EXHIBIT 10.1
GENERAL AGENCY AGREEMENT
(hereinafter called the "Agreement")
between
HALLMARK GENERAL AGENCY, INC.
(hereinafter called the "General Agent")
and
CLARENDON NATIONAL INSURANCE COMPANY
(hereinafter called the "Company")
DECLARATIONS PAGE
These Declarations, together with the Agreement and all Schedules,
Exhibits and Amendments thereto constitute the general agency agreement
between the Company and the General Agent. Capitalized terms used in these
Declarations and not otherwise defined herein shall have the meanings
ascribed to them in Section 1.1 in the Agreement (all such meanings to be
equally applicable in the singular and plural forms).
A. Names and Addresses of the Parties:
Clarendon National Insurance Company (the "Company")
7 Times Square
New York, NY 10036
Hallmark General Agency, Inc. (the "General Agent")
777 Main Street, Suite 1000
Fort Worth, TX 76102
Hallmark Financial Services, Inc. (the "Parent Guarantor")
777 Main Street, Suite 1000
Fort Worth, TX 76102
B. Effective Date: July 1, 2004
C. Authorized Coverages and Maximum Limits of Liability.
The coverages and limits set forth on Exhibit A attached to this
Declarations Page, are subject to and limited by the reinsurance terms
under the Quota Share Treaty. If the Quota Share Treaty has not been
executed, the coverage and limits of liability shall be based upon the
proposed reinsurance terms set forth in the reinsurance placement slip
for the Quota Share Treaty. Notwithstanding anything in Exhibit A or
this Agreement to the contrary, the coverages and limits of liability
shall conform to the Quota Share Treaty as if the terms of the Quota
Share Treaty have been incorporated into this Agreement.
D. States.
The states set forth on Exhibit B attached to this Declarations Page.
E. Maximum Volume per Underwriting Year.
$80,000,000 of Net Written Premium.
F. First Underwriting Year.
The first Underwriting Year is the period from August 15th, 2001 to and
including June 30th of 2002, and each subsequent Underwriting Year will be
the period commencing July 1st and ending June 30th of such year.
G. Commission Formula:
(1) During the period from August 15th, 2001 to and including June 30,
2004, the General Agent's compensation shall be determined as set
forth in the August 15th, 2001General Agency Agreement as amended by
Addendum #1 and , Addendum #2.
(2) Effective July 1, 2004, the General Agent's compensation shall be
determined in accordance with Item G.(2) of the Declaration Page and
Article 3 of this Agreement.
(i) Initial Provisional Commission Rate;
Twenty Four percent (24.00%) of collected Net Written Premium
(ii) Company's Pre-Tax Retained Fee Rate (exclusive of state mandated
fees including but not limited to taxes, boards and bureaus);
Five percent (5.00%) [of collected Net Written Premium]
(iii) Tax Allowance Rate (inclusive of state mandated fees including
but not limited to taxes, boards and bureaus);
Three percent (3.00%) [of collected Net Written Premium]
(iv) Audit Premium Collateral Rate;
N/A percent (N/A%) [of collected Net Written Premium]
(v) Audit Premium Proportionate Share Rate;
N/A percent (N/A%) [of uncollected Audit Premium for which the General
Agent may be liable to the Company provided that the General Agent has
diligently performed the actions set forth in Section 4.3(b).]
H. Addenda:
The following addendum/addenda shall be attached to and considered an
integral part of this Agreement, and shall be deemed incorporated into
this Agreement.
August 15th, 2001 General Agency Agreement, effective August 15th, 2001
Addendum #1, effective October 10th, 2003
Addendum #2, effective August 15th, 2003
I. The Company's Underwriting Guidelines.
The Company' underwriting guidelines, underwriting standards and/or
filed rates and forms, if so imposed and not otherwise set forth in
this Agreement, may be attached to this Declarations page as Exhibit C,
and shall be part of the Underwriting Standards as defined in the
Agreement.
Dated: New York, NY
Date
Attest: HALLMARK GENERAL AGENCY, INC.
/s/ Joyce Wilhelm By: /s/ Kevin Kasitz
---------------------- ------------------------------
Title:
Attest: CLARENDON NATIONAL INSURANCE COMPANY
/s/ Luba Ilyasova By: /s/ Gary Ketels
---------------------- ------------------------------
Title:
EXHIBIT A
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AUTHORIZED COVERAGES, MAXIMUM LIMITS OF LIABILITY
-------------------------------------------------
Authorized Coverages Maximum Limits of Liability
-------------------- ---------------------------
Automobile BI
- Automobile PD $500,000
- Automobile CSL $1,000,000
- Uninsured/Underinsured $1,000,000
- Garage Liability $1,000,000/$3,000,000
General Liability:
- Each Occurrence $1,000,000
- General Aggregate $2,000,000
- Prod/Comp Opps Agg $2,000,000
Medical Payments
- Personal Injury
- Personal Injury $10,000
- Personal Injury $1,000,000
- Professional Liability $1,000,000
- Employer Liability (Stop Gap - ID, $500,000/$500,000/$500,000
OR & WA)
Commercial Property $5,000,000 any risk
- Commercial Inland Marine $2,000,000
- Commercial Crime $500,000
EXHIBIT B
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AUTHORIZED STATES
-----------------
Idaho
New Mexico
Oregon
Texas
Washington
RECITALS
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A. The Company would like the General Agent to produce and
administer the Company's insurance policies and renewals thereof
("Policies", or individually, the "Policy") for the insurance coverages
listed on Exhibit A attached to the Declarations and in the states listed
on Exhibit B attached to the Declarations during the period from the date of
this Agreement ("Effective Date") until this Agreement terminates, and the
General Agent is willing to do so on behalf of the Company in accordance
with the terms of this Agreement.
B. The General Agent acknowledges that the Company is at risk
under, and has ultimate responsibility for, the Policies; therefore, the
General Agent agrees that the Company will make the final decision on all
matters pertaining to the Policies.
C. The parties intend that the Company shall earn a profit from
the issuance of the Policies. In keeping with that intention, the General
Agent will diligently perform its duties under this Agreement in an ethical,
legal and professional manner, and to the best of its abilities. The
Company and the General Agent have agreed to amend and restate their rights
and obligations under the August 15th, 2001 General Agency Agreement as
amended by Addendum #1 and Addendum #2, which are attached hereto and
incorporated herein by reference. The Company and the General Agent agree
that any dispute arising under the August 15th, 2001 General Agency
Agreement as amended by Addendum #1 and Addendum #2 will be resolved in
accordance with the terms of this Agreement.
IN CONSIDERATION OF THE MUTUAL PROMISES EXCHANGED, the parties
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Defined Terms. As used in this Agreement, the following terms
have the following meanings, which apply to both the singular and plural
forms of the terms defined:
"Adjusted Commission" is defined in Section 3.2(b).
"Adjusted Commission Rate" is defined in Section 3.6.
"Agent" is defined in Section 2.1.
"Agreement" means this agreement.
"Audit Premium" is defined in Section 4.3.
"Audit Premium Collateral" is defined in Section 3.4(b).
"Audit Premium Collateral Rate" means the percentage of Net Written
Premium to be withheld by the Company as collateral from commission payable
to the General Agent to secure audit premium, which rate is set in Item G of
the Declarations.
"Audit Premium Proportionate Share Rate" means the maximum percentage
of uncollected Audit Premium for which the General Agent may be liable to
the Company provided that the General Agent has diligently performed the
actions set forth in Section 4.3(b). The "Audit Premium Proportionate
Share Rate" is set in Item G of the Declarations.
"Company" means the entity or entities designated as the Company in
Item A of the Declarations.
"Company's Fee Rate" means the sum of the Company's Pre-Tax Retained
Fee Rate and the Tax Allowance Rate.
"Company's Pre-Tax Retained Fee Rate" means the percentage of Net
Written Premium retained by the Company under the terms of this Agreement,
excluding state mandated fees, taxes, boards and bureaus, which rate is set
in Item G of the Declarations.
"Declarations" means the terms and/or definitions attached hereto on
the "Declarations Page".
"Effective Date" means the date of this Agreement designated as the
Effective Date in Item B of the Declarations.
"Forms and Rates" is defined in Section 2.6(h).
"General Agent" means the entity or entities designated as the General
Agent in Item A of the Declarations.
"Guarantor" means the person or persons designated as the Guarantor in
Item A of the Declarations.
"Initial Provisional Commission Rate" means that provisional commission
rate used in Section 3.5(b) if a Quota Share Treaty (i) has not been
executed, or (ii) has terminated and is not in effect and does not reinsure
the Company for Policies with effective dates on or after the termination
date of the respective Quota Share Treaty, which rate is set in Item G of
the Declarations.
"Loss Corridor Collateral" is defined in Section 3.3(b).
"Loss Corridor Rate" means the portion of losses and loss adjustment
expenses, expressed as a percentage of Net Written Premium, which are not
recoverable by the Company under the terms of the Quota Share Treaty.
"MGA Notification" is defined in Section 2.7(c).
"Net Written Premium" means gross written premium less premium returned
for Policy cancellations.
"Policy" is defined in recital A.
"Policyholder" means the holder of a Policy.
"Provisional Commission" is defined in Section 3.2(a).
"Provisional Commission Rate" is defined in Section 3.5.
"Quota Share Treaty" means the relevant quota share reinsurance
agreement reinsuring the insured risks under the Policies.
"Return Commission" is defined in Section 3.1(a).
"Tax Allowance Rate" means the percentage of Net Written Premium
retained by the Company under the terms of this Agreement for state mandated
fees, taxes, boards and bureaus, which rate is set in Item G of the
Declarations.
"Underwriting Standards" is defined in Section 2.5(c).
"Underwriting Year" means each accounting period as defined in Section
2.6(f).
ARTICLE 2
UNDERWRITING AUTHORITY
----------------------
2.1 Authority to Issue Policies. From the Effective Date to the
termination of this Agreement the General Agent shall have the authority
to issue Policies and binders in compliance with the standards set forth
in Sections 2.5 and 2.6 through duly licensed insurance brokers, agents,
producers, or similar persons or companies (collectively "Agents").
The appointment of, and authority granted to, the General Agent is not
exclusive, and the Company may, if it wishes, appoint additional general
agents to issue Policies.
2.2 Appointment of Agents. In those states where the insurer is
required to appoint Agents, the Agents shall be appointed by or on behalf
of the Company. The General Agent shall reimburse the Company for any fees
and appointment costs (including any costs incurred by the Company, Company
affiliates or through an independent vendor on the Company's behalf to
process agency appointments) that the Company is required to pay to appoint
the General Agent or any Agent. The General Agent shall not authorize or
permit any Agent to issue Policies on behalf of the Company unless the
Company has given the General Agent its written approval for such
authorization.
2.3 Responsibility for Agents. The General Agent shall be solely
responsible for overseeing the placement of business through Agents, and any
agreements regarding the placement of such business shall be made directly
between the General Agent and the Agents. Such agreements entered into by
the General Agent after the Effective Date shall contain language stating
that the Agents shall have no claim against the Company, and will look
solely to the General Agent, to recover any costs, expenses, or damages
incurred by the Agents as a result of any act or omission of the General
Agent, whether the General Agent is acting on its own behalf or on behalf of
the Company. The General Agent agrees to indemnify the Company against any
fines levied against, or expenses incurred by, the Company as a result of
(i) the General Agent accepting business from an unlicensed Agent, (ii) the
failure of the General Agent or any Agent or the Company due to the General
Agent's action or inaction to comply with any applicable statute, rule or
requirement regulating the business relationship between the Company and the
General Agent or any Agent, or (iii) the failure of the General Agent or any
Agent to comply with any applicable duties and obligations under the Gramm-
Leach-Bliley Act or any state law or regulation implementing the same; and
the General Agent shall upon discovery promptly notify the Company of any
such non-compliance.
2.4 Form 1099. The General Agent shall prepare separate, itemized
monthly statements of the business placed by each Agent through the General
Agent, and shall furnish each Agent with an IRS Form 1099 each year when
required.
2.5 Standards for Issuing Policies and for Underwriting Services.
(a) The General Agent is authorized to bind coverage, issue and
endorse Policies in the name of the Company, and cancel or refuse to renew
binders or Policies in its reasonable judgment and in accordance with all
applicable laws and regulations.
(b) Upon signing this Agreement, the General Agent shall provide
to the Company a copy of its then in effect underwriting standards, and the
General Agent shall provide to the Company any updates, modifications, or
amendments thereof no less than annually throughout the term of this
Agreement.
(c) Prior to the issuance of any Policies, the General Agent
shall submit proposed written standards or guidelines ("Underwriting
Standards") to the Company for the underwriting services to be provided by
the General Agent under this Agreement. The Underwriting Standards shall be
subject to the approval of the Company. All underwriting services to be
provided by the General Agent under this Agreement shall conform to the
Underwriting Standards. After the Underwriting Standards have been approved
by the Company, the General Agent shall be solely responsible for assuring
that they comply with all governmental statutes, rules, or regulations
of any applicable jurisdiction. The General Agent shall perform its
obligations in conformity with any standards, instructions, practices or
procedures which the Company may, from time to time, provide to the General
Agent, which standards, instructions, practices and procedures shall, when
provided to the General Agent, become part of the Underwriting Standards.
The General Agent shall submit any proposed updates and changes to the
Underwriting Standards to the Company for approval, and if such updates and
changes are approved by the Company, then such approved updates and changes
shall become part of the Underwriting Standards. The Underwriting Standards
shall include, without limitation, the basis of premium rates to be charged,
the lines of insurance coverages which may be written, maximum limits of
liability, applicable exclusions from coverage, territorial limitations,
cancellation provisions, the maximum Policy period, and control of Policy
issuance.
(d) The Company agrees that it will keep confidential any
underwriting guidelines proposed by the General Agent for one year after
termination of this Agreement, unless the GA is terminated for cause .
(e) The Underwriting Standards shall also include the
limitations and exclusions set forth in the Company's Quota Share Treaties
covering business produced under this Agreement and the Policies. The
Company agrees to, where applicable, provide the relevant sections of the
Quota Share Treaties to the General Agent, either directly or through a
reinsurance intermediary or other representative. Once the General Agent
receives copies of the Quota Share Treaties, the limitations and exclusions
set forth in the Quota Share Treaties will become part of the Underwriting
Standards, and the General Agent will be bound by such limitations and
exclusions, unless such limitations and exclusions are or have been
expressly waived by the Company.
(f) Unless expressly authorized by the Company, the General
Agent has no authority to issue a policy covering risks not covered by
reinsurance. In the event the General Agent seeks the Company's consent to
issue such a policy, the Company may either (i) inform the General Agent not
to write the risk, (ii) provide its consent and authorize the General Agent
to write the risk, or (iii) instruct the General Agent to modify the policy
form to exclude damages caused by the risks excluded under the Quota Share
Treaty. If a risk is expressly covered by the filed and approved policy
form (e.g., definition of Insured) but the reinsurance agreement, by its
express terms, does not cover a particular risk, the General Agent still has
the obligation to obtain the Company's consent before issuing a policy for
the risk excluded by the reinsurance agreement. The General Agent cannot
and shall not rely upon the Company's filed policy form as evidence of the
Company's consent pursuant to Section 2.5(f)(ii) in the event the Company
brings a claims for damages arising from the issuance of a policy outside
the scope of the General Agent's authority for a risk excluded by the Quota
Share Treaty.
(g) Notwithstanding the foregoing or anything in this Agreement
or elsewhere to the contrary, the Company (i) shall retain ultimate control
and responsibility of the functions it has delegated hereunder, and (ii) has
and will retain the authority to make the final decisions on underwriting
matters including, without limitation, the acceptance, rejection, or
canceling of risks. The General Agent acknowledges that the Company is at
risk under, and has ultimate responsibility for, the Policies; therefore,
the General Agent agrees that the Company retains the right to make the
final decision on all matters pertaining to the Policies. The General Agent
will diligently perform its duties under this Agreement in an ethical, legal
and professional manner, and to the best of its abilities.
(h) The General Agent shall be and remain in compliance with,
and shall ensure that all Agents are in compliance with the laws and
regulations pertaining to the Gramm-Leach-Bliley Act or any state law or
regulation implementing the same.
2.6 Provisions and Authority. The General Agent shall adhere to the
following provisions when exercising its authority under this Agreement:
(a) Policies shall be issued only for the coverages listed on
Exhibit A attached to the Declarations and only in the states listed on
Exhibit B attached to the Declarations.
(b) Policies shall be issued only in strict accordance with the
Underwriting Standards for such Policies.
(c) Policies shall be issued in accordance with terms and
conditions of the applicable reinsurance agreement or contract to which the
Company is a party or by which the Company may be bound.
(d) The General Agent shall maintain control procedures relating
to binder and Policy issuance, notification of insureds, and other matters
relating to Policy administration.
(e) Any binder or Policy issued by or at the request of the
General Agent that does not comply with the Underwriting Standards or the
Company's explicit written instructions for such Policy shall, at the
Company's request, be promptly terminated by the General Agent consistent
with the terms of the Policy and applicable state laws and regulations; and
the General Agent agrees to indemnify the Company against any liability
arising under or relating to such binder or Policy, or its cancellation.
(f) The General Agent shall not write business in excess of the
amount of Net Written Premium set forth in Item E of the Declarations for
the first and each subsequent Underwriting Year of this Agreement, unless
otherwise agreed to in writing by the Company and the General Agent. The
first Underwriting Year is the period from the Effective Date to and
including the date set forth in Item F of the Declarations; and each
subsequent Underwriting Year will be the period commencing on the day after
the end of the prior Underwriting Year and terminating on the anniversary of
the end of the prior Underwriting Year.
(g) Binders shall not be issued for a term exceeding thirty (30)
days and Policies shall not be issued for a term exceeding one (1) year.
(h) The General Agent shall utilize only insurance contract
wording, endorsement wording, and rates and rules, that are approved in
writing by the Company and, to the extent necessary, are properly filed with
or approved in writing by the appropriate regulatory authority. Before
issuing any Policies, the General Agent shall provide to the Company for its
review and approval the proposed insurance contracts, endorsements, binders,
rating plans and rules (collectively "Forms and Rates"), to be used by the
General Agent in administering the Policies. The Forms and Rates shall
comply with applicable statutes, regulations and directives. The General
Agent shall pay all expenses incurred by (1) the General Agent, (2) third
parties, and (3) filing fees incurred by the Company or affiliates of the
Company who are acting at the General Agent's request, in (i) preparing the
Forms and Rates, and (ii) in filing the Forms and Rates with the appropriate
regulatory authorities.
(i) The General Agent shall have no authority to:
(i) cede, purchase or bind any reinsurance or
retrocessions, including, but not limited to, treaty reinsurance, on behalf
of the Company, except for the facultative reinsurance with the prior
Company approval;
(ii) commit the Company to participate in insurance or
reinsurance syndicates;
(iii) appoint any Agent without reasonable assurance that
such Agent is legally licensed to transact the insurance business for which
it is appointed;
(iv) collect any payment from a reinsurer or commit the
Company to a claim settlement with a reinsurer without the Company's prior
approval; and if such approval is given, a report shall be promptly
forwarded to the Company by the General Agent;
(v) permit any of its Agents or any employee of any of its
Agents to sit on its board of directors;
(vi) jointly employ an individual, who is employed with the
Company;
(vii) appoint a sub-managing general agent;
(viii) terminate a Policy midterm or prior to its stated
expiration date, and offer to issue a new policy and/or a renewal of such
terminated Policy, to the same Policyholder with policy effective dates
within the stated term of such terminated Policy, without the prior written
consent of the Company; or
(ix) employ or continue to employ, as an officer, director,
employee, agent, subcontractor, or other person authorized to act on behalf
of the General Agent, any individual who has ever been convicted of any
state or federal criminal felony involving dishonesty or a breach of trust
or any crime under 18 U.S.C. S 1033 unless the individual has obtained the
prior written consent of the insurance regulatory official possessing
regulatory authority over such individual.
(j) The General Agent shall process all assigned risk Policies
at the same commission rate as provided in Article 3.
(k) The General Agent shall perform loss control services for
every Policyholder, including but not limited to actions to reduce the
frequency and/or severity of losses, and provide all other Policyholder
services and administration which may be required or advisable under or
related to any Policy.
(l) The General Agent shall secure, in the event any Policy is
issued with a deductible endorsement, all unpaid deductible obligations,
actuarially valued to their ultimate cost, with collateral acceptable to the
Company. In the event any Policy is subject to retrospective rating, all
projected retrospective premium due the Company shall be similarly secured.
(m) The Company may require the General Agent to terminate the
coverage provided by any Policy so long as such termination does not violate
any law or regulation. If the Company wishes to terminate coverage, the
Company may instruct the General Agent to send such non-renewal or
cancellation notice as may be required by the Policy or the applicable
regulatory authority and the General Agent shall promptly comply with such
instructions. If (i) the General Agent receives written notice from the
entity administering claims under the Policies on behalf of the Company, or
(ii) the General Agent as the entity administering claims under the Policies
on behalf of the Company determines, that sums due the Company from the
Policyholder (for example, deductible reimbursement) are more than thirty
(30) days overdue, the General Agent shall, within five (5) business days
thereafter, send written notice to the Policyholder canceling the Policy,
where allowed, or otherwise non-renew the Policy upon the anniversary. The
General Agent will diligently work with the Claims Administrator to assist
to collect outstanding deductibles and/or take appropriate underwriting
action on the policy.
(n) The General Agent is responsible for ensuring that Policies
are administered according to customary and usual customer service and
Policy administration standards. The General Agent shall promptly respond
to inquiries, correspondence and communications, whether written, telephonic
or electronic. Endorsements and all matters affecting the issuance and
maintenance of Policies shall be performed in a timely and competent manner,
and in compliance with usual insurance industry regulatory and professional
standards. The General Agent shall ensure that it has sufficient staffing
and systems to perform all its functions and obligations hereunder, and to
assist in servicing the business and Policies, as required by this
Agreement.
(o) The General Agent shall ensure that the aggregate limits of
liability for all Policies issued in any Underwriting Year shall not exceed
the aggregate exposure limitations or restrictions set forth in the
Company's Quota Share Treaties and other applicable reinsurance treaties.
(p) Where required by law, the General Agent shall provide,
prior to the issuance of any Policy, and in accordance with applicable state
and federal law, each new Policyholder with an initial notice of the
Company's privacy policies and practices, and, if necessary or required by
law, an opt-out notice explaining the Policyholder's rights as the case may
be, to opt out of the disclosure of nonpublic personal information. Not
less than annually thereafter, the General Agent shall distribute a copy of
the Company's annual privacy notice, as may be amended from time to time, to
each existing Policyholder. In addition, the General Agent shall, at the
request of the Company, distribute revised privacy notices and opt-out
notices as applicable to each Policyholder to reflect any revisions which
may be made to the Company's privacy policies and practices. In each case,
the Company shall be responsible for providing the General Agent with a copy
of its privacy policies and practices and its opt-out notice, which shall be
used to provide the notices described in this section 2.6(p). The General
Agent shall be responsible for providing any of its employees, agents,
representatives, contractors and subcontractors, who are performing direct
or indirect services for the Policies or Policyholders, with a copy of the
Company's privacy policies and practices, and for ensuring that such
employees, agents, representatives, contractors and subcontractors are
complying with such privacy policies and practices.
2.7 Insurance Coverages to be Maintained by the General Agent.
(a) The General Agent shall acquire and maintain an errors and
omissions insurance policy issued by an insurance carrier admitted to
transact business in the state of New Jersey, subject to the approval of the
Company, with policy limits of not less than the greater of (i) One Million
Dollars ($1,000,000), or (ii) Twenty Five Percent (25%) of direct premium
written from business attributable to the General Agent for the previous
calendar year, but in no event shall policy limits be less than $1,000,000
nor greater than $5,000,000, the coverage hereunder to be adjusted, if
necessary, on or before April 1st of each year. The policy shall not be
written by the Company or an affiliate of the Company. Proof satisfactory
to the Company of the issuance and maintenance of such errors and omissions
policy shall be submitted annually to the Company not later than April 30th
of each year.
(b) The General Agent shall acquire and maintain a fidelity bond
in an amount not less than $500,000 issued by an insurance carrier subject
to the approval of the Company. The executed bond shall be promptly
submitted to the Company.
(c) If at any time during the term of this Agreement the Company
makes a determination that the General Agent is a "managing general agent"
as defined in the New Jersey Managing General Agent's Act, the Company shall
so notify the General Agent ("MGA Notification") and the General Agent shall
within thirty (30) days thereafter acquire and maintain, in addition to the
coverages provided for in subparagraph 2.7(a) and 2.7(b), a surety bond for
the protection of the Company issued by an insurance carrier admitted to
transact fidelity and surety business in the state of New Jersey, subject to
the approval of the Company, in an amount of not less than the greater of
(i) One Hundred Thousand Dollars ($100,000), or (ii) Ten Percent (10%) of
direct premium written from business attributable to the General Agent for
the previous calendar year, but in no event shall the surety bond be less
than $100,000 nor greater than $500,000, the coverage hereunder to be
adjusted, if necessary, on or before April 1st of each year. The bond shall
not be written by the Company nor an affiliate of the Company. The executed
bond shall be promptly submitted to the Company.
2.8 Compliance with Law. The Company and the General Agent shall
each maintain all licenses and regulatory approvals necessary to conduct the
business to which this Agreement refers. If an MGA Notification is sent to
the General Agent, the General Agent shall as soon as practicable thereafter
apply for a license as an insurance producer in the state of New Jersey,
whether or not New Jersey is a state in which the General Agent is
authorized under this Agreement to issue Policies and whether or not the
General Agent is domiciled or located in a state or states other than New
Jersey. The General Agent shall be and remain in compliance with, and shall
ensure that all Agents are in compliance with, the laws and regulations,
including the Gramm-Leach-Bliley Act, which affect the binders, Policies and
other regulated documents issued pursuant to this Agreement.
ARTICLE 3
COMPENSATION
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Capitalized terms used in this Article 3 which are not defined in this
Article 3, are defined in Section 1.1.
3.1 Commission Payments.
(a) The Company shall pay the General Agent commission equal to
Provisional Commission plus Adjusted Commission pursuant to Sections 3.1(b)
and 3.1(c). The General Agent shall pay the Company a return commission
("Return Commission") on return premium at the rate or rates commission was
paid to the General Agent.
(b) The General Agent shall submit written Provisional
Commission payment requests to the Company on a monthly basis, in the form
provided by the Company. The Company shall pay Provisional Commission due
the General Agent within seven (7) days after receipt of the Provisional
Commission payment requests, unless the Company disputes the Provisional
Commission payment requests, in which case the undisputed amounts requested
shall be paid within seven (7) days after receipt of the Provisional
Commission payment request. Return Commission due the Company shall be
offset against commissions due the General Agent. All Provisional
Commission amounts shall be paid by wire or electronic transfer unless
agreed otherwise.
(c) Adjusted Commission shall be paid to the General Agent when
ultimate incurred losses are determined with reasonable certainty by the
Company.
(d) The Company shall remit to the General Agent, any amount by
which Provisional Commission plus Adjusted Commission plus profit sharing
commission (if any) to which the General Agent was entitled exceeds the
actual commission paid to the General Agent, within thirty (30) days after
the Company determines ultimate incurred losses with reasonable certainty.
If the Company determines that the commission paid to the General Agent
exceeds the amount of Provisional Commission plus Adjusted Commission plus
profit sharing commission (if any) to which the General Agent was entitled,
the General Agent shall pay the excess amount to the Company within five
(5) business days after demand.
(e) If the actual state mandated fees, taxes, boards, and
bureaus exceed the Tax Allowance Rate times Net Written Premium, then in
such event the Company, may at its sole option, either (i) increase the Tax
Allowance Rate (set forth in item G of the Declarations) by notice to the
General Agent, or (ii) bill and recover such differences from the General
Agent. If the actual state mandated fees, taxes, boards and bureaus are
less than the Tax Allowance Rate times Net Written Premium, then the Company
shall retain the difference, and no additional commission shall be due the
General Agent.
3.2 Provisional Commission and Adjusted Commission.
(a) Provisional commission ("Provisional Commission") shall be
based on the minimum provisional ceding commission authorized under the
Quota Share Treaty. Provisional Commission shall equal:
(i) the Provisional Commission Rate times Net Written
Premium;
plus (ii) any applicable Policy and service fees collected
by the General Agent;
minus (iii) any applicable premium taxes on such Policy
and service fees.
(b) Adjusted commission ("Adjusted Commission") shall be
based on the difference between (i) minimum provisional ceding commission
authorized under the Quota Share Treaty and (ii) actual ceding commission
paid to the Company under the Quota Share Treaty after adjustments (if any)
for incurred losses. If there is no executed Quota Share Treaty in effect
then there shall be no Adjusted Commission. Adjusted Commission shall
equal:
(i) the Adjusted Commission Rate times Net Written Premium.
3.3 Loss Corridor Commission Reduction, Collateral, Losses and
Payments.
(a) In order to provide an inducement to write profitable
business, the General Agent shall reduce its commission to the extent the
Company pays losses and loss adjustment expenses not recoverable under the
Quota Share Treaty because of loss corridor provisions in the Quota Share
Treaty.
(b) The General Agent shall provide collateral ("Loss Corridor
Collateral") to the Company to secure its obligation under Section 3.3(a).
The Loss Corridor Collateral shall be withheld by the Company from
commission payments due the General Agent (pursuant to Section 3.1(b)).
Loss Corridor Collateral shall equal:
(i) the Loss Corridor Rate times Net Written Premium.
(c) The Company may draw upon the Loss Corridor Collateral to
satisfy the General Agent's obligations as provided under Section 3.3(a).
The Company shall release Loss Corridor Collateral, not otherwise used by
the Company, when ultimate incurred losses are determined with reasonable
certainty by the Company.
3.4 Audit Premium Security Account, Commission Reduction, Collateral,
and Payments.
(a) In order to secure potential uncollected audit premium, the
General Agent shall reduce its commission to the extent determined below.
(b) The General Agent shall provide collateral ("Audit Premium
Collateral") to the Company to secure its obligation under Section 3.4(a).
The Audit Premium Collateral shall be withheld by the Company from
commission payments due the General Agent (pursuant to Section 3.1(b)).
Audit Premium Collateral shall equal:
(i) the Audit Premium Collateral Rate times Net Written
Premium.
(c) The Company may draw upon the Audit Premium Collateral to
satisfy the General Agent's obligations as provided under Section 3.4(a).
The Company shall release Audit Premium Collateral, not otherwise used or
required by the Company, when ultimate audit premium has been (i) determined
with reasonable certainty by the Company, and (ii) received by or drawn from
the Audit Premium Collateral by the Company.
3.5 Provisional Commission Rate. The provisional commission rate
("Provisional Commission Rate") shall be determined as follows:
(a) If a Quota Share Treaty has been executed and is in effect,
then the Provisional Commission Rate shall equal:
(x1) the minimum ceding commission rate under the Quota
Share Treaty;
minus (y1) the Company's Fee Rate;
minus (y2) the Loss Corridor Rate (if applicable) under the
Quota Share Treaty;
minus (y3) the Audit Premium Collateral Rate (if applicable).
(b) If a Quota Share Treaty (i) has not been executed, or (ii)
has terminated and is not in effect and does not reinsure the Company for
Policies with effective dates on or after the termination date, then the
Provisional Commission Rate shall equal:
(x1) the Initial Provisional Commission Rate;
minus (y1) the Audit Premium Collateral Rate (if applicable).
3.6 Adjusted Commission Rate. The Adjusted Commission Rate shall
equal:
(x1) the actual ceding commission rate under the effective
Quota Share Treaty after any adjustments for incurred
losses and excluding any profit sharing;
minus (y1) the minimum ceding commission rate under the effective
Quota Share Treaty.
ARTICLE 4
RECORDS, REPORTS AND PROCEDURES
-------------------------------
4.1 General. The General Agent shall prepare and maintain complete,
accurate and orderly underwriting books, files, records and accounts of all
transactions involving the business transacted pursuant to this Agreement,
and will maintain same in accordance with generally accepted insurance and
accounting practices. The Company's representatives, at the Company's
expense, shall have the right (but not the obligation) from time to time,
during normal business hours, on reasonable notice to the General Agent, to
inspect, audit, copy and make extracts from the General Agent's books,
files, records and accounts relating to business transacted pursuant to this
Agreement and in compliance with any and all information privacy laws and
regulations. The Company may conduct a semi-annual examination of all books
and records maintained by the General Agent which relate to business placed
pursuant to this Agreement. In addition, if the Company's aggregate premium
volume increases by 30% or more in any 30-day period after the second semi-
annual examination (as provided for herein), the Company may conduct an
additional examination of the books and records of the General Agent which
relate to the coverage placed under this Agreement.
4.2 Premiums and Premium Bank Account.
(a) The General Agent shall remit to the Company all premiums due
the Company, including any Audit Premium and/or other retrospective premium,
whether collected or not unless otherwise expressly excepted herein, which
premiums shall be calculated from the effective date of coverage under the
applicable Policies.
(b) Immediately upon receipt, the General Agent shall deposit
all premiums and other funds collected in respect of the Policies into a
deposit-only bank account to be established and controlled solely by the
Company ("Premium Bank Account"). The General Agent shall deposit all
uncollected premium and other funds due the Company into the Premium Bank
Account no later than ninety (90) days after the premium due date. The
General Agent shall not deposit any premium or other funds due the Company
into a bank account controlled by the General Agent, including but not
limited to an "account current" bank account.
(c) The General Agent shall be deemed to have a fiduciary
responsibility to the Company with respect to such premiums and other funds.
(d) If premium is not paid by a holder of a Policy when it is
due, the General Agent shall cancel the Policy in accordance with the
Underwriting Standards. The General Agent shall, nevertheless, be and
remain responsible for depositing into the Premium Bank Account all premiums
as and when due, whether collected or not, calculated from the effective
date of the Policies involved to the termination date of such Policies.
(e) The General Agent shall have no right to offset (i)
commission or other compensation against premium or return premium, or (ii)
premium against return premium.
(f) The Company shall be authorized to sweep funds from the
Premium Bank Account on a daily basis.
(g) The General Agent shall not earn interest on the "cash float"
in the Premium Bank Account.
(h) The Company shall offset commissions due the General Agent
against Return Commission due the Company, on a monthly basis. In the event
Return Commission exceeds commissions due the General Agent for any month,
the General Agent shall deposit such excess amount into the Premium Bank
Account, and the General Agent shall receive no commission payment for that
month.
4.3 Audit Premium Collection. With respect to any premium that may
remain due from all Policyholders at the end of the Policy period ("Audit
Premium"), the General Agent shall determine and bill Audit Premium owed to
the Company by all Policyholders within three (3) months after the end of
each Policy period. The General Agent shall use reasonable efforts to
collect Audit Premium.
(a) The General Agent shall be responsible for the payment to
the Company of all Audit Premium due the Company whether collected or not.
(b) Notwithstanding the foregoing, the General Agent shall only
be obligated to pay a proportional share of uncollected Audit Premium to the
Company provided the General Agent makes a good faith effort to collect said
premium as follows:
(i) send a bill to each Policyholder for Audit Premium due
(as permitted and/or required by the terms of each Policy), no later than
three (3) months after the end of the respective Policy period;
(ii) notify the Company that certain Audit Premium is
uncollected within sixty (60) days after initial billing therefor; and
(iii) forward to the Company copies of all correspondence
relating to its collection effort within ninety (90) days after initial
billing therefor.
(c) If the General Agent has made a good faith effort to collect
Audit Premium as set forth in Section 4.3(b) for all Policies authorizing
the payment of Audit Premium, then the General Agent shall only be liable
to pay to the Company uncollected Audit Premium in an amount equal to
uncollected Audit Premium times the Audit Premium Proportionate Share Rate
(for example if $100 of audit premium is uncollected despite a good faith
effort pursuant to Section 4.3(b) and if the Audit Premium Proportionate
Share Rate is 90% then the General Agent must pay to the Company $90 of
the total of $100 for the uncollected Audit Premium). Audit Premium may be
calculated quarterly and payments of Audit Premium owed by the General Agent
to the Company shall be made within 30 days after each calculation.
(d) No commission shall be paid to the General Agent on Audit
Premium not collected by the General Agent.
4.4 Policy Collection Register. All funds deposited into the
Premium Bank Account shall be supported by the "Policy Collection Register"
(defined in Schedule 1). The General Agent shall reconcile cash deposited
into the Premium Bank Account to the Policy Collection Register on a monthly
basis. The Policy Collection Register shall include accounting entries for
Return Premium and commissions.
4.5 Policy Register. The General Agent shall maintain and furnish
to the Company, or its data processing facility, a "Policy Register" (as
defined in Schedule 1). The General Agent shall process and include all
bound Policies on the Policy Register within ten (10) days after each
Policy's effective date.
4.6 Receivable Register. The General Agent shall establish and
maintain a "Receivable Register" (as defined in Schedule 1) and shall
furnish a copy each month to the Company. The Receivable Register shall
be reconciled each month in the manner provided in Schedule 1).
4.7 Return Premium Register. The General Agent shall establish
and maintain a "Return Premium Register" (as defined in Schedule 1) setting
forth return premium paid for each Policy canceled and/or return premium
endorsement.
4.8 Return Premium Account. The Company shall establish, fund and
maintain a separate bank account ("Return Premium Account") upon which the
General Agent may draw to pay return premium due holders of Policies, and
third party underwriting expenses authorized to be paid by the General Agent
under this Agreement. The General Agent shall be responsible for payment of
all third party underwriting expenses from its commission unless the Company
expressly agrees to pay such expenses pursuant to the terms of this
Agreement. The General Agent shall:
(a) deliver to the Company in writing, funding requests on a
weekly basis, and the Company shall provide the necessary funds promptly by
wire transfer;
(b) reconcile all disbursements from the Return Premium Account
each month by type and amount of disbursement (e.g. return premium, company
approved expenses); and
(c) send a copy of such monthly reconciliation to the Company on
or before the 8th business day of the following month.
4.9 Further Monthly Reconciliations. The General Agent shall
also provide monthly reconciliations to the following:
(a) a reconciliation of cash processed pursuant to Schedule 2 to
cash deposited into the Premium Bank Account;
(b) a reconciliation of premium deposited into the Premium Bank
Account to the Policy Collection Register; and
(c) a reconciliation of the Receivable Register to the Policy
Register and to the Premium Bank Account.
4.10 Additional Reporting. The General Agent shall additionally
provide the following:
(a) Monthly updates on average premium per exposure by Policy
year; and
(b) Quarterly loss development triangles by Underwriting Year and
"Accident Year" listing paid losses, case incurred, reported claim count and
open claims count.
4.11 Procedures.
(a) The General Agent shall establish and maintain written
operational procedures to handle all business related to the Policies.
(b) All reports and reconciliations to be provided to the Company
under this Article 4 (whether in hard copy or maintained on computers) shall
be forwarded to the Company not later than seven (7) days after the end of
each month. The electronic files maintained by the General Agent shall
be delivered to the Company, by floppy disk, compact disk, email etc., as
frequently as may be reasonably requested by the Company. The General Agent
shall also, at the Company's request, furnish the Company with updated
copies of the General Agent's computer data base ("Data") maintained in
support of the business written pursuant to this Agreement. The Data shall
be in a format (i) acceptable to the Company and any entity which requires
that the Company supply it with the Data, (ii) readable on the Company's or
such entity's computer system, and (iii) which complies with the file layout
specifications set forth on Schedule 2, or any subsequent file layout
specifications provided to the General Agent by the Company. The Data shall
include all information contained in the Registers described in Schedule 1.
The reports to be provided to the Company shall include, but shall not be
limited to, information and statistical data (i) required by the Insurance
Services Office ("ISO"), (ii) necessary for the Company to prepare any
reports required by the National Association of Insurance Commissioners
or National Council of Compensation Insurers (including unit statistical
reports and data calls relating to any workers' compensation Policies), and
(iii) necessary for any other purpose the Company may reasonably require
same including, without limitation, to enable the Company to monitor and
evaluate the business written under this Agreement, and to enable the
Company to comply with any current or future state or rating agency
reporting requirements. The General Agency shall also prepare necessary
reports for the ISO including the data and detail required by the ISO,
and in the format required by the ISO, and shall (i) submit such reports
directly to the ISO with a copy to the Company, or (ii) submit such reports
to the Company for transmission to the ISO. Any request by the Company
for information to monitor and evaluate the business written under this
Agreement or to comply with current or future state or other reporting
requirements shall be deemed a reasonable request. Notwithstanding anything
to the contrary elsewhere in this Agreement, the General Agent shall deliver
all such reports to the Company at least fifteen (15) days before applicable
filing deadlines.
(c) If, in the sole judgment of the Company, the General Agent is
not in compliance with subsection 4.11(b), the Company may, at its option,
suspend the General Agent's underwriting authority in accordance with terms
of this Agreement or terminate this Agreement in accordance with Article 8,
Section 8.2(l) hereof.
(d) The General Agent shall maintain permanent copies of Policies,
applications for Policies and correspondence relating to Policies, as hard
copies, on microfiche, or archived on fixed or movable media. These
permanent copies shall not be destroyed without the prior written permission
of the Company for a period of at least five (5) years from the termination
date of the applicable Policy, or the period specified by the applicable
state statute regulating preservation of records, whichever is longer. All
documents and/or copies which are destroyed should be shredded to protect
confidential information. The General Agent shall provide access to,
and copies of, its books and records to any insurance department having
jurisdiction with respect to the Policies, in such form as may by usable by
the department.
(e) Within ninety (90) days after the end of each of its fiscal
years the General Agent shall furnish the Company with copies of its audited
financial statements certified as true, complete and accurate by its chief
executive officer and chief financial officer.
(f) The Company's acceptance of any deposit of funds to the
Premium Bank Account, or any transfer of funds to or from the Operating
Account, shall not be deemed an acknowledgment by the Company of the
accuracy of any report submitted by the General Agent, nor shall it be
deemed a waiver of any right or remedy of the Company under this Agreement
or at law.
(g) If the General Agent or the Company receives an inquiry or
complaint from any regulatory authority having jurisdiction concerning a
violation of insurance law or regulation, or a complaint disputing coverage
under any Policy, or any process or litigation document, or threat of
litigation, with respect to any matter covered in this Agreement, prompt
notice and a true copy shall be given to the other party. If a response
affecting the Company is required, the General Agent shall, within five
(5) business days (or such lesser time period as may be allowed by the
applicable regulatory authority or by any process) after the receipt of the
inquiry, complaint or other notice, draft a response and submit the draft to
the Company for its prior approval before submission of the response.
(h) The Company may suspend the General Agent's underwriting
authority for such periods as the Company may determine in the event the
General Agent breaches any provision of this Agreement.
(i) The General Agent shall perform an annual post-Policy period
audit, for every Policy which authorizes such audits and audit premium,
within ninety (90) days following either termination or natural expiration
of the Policy term.
(j) The General Agent shall be prohibited from disclosing or using
any nonpublic personal financial information or nonpublic personal health
information related to any Policyholder or beneficiary, or to any consumer
or customer (as such terms are defined under applicable state and federal
privacy laws), except as necessary to carry out its duties and obligations
under this Agreement or as otherwise required under applicable state or
federal law, including, without limitation, the Gramm-Leach-Bliley Act and
any state law or regulation implementing the same.
(k) The General Agent shall use its best efforts to provide the
Company, without charge, and at a price no greater than that which the GA is
being charged now, with a limited license to use the software system used by
the General Agent in connection with the administration and run-off of the
business produced under this Agreement, including all computer programs and
updated source and object codes ("Software"). The General Agent shall
deliver the Software, as well as all necessary manuals and instructions,
to the Company within six (6) months after the Effective Date, and shall
provide monthly updates and changes thereafter. If the General Agent (i)
fails to provide the Software, necessary manuals and instructions to the
Company, without charge, within six (6) months after the Effective Date, or
(ii) fails to provide updates to the Software and documentation on a monthly
basis or as such updates are issued, then the Company may contact the
Software vendor and/or owner directly, and procure a license to obtain
and use copies of the Software and necessary documentation from the
Software vendor, and charge all expenses for such licenses, Software and
documentation to the General Agent, and the General Agent agrees to pay or
reimburse the Company for all such incurred costs. The Company acknowledges
and agrees that its use of Data and Software obtained from the General
Agent, shall be limited to the run-off of the business produced under this
Agreement, and the furnishing of Data and Software to the Company by the
General Agent shall not be construed to convey title to same, or any part
thereof, to the Company, and shall not be construed as conferring upon the
Company any right to sell, lease, transfer or dispose of all or any portion
of the Data or Software (except that same may be used by the Company's
designee, if any, for the purpose of administering and running-off the
business). The Company further agrees that (i) it shall not copy any part
of the Data or Software obtained from the General Agent, or the associated
source or object code, except as may be required to administer and run-off
the business, and (ii) promptly upon completion of the administration and
run-off of the business it shall return to the General Agent any Data,
Software, source and object codes, and any other documents proprietary to
the General Agent which were delivered to the Company by the General Agent
pursuant to this Section 4.11. Should the Company choose to obtain a
limited license directly, this provision shall still be in effect.
4.12 Unclaimed Property.
(a) The General Agent shall comply with the Company's unclaimed
property policy ("Unclaimed Property Policy"), as such policy may be amended
from time to time. The General Agent shall maintain a register of all
checks, drafts, or other debits from the Return Premium Account which are
unclaimed, uncashed and/or abandoned by the person entitled to receive such
payment ("Unclaimed Funds Register"). The information in the Unclaimed
Funds Register shall include all information necessary and sufficient
for the Company to comply with applicable state unclaimed property laws,
including but not limited to, the date and amount of the check, draft or
debit, the date of the report, the policy number, the payee, the payee's
address and the purpose of the payment. A copy of the Unclaimed Funds
Register shall be sent to the Company monthly. The General Agent shall
maintain a separate Unclaimed Funds Register for each state in which
policies are administered under this Agreement.
(b) The General Agent shall comply, and shall ensure the Company
complies, with all applicable laws, rules and regulations related to
abandoned and unclaimed property, whether tangible or intangible, including
all laws applicable to the escheat or custodial taking of any abandoned or
unclaimed property in the possession or control of the General Agent.
ARTICLE 5
EXPENSES
--------
5.1 General Agent's Expenses. The General Agent shall (i) pay all
expenses the General Agent incurs, and (ii) reimburse the Company or its
affiliates for all expenses incurred by the Company or its affiliates at
the General Agent's request or as agreed to by the General Agent and the
Company, in connection with marketing, producing, underwriting and servicing
the Policies including, but not limited to, the following:
(a) Printing of proposals, Policy jackets, contracts of
insurance, endorsements, cancellation notices, premium notices, records
and reports, printing and mailing of Policyholder notices mandated by the
regulatory authority of any state, and all other documents required to
fulfill the obligations of the General Agent under this Agreement.
(b) Advertising, public relations and transportation expenses.
The General Agent shall obtain the prior written approval of the Company
before issuing any advertisement, circular, pamphlet, or other publication
which refers to the Company.
(c) The General Agent's office expenses, including rent,
salaries of its personnel, utilities, data processing performed by or at
the request of the General Agent, furniture, fixtures, equipment, supplies,
telephone, postage, and other general overhead expenses.
(d) Agent and subcontractor expenses including processing costs,
compliance costs, licensing costs, fees and appointment costs (including any
costs incurred by the Company, its affiliates or through an independent
vendor on the Company's behalf to process agency appointments).
(e) Compliance work expenses (including the cost of producing
and sending privacy notices), licensing costs and processing costs
(including the cost of rate and form filings for approval by the appropriate
regulatory authorities).
5.2 Reimbursement of Expenses. The Company will charge back to
the General Agent on a monthly basis any costs incurred by the Company or
affiliates of the Company (i) at the General Agent's request, or (ii) agreed
to by the Company and the General Agent.
5.3 Company's Expenses. The Company shall pay all expenses directly
attributable to its overhead and operations.
5.4 Recovery of Expenses in the Event of Breach. In addition to all
other rights and remedies of the Company under this Agreement and at law,
the Company shall be entitled to immediate payment or reimbursement from the
General Agent for all Expenses (as later defined) incurred or paid by the
Company by reason of the General Agent's breach or non-performance of any
obligation on its part to be observed or performed under this Agreement.
The obligations of the General Agent referred to in this Section 5.4
include, but are not limited to:
(a) the obligation to deposit, report and remit premiums to the
Company;
(b) the obligation to remit return premiums to insureds when
due;
(c) the obligation to process all Policies, endorsements, and
notices of cancellation or non-renewal, pursuant to, and otherwise to be in
compliance with, the Underwriting Standards;
(d) the obligation to comply with the Company's Agent
appointment procedures;
(e) the obligation to observe and comply with applicable laws,
regulations, rules and rates affecting the transaction of business under
this Agreement; and
(f) the obligation to comply with Article 4 of this Agreement.
The term "Expenses" as used in this Agreement shall include, but shall not
be limited to, losses, costs, charges, fines, penalties, and the following
reasonable and necessary expenses: legal, accounting, data processing, file
retrieval, software, clerical help, professional services, travel, and all
internal expenses of the Company related to the business covered by this
Agreement. The General Agent shall pay or reimburse the Company for all
Expenses immediately upon receipt of a written statement setting forth such
Expenses. Interest at the rate of the lesser of (i) 18% per annum or (ii)
the highest rate of interest permitted by applicable law, shall accrue with
respect to any Expenses remaining unpaid for thirty (30) days after
presentation of such statement until payment in full of the Expenses with
accrued interest.
ARTICLE 6
INDEMNITY
---------
6.1 General Agent's Indemnity. The General Agent agrees to
indemnify the Company, its subsidiaries, successors and assigns, and the
shareholders, directors, officers, agents and employees of any of them
(collectively "Company Indemnitees"), against and in respect of any and
all claims (not including covered claims made under any Policy properly
issued in accordance with this Agreement), demands, actions, proceedings,
liability, losses, damages (except consequential damages), judgments, costs
and expenses, including, without limitation, attorneys' fees, disbursements,
and court costs, and any loss in excess of Policy limits, as well as extra-
contractual obligations, including but not limited to punitive, exemplary,
or compensatory damages, suffered made or instituted against or incurred by
the Company Indemnitees, or any of them, and which directly or indirectly
arise out of or relate to (i) negligence of the General Agent or any Agent,
or its employees or representatives, in discharging its obligations to the
Company or to the Policyholders, (ii) failure by the General Agent, or any
Agent, or its employees or representatives to comply with any applicable
information privacy laws, and/or (iii) any failure by the General Agent or
any Agent, or its employees or representatives to perform its obligations
under or relating to this Agreement provided however that the actions of the
General Agent described in subsection (i) or (ii) were not taken pursuant to
the written instructions of the Company.. The General Agent also agrees
to indemnify the Company for one hundred percent (100%) of any losses,
including loss adjustment expenses, incurred by the Company under any
Policy which when issued did not comply with criteria required pursuant to
Sections 2.6(a), 2.6(b) and 2.6(c). The General Agent also agrees to
indemnify the Company for any losses, including loss adjustment expenses,
under the Policies in excess of a one hundred percent (100%) Loss Ratio, as
defined in Section 3.3(c).
6.2 Security for General Agent's Indemnity. To secure performance
of its obligation to indemnify the Company Indemnitees, the General Agent
hereby assigns, transfers, pledges and grants to the Company, as collateral
security, all of its rights, title and interest in and to the following
rights and property (all of which is hereafter referred to collectively as
the "Collateral") and which includes (i) all rights or remedies it may have
now or in the future against any Agent or subcontractor under any contract
or otherwise relating in any manner to the Policies, (ii) all of its rights
to renew the Policies generated under this Agreement and under any other
agency agreements to which the Company and the General Agent are parties
("Policy Renewal Rights"), (iii) all of its underwriting and claim files,
records and computer tapes, disks and other storage devices relating to the
administration of the Policies under this Agreement and policies under any
other agreement to which the Company and the General Agent and/or their
affiliates, are parties, and (iv) all rights to unpaid commission. The
General Agent affirms that it has granted a continuing security interest
in the Collateral in favor of the Company to secure any and all present
and future indebtedness of the General Agent under Section 6.1 of this
Agreement. Subject to this section 6.2 and the Company's security interest
as described herein, the General Agent shall be entitled to retain all
payments and to exercise all rights in and to the Collateral. No further
documentation shall be required to evidence the assignments referred to
herein. At the Company's request, however, the General Agent shall execute
and deliver such financing statements, and take whatever other actions are
requested by the Company to perfect and continue the Company's security
interest in the Collateral. Upon the occurrence of an event described in
section 6.1 for which General Agent is required to indemnify Company and
upon the request of the Company, the General Agent shall deliver to the
Company any and all documents evidencing or constituting the Collateral.
When applicable law provides more than one method of perfection of the
Company's security interest, the Company may choose the method(s) to be
used. Furthermore, the General Agent hereby irrevocably: (a) appoints the
Company as its attorney-in-fact for the purpose of executing any documents
necessary to perfect or continue the security interest granted in this
Agreement, and (b) authorizes the Company to file financing statements,
continuation statements, amendments thereto, and any other documents
necessary to perfect or continue the security interest granted in this
Agreement.
6.3 Company's Indemnity. The Company agrees to indemnify the
General Agent, its subsidiaries, successors and assigns, and the
shareholders, directors, officers, agents and employees of any of them
(collectively "General Agent Indemnitees"), against and in respect of any
and all claims (not including covered claims made under any Policy properly
issued in accordance with this Agreement), demands, actions, proceedings,
liability, losses, damages (except consequential damages), judgments, costs
and expenses, including, without limitation, attorneys' fees, disbursements
and court costs, and any loss in excess of Policy limits, as well as extra-
contractual obligations, including but not limited to punitive, exemplary,
or compensatory damages, suffered, made or instituted against or incurred
by the General Agent Indemnitees, or any of them, and which, directly or
indirectly, arise out of or relate to any failure by the Company, or its
employees or representatives, to perform its obligations under or relating
to this Agreement.
ARTICLE 7
NOTICES
-------
Any notice or other communication hereunder shall be in writing and
shall be deemed fully made or given (a) when hand delivered, (b) on the
business day after it is delivered to a recognized overnight courier service
for overnight delivery to a party at the address of such party as stated in
Item A of the Declarations (or to such changed address as such party may
have fixed by notice) to the attention of the President, or (c) three (3)
business days after it is mailed to a party, postage prepaid, by registered
or certified mail, return receipt requested, addressed to such party at its
address as stated in Item A of the Declarations (or to such changed address
as such party may have fixed by notice) to the attention of the President.
ARTICLE 8
TERMINATION
-----------
8.1 Voluntary Termination. This Agreement may be terminated by
either party, without cause, by giving the other party not less than sixty
(120) days prior notice of such termination.
8.2 Termination for Cause: This Agreement shall terminate:
(a) at the election of the Company, upon notice to the General
Agent, (i) only with respect to a specific state, otherwise authorized under
this Agreement, if any public authority cancels or declines to renew any
license in that state which is necessary for the legal performance of the
General Agent's obligations in that state, or (ii) in its entirety if any
public authority cancels, declines to renew, or suspends, any license or
certificate of authority of the General Agent which is necessary to the
legal performance of its obligations under this Agreement, or (iii) in its
entirety if any license of the General Agent is canceled, suspended or not
renewed by reason of fraud or other willful misconduct of the General Agent;
(b) with respect to any state in which the General Agent is
authorized under this Agreement to issue Policies, if any public authority
cancels or declines to renew any Company license required to be maintained
in such state;
(c) at the election of the Company, upon notice to the General
Agent, in the event of a change of control (as defined in Section 9.5),
unless (i) the General Agent has provided the appropriate notice as
described in Section 9.5 and (ii) the Company agrees in writing to such
change of control;
(d) at the election of the Company, upon notice to the General
Agent, if the General Agent becomes insolvent, if it makes an assignment for
the benefit of its creditors, if a petition for relief under the Bankruptcy
Code is filed by or against it, or if a trustee, receiver or other custodian
of its assets is appointed;
(e) upon the filing by or against the Company of a petition for
relief under the Bankruptcy Code, or the issuance of an order of liquidation
or rehabilitation or similar action against the Company by any public
authority having jurisdiction;
(f) at the election of the Company, upon notice to the General
Agent, if the General Agent commits any of the following acts or omissions:
fraud, gross negligence or willful misconduct (which includes, but is not
limited to, willful violation of the Company's instructions, willful
violation of any covenant in this Agreement on its part to be performed,
or willful violation of any insurance department regulation or statutory
provision applicable to the General Agent);
(g) at the election of the Company, if the General Agent
breaches any provision of this Agreement (other than breaches or violations
by the General Agent covered elsewhere in this Section 8.2) and fails to
cure such breach within ten (30) days after notice of the breach is given
to the General Agent by the Company; for purposes of this subdivision (g),
routine differences in the accounting methods of the General Agent and the
Company which involve minor amounts of money, and do not involve premiums
collected and knowingly withheld by the General Agent, shall not constitute
failure to account for and pay over premiums provided all items not in
dispute are paid in accordance with the collection and remittance procedures
set forth in this Agreement;
(h) with respect to any state in which the General Agent is
authorized under this Agreement to issue Policies, at the election of the
Company, upon notice to the General Agent, in the event of any material
change in the Company's obligations under the Policies, or in its business
prospects, caused by (i) a change in law or insurance regulations in such
state or (ii) any suspension, prohibition or cease and desist order or
decree issued by any public authority having jurisdiction affecting any
business produced under this Agreement;
(i) at the election of the Company, upon notice to the General
Agent, in the event of the cancellation of, or an adverse change in the
terms, conditions or coverage of, the Company's reinsurance agreements with
respect to the Policies;
(j) at the election of the Company, upon notice to the General
Agent, in the event there is no reinsurance coverage in effect at terms
agreeable to the Company;
(k) at the election of the Company, upon notice to the General
Agent, in the event the Loss Ratio at the end of any Underwriting Year is
greater than 100%. For the purposes of this provision, "Loss Ratio" means
the percentage obtained by dividing losses incurred (including incurred but
not reported losses as determined by the Company) under the Policies by
earned premium; or
(l) at the election of the Company, upon notice to the General
Agent, in the event the General Agent is in non-compliance with the
requirements of Article 4 hereof on a date ninety (90) or more days after
the effective date hereof.
8.3 Rights Upon Termination. Upon termination of this Agreement in
accordance with this Article 8:
(a) the obligations of the General Agent and the Company to the
effective date of termination shall be discharged promptly;
(b) the General Agent's records and the use, ownership and
control of the Policy Renewal Rights and the right to commission therein
shall remain the property of the General Agent, provided the General Agent
is (i) substantially in compliance with its obligations to the Company under
this Agreement, and (ii) has provided to the Company a first perfected
security interest in and to all of said rights and such rights to
commissions. If however, no such first perfected security interest has been
created and perfected, then the Company shall have the right to compel the
General Agent to convey to the Company on demand, all of the Policy Renewal
Rights and rights to commissions thereon; and
(c) except as otherwise provided under Section 8.4(c), when a
notice of termination is received by the General Agent, the General Agent
(i) shall have no authority to issue quotes, binders or Policies with
effective dates on or after the effective date of termination of this
Agreement, and (ii) shall immediately withdraw all outstanding quotes.
(d) The Company may suspend the General Agent's underwriting
authority during the pendency of any dispute regarding termination of this
Agreement; provided, however, that the Company and the General Agent shall
fulfill their obligations under in-force Policies regardless of any such
dispute.
8.4 Procedures Upon Termination. The following procedures shall be
followed in the event of a termination of this Agreement:
(a) If an MGA Notification was sent to the General Agent, then
within fifteen (15) days of any termination of this Agreement the Company
shall file written notice thereof with the New Jersey Insurance Department
on a form established by the Department. The termination shall not be
effective until receipt of such notice of termination by the New Jersey
Insurance Department.
(b) The General Agent shall promptly return to the Company, or
destroy with the Company's permission, forms or other supplies imprinted
with the Company's name regardless of who incurred the cost for same.
(c) The Company may elect to run-off the in-force business itself
or through its designee, in which case it may do so. However, if requested
to do so by the Company in writing, the General Agent shall, at its sole
expense, run-off the in-force business to normal expiration in accordance
with the provisions of this Agreement. If this Agreement is terminated
pursuant to Section 8.2, subdivisions (a), (c), (d), (f) or (g), or if the
General Agent has committed fraud, gross negligence or willful misconduct,
then the General Agent shall nevertheless be liable for all reasonable
expenses of the run-off operation, regardless of whether or not the Company
is running-off the in-force business itself or through its designee; if,
however, the termination is for reasons other than those set forth in those
subdivisions, and if the General Agent has not committed fraud, gross
negligence or willful misconduct, then the Company shall bear the expense
of the run-off if it elects to run-off the business itself or through its
designee. The term "run-off" as used in this Agreement shall mean
(i) confirming coverage under the Policies to claims adjusters, (ii)
administering the in-force Policies and any required renewals thereof and
endorsements thereto, (iii) renewing any Policies which may be required to
be renewed consistent with applicable state laws and regulations, (iv)
providing reports to the Company as required by this Agreement, (v) paying
premiums to the Company and return premiums to the insureds, (vi) collecting
all sums due from Agents, including return commissions, and (vii) such other
activities as required of the General Agent under this Agreement. If this
Agreement is terminated pursuant to Section 8.2, subdivisions (a), (c), (d),
(f) or (g), or if the General Agent has committed fraud, gross negligence or
willful misconduct, and the Company elects to run-off the in-force business,
then the General Agent shall have no right to unearned commissions and will
immediately pay to the Company all unearned commissions theretofore paid to
the General Agent.
(d) If the General Agent is unable, or refuses, to run-off the
in-force Policies, or if the Company elects to run-off such Policies itself
or through its designee, the General Agent shall promptly provide the
Company, without charge, with a tape back-up of all Data files.
8.5 No Consequential Damages. Neither the General Agent, nor any
Agent, or any of their employees or representatives, shall have or assert
any claim against the Company, its subsidiaries, successors, or assigns, or
the shareholders, directors, officers, agents or employees of any of them,
for loss of business, loss of profits, or damage to goodwill or reputation,
as a result of the termination of this Agreement.
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Relationship of Parties. Nothing contained in this Agreement
shall be deemed to create the relationship of partners, joint venturers,
or employer/employee between the Company and the General Agent, it being
understood that the General Agent is an independent contractor of the
Company for the purposes set forth in this Agreement. For purposes of
interpreting the provisions of this Agreement, the General Agent shall
be deemed to be the Company's agent, and it shall perform all of its
obligations under this Agreement to the full extent required of an agent
under the law.
9.2 Subcontracting. The General Agent may not enter into a
subcontract or subcontracts with another person, entity or entities
("Subcontractors", or individually "Subcontractor") pursuant to which such
Subcontractor or Subcontractors shall perform any of the services or produce
any of the reports to be performed or produced pursuant to this Agreement,
except the hiring of independent (i) adjustors, (ii) investigators, and/or
(iii) counsel, as otherwise permitted under this Agreement for specific
Policies and on an as needed basis only, unless the identity of any such
Subcontractor and the form and content of any subcontract therewith is
approved in advance in writing by the Company. No such subcontract shall
relieve the General Agent of responsibility for the fulfillment of any of
its obligations hereunder. All Subcontractors are to be advised of the
Company's privacy policies and shall agree to comply with such privacy
policies.
9.3 Assignment. The General Agent shall not assign or otherwise
transfer this Agreement or any rights hereunder without the prior written
consent of the Company.
9.4 Trust Funds.
(a) In any action or proceeding brought by the Company to
recover premiums or return premiums or other funds due the Company under
this Agreement or due the insureds under the Policies (collectively "Trust
Funds"), the General Agent shall be obligated to account on its own records
for such Trust Funds and to pay the Company all sums for which it cannot
account. The Company shall be entitled to bring any action or proceeding
available at law or equity to recover Trust Funds and to assert claims
therein including, without limitation, claims for an accounting, for breach
of contract and for conversion. In any such action or proceeding it shall
be conclusively presumed that the General Agent is a fiduciary of the
Company with respect to Trust Funds and is liable to the Company for Trust
Funds which have not been timely paid; and the General Agent waives (i) any
right it may have to assert any counterclaim, cross-claim, or set-off in the
action or proceeding, and (ii) the right to trial by jury and any claim that
the forum or situs is inconvenient. The General Agent shall retain the
right to bring any separate proceeding it deems appropriate to recover any
claims it may have as a creditor of the Company, or otherwise, but the
pendency of such proceeding shall not delay, hinder or defeat the Company's
right to promptly recover any Trust Funds then due or to levy upon any
judgment therefor.
(b) The General Agent shall cause the principal shareholder(s)
and the president of the General Agent to execute and deliver to the Company
a guarantee of payment of the Trust Funds. The guarantee shall be in the
form attached as Schedule 3. Notwithstanding the foregoing in this Section
9.4(b), a guarantee of payment of the Trust Funds shall not be required if
the General Agent is a publicly traded company listed on the NYSE, AMEX or
NASDAQ.
9.5 Change of Control. The General Agent shall notify the Company
in writing at least thirty (30) days prior to any of the following
occurrences, each of which shall be deemed a "change of control":
(a) A sale, transfer or pledge, or the issuance to a new
shareholder or member, of ten (10%) percent or more of the voting stock or
membership interests of the General Agent; or
(b) A sale, transfer or pledge of a substantial portion of the
material assets of the General Agent, or any merger or consolidation of the
General Agent with another entity or entities; or
(c) A change in any director or principal officer of the General
Agent; or
(d) An assignment or transfer of this Agreement or any rights
hereunder by the General Agent.
9.6 Governing Law; Consent to Jurisdiction. This Agreement shall
be governed in all respects, including its validity, construction and
performance, by the laws of the State of New York applicable to contracts
to be performed in the State of New York. The parties agree that any
action or proceeding, however characterized, arising out of or relating to
this Agreement shall be brought only in the Supreme Court of the State of
New York sitting in the county of New York or the United States District
Court for the Southern District of New York, and the parties irrevocably
submit to the exclusive jurisdiction of either such court for the purposes
of any such action or proceeding. The parties waive any objection they may
now or hereafter have to the venue of any such action or proceeding in
either such court and any claim that such action or proceeding has been
brought in an inconvenient forum. Any order or judgment of either of the
foregoing courts may be enforced in any court having jurisdiction of the
parties and/or the subject matter. Process in any action or proceeding in
either of the foregoing New York courts may be served by certified mail,
which service shall be sufficient to confer in-personam jurisdiction over
the party so served. The parties agree that in any action or proceeding
arising out of or relating to this Agreement, or the enforcement of any
provisions thereof, the Court is empowered to grant any legal or equitable
relief which may be available, including without limitation, specific
performance, injunctive relief and any mandatory injunction it deems
appropriate.
9.7 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY LAW,
EACH OF THE PARTIES HERETO HEREBY WAIVES THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM ARISING OUT OF OR
RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED HEREIN.
The scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that arise out of or relate to
the subject matter of this Agreement, including, without limitation,
contract claims, tort claims, breach of duty claims, and all other common
law and statutory claims. This waiver shall apply to any subsequent
amendments, renewals, supplements or modifications to this Agreement.
9.8 Waiver of Certain Defenses. Each of the parties hereto waives
their respective rights to assert the defenses of laches, statute(s) of
limitation or any other defense based upon the theory that the pertinent
cause of action is time-barred or stale.
9.9 No Third Party Benefits. This Agreement is for the sole and
exclusive benefit of the parties and their successors and permitted assigns,
and no third party is intended to or shall have any rights hereunder.
9.10 No Waiver. The failure of either party to insist upon strict
compliance with any provision of this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver by such party of
the provision or prevent such party from exercising such right or remedy in
the future.
9.11 Entire Agreement. This Agreement, and the Schedules attached,
sets forth the entire understanding of the parties with regard to its
subject matter, and supersedes and merges all prior discussions, agreements,
promises, representations, warranties and arrangements between them with
regard to such subject matter. Neither party shall be bound by any
agreement, representation or warranty regarding such subject matter other
than as expressly set forth in this Agreement or in a subsequent writing
signed by the party to be bound thereby. This Agreement may not be modified
or supplemented, nor may any provision be waived, except by a writing signed
by the party to be bound thereby.
9.12 Severability. If any provision of this Agreement is held to
be invalid or unenforceable, such impediment shall attach only to such
provision and shall not render invalid or unenforceable any other provision
of this Agreement.
9.13 Headings. The headings used in this Agreement or any Schedules
are inserted for convenience only and shall not affect the meaning or
interpretation of the Agreement.
9.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall be deemed one and the same instrument.
9.15 Schedules. The Schedules referred to in this Agreement are an
integral part of, and shall be deemed incorporated in, the Agreement.
9.16 Further Assurances. The parties shall execute and deliver
such other documents or instruments and take such other action as may be
reasonably required to more effectively implement the provisions and intent
of this Agreement.
9.17 Benefit of Parties. This Agreement shall bind and benefit the
successors and permitted assigns of the parties.
9.18 Survival. All of the terms, covenants, agreements,
obligations, conditions, representations and warranties set forth in this
Agreement and in any document or other writing delivered pursuant hereto,
shall survive the termination of this Agreement and shall continue in full
force and effect so long as any liability or obligation under this Agreement
is outstanding or unpaid.
9.19 Violent Crime Control and Law Enforcement Act of 1994. The
General Agent represents and warrants to the Company on the date hereof that
the General Agent is in compliance with the Violent Crime Control and Law
Enforcement Act of 1994 and that none of the General Agent's officers,
directors, employees, agents, subcontractors, or other persons authorized to
act on behalf of the General Agent has ever been convicted of any state or
federal criminal felony involving dishonesty or a breach of trust or any
crime under 18 U.S.C. S 1033 unless such individual has obtained the prior
written consent of the insurance regulatory official possessing regulatory
authority over such individual.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first
above written.
Attest: HALLMARK GENERAL AGENCY, INC.
/s/ Joyce Wilhelm By: /s/ Kevin Kasitz
---------------------- ------------------------------
Title:
Attest: [CLARENDON NATIONAL] INSURANCE COMPANY
/s/ Luba Ilyasova By: /s/ Gary Ketels
---------------------- ------------------------------
Title:
SCHEDULE 1
----------
ACCOUNTING REGISTERS - DEFINITIONS
----------------------------------
The "Policy Collection Register" shall include but not be limited to:
- State and Annual Statement Line of Business
- Policy number
- Name of insured
- Policy effective date and expiration date
- Name and/or number of producing agent
- Gross premium
- Provisional Commission due producing agents
- Provisional Commission due General Agent
- Other charges or credits by type
- Net cash received
- An accounting for the difference (if any) between gross premium
and net cash received
- Cash disbursement requests for return premiums and/or commissions
- Return premium
- Authorized underwriting expenses.
The "Policy Register" shall list policies and endorsements issued and shall
include but not be limited to:
- State and Annual Statement Line of Business
- Type of transaction (new, renewal, cancellation,
endorsement, etc.)
- Policy number
- Name of insured
- Policy or endorsement effective date and expiration date
- Policy Effective Date
- