jurisdiction where authorization or
accreditation is required by insurance regulatory authorities in order for
Cedent to obtain full credit on its statutory quarterly and annual statements
filed with such jurisdiction for the reinsurance being provided under this Quota
Share Reinsurance Agreement, Reinsurer, upon the request of Cedent, will
immediately establish, at its sole cost and option, any escrow accounts, trust
accounts for the benefit of Cedent, letters of credit, methods for premium
withholding by Cedent or similar funds or a combination thereof in an amount
necessary to permit Cedent to obtain full credit for such reinsurance in such
jurisdiction.
Section 12.2. Notification. Reinsurer shall notify Cedent within ten
(10) Business Days of any loss of license or authorization or other change or
condition that may affect the ability of Cedent to obtain full credit for the
reinsurance being provided under this Quota Share Reinsurance Agreement.
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ARTICLE XIII
ARBITRATION
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Section 13.1. Arbitration. As a condition precedent to any cause of
action, any and all disputes between Cedent and Reinsurer arising out of,
relating to, or concerning this Quota Share Reinsurance Agreement, whether
sounding in contract or tort and whether arising during or after termination of
this Quota Share Reinsurance Agreement, shall be submitted to the decision of a
board of arbitration composed of two arbitrators and an umpire ("Board") meeting
at a site in New York, New York. The arbitration shall be conducted under the
Federal Arbitration Act and shall proceed as set forth below.
Section 13.2. Notice of Arbitration. A notice requesting
arbitration, or any other notice made in connection therewith, shall be in
writing and shall be sent certified or registered mail, return receipt requested
to the affected parties. The notice requesting arbitration shall state in
particulars all issues to be resolved in the view of the claimant, shall appoint
the arbitrator selected by the claimant and shall set a tentative date for the
hearing, which date shall be no sooner than ninety (90) days and no later than
one hundred fifty (150) days from the date that the notice requesting
arbitration is mailed. Within thirty (30) days of receipt of claimant's notice,
the respondent shall notify claimant of any additional issues to be resolved in
the arbitration and of the name of its appointed arbitrator.
Section 13.3. Arbitration Panel. Unless otherwise mutually agreed,
the members of the Board shall be impartial and disinterested and shall be
active or former executive officers of property-casualty insurance companies,
reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers
with at least twenty (20) years of experience in insurance and reinsurance.
Cedent and Reinsurer shall each appoint an arbitrator and the two (2)
arbitrators shall choose an umpire before instituting the hearing. If the
respondent fails to appoint its arbitrator within thirty (30) days after having
received claimant's written request for arbitration, the claimant is authorized
to and shall appoint the second arbitrator. If the two arbitrators fail to agree
upon the appointment of an umpire within thirty (30) days after notification of
the appointment of the second arbitrator, within ten (10) days thereof, the two
(2) arbitrators shall request the American Arbitration Association ("AAA") to
appoint an umpire for the arbitration with the qualifications set forth in this
Article. If the AAA fails to name an umpire, either party may apply to the court
named below to appoint an umpire with the above required qualifications. The
umpire shall promptly notify in writing all parties to the arbitration of his
selection and of the scheduled date for the hearing. Upon resignation or death
of any member of the Board, a replacement shall be appointed in the same fashion
as the resigning or deceased member was appointed.
Section 13.4. Submission of Briefs. The claimant and respondent
shall each submit initial briefs to the Board outlining the issues in dispute
and the basis, authority and reasons for their respective positions within
thirty (30) days of the date of notice of appointment of the umpire. The
claimant and the respondent may submit reply
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briefs to the Board within ten (10) days after filing of the initial brief(s).
Initial and reply briefs may be amended by the submitting party at any time, but
not later than ten (10) days prior to the date of commencement of the
arbitration hearing. Reasonable responses shall be allowed at the arbitration
hearing to new material contained in any amendments filed to the briefs but not
previously responded to.
Section 13.5. Arbitration Board's Decision. The Board shall make a
decision and award with regard to the terms of this Quota Share Reinsurance
Agreement and the original intentions of the parties to the extent reasonably
ascertainable. The Board's decision and award shall be in writing and shall
state the factual and legal basis for the decision and award. The decision and
award shall be based upon a hearing in which evidence shall be allowed and which
the formal rules of evidence shall not strictly apply but in which cross
examination and rebuttal shall be allowed. At its own election or at the request
of the Board, either party may submit a post-hearing brief for consideration of
the Board within twenty (20) days of the close of the hearing. The Board shall
make its decision and award within thirty (30) days following the close of the
hearing or the submission of post-hearing briefs, whichever is later, unless the
parties consent to an extension. Every decision by the Board shall be by a
majority of the members of the Board and each decision and award by the majority
of the members of the Board shall be final and binding upon all parties to the
proceeding.
