R:\96R\11104.DOC
"Working" Per Event Reinsurance Contract
Effective: October 1, 1996
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Philadelphia, Pennsylvania
Timberline Insurance Company
Eugene, Oregon
through the auspices of
Gryphon Insurance Group, Inc.
New York, New York
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
"Working" Per Event Reinsurance Contract
Effective: October 1, 1996
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Philadelphia, Pennsylvania
Timberline Insurance Company
Eugene, Oregon
through the auspices of
Gryphon Insurance Group, Inc.
New York, New York
Reinsurers Participations
First Excess and Reinsurance Corporation 12.0%
Folksamerica Reinsurance Company 12.5
Gerling Global Reinsurance Corporation, U. S. Branch 10.0
Great Lakes American Reinsurance Company 10.0
NAC Reinsurance Corporation 10.0
Swiss Reinsurance America Corporation 16.5
TIG Reinsurance Company 16.5
Through Denis M. Clayton & Co. Ltd.
Certain Companies Per Signing Schedule(s) 12.5%
Total 100.0%
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
Table of Contents
Article Page
I Business Reinsured 1
II Term 2
III Territory (BRMA 51A) 2
IV Exclusions 3
V Retentions and Limits 3
VI Definitions 4
VII Other Reinsurance 8
VIII Loss Settlements 8
IX Salvage and Subrogation 9
X Reinsurance Premium 9
XI Late Payments 10
XII Profit Sharing 12
XIII Offset (BRMA 36C) 12
XIV Access to Records 13
XV Liability of the Reinsurer 13
XVI Net Retained Lines 13
XVII Errors and Omissions (BRMA 14F) 13
XVIII Currency (BRMA 12A) 14
XIX Taxes (BRMA 50B) 14
XX Federal Excise Tax 14
XXI Unauthorized Reinsurers 14
XXII Insolvency 15
XXIII Arbitration 16
XXIV Service of Suit (BRMA 49C) 17
XXV Agency Agreement 18
XXVI Intermediary (BRMA 23A) 18
Schedule A
"Working" Per Event Reinsurance Contract
Effective: October 1, 1996
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Philadelphia, Pennsylvania
Timberline Insurance Company
Eugene, Oregon
through the auspices of
Gryphon Insurance Group, Inc.
New York, New York
(hereinafter referred to collectively as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreements
Attached Hereto
(hereinafter referred to as the "Reinsurer")
Article I - Business Reinsured
A. By this Contract the Reinsurer agrees to reinsure and/or
indemnify the Company for the net excess liability which may
accrue to the Company under its policies, contracts and
binders of insurance or reinsurance (hereinafter called
"policies") in force on the effective date hereof, or issued
or renewed on or after that date, and classified by the
Company as all lines of business (direct and assumed) as
respects programs managed by the Company, subject to the
terms, conditions and limitations hereinafter set forth.
Programs set forth in Schedule A attached to and forming part
of this Contract shall be excluded from coverage hereunder.
The Company shall have the option of excluding additional
programs from coverage hereunder in accordance with paragraph
B below.
B. The Company shall have the option to exclude any program from
this Contract by submitting each such program in writing to
the Reinsurer not more than 90 days after the inception of the
program as respects those programs eligible for coverage
hereunder. Casualty programs that generate $5,000,000 or less
of estimated annualized subject earned premium during the
first 12 months of the program will be deemed to have
automatic coverage under the terms and conditions hereinafter
set forth if not excluded from this Contract. All property
programs and those casualty programs that generate greater
than $5,000,000 of estimated annualized subject earned premium
during the first 12 months of the program must be submitted to
the lead reinsurer(s) hereunder for acceptance on behalf of
the Reinsurer of coverage under the terms and conditions
hereinafter set forth if declared to this Contract.
The Company shall be the sole judge of what constitutes a
"program."
Article II - Term
A. This Contract shall become effective on October 1, 1996, with
respect to occurrences arising out of loss events commencing
on or after that date, and shall remain in force until
December 31, 1997, both days inclusive. Notwithstanding the
foregoing, in the event negotiations for a renewal of this
Contract are not completed by December 31, 1997, at the
Company's option, this Contract shall be extended by addendum
through March 31, 1998.
B. Except as provided in paragraph C below, reinsurance hereunder
on business in force on the effective date of expiration shall
remain in full force and effect until expiration, cancellation
or next premium anniversary of such business, whichever first
occurs, but in no event beyond 36 months, plus odd time (not
exceeding 42 months in all) as respects multiple year
policies, nor 12 months plus odd time (not exceeding 18 months
in all) as respects policies of one year policy terms or less,
following the effective date of expiration. However, these
limitations shall not apply to any Extended Reporting Period
(hereinafter referred to as "ERP") or Extended Discovery
Endorsement (hereinafter referred to as "EDE") provisions or
policies classified by the Company as Project Specific
Coverage.
C. Notwithstanding the provisions of paragraph B above, the
Company shall have the option of reassuming the unexpired
liability of the Reinsurer hereunder on business in force on
the effective date of expiration, in which event the Reinsurer
shall not be liable for claims made or losses arising out of
loss events commencing after that date. As respects policies
providing an aggregate limit of liability which are in force
on the effective date of expiration, the Reinsurer shall be
liable for the entire aggregate loss under such policies if
the inception date of the policy period falls on or before the
effective date of expiration, as respects policies written on
an occurrence basis, or if the first claim is made on or
before the effective date of expiration as respects policies
written on a claims made basis.
D. If this Contract expires while a loss event covered hereunder
is in progress, the Reinsurer's liability hereunder shall,
subject to the other terms and conditions of this Contract, be
determined as if the entire loss event had occurred prior to
the expiration of this Contract, provided that no part of such
loss event is claimed against any renewal or replacement of
this Contract.
Article III - Territory (BRMA 51A)
The territorial limits of this Contract shall be identical with
those of the Company's policies.
Article IV - Exclusions
This Contract does not apply to and specifically excludes the
following:
1. Reinsurance assumed by the Company (unless an assumed
program has been specifically declared to this Contract
and accepted by the Reinsurer), except inter-company
reinsurance between any member companies of Gryphon
Insurance Group, Inc.
2. Financial guarantee and insolvency.
3. Business written by the Company on a co-indemnity
basis where the Company is not an equal or controlling
carrier.
4. Nuclear risks as defined in the "Nuclear Incident
Exclusion Clause - Liability - Reinsurance" and the
"Nuclear Incident Exclusion Clause - Physical Damage"
attached to and forming part of this Contract.
5. Liability as a member, subscriber or reinsurer of any
Pool, Syndicate or Association which is not underwritten
or controlled by the Company. However, this exclusion
shall not apply to Assigned Risk Plans or similar plans.
6. All liability of the Company arising by contract,
operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any
insolvency fund. "Insolvency fund" includes any guaranty
fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or
governed, which provides for any assessment of or payment
or assumption by the Company of part or all of any claim,
debt, charge, fee or other obligation of an insurer, or
its successors or assigns, which has been declared by any
competent authority to be insolvent, or which is otherwise
deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
Article V - Retentions and Limits
A. As respects business subject to this Contract, for each layer
of reinsurance coverage provided by this Contract the Company
shall retain and be liable for the first amount of ultimate
net loss arising out of each loss event identified as
"Company's Retention" for the excess layer in the schedule set
forth below. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
the amount identified as "Reinsurer's Limit" for the excess
layer in the schedule set forth below as respects any one loss
event.
Reinsurer's Limit Company's
Retention
First Excess Layer: $500,000 xs $500,000
Second Excess Layer: $9,000,000 xs $1,000,000
B. With respect to business subject hereunder, the maximum policy
limit (except statutory) with respect to any one coverage, any
one policy shall be deemed not to exceed $5,000,000 any one
loss event, with limits in excess of this amount deemed
reinsured elsewhere.
Article VI - Definitions
A. "Net excess liability" as used herein shall mean those amounts
payable by the Company as defined in the ultimate net loss
definition set forth in paragraph B below.
B. "Ultimate net loss" as used herein is defined as the sum or
sums (including loss in excess of policy limits, extra
contractual obligations, prejudgment interest if included as
part of an award or judgment and any loss adjustment expense,
as herein after defined) paid or payable by the Company in
settlement of claims and in satisfaction of judgments rendered
on account of such claims, after deduction of all salvage, all
recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. Nothing herein shall be construed
to mean that losses under this Contract are not recoverable
until the Company's ultimate net loss has been ascertained.
C. "Loss in excess of policy limits" and "extra contractual
obligations" as used herein shall mean:
1. "Loss in excess of policy limits" shall mean 90% of
any amount paid or payable by the Company under a policy
ceded to this Contract in excess of its policy limits, but
otherwise within the terms of its policy, as a result of
an action against it by its insured or its insured's
assignee to recover damages the insured is legally
obligated to pay to a third party claimant because of the
Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in
the trial of an action against its insured, or in
discharging its duty to prepare or prosecute an appeal
consequent upon such an action.
2. "Extra contractual obligations" shall mean 90% of any
punitive, exemplary, compensatory or consequential
damages, other than loss in excess of policy limits, paid
or payable by the Company under a policy ceded to this
Contract as a result of an action against it by its
insured, its insured's assignee or a third party claimant,
which action alleges negligence or bad faith on the part
of the Company in handling a claim under a policy subject
to this Contract.
Any loss in excess of policy limits or extra contractual
obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall
not apply to any loss incurred by the Company as a result of
any fraudulent and/or criminal act by any officer or director
of the Company acting individually or collectively or in
collusion with an individual or corporation or any other
organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. "Loss adjustment expense" as used herein shall mean expenses
allocable to the investigation, defense and/or settlement of
specific claims, including 1) prejudgment interest, unless
included as part of the award or judgment; 2) post-judgment
interest; and 3) legal expenses and costs incurred in
connection with coverage questions and legal actions connected
thereto; but not including office expenses or salaries of the
Company's regular employees, except that allocated outside
costs of the Company's or RA&MCO's salaried adjusters shall be
included. Claim costs shall also be included which are
incurred by RA&MCO and billed hourly to the Company in
accordance with its management agreement.
With respect to legal expenses and costs incurred in direct
connection with declaratory judgment actions brought to
resolve policy language coverage disputes between the Company
and its insured, such expenses shall, for purposes of this
Contract, not exceed an amount equal to the applicable limit
of the policy or policies involved unless agreed to by the
Reinsurer.
E. The term "loss event" as used herein shall mean an accident,
occurrence, claim made, loss discovered or any other
circumstance that triggers coverage as provided, defined, or
interpreted in the Company's original policies, however:
1. Where the Company's policy provides for an aggregate
limit of liability, the term "loss event" shall mean all
losses subject to that aggregate limit, each aggregate
period. For purposes of this Contract, the date of loss
for purposes of this reinsurance will be the inception
date of each aggregate period, as respects policies
written on an occurrence basis and the date the first
claim is made as respects policies written on a claims
made basis. Nevertheless, the Company may extract from
any aggregate "loss event" a single loss so it may be
combined with losses from other policies and submitted as
a single "loss event."
In the event the Company's losses arising out of a
single "loss event" involve policies providing different
types of coverage such as an occurrence and a claims made
policy, all losses can be combined and submitted as a
single "loss event" utilizing the occurrence date of loss
for the purpose of reinsurance coverage. In the event the
Company's losses arising out of a single "loss event"
involve multiple claims made policies, all losses can be
combined and submitted as a single "loss event" utilizing
the date the first claim is made for the purpose of
reinsurance coverage.
2. As respects policies written on a claims made basis,
the date of loss shall be the date the claim is made under
the original policy. As respects any extended reporting
or discovery period provisions under a claims made policy
subject hereto, it is understood and agreed that the
following shall apply:
a. Claims made against and/or reported to the Company
during the extended reporting or discovery period shall
be deemed to have occurred on the last full day of the
applicable policy period;
b. If the Company issues a separate policy and/or
reinstates the aggregate limit provided under a policy,
premium and losses during the period to which said
separate policy and/or reinstated limit applies may, at
the time of issuance and at the Company's option, be
allocated to (i) the contract which is in effect at the
effective date of said separate policy and/or at the
beginning of the period to which the reinstated limit
applies, or (ii) the contract which was in effect at the
effective date of the original policy. If the Company
elects (i), said losses shall be subject to a separate
retention and limit (as specified in the Retention and
Limit Article) from that of the original policy period.
3. As respects multiple year policies, whether issued
with one limit or reinstatement of the limit, each 12-
month period within a multiple year policy shall be
considered a separate period as regards the Company's
retention and the aggregate policy limit. However, as
respects business classified by the Company as "Project
Specific" coverages, the entire multiple year term shall
be considered one period as regards the Company's
retention and the aggregate policy limit.
4. As respects property losses subject hereto, all
individual losses directly occasioned by any one disaster,
occurrence or loss or series of disasters, occurrences or
losses arising out of one occurrence which occurs anywhere
in the world, but limited in the United States of America
and Canada to the United States or province of Canada and
states or provinces contiguous thereto and to one another.
However, the duration and extent of any one "loss event"
shall be limited to all individual losses sustained by the
Company occurring during any period of 168 consecutive
hours arising out of and directly occasioned by the same
loss event, except that the term "loss event" shall be
further defined as follows:
a. As regards windstorm, hail, tornado, hurricane,
cyclone, including ensuing collapse and water damage,
all individual losses sustained by the Company occurring
during any period of 72 consecutive hours arising out of
and directly occasioned by the same loss event.
However, the loss event need not be limited to one state
or province or states or provinces contiguous thereto.
b. As regards riot, riot attending a strike, civil
commotion, vandalism and malicious mischief, all
individual losses sustained by the Company occurring
during any period of 72 consecutive hours within the
area of one municipality or county and the
municipalities or counties contiguous thereto arising
out of and directly occasioned by the same loss event.
The maximum duration of 72 consecutive hours may be
extended in respect of individual losses which occur
beyond such 72 consecutive hours during the continued
occupation of an assured's premises by strikers,
provided such occupation commenced during the aforesaid
period.
c. As regards earthquake (the epicenter of which need
not necessarily be within the territorial confines
referred to above) and fire following directly
occasioned by the earthquake, only those individual fire
losses which commence during the period of 168
consecutive hours may be included in the Company's "loss
event."
d. As regards "freeze," only individual losses
directly occasioned by collapse, breakage of glass and
water damage (caused by bursting frozen pipes and tanks
and melting snow) may be included in the Company's "loss
event."
Except for those "loss events" referred to in
subparagraphs (a) and (b) above, the Company may choose
the date and time when any such period of consecutive
hours commences, provided that it is not earlier than the
date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of
that disaster, occurrence or loss, and provided that only
one such period of 168 consecutive hours shall apply with
respect to one loss event.
However, as respects those "loss events" referred to
in subparagraphs (a) and (b) above, if the disaster,
occurrence or loss occasioned by the occurrence is of
greater duration than 72 consecutive hours, then the
Company may divide that disaster, occurrence or loss into
two or more "loss events," provided that no two periods
overlap and no individual loss is included in more than
one such period, and provided that no period commences
earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company
arising out of that disaster, occurrence or loss.
It is understood that losses arising from a
combination of two or more perils as a result of the same
occurrence shall be considered as having arisen from one
"loss event." Notwithstanding the foregoing, the hourly
limitations as stated above shall not be exceeded as
respects the applicable perils and no single "loss event"
shall encompass a time period greater than 168 consecutive
hours.
Notwithstanding the foregoing, it is understood that the
Company shall be the sole judge of what constitutes a single
"loss event."
F. "Net earned premium" as used herein is defined as gross earned
premium of the Company for the classes of business reinsured
hereunder, less cancellations and return premiums, and less
the earned portion of premiums ceded by the Company for
reinsurance which inures to the benefit of this Contract or
increases the Company's available capacity.
G. "Losses incurred" as used herein for each excess layer shall
mean ceded losses and loss adjustment expense paid as of the
effective date of calculation for the excess layer, plus the
ceded reserves for losses and loss adjustment expense
outstanding as of the same date, all as respects losses
arising out of loss events commencing during the term of this
Contract, plus:
1. As respects the first calculation of the profit
sharing, an amount representing Incurred But Not Reported
Losses (hereinafter called "IBNR") equal to 50.0% of the
premiums earned hereunder as respects the First Excess
Layer, and 60.0% of the premium earned hereunder as
respects the Second Excess Layer;
2. As respects the first recalculation of the profit
sharing, an amount representing IBNR equal to 35.0% of the
premiums earned hereunder as respects the First Excess
Layer, and 45.0% of the premium earned hereunder as
respects the Second Excess Layer;
3. As respects the second recalculation of the profit
sharing, an amount representing IBNR equal to 20.0% of the
premiums earned hereunder as respects the First Excess
Layer, and 30.0% of the premium earned hereunder as
respects the Second Excess Layer;
4. As respects the third recalculation of the profit
sharing, an amount representing IBNR equal to 0% of the
premiums earned hereunder as respects the First Excess
Layer, and 15.0% of the premium earned hereunder as
respects the Second Excess Layer.
IBNR shall not be included in any subsequent recalculations of
the profit sharing.
Article VII - Other Reinsurance
Notwithstanding the provisions of paragraph B of Article V, the
Company is permitted, but not required, to purchase other
facultative and/or other treaty reinsurance on business subject
to this Contract. Premiums ceded by the Company for reinsurance
which inures to the benefit of this Contract or increases the
Company's available capacity shall be deducted in determining
subject premium hereunder as provided in Article X.
Article VIII - Loss Settlements
A. Wherever a claim is reserved by the Company for an amount of
ultimate net loss greater than 50% of the Company's retention
hereunder as respects policy limits or statutory benefits
applicable to the claim which are greater than the Company's
retention, and/or whenever, in the opinion of the Company, a
loss appears likely to result in claim hereunder, the Company
shall notify the Reinsurer. Within 90 days after any claim is
reported to the Reinsurer in accordance with the foregoing,
the Company shall advise the Reinsurer whether or not, in the
sole judgment of the Company, the claim is anticipated to
exceed its retention hereunder. Further, as respects claims
arising under Casualty business subject hereto, the Company
shall notify the Reinsurer whenever a claim involves a
fatality, amputation, spinal chord damage, brain damage,
blindness, extensive burns or multiple fractures, regardless
of liability, if the policy limits or statutory benefits
applicable to the claim are greater than the Company's
retention. The Company shall also notify the Reinsurer of any
declaratory judgment expense relating directly to a specific
claim brought against a policy reinsured under this Contract.
The Reinsurer shall have the right to participate in the
adjustment of the loss at its own expense.
B. All loss settlements made by the Company, provided they are
within the terms of the original policies (other than extra
contractual obligations and loss in excess of policy limits)
and the terms of this Contract, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay all ultimate net
loss amounts for which it may be liable upon receipt of
reasonable evidence of the amount paid (or scheduled to be
paid) by the Company. The Company may, however, give the
Reinsurer written notice of its intention to pay any loss on a
certain date and may require the Reinsurer to have its share
of such loss in the possession of the Company by such date;
provided that the Reinsurer shall have a period of five
business days after receipt of such written notice from the
Company to mail or otherwise dispatch its payment.
Article IX - Salvage and Subrogation
The Reinsurer shall be credited with salvage (i.e., reimbursement
obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company, and
sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and
settlements involving reinsurance hereunder. Salvage thereon
shall always be used to reimburse the excess carriers in the
reverse order of their priority according to their participation
before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss
was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
Article X - Reinsurance Premium
A. As premium for each layer of reinsurance coverage provided by
this Contract, the Company shall pay the Reinsurer the
following:
1. As respects the First Excess Layer of reinsurance
provided by this Contract, the Company shall pay the
Reinsurer 8.0% of the Company's net earned premium for the
term of this Contract.
2. As respects the Second Excess Layer of reinsurance
provided by this Contract, the Company shall pay the
Reinsurer 3.0% of the Company's net earned premium for the
term of this Contract.
In the event this Contract expires on a "runoff" basis in
accordance with the provisions of paragraph B of Article II,
premium for the reinsurance provided under each excess layer
of reinsurance coverage shall be the respective rate set forth
in subparagraphs 1 and 2 above applied to the Company's net
earned premium for each 12-month period within the runoff
period, as respects business in force on the effective date of
expiration.
B. For each excess layer of reinsurance coverage provided by this
Contract, the Company shall pay the Reinsurer an annual
deposit premium as follows, in five equal quarterly
installments on October 1, 1996, January 1, April 1, July 1
and October 1, 1997:
1. As respects the First Excess Layer of reinsurance,
$10,890,000 in five quarterly installments of $2,178,000.
2. As respects the Second Excess Layer of reinsurance,
$4,085,340 in five quarterly installments of $817,068.
It is understood that no deposit premium shall be payable
during the runoff period, if any.
C. Within 60 days after the expiration of this Contract, the
Company shall provide a report to the Reinsurer setting forth
the premium due hereunder for each excess layer, computed in
accordance with paragraph A, and any additional premium due
the Reinsurer or return premium due the Company shall be
remitted promptly. Premium for the runoff period, if any,
shall be payable by the Company within 60 days after the end
of each 12-month period within the runoff period.
Article XI - Late Payments
A. It is understood and agreed that the provisions of this
Article shall not be implemented unless specifically invoked,
in writing, by one of the parties to this Contract.
B. In the event any premium, loss or other payment due either
party is not received by the intermediary named in
Article XXVI (hereinafter referred to as the "Intermediary")
by the payment due date, the party to whom payment is due may,
by notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest
penalty on the amount past due calculated for each such
payment on the last business day of each month as follows:
1. The number of full days which have expired since the
due date or the last monthly calculation, whichever the
lesser; times
2. 1/365th of the six month (or nearest thereto) U.S.
Treasury Bill rate, as quoted in the Wall Street Journal
on the first business day of the month for which the
calculation is being made; times
3. The amount past due, including accrued interest.
It is agreed that interest shall accumulate until payment of
the original amount due plus interest penalties have been
received by the Intermediary.
C. The establishment of the due date shall, for purposes of this
Article, be determined as follows:
1. As respects the payment of routine deposits and
premiums due the Reinsurer, the due date shall be as
provided for in the applicable section of this Contract.
In the event a due date is not specifically stated for a
given payment, it shall be deemed due 45 days after the
date of transmittal by the Intermediary of the initial
billing for each such payment.
2. Any claim or loss payment due the Company hereunder
shall be deemed due five business days following receipt
by the applicable Subscribing Reinsurer of written
notification that payment has been received from
Subscribing Reinsurers constituting at least 662/3% of the
interests and liabilities of all Subscribing Reinsurers
participating under the applicable layer of this Contract,
who are active as of the due date; it being understood
that said date shall not be later than 75 days from the
date of transmittal by the Intermediary of the initial
billing for each such payment.
3. As respects any payment, adjustment or return due
either party not otherwise provided for in subparagraphs 1
and 2 of paragraph C above, the due date shall be deemed
as five business days following receipt of written
notification that the provisions of this Article have been
invoked.
For purposes of interest calculations only, amounts due
hereunder shall be deemed paid upon receipt by the
Intermediary.
D. Nothing herein shall be construed as limiting or prohibiting
1) a Subscribing Reinsurer from contesting the validity of any
claim, or from participating in the defense or control of any
claim or suit; or 2) either party from contesting the validity
of any payment, or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract.
If the debtor party prevails in an arbitration or other
proceeding, then any interest penalties due hereunder on the
amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the
amount determined to be due hereunder shall be calculated in
accordance with the provisions set forth above unless
otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to
be correct in its contestation, either in whole or in part,
the other party shall reimburse the debtor party for any such
excess payment made plus interest on the excess amount
calculated in accordance with this Article.
E. As provided under Article IX, it is understood and agreed that
the Company shall furnish the Reinsurer with usual and
customary claim information and nothing herein shall be
construed as limiting or prohibiting a Subscribing Reinsurer
from requesting additional information that it may deem
necessary.
F. As respects subparagraph 2 of paragraph C above, a Subscribing
Reinsurer shall be deemed not to be active when it 1) ceases
assuming new or renewal reinsurance business through the
Intermediary; 2) is declared insolvent, or put in liquidation,
conservatorship or rehabilitation by a competent regulatory
authority or court; 3) is declared insolvent, or is the
subject of an administrative order or enters provisional
liquidation and/or liquidation; or 4) has a reduction in its
statutory surplus or shareholders' funds of 50% or more from
its statutory surplus or shareholders' funds as of the
effective date of this Contract.
G. Interest penalties arising out of the application of this
Article that are $100 or less from any party shall be waived
unless there is a pattern of late payments consisting of three
or more items over the course of any 12-month period.
Article XII - Profit Sharing
A. Separately, as respects each excess layer of reinsurance
coverage provided by this Contract, the Reinsurer shall pay
the Company a Profit Sharing equal to 25.0% of the net profit,
if any, accruing to the Reinsurer individually under each
excess layer of reinsurance hereunder. The Reinsurer's net
profit for each excess layer hereunder shall be calculated in
accordance with the following formula, it being understood
that a positive balance equals net profit and a negative
balance equals net loss:
1. Earned reinsurance premium hereunder for the excess
layer; less
2. Expenses incurred by the Reinsurer at 15.0% of
premiums earned hereunder for the excess layer; less
3. Losses incurred hereunder for the excess layer.
B. The Company shall calculate and report the Reinsurer's net
profit for each excess layer within 60 days after 12 months
following the date of expiration of this Contract, and within
60 days after the end of each 12-month period thereafter until
all losses subject hereto have been finally settled. Each
such calculation shall be based on cumulative transactions
hereunder from the effective date of this Contract through the
date of calculation. As respects the initial calculation
referred to above, any profit sharing shown to be due the
Company for one or both of the excess layers shall be paid by
the Reinsurer as promptly as possible after receipt and
verification of the Company's report. As respects each
recalculation, any additional profit sharing shown to be due
the Company for one or both of the excess layers shall be paid
by the Reinsurer as promptly as possible after receipt and
verification of the Company's report. Any return Profit
Sharing shown to be due the Reinsurer shall be paid by the
Company with its report.
Article XIII - Offset (BRMA 36C)
The Company and the Reinsurer shall have the right to offset
any balance or amounts due from one party to the other under
the terms of this Contract. The party asserting the right of
offset may exercise such right any time whether the balances
due are on account of premiums or losses or otherwise.
Article XIV - Access to Records
The Reinsurer or its designated representatives shall have
access at any reasonable time to all records of the Company
which pertain in any way to this reinsurance.
Article XV - Liability of the Reinsurer
A. The liability of the Reinsurer shall follow that of the
Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and
modifications of the Company's policies and any endorsements
thereon. However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set
forth in this Contract.
B. Nothing herein shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.
Article XVI - Net Retained Lines
A. This Contract applies only to that portion of any insurance or
reinsurance (whether inter-company reinsurance and/or
reinsurance assumed which has been declared to this Contract
and accepted by the Reinsurer) the Company retains net for its
own account (prior to deduction of any underlying reinsurance
specifically permitted in the Contract), and in calculating
the amount of any loss hereunder and also computing the amount
or amounts in excess of which this Contract attaches, only
loss or losses in respect of that portion of any insurance or
reinsurance the Company retains net for its own account shall
be included.
B. The amount of the Reinsurer's liability hereunder in respect
of any loss or losses shall not be increased by reason of the
inability of the Company to collect from any other
reinsurer(s), whether specific or general, any amounts which
may be due from such reinsurer(s), whether such inability
arises from the insolvency of such other reinsurer(s) or
otherwise.
Article XVII - Errors and Omissions (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with
this Contract 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 rectified as soon as possible after
discovery.
Article XVIII - Currency (BRMA 12A)
A. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States
Dollars and all transactions under this Contract shall be in
United States Dollars.
B. Amounts paid or received by the Company in any other currency
shall be converted to United States Dollars at the rate of
exchange at the date such transaction is entered into the
books of the Company.
Article XIX - Taxes (BRMA 50B)
In consideration of the terms under which this Contract is
issued, the Company will not claim a deduction in respect of the
premium hereon when making tax returns, other than income or
profits tax returns, to any state or territory of the United
States of America or the District of Columbia.
Article XX - Federal Excise Tax
If the Reinsurer is subject to the Federal Excise Tax, the
Reinsurer agrees to allow the Company to withhold the required
amount for the purpose of paying the Tax. In the event of any
return premium becoming due hereunder, the Reinsurer will deduct
from the amount of the return premium the same percentage as it
allowed, and the Company or its agent should take steps to
recover the Tax from the U. S. Government.
Article XXI - Unauthorized Reinsurers
A. If the Reinsurer is unauthorized in any state of the United
States of America or the District of Columbia, the Reinsurer
agrees to fund its share of the Company's ceded outstanding
loss and loss adjustment expense reserves (including incurred
but not reported loss reserves) by:
1. Clean, irrevocable and unconditional letters of
credit issued and confirmed, if confirmation is required
by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office
credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities;
and/or
2. Escrow accounts for the benefit of the Company;
and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the
Company on any financial statement it is required to file with
the insurance regulatory authorities involved. The Reinsurer,
at its sole option, may fund in other than cash if its method
and form of funding are acceptable to the insurance regulatory
authorities involved.
B. With regard to funding in whole or in part by letters of
credit, it is agreed that each letter of credit will be in a
form acceptable to insurance regulatory authorities involved,
will be issued for a term of at least one year and will
include an "evergreen clause," which automatically extends the
term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The
Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters
of credit may be drawn upon by the Company or its successors
in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one
or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of
losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by
the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any
other amounts claimed to be due hereunder, unless paid in
cash by the Reinsurer;
3. To fund a cash account in an amount equal to the
Reinsurer's share of any ceded outstanding loss and loss
adjustment expense reserves (including incurred but not
reported loss reserves) funded by means of a letter of
credit which is under non-renewal notice, if said letter
of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the
actual amount required to fund the Reinsurer's share of
the Company's ceded outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss
reserves), if so requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of
credit is in excess of the actual amount required for B(1) or
B(3), or in the case of B(2), the actual amount determined to
be due, the Company shall promptly return to the Reinsurer the
excess amount so drawn.
Article XXII - Insolvency
A. In the event of the insolvency of one or more of the reinsured
companies, this reinsurance shall be payable directly to the
company or to its liquidator, receiver, conservator or
statutory successor immediately upon demand, with reasonable
provision for verification, on the basis of the liability of
the company without diminution because of the insolvency of
the company or because the liquidator, receiver, conservator
or statutory successor of the company has failed to pay all or
a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
the company shall give written notice to the Reinsurer of the
pendency of a claim against the company indicating the policy
or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable
time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during
the pendency of such claim, the 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
that it may deem available to the company or its liquidator,
receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the company as part of the
expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the company
solely as a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim
and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been
incurred by the company.
C. It is further understood and agreed that, in the event of the
insolvency of one or more of the reinsured companies, the
reinsurance under this Contract shall be payable directly by
the Reinsurer to the company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of
the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the
event of the insolvency of the company or (2) where the
Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the company as direct
obligations of the Reinsurer to the payees under such policies
and in substitution for the obligations of the company to such
payees.
Article XXIII - Arbitration
A. As a condition precedent to any right of action hereunder, any
dispute arising out of the interpretation, performance or
breach of this Contract, including the formation or validity
thereof, shall be submitted for decision to a panel of three
arbitrators. Notice requesting arbitration will be in writing
and sent certified or registered mail, return receipt
requested.
B. One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator who shall preside at the hearing.
If either party fails to appoint its arbitrator within thirty
(30) days after being requested to do so by the other party,
the latter, after ten (10) days notice by certified or
registered mail of its intention to do so, may appoint the
second arbitrator.
C. If the two arbitrators are unable to agree upon the third
arbitrator within thirty (30) days of their appointment, the
two arbitrators will jointly petition the American Arbitration
Association to appoint the third arbitrator from the AAA's
Panel of Reinsurance Arbitrators.
D. All arbitrators shall be disinterested active or former
executive officers of insurance or reinsurance companies,
underwriters at Lloyd's of London, reinsurance intermediaries
and attorneys actively or formerly engaged in practicing law
in the areas of insurance or reinsurance.
E. Within thirty (30) days after notice of appointment of all
arbitrators, the panel shall meet and determine timely periods
for briefs, discovery procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and
evidence. The arbitration shall take place in Woodland Hills,
California or, if unanimously agreed by the panel, any other
mutually acceptable location.
G. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for
purposes of this article. However, nothing shall impair the
rights of such reinsurers to assert several rather than joint
defenses or claims, nor shall this provision be construed as
changing the liability of the reinsurers under the terms of
this Contract from several to joint.
H. The panel shall make its decision considering custom and
practice as promptly as possible following the termination of
hearings. The decision of any two arbitrators, when rendered
in writing shall be final and binding, and judgment upon the
award may be entered in any court having jurisdiction. The
panel is empowered to grant such interim relief as it may deem
appropriate.
I. Each party shall bear the expense of its own arbitrator and
shall jointly and equally with the other party bear the cost
of the third arbitrator. The remaining costs of the
arbitration shall be allocated by the panel. The panel may,
at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorney's
fees and interest to the extent permitted by law. Insofar as
the arbitration panel chooses to look to substantive law, it
shall consider the law of the State of California.
Article XXIV - Service of Suit (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United
States of America, and/or is not authorized in any State,
Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any
amount claimed to be due hereunder, the Reinsurer, at the
request of the Company, will submit to the jurisdiction of any
court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United
States.
B. Further, pursuant to any statute of any state, territory or
district of the United States which makes provision therefor,
the Reinsurer hereby designates the party named in its
Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of
Insurance or other officer specified for that purpose in the
statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Contract.
Article XXV - Agency Agreement
Gryphon Insurance Group, Inc. shall be deemed the agent of the
reinsured companies for purposes of sending or receiving
notices required by the terms and conditions of this Contract,
and for purposes of remitting or receiving any monies due any
party.
Article XXVI - Intermediary (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements,
premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th
Street, Minneapolis, Minnesota 55431. Payments by the Company to
the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall
be deemed to constitute payment to the Company only to the extent
that such payments are actually received by the Company.
In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date
undermentioned at:
New York, New York,this ____ day of _____________ 199___.
__________________________________________
Gryphon Insurance Group, Inc., on behalf of
Associated International Insurance Company
Calvert Insurance Company
Timberline Insurance Company
Schedule A
attached to the
"Working" Per Event Reinsurance Contract
Effective: October 1, 1996
issued to
Associated International Insurance Company
Woodland Hills, California
Calvert Insurance Company
Philadelphia, Pennsylvania
Timberline Insurance Company
Eugene, Oregon
through the auspices of
Gryphon Insurance Group, Inc.
New York, New York
A. Umbrella business produced by Jean Deal & Associates, Dallas,
Texas for the Specialty Lines Division of Gryphon Insurance
Group, Inc., Woodland Hills, California.
B. DIC business produced by the Pacific Coast DIC Division of
Gryphon Insurance Group, Inc., Woodland Hills, California.
C. General Property E&S business produced by the General E&S
Division of Gryphon Insurance Group, Inc., Woodland Hills,
California.
D. Animal Mortality business produced by American Equine
Insurance Group, Rolling Meadows, Illinois for Gryphon
Insurance Group, Inc., Hoboken, New Jersey.
E. Canadian business produced by KMS Insurance Services, Toronto,
Canada for Gryphon Insurance Group, Inc., Hoboken, New Jersey.
F. Midwest Garage program produced by Business Risk Services,
Geneva, Illinois for Gryphon Insurance Group, Inc., Hoboken,
New Jersey.