EXHIBIT 10
OLD AMERICAN COUNTY MUTUAL FIRE INSURANCE COMPANY
100% QUOTA SHARE REINSURANCE AGREEMENT
With AMERICAN HALLMARK INSURANCE COMPANY
Effective: October 1, 2004
Quota Share Reinsurance Agreement
Number HFS-04-001
Table of Contents
Article 1 Recitals
Article 2 Definitions
Article 3 Business Reinsured
Article 4 Obligatory Agreement
Article 5 Terms and Cancellation
Article 6 Consideration
Article 7 Loss and Loss Adjustment Expense
Article 8 Reports and Remittances
Article 9 Ceding Commission, Fronting Fees, Premium
Taxes and Sliding Scale Commission
Article 10 Exclusions
Article 11 Errors and Omissions
Article 12 Inspection of Records
Article 13 Offset Clause
Article 14 Arbitration
Article 15 Honorable Undertaking
Article 16 Assessments and Assignments
Article 17 Conservation, Liquidation or Insolvency
Article 18 Hold Harmless
Article 19 Regulatory Matters
Article 20 Loss in Excess of Policy Limits/Extra Contractual Obligations
Article 21 Savings Clause
Article 22 Unauthorized (Non-Admitted) Reinsurance
Article 23 Program Review
Article 24 Miscellaneous
QUOTA SHARE REINSURANCE AGREEMENT NUMBER
HFS-04-001
This Agreement is made and entered into by and between OLD AMERICAN COUNTY
MUTUAL FIRE INSURANCE COMPANY (hereinafter referred to as the "Company") and
AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS (hereinafter referred to as the
"Reinsurer").
THE COMPANY AND REINSURER HEREBY AGREE AS FOLLOWS:
ARTICLE 1 - RECITALS
--------------------
1.1 The Company and Reinsurer hereby wish to enter into a reinsurance
arrangement through which the Company is to bear no business, credit or
insurance risk whatsoever, except for (a) the risk of the Reinsurer's
insolvency and (b) the risk of ECO and/or XPL exceeding the limits provided
in Article 20. The Reinsurer shall hold the Company fully harmless and
indemnify it for these and all risks arising as per the above."
1.2 The Company and Reinsurer hereby agree that the full consideration
provided by the Company in exchange for the fees set forth herein, is to
permit the Policies as defined herein to be issued in the name of the
Company and which are reinsured one hundred percent (100%) under this
Agreement.
1.3 It is understood and agreed that neither the Company nor the Reinsurer
is obligated by any representations or warranties made by any of the parties
involved in this transaction unless such representations and warranties are
formally included in this Agreement.
1.4 All business reinsured hereunder shall be produced by AMERICAN HALLMARK
GENERAL AGENCY, INC. (Managing General Agent), in accordance with the terms
and conditions of the Managing General Agency Agreement effective September
1, 2003, (Managing General Agency Agreement) between the Managing General
Agent and the Company, a copy of said Agreement is attached hereto and fully
incorporated herein.
1.5 This Agreement sets forth all of the duties and obligations between
the Company and the Reinsurer and supersedes any and all prior or
contemporaneous or written agreements with respect to matters referred to in
this Agreement. This Agreement may not be modified, amended or changed
except by an agreement in writing signed by both parties.
ARTICLE 2 - DEFINITIONS
-----------------------
2.1 "Policies" is defined as all policies, endorsements, certificates,
contracts, agreements and binders of insurance issued or renewed on or after
the effective date of this Agreement on behalf of the Company.
2.2 "Net Written Premium" is defined as the gross written premium on all
original and renewal Policies written by the Company including policy fees,
less return premium and cancellations.
2.3 "Loss in Excess of Policy Limits" (XPL) is defined as any amount which
the Company pays or would have been contractually held liable to pay had it
not been for the limit of the original Policy.
2.4 "Extra Contractual Obligation"(ECO) is defined as those liabilities not
covered under any other provision of this Agreement which arise from the
handling of any claim on business covered hereunder, because of, but not
limited to, failure by the Company to settle within the policy limit, or by
reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of
any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action. The date on which any
ECO is incurred by the Company shall be deemed, in all circumstances, to be
the date of the original disaster and/or casualty.
2.5 "Loss Adjustment Expense" shall mean expenditures by the Company that
are not part of the indemnity under the original policy (i.e. which do not
contribute to exhaustion of the original policy limit), made in connection
with the disposition of a claim, loss or legal proceeding (including
investigation, negotiation, cost of bonds, court costs, statutory penalties,
prejudgment interest or delayed damages, and interest on any judgment or
award and legal expenses of litigation) and the Company's defense costs and
legal expenses incurred in direct connection with legal actions (including,
but not limited to, Declaratory Judgment actions) brought to determine the
Company's defense and/or indemnification obligations that are allocable only
to Policies and claims under Policies subject to this Agreement. Any
Declaratory Judgment action expenses shall be deemed to have been fully
incurred on the same date as the original loss (if any) giving rise to the
action. Nonetheless, loss adjustment expense including legal expense shall
be 10% of earned premium and included in the monthly account.