Section 13.6. Jurisdiction. Either party may apply to the United
States District Court for the Southern District of New York for an order
confirming any decision and the award; a judgment of that Court shall thereupon
be entered on any decision or award. If such an order is issued, the attorneys'
fees of the party so applying and court costs will be paid by the party against
whom confirmation is sought. The Board may award interest calculated from the
date the Board determines that any amounts due the prevailing party should have
been paid to the prevailing party.
Section 13.7. Expenses. Each party shall bear the expense of the one
arbitrator appointed by it and shall jointly and equally bear with the other
party the expense of any stenographer requested, and of the umpire. The
remaining costs of the arbitration proceedings shall be finally allocated by the
Board.
Section 13.8. Production of Documents and Witnesses. Subject to
customary and recognized legal rules of privilege, each party participating in
the arbitration shall have the obligation to produce those documents and as
witnesses to the arbitration those of its employees as any other participating
party reasonably requests providing always that the same witnesses and documents
be obtainable and relevant to the issues before the arbitration and not be
unduly burdensome or excessive. The parties may mutually agree as to pre-hearing
discovery prior to the arbitration hearing and in the absence of agreement, upon
the request of any party, pre-hearing discovery may be conducted as the Board
shall determine in its sole discretion to be in the interest of fairness, full
disclosure, and a prompt hearing, decision and award by the Board. The Board
shall be the final judge of the procedures of the Board, the conduct of the
arbitration, of the rules of evidence, the rules of privilege and production and
of excessiveness and relevancy of any witnesses and documents upon the petition
of any
15
participating party. To the extent permitted by law, the Board shall have the
authority to issue subpoenas and other orders to enforce their decisions.
Section 13.9. Relief Available. Nothing herein shall be construed to
prevent any participating party from applying to the United States District
Court for the Southern District of New York to issue a restraining order or
other equitable relief to maintain the "status quo" of the parties participating
in the arbitration pending the decision and award by the Board or to prevent any
party from incurring irreparable harm or damage at any time prior to the
decision and award of the Board. The Board shall also have the authority to
issue interim decisions or awards in the interest of fairness, full disclosure,
and a prompt and orderly hearing and decision and award by the Board.
Section 13.10. Consolidation. In the event that there is a dispute
between the Cedent and Reinsurer that implicates the provisions of this Quota
Share Reinsurance Agreement and the related Administrative Services Agreement,
Cedent and Reinsurer hereby agree to consolidate any such dispute under such
agreements in a single arbitration proceeding.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
------------------------
Section 14.1. Amendment, Modification and Waiver. This Quota Share
Reinsurance Agreement may not be amended, modified or waived except by an
instrument or instruments in writing signed and delivered on behalf of each of
the parties hereto.
No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies therein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 14.2. Entire Agreement. This Quota Share Reinsurance
Agreement (together with the exhibits hereto and the other agreements, documents
and instruments delivered in connection herewith) the Asset Transfer Agreement,
the Administrative Services Agreement and the other Ancillary Agreements (as
defined in the Asset Transfer Agreement) and the Trust Agreement among
Reinsurer, the Seller Insurer Parties and the Trustee thereunder, dated as of
the date hereof, constitute the entire agreement among the parties with respect
to the subject matter hereof and thereof and supersede all other prior
agreements and understandings, both written and verbal, among the parties or any
of them with respect to the subject matter hereof.
Section 14.3. GOVERNING LAW. THIS QUOTA SHARE REINSURANCE AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK,
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REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICTS OF LAWS THEREOF.
Section 14.4. Severability. Any term or provision of this Quota
Share Reinsurance Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Quota Share Reinsurance Agreement or
affecting the validity or enforce ability of any of the terms or provisions of
this Quota Share Reinsurance Agreement in any other jurisdiction. If any
provision of this Quota Share Reinsurance Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as would
be enforceable.
Section 14.5. Counterparts. This Quota Share Reinsurance Agreement
may be executed in counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
Section 14.6. Consent to Jurisdiction, Etc. Each of the parties
hereto irrevocably and unconditionally submits to the exclusive jurisdiction of
The United States District Court for the Southern District of New York or, if
such court does not have jurisdiction, New York State Supreme Court in the
Borough of Manhattan for the purposes of enforcing this Quota Share Agreement or
the Administrative Services Agreement. The parties shall take such actions as
are within their control to cause any matter contemplated hereby to be assigned
to the Commercial Division of the Supreme Court. In any action, suit or other
proceeding, each of the parties hereto irrevocably and unconditionally waives
and agrees not to assert by way of motion, as a defense or otherwise any claims
that it is not subject to the jurisdiction of the above courts, that such action
or suit is brought in an inconvenient forum or that the venue of such action,
suit or other proceeding is improper. Each of the parties hereto also agrees
that any final and unappealable judgment against a party hereto in connection
with any action, suit or other proceeding shall be conclusive and binding on
such party and that such award or judgment may be enforced in any court of
competent jurisdiction, either within or outside of the United States. A
certified or exemplified copy of such award or judgment shall be conclusive
evidence of the fact and amount of such award or judgment.
Section 14.7. Third Party Beneficiaries. Nothing in this Quota Share
Reinsurance Agreement, express or implied, is intended to or shall confer upon
any person other than the parties hereto any rights, benefits or remedies of any
nature whatsoever under or by reason of this Quota Share Reinsurance Agreement.
Section 14.8. Binding; Assignment. This Quota Share Reinsurance
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns and legal representatives. Neither
this Quota Share Reinsurance Agreement, nor any rights, interests or obligations
hereunder, may be directly or indirectly assigned, delegated, sublicensed or
transferred by any party to this Quota Share Reinsurance Agreement, in whole or
in part, to any other person (including
17
any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or
involuntarily, without the prior written consent of the parties hereto.
Section 14.9. Specific Performance. The parties recognize and agree
that if for any reason any of the provisions of this Quota Share Reinsurance
Agreement are not performed in accordance with their specific terms or are
otherwise breached, immediate and irreparable harm or injury would be caused for
which money damages would not be an adequate remedy. Accordingly, each party
agrees that, in addition to any other available remedies, each other party shall
be entitled to an injunction restraining any violation or threatened violation
of any of the provisions of this Quota Share Reinsurance Agreement without the
necessity of posting a bond or other form of security pending the outcome of any
arbitration. In the event that any action should be brought in equity to enforce
any of the provisions of this Quota Share Reinsurance Agreement, no party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
Section 14.10. Descriptive Headings. The descriptive article and
section headings herein are inserted for convenience of reference only and are
not intended to be part of or to affect the meaning or interpretation of this
Quota Share Reinsurance Agreement.
Section 14.11. Reasonableness. Each of the parties will act
reasonably and in good faith on all matters within the terms of this Quota Share
Reinsurance Agreement.
Section 14.12. Expenses. Unless otherwise specifically provided
herein, all costs and expenses incurred in connection with this Quota Share
Reinsurance Agreement shall be paid by the party incurring such cost or expense.
Section 14.13. Survival. The provisions of Articles XI, XIII and XIV
hereof shall survive the termination of this Quota Share Reinsurance Agreement.
Section 14.14. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopy (which is confirmed), or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties to this Quota Share
Reinsurance Agreement as follows:
If to Cedent:
Reliance Insurance Company
Three Parkway
Philadelphia, Pennsylvania 19102
Attn: General Counsel
Telecopy No.: (215) 864-1544
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With a copy to (which shall not constitute notice to Cedent
for purposes of this Section 14.14):
Reliance Group Holdings
Park Avenue Plaza
55 East 52nd Street, 29th Floor
New York, NY 10055
Attn: General Counsel and
Corporate Secretary
Telecopy No.: (212) 909-1864
and
Jonathan L. Freedman, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Telecopy No.: (212) 259-6333
If to Reinsurer:
James M. Michener, Esq.
Senior Vice President and General Counsel
Travelers Property Casualty Corp.
One Tower Square 8GS
Hartford, CT 06183
Telephone No.: 860-277-6127
Telecopy No.: 860-277-8967
With a copy to (which shall not constitute notice to the
Reinsurer for purposes of this Section 14.14):
Robert J. Sullivan, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Telephone No.: 212-735-2930
Telecopy No.: 212-735-2000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above. In
no event shall the provision of notice pursuant to this Section 14.14 constitute
notice for service of any writ, process or summons in any suit, action or other
proceeding.
Section 14.15. Construction. This Agreement is the result of
arm's-length negotiations between the parties hereto and has been prepared
jointly by the parties. In applying and interpreting the provisions of this
Agreement, there shall be no
19
presumptions that this Agreement was prepared by any one party or that this
Agreement shall be construed in favor of or against any one party.
20
IN WITNESS WHEREOF, Cedent and Reinsurer have caused their names to
be subscribed by their respective authorized officers.
[seller insurer party]
By:
------------------------
Name:
Title:
Travelers Casualty and Surety Company
By:
------------------------
Name:
Title:
21