2.6 "Prejudgment Interest" or "Delayed Damages" shall mean interest or
damages added to a settlement, verdict, award or judgment based on the
amount of time prior to the settlement, verdict, award or judgment whether
or not made part of the settlement, verdict, award or judgment.
2.7 "Underwriting Year" as used herein shall mean the period October 1,
2004 to September 30, 2005, both days inclusive, and each subsequent 12-
month period (or portion thereof) shall be a separate underwriting year.
All premiums and losses from policies allocated to an underwriting year
shall be credited or charged, respectively, to such underwriting year,
regardless of the date said premiums earn or such losses occur. It is
understood that a policy will be allocated to the underwriting year, which
is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies.
Such policies shall remain in the same underwriting year, as originally
allocated, until the next renewal date or premium anniversary date, at which
time such policies shall be reallocated to the underwriting year in effect
as of such date as provided in subparagraphs 2 above. The term of any
policy issued with respect to business covered hereunder shall not exceed 12
months.
ARTICLE 3 - BUSINESS REINSURED
------------------------------
3.1 The Reinsurer hereby reinsures the Company for a one hundred percent
(100%) quota share in respect of all liability, including, but not limited
to, losses and loss adjustment expenses, under Policies issued or renewed on
or after the effective date hereon on behalf of the Company by the Managing
General Agent or its designated representative as classified by the Company
in the attached Schedule of Business.
3.2 It is understood that the classes of business reinsured under this
Agreement are deemed to include coverages required for non-resident drivers
under the motor vehicle financial responsibility law or the motor vehicle
compulsory insurance law or any similar law of any state or province,
following the provisions of the Company's policies when they include or are
deemed to include so-called "Out of State Insurance" provisions.
3.3 All insurance under this Agreement shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and alterations
as the respective Policies of the Company.
ARTICLE 4 - OBLIGATORY AGREEMENT
--------------------------------
4.1 The Company agrees to cede to the Reinsurer, and the Reinsurer agrees
to accept from the Company, a one hundred percent (100%) quota share
reinsurance participation under all Policies effective on or after the
effective date hereof by the Company covering risks situated in Texas. The
liability of the Reinsurer shall commence obligatorily and simultaneously
with that of the Company subject to the terms, conditions and limitations
set forth in this Agreement.
4.2 Business ceded hereunder shall include every original policy, rewrite,
renewal or extension (whether before or after the termination of this
Agreement) required by statute or by rule or regulation of the Texas
Department of Insurance, or other authority having competent jurisdiction,
of any policy of insurance originally ceded hereunder by the Company to the
Reinsurer.
4.3 The parties understand and intend that the Reinsurer shall follow the
fortunes of the Company in every respect to activities engaged in hereunder.
ARTICLE 5 - TERM AND CANCELLATION
---------------------------------
5.1 This Agreement shall become effective 12:00:01 a.m. (Central Standard
Time) on the first day of October 2004, as respects losses arising under
Policies effective on or after such date, and shall remain continuously in
force unless terminated by either party.
5.2 This Agreement may be terminated by either party at any calendar
quarter end giving the other party written notice at least ninety (90) days
prior to such date.
5.3 When the Agreement terminates for any reason, reinsurance hereunder
shall continue to apply to the business in force at the time and date of
termination until expiration or cancellation of such business. The parties
understand and agree that any Policies with effective dates prior to the
termination date, but issued after the termination date, are covered under
this Agreement. Additionally, the reinsurance hereunder shall continue to
apply as to Policies which must be issued or renewed, as a matter of state
law or regulation or because an agent (appointed by the Company at the
request of the Reinsurer) has not been timely canceled, until the expiration
dates on said Policies.
5.4 Upon termination of this Agreement, the Reinsurer and the Company shall
not be relieved or released from any obligation which relate to outstanding
insurance business created by or under this Agreement. The parties hereto
expressly covenant and agree that they will cooperate with each other in the
handling of all such run-off insurance business until all Policies have
expired and all outstanding losses and loss adjustment expenses have been
settled. While by law and regulations, the Company recognizes its primary
obligations to its Policyholders, the Reinsurer recognizes that there shall
be no cost or involvement by the Company, unless specifically agreed, in
servicing this run-off. The Reinsurer shall bear all costs and expenses
associated with handling of such run-off business following the cancellation
or termination of this Agreement. If for any reason any managing general
agent or agent fails to service any such run-off business (or any business
while the Agreement is still in effect), including the payment of claims,
then consistent with this Agreement, the Reinsurer's obligation with respect
to such run-off business shall continue and the Reinsurer shall either
service such run-off business directly or appoint, at the Reinsurer's
expense, a successor to such managing general agent and/or agent, subject to
the approval of the Company, which approval shall not be unreasonably
withheld. Such successor shall perform all of the duties and obligations of
the managing general agent and/or agent with respect to servicing such run-
off business.
5.5 In addition to the provisions set forth in Article 5.2 herein, this
Agreement may be terminated at any time in accordance with the following
terms and conditions:
a. After thirty (30) days written notice by the Company in the event the
Reinsurer:
(i) is acquired and/or merged by or in any manner becomes under the
control of any other company or corporation;
(ii) changes a majority of its officers or board of directors; or
(iii) is the subject of a filing or petition or initiation of any
proceeding for supervision, rehabilitation, conservation or
liquidation, or any other proceedings for the protection of a
creditor.
b. After thirty (30) days written notice by the Reinsurer in the event the
Company:
(i) is acquired and/or merged by or in any manner becomes under the
control of any other company or corporation;
(ii) changes a majority of its officers or board of directors; or
(iii) is the subject of a filing or petition or initiation of any
proceeding for supervision, rehabilitation, conservation or
liquidation, or any other proceedings for the protection of a
creditor.
c. By the Company immediately and automatically without prior written
notice should the Texas Department of Insurance require cancellation or
disallow credit for this reinsurance.
d. After fifteen (15) days written notice by the Reinsurer or the Company,
in the event of breach of conditions, fraud or default by either party
under the terms and conditions of the Agreement.
5.6 Notices hereunder shall be provided in accordance with Article 24.2,
hereof.
ARTICLE 6 - CONSIDERATION
-------------------------
6.1 In consideration of the acceptance by the Reinsurer of one hundred
percent (100%) of the Company's liability on insurance business reinsured
hereunder, the Reinsurer is entitled to one hundred percent (100%) of the
Net Premiums written by the managing general agent and/or agent or the
Reinsurer on Policies reinsured less the ceding commission allowed to the
Company, which includes premium taxes and fronting fees on Policies subject
to reinsurance hereunder.
ARTICLE 7 - LOSS AND LOSS ADJUSTMENT EXPENSE
--------------------------------------------
7.1 All loss settlements, judgments and all interest on said judgments,
including losses in excess of policy limits (XPL) and extra contractual
obligations (ECO) made by the Company or the Company's designee under the
terms of this Agreement, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon the Reinsurer. The
Reinsurer shall be credited with all salvage or recoveries by the Company on
business reinsured hereunder.
7.2 The Reinsurer shall be liable for an amount of loss adjustment expense
equal to 10.0% of the premiums earned under this Agreement (as defined in
Article 2 - Definitions).
7.3 Claims handling shall be accomplished by the Managing General Agent or
its designated representative ("Claims Agent") pursuant to the Managing
General Agency Agreement and whose designation is subject to the Company's
continuing approval and shall not be inconsistent with the terms and
conditions of this Agreement. Payment of claims handling fees to the
designated representative (if any) shall be made by the Reinsurer.
7.4 It is further agreed, that if the Reinsurer's share of any loss is
equal to or greater than $100,000, the Reinsurer will pay its share of said
loss as promptly as possible after receipt of reasonable evidence of the
amount paid by the Company.
ARTICLE 8 - REPORTS AND REMITTANCES
-----------------------------------
8.1 Within forty-five (45) days after the end of each calendar month, the
Company shall report to the Reinsurer the following:
a. Ceded Net Written Premium for the month;
b. Ceded premiums earned for the month;
c. Provisional ceding commission on b above;
d. Ceded losses paid during the month (net of any recoveries during the
month for cash calls);
e. Salvage, subrogation or other recoveries on losses;
f. 10.0% of (b), representing the Reinsurer's share of loss adjustment
which includes legal expense;
g. Ceded unearned premium at the end of the month;
h. Ceded outstanding losses and loss adjustment expense reserves at the
end of the month.
8.2 Balances due under this Agreement will be equal to (b) less (c) less
(d) plus (e) less (f). Any positive balances shown to be due the Reinsurer
shall be remitted by the General Agent within 60 days. Any negative balance
shown to be due the General Agent shall be remitted by the Reinsurer as
promptly as possible after receipt and verification of the General Agent's
report, not to exceed 15 days from receipt of the General Agent's report.
Notwithstanding the foregoing, in the event the Reinsurer terminates this
Agreement reports shall be due within 15 days after the end of the month and
remittances shall be due within 30 days after the end of the month.
ARTICLE 9 - CEDING COMMISSION, FRONTING FEES, PREMIUM TAXES AND SLIDING
------------------------------------------------------------------------
SCALE COMMISSION
----------------
9.1 The Reinsurer will pay to the Company a provisional Ceding commission
of 31.00%, which shall be calculated on the basis of earned premium on
policies reinsured hereunder.
9.2 The Company will be liable for remitting state premium taxes based on
net written premium and net policy fees charged. Should service fees be
charged on any policy covered by this Agreement, and such fees be deemed
taxable for premium tax purposes, then such service fees are to be added to
the net written premium and net policy fees charged to determine the amount
subject to Fronting Fees. Should service fees be deemed taxable, they shall
be reported and remitted in a consistent manner as premium written in
Article 8 above.
9.3 The Reinsurer acknowledges that the Company is not responsible for any
contingent commission adjustment, and such adjustment shall be settled
directly between the Managing General Agent and the Reinsurer. The Reinsurer
shall seek recovery for any contingent commission adjustment directly from
the Managing General Agent.
9.4 The provisional commission allowed the Company shall be adjusted
periodically in accordance with the provisions set forth herein. The first
adjustment period shall be from the effective date of this Agreement through
September 30, 2005, and each subsequent 12 month period shall be a separate
adjustment period. However, if this Agreement is terminated, the final
adjustment period shall be from the beginning of the then current adjustment
period through the effective date of termination.
9.5 The adjusted commission rate shall be calculated as follows and be
applied to premiums earned for the period under consideration:
a. If the ratio of losses incurred to premiums earned is 65.50% or
greater, the adjusted commission rate for the period under consideration
shall be 28.00%;
b. If the ratio of losses incurred to premiums earned is less than
65.50%, but not less than 62.50%, the adjusted commission rate for the
period under consideration shall be 28.00%, plus 100% of the difference in
percentage points between 65.50% and the actual ratio of losses incurred to
premiums earned;
c. If the ratio of losses incurred to premiums earned is 62.50% or
less, but not less than 53.50% the adjusted commission rate for the period
under consideration shall be 31.00%, plus the difference in percentage
points between 62.50% and the actual ratio of losses incurred to premiums
earned;
d. If the ratio of losses incurred to premiums earned is 53.50% or
less, the adjusted commission rate for the period under consideration shale
be 40.00%.
9.6 If the ratio of losses incurred to premiums earned for any period is
greater than 65.50%, the difference in percentage points between the actual
ratio of losses incurred to premiums earned and 65.50% shall be multiplied
by premiums earned for the period and the product shall be carried forward
to the next adjustment period as a debit to losses incurred. If the ratio
of losses incurred to premiums earned for any period is less than 53.50%,
the difference in percentage points between 53.50% and the actual ratio of
losses incurred to premiums earned shall be multiplied by premiums earned
for the period and the product shall be carried forward to the next
adjustment period as a credit to losses incurred.
9.7 Within 18 months from the inception of the Underwriting Year, and after
the end of each 12 month period thereafter the General Agent shall calculate
and report the adjusted commission on premiums earned for the adjustment
period. If the adjusted commission on premiums earned is less than
commissions previously allowed by the Reinsurer on premiums earned for the
adjustment period, the General Agent shall remit the difference to the
Reinsurer with its report. If the adjusted commission on premiums earned is
greater than commissions previously allowed by the Reinsurer on premiums
earned for the adjustment period, the Reinsurer shall remit the difference
to the General Agent as promptly as possible after receipt and verification
of the Company's report.
9.8 "Losses incurred" as used herein shall mean ceded losses paid as of
the effective date of calculation, plus the 10.0% allowance for loss
adjustment expense, plus the ceded reserves for losses outstanding as of the
same date, plus the debit or minus the credit from the preceding adjustment
period, it being understood and agreed that all losses and related loss
adjustment expense under policies with effective or renewal dates during an
adjustment period shall be charged to that adjustment period, regardless of
the date said losses actually occur, unless this Agreement is terminated on
a "cutoff" basis, in which event the Reinsurer shall have no liability for
losses occurring after the effective date of termination.
9.9 "Premiums earned" as used herein shall mean ceded net written premiums
for policies with effective or renewal dates during the adjustment period,
less the unearned portion thereof as of the effective date of calculation,
it being understood and agreed that all premiums for policies with effective
or renewal dates during an adjustment period shall be credited to that
adjustment period, unless this Agreement is terminated on a "cutoff" basis,
in which event the unearned reinsurance premium (less previously allowed
ceding commission) as of the effective date of termination shall be returned
by the Reinsurer to the Company.
ARTICLE 10 - EXCLUSIONS
-----------------------
This Agreement does not apply to and specifically excludes the following:
a. Any automobile not classified as private passenger automobile.
b. Garagekeepers legal liability.
c. Vendors single interest.
d. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause
- Physical Damage - Reinsurance" and the "Nuclear Incident
Exclusion Clause - Liability - Reinsurance" attached to and
forming part of this Agreement.
e. Liability as a member, subscriber or reinsurer of any Pool,
Syndicate or Association, but this exclusion shall not apply to
Assigned Risk Plans or similar plans.
f. Mobile homes.
g. Automobile dealers.
h. Automobile Liability with respect to any vehicle used principally
as:
1) A Taxicab, public or livery conveyance or bus, it being
understood that this exclusion does not apply to school or
church buses;
2) An ambulance, fire department or law enforcement vehicle;
3) A racing or exhibition vehicle.
i. Loss or damage caused by or resulting from war, invasion,
hostilities, acts of foreign enemies, civil war, insurrection,
military or usurped power, martial law or confiscation by order of
any government of public authority, but not excluding loss or
damage which would be covered under a policy or standard form
containing a standard war exclusion clause.
j. Loss or damage or cost or expenses arising from seepage and/or
pollution and/or contamination, other than contamination from
smoke damage. Nevertheless, this exclusion does not preclude any
payments of the cost of the removal of debris of property damage
by a loss otherwise covered hereunder, but subject always to a
limit of 25% of the Company's Property Business loss under the
original policy.
If any business falling within the scope of one or more of the exclusions is
assigned to the Company under an Assigned Risk Plan, such exclusion(s) shall
not apply, it being understood and agreed that the limits of liability
extended by the Company as respects such policies shall not exceed the
minimum statutory limits of liability prescribed in such Assigned Risk Plan.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set forth
in this Article, these exclusions shall be suspended with respect to such
business until 30 days after an underwriting supervisor of the Company
acquires knowledge of such business.
ARTICLE 11 - ERRORS AND OMISSIONS
---------------------------------
11.1 Inadvertent delays, errors or omissions made in connection with this
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 rectified as
soon as possible after discovery.
ARTICLE 12 - INSPECTION OF RECORDS
----------------------------------
12.1 All records pertaining to Policies issued on behalf of the Company
through or by the Reinsurer or its designated representative subject to this
Agreement, shall be deemed to be jointly owned records of the Company and
the Reinsurer, and shall be made immediately available to the Company or the
Reinsurer or their representative or any duly appointed examiner for any
State within the United States; and these records shall be kept in the State
of Texas. Notwithstanding the foregoing, the Reinsurer is authorized to
maintain duplicate working files of all such records outside the State of
Texas. The Company and the Reinsurer agree that neither will destroy any
such records in their possession without the prior written approval of the
other, except that the Company shall not be required to retain files longer
than required by the guidelines set by the Texas Department of Insurance.
ARTICLE 13 - OFFSET CLAUSE
--------------------------
13.1 The Company or the Reinsurer shall have the right to offset any balance
or amounts due from one party to the other under the terms of this
Agreement. The party asserting the right of offset may exercise such right
at any time whether the balances due are on account of premiums or losses or
otherwise.
ARTICLE 14 - ARBITRATION
------------------------
14.1 Unless both parties mutually agree to waive arbitration with respect
to a particular dispute, the parties to this Agreement hereby agree that
binding arbitration shall be the sole remedy for any and all dispute(s)
arising between them with reference to any transactions, terms or conditions
under this Agreement including its formation and validity. Arbitration
proceedings brought hereunder shall be referred for final determination to
the majority decision of a Panel of three disinterested arbitrators. Notice
of demand for arbitration shall be made in writing and shall be served via
certified or registered mail, return receipt requested, on the Respondent to
the Arbitration at the Respondent's current address. The notice requesting
arbitration shall identify the Agreement(s) involved in the dispute, the
issues to be resolved in the view of the Petitioner, and the arbitrator
selected by the Petitioner. The term "days" as used herein shall mean
calendar days.
14.2 The Respondent shall appoint an arbitrator within 30 days of receiving
a request by the Petitioner in writing and served via certified or
registered mail, return receipt requested, to do so. At the same time as
the appointment, the Respondent shall identify in writing any issues which
in its view must be resolved in the arbitration proceeding and which were
not identified by the Petitioner. If the Respondent fails to appoint its
arbitrator within 30 days of being requested to do so, in writing, by the
Petitioner, the Petitioner shall have the right to appoint the second
arbitrator. Within 30 days after their appointment, the two arbitrators so
chosen shall select a third arbitrator to act as umpire. If the two
arbitrators do not agree as to the selection of a third arbitrator within 60
days after their appointment, the third arbitrator shall be selected from a
list of six individuals (three named by each arbitrator) by a judge of the
federal district court in Dallas County, Texas.
14.3 Each arbitrator shall be a disinterested, active or retired official or
officer of an insurance or reinsurance company, not under the control or
management of either party to this Agreement, and shall have experience in
the class and type of business subject to this dispute.
14.4 Within 30 days after notice of appointment of all arbitrators, the
Petitioner and the Respondent shall each submit a statement of position to
the Panel.
14.5 Within 60 days after notice of appointment of all arbitrators, each
party shall provide the other with its relevant books, records, and/or other
papers not protected from disclosure by either the work-product or attorney
client privilege. Other than the exchange of relevant documents, both
parties shall refrain from engaging in any type of discovery including, but
not limited to, depositions and interrogatories.
14.6 Within 30 days following the exchange of documents, the Petitioner and
the Respondent shall submit re-hearing briefs to the Panel.
14.7 Unless some other location is mutually agreeable to the parties,
arbitration proceedings shall take place within the municipality wherein the
Home Office of the Company is located. Arbitration shall commence as soon
as practicable but in no event longer than 120 days after selection of the
third arbitrator with notice thereof to the parties. The specific time and
site of arbitration shall be promptly agreed to by the parties, or if no
Contract is reached, then determined by the Panel.
14.8 The Panel shall be relieved from applying the strict rules of evidence
and/or procedure and shall make its decision based on the custom and
practice of the insurance and reinsurance business with a view toward
effecting this Agreement in a reasonable manner. Should either party fail
to appear at an arbitration hearing and/or fail to furnish the Panel with
any subpoenaed papers or information, the Panel is empowered to proceed ex
parte. The Panel shall make its award within 60 days following the close of
the hearing. The majority decision of the Panel shall be final and binding
upon the parties and shall be reduced to a written award, which may include
factual findings, and shall be signed by any two of the three arbitrators,
dated and delivered overnight to the parties. The Panel may award pre-
judgment and post-judgment interest, but in no case shall the authority of
the Panel extend to awarding punitive or exemplary damages. Judgment may be
entered upon the award by any court having jurisdiction.
14.9 The expense of its own arbitrator, but shall equally share with the
other the expense of the third arbitrator. In the event that the two
arbitrators are chosen by one party, as above provided, the expense of the
two arbitrators, the third arbitrator and the arbitration shall be equally
divided between the Petitioner and the Respondent. Unless mutually agreed
other wise, a court reporter transcript shall be taken of the hearing with
costs to be divided equally between the parties. The remaining costs of
arbitration shall be allocated by the Panel.
14.10 The Arbitration proceeding brought hereunder, any or all
provisions contained herein, and arbitration awards entered pursuant to this
Article are specifically governed by, subject to and enforceable under the
Federal Arbitration Act (Title 9, United States Code, Sections 1-14, as
amended.)
14.11 Each party agrees that time is of the essence with respect to all
terms and conditions referenced in this Article. All deadlines contained in
this Article may be extended by mutual Contract of the parties, and if the
Panel has been selected, the Panel's Contract must also be obtained.
14.12 Each party agrees that any arbitration award entered pursuant to
and governed by this Article shall not have any precedential or collateral
estoppel effect on future arbitrations, proceedings, or controversies, if
any, between the parties. Any claim of res judicata or claim preclusion
shall itself be subject to arbitration.
14.13 This Article shall survive the termination of this Agreement.
ARTICLE 15 - HONORABLE UNDERTAKING
----------------------------------
15.1 The purposes of this Agreement are not to be defeated by narrow or
technical legal interpretations of its provisions. This Agreement shall be
construed as an honorable undertaking and should be interpreted for the
purpose of giving effect to the intentions of the parties hereto.
ARTICLE 16 - ASSESSMENTS AND ASSIGNMENTS
----------------------------------------
16.1 The Reinsurer hereby assumes liability for its one hundred percent
(100%) quota share reinsurance participation with respect to any and all
costs, assessments or assignments imposed as a result of Policies reinsured
hereunder (whether before or after the termination of this Agreement) levied
or made by a guaranty fund, insolvency fund, plan, pool, association, or
other arrangement created by statute or regulation including, but not
limited to, assessments levied by the Texas Property & Casualty Insurance
Guaranty Association. The Company shall account to the Reinsurer for any
recovery or any credit allowed to the Company against its premium taxes, and
return to the Reinsurer its share of any recovery or credit.
ARTICLE 17 - CONSERVATION, LIQUIDATION OR INSOLVENCY
----------------------------------------------------
17.1 In the event of the insolvency of the Company, the Reinsurance afforded
by this Agreement shall be payable directly by the Reinsurer to the Company
or its liquidator, receiver or statutory successor on the basis of the
liability of the Company under the Policies, without diminution because of
the insolvency of the Company, in accordance with the provisions of any
State Law which may be involved except:
a. where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company; or
b. where the Reinsurer with the consent of the direct insured(s) 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 the payees.
17.2 In the event of the insolvency of the Company, the liquidator, receiver
or statutory successor of the Company shall give written notice to the
Reinsurer of the pendency of a claim against the insolvent Company on a
Policy within a reasonable time after such claim is filed in the insolvency
proceedings. 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 which it may
deem available to the Company or its liquidator, receiver or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable,
subject to court approval, against the insolvent Company as part of the
expense of liquidation to the extent of the proportionate share of the
benefits which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
17.3 If two (2) or more reinsurers are involved in the same claim and a
majority in interest elects to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Company.
17.4 As respects subject business assumed as reinsurance under this
Agreement, the parties agree that if the Company has a conservator,
liquidator, or receiver appointed for it, or becomes the subject of any
conservation, liquidation or insolvency proceeding, and the Company is
permitted to have all its liabilities under the Policies reinsured hereunder
assumed by another licensed insurer, such assuming insurer shall be
substituted for the Company as payee of any reinsurance recoverable
hereunder in respect of losses under Policies subject hereto, and the
Reinsurer shall make payments thereof directly to the substituted insurer.
17.5 In the event the foregoing provisions apply, all the other provisions
of this Agreement shall apply to the substituted insurer in the same manner
as if said insurer were substituted for the Company as the reinsured party
hereunder, and to the extent this Agreement reinsures such substituted
insurer, coverage hereunder shall be excluded as respects the Company.
ARTICLE 18 - HOLD HARMLESS
--------------------------
18.1 In consideration of these presents and the reciprocal benefits derived
by the Company and the Reinsurer, the Reinsurer assumes liability for any
and all uncollected balances, unsettled finance agreements, claims,
commission adjustments, losses, loss corridors, demands, causes of action
(including, but not limited to, violations of the Texas Deceptive Trade
Practices Act or insurance laws or regulations), damages (including, but not
limited to, any and all extra contractual or liability in excess of policy
limits), judgments and expenses (including, but not limited to, attorney's
fees and costs of court) which may be made against the Company and which are
incurred, either directly or indirectly, in connection with this Agreement
or contracts related to this Agreement or any actions or failure to take
action by the Managing General Agent or any agent or by the Company in
successfully asserting its rights hereunder in connection with or with
respect to this Agreement.
Notwithstanding anything to the contrary, this provision shall not apply to:
a. fraud, dishonesty, theft or collusion on the part of any Director,
Officer or employee of the Company; or
b. policies not reinsured hereunder; or
c. the Company's failure to perform its duties and obligations under this
Agreement due to the Company's gross negligence.
18.2 If, for any reason, the Managing General Agent or agent fails, or
is unable, to administer the Policies reinsured hereunder (whether the
Agreement is still in effect or the business is being run-off), the
Reinsurer shall appoint, a third party, subject to the Company's approval,
to administer the business in accordance with the terms and conditions of
this Agreement and the agreement with the Managing General Agent. The
Reinsurer shall be responsible for the cost of such administration. The
Company agrees to cooperate with the Reinsurer and the third party
administrator in the run-off of the business. If return premiums or other
funds need to be returned or paid to premium finance companies,
policyholders, sub-agents or any other party, the Reinsurer shall pay these
amounts if the Managing General Agent or agent does not.
ARTICLE 19 - REGULATORY MATTERS
-------------------------------
19.1 It is the parties' understanding that the Texas Department of Insurance
views current premium due over ninety (90) days past due (aged by item and
effective date) from insureds or their designated representative to the
Company as non-admitted assets. In confirmation of the liabilities assumed
by the Reinsurer under this Agreement, the Reinsurer hereby assumes its
share of all liability and responsibility for all premiums in the course of
collection.
19.2 The Reinsurer shall agree, at no cost to the Company, to take those
actions (including, but not limited to, modifications in how funds are
handled and how accounts are cleared and settled) and agree to those
arrangements necessary to ensure that the Company suffers no adverse impact
because of this reinsurance program and is in compliance with the laws of
the State of Texas and regulations promulgated by any governmental entity
thereof, including the Texas Department of Insurance, insofar as this
reinsurance program is concerned, subject to the provisions of Article 17.
19.3 The Reinsurer and the Company shall not offset obligations arising
under this Agreement with obligations arising under any other agreement
except to the extent permitted under state law and/or regulations.
ARTICLE 20 - LOSS IN EXCESS OF POLICY LIMITS/EXTRA CONTRACTUAL OBLIGATIONS
--------------------------------------------------------------------------
20.1 This Agreement shall protect the Company for one hundred percent (100%)
of any loss in excess of Policy limits (XPL) and/or one hundred percent
(100%) of the extra contractual obligations (ECO) and shall be deemed to be
a loss under the Policy involved and shall be subject to this Agreement.
However, for any one occurrence, the maximum ECO/XPL loss the Reinsurer
shall be liable for is subject to $10,000,000 for any one risk. Further,
any amount in excess of a $10,000,000 ECO and/or XPL loss the Company will
retain 100%.
20.2 Notwithstanding anything stated herein, this Agreement shall not apply
to any extra contractual obligation (ECO) 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 any
individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
ARTICLE 21 - SAVINGS CLAUSE
21.1 If any law or regulation of any Federal, State or Local Government of
the United States of America, or the ruling of officials having supervision
over insurance companies, should prohibit or render illegal this Agreement
or any portion thereof, as to risks or properties located in the
jurisdiction of such authority, either the Company or the Reinsurer may,
upon written notice to the other, suspend or abrogate this Agreement insofar
as it relates to risks or properties located within such jurisdiction to
such extent as may be necessary to comply with such law, regulation or
ruling. Such illegality shall in no way affect any other portion thereof,
provided, however, that the Reinsurer or the Company may terminate or
suspend this Agreement insofar as it relates to the Business to which such
law or regulation may apply.
21.2 Should any portion of this Agreement be held to be unenforceable by
Arbitration or any court of competent jurisdiction, the remainder of such
Agreement shall be construed as if originally written without the
unenforceable portion thereof, giving effect to the extent possible of the
original intent of the parties hereto as expressed in such Agreement as
originally written.
ARTICLE 22 - UNAUTHORIZED (NON-ADMITTED) REINSURANCE
----------------------------------------------------
22.1 In the event the Company is unable to take reserve credit under this
agreement or the Reinsurer's AM Best rating is below "A-", the Reinsurer
hereby agrees to secure delivery to the Company, prior to the effective date
of this Agreement, a clean, irrevocable, evergreen, unconditional letter of
credit drawn on a bank that is a member of the Federal Reserve System and
approved by the National Association of Insurance Commissioners, and in
accordance with the rules and regulations as set forth by the Texas
Department of Insurance or any other regulatory authority having
jurisdiction, for an amount equal to the Reinsurer's share of the reserves
for unearned premium and outstanding losses and loss expenses, including
incurred but not reported losses. The Company agrees to furnish the
Reinsurer with necessary accounting data to establish the amount of such
letter of credit.
22.2 In the event the Reinsurer and the Company mutually agree, the
Reinsurer may, instead of complying with Article 22.1, enter into a trust
agreement and establish a trust account for the benefit of the Company in a
bank that is a member of the Federal Reserve System, approved by the
National Association of Insurance Commissioners and in accordance with the
rules and regulations as set forth by the Texas Department of Insurance or
any other regulatory authority having jurisdiction. Such amount shall be
determined in accordance with Article 22.1 above.
22.3 The assets deposited in the trust account shall be valued, according to
their current fair market value, and shall consist only of cash,
certificates of deposit, and/or investments of the types permitted by the
Texas Insurance Code, Article 5.75-1 (d), provided that such investments are
issued by an institution that is not the parent, subsidiary, or affiliate of
either the guarantor or the beneficiary.
22.4 The trust agreement shall further require that all settlements of
account between the Company and the Reinsurer be made in cash or its
equivalent.
22.5 The Reinsurer and the Company hereby agree that the Letter of Credit or
the assets in the trust account established pursuant to this Agreement may
be withdrawn by the Company at any time, notwithstanding any other
provisions in this Agreement. Such withdrawals shall be utilized and
applied by the Company or its successors in interest by operation of law,
including without limitation any liquidator, rehabilitator, receiver, or
conservator of such Company, without diminution because of insolvency on the
part of the Company or the Reinsurer, only for the following purposes:
a. to reimburse the Company for the Reinsurer's share of premiums returned
to the owners of Policies reinsured under this Agreement on account of
cancellations of such Policies; or
b. to reimburse the Company for the Reinsurer's share of surrenders and
benefits or losses paid by the Company pursuant to the provisions of
the Policies reinsured under this Agreement; or
c. in the event of notice of termination of the trust, to fund an account
with the Company in an amount at least equal to the reinsurers share of
reserves described in Article 22.1 above; or
d. to pay any other amounts due the Company under this Agreement.
ARTICLE 23 - PROGRAM REVIEW
---------------------------
23.1 The Reinsurer acknowledges that it has been afforded the opportunity to
review the records of the Managing General Agent including but not limited
to rate levels, rate filings, underwriting guidelines and claims handling.
Although the Company may perform reviews as well, it is understood that
the participation of the Reinsurer on this Agreement is based upon its
continuing due diligence and not based upon due diligence performed by the
Company.
ARTICLE 24 - MISCELLANEOUS
--------------------------
24.1 This Agreement has been made and entered into in the State of Texas.
24.2 All notices required to be given hereunder shall be deemed to have been
duly given by personally delivering such notice in writing or by mailing it,
Certified Mail, return receipt requested, with postage prepaid. Any party
may change the address to which notices and other communications hereunder
are to be sent to such party by giving the other party written notice
thereof in accordance with this provision.
24.3 This Agreement shall be binding upon the parties hereto, together with
their respective executors, administrators, personal representatives, heirs
and assigns.
24.4 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
24.5 This Agreement may be amended, modified or supplemented only by a
written instrument executed by all parties hereto.
24.6 This Agreement is the entire Agreement between the parties and
supersedes one and all previous agreements, written or oral, and amendments
thereto.
24.7 A waiver by the Company, the Reinsurer or its designated representative
of any breach or default by the other party under this Agreement shall not
constitute a continuing waiver or a waiver by the Company, the Reinsurer or
its designated representative of any subsequent act in breach or of default
hereunder.
24.8 Headings used in this agreement are for reference purposes only and
shall not be deemed a part of this Agreement.
SCHEDULE OF BUSINESS
The Company, the Reinsurer and the Managing General Agent agree that the
Managing General Agent has the authority to accept, on forms approved by the
Company, any Policy, endorsement, binder, certificate, or proposal for
insurance. The Managing General Agent's authority is limited by this
Schedule of Business.
Overall:
Projected premium volume $40,000,000
Territory Texas only
Maximum policy term Twelve months
Lines of business and maximum limits of liability
Coverage Maximum Limits
Bodily Injury Liability $ 25,027 each person
$ 50,027 each accident
Property Damage Liability $ 25,027 each accident
Uninsured/Underinsured Motorists
Bodily Injury $ 25,027 each person
$ 50,027 each accident
Property Damage $ 25,027 each accident
Personal Injury Protection $ 2,527 each person
Medical payments $ 527 each person
Physical Damage $ 50,000 each automobile
This Agreement does not apply to and specifically excludes the following:
a. Any business not produced by AMERICAN HALLMARK GENERAL AGENCY, INC., or
b. Any business not classified as private passenger automobile liability
or physical damage, or
c. Exclusions specified within the Quota Share Reinsurance Agreement
Number HFS-04-001.
IN WITNESS WHEREOF, the Company and Reinsurer hereto by their
respective duly authorized representatives have executed this Agreement as
of the date first above written.
Signature page follows
AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS
BY:_____________________________________
ITS:____________________________________
OLD AMERICAN COUNTY MUTUAL FIRE INSURANCE COMPANY
BY:_____________________________________
ITS:____________________________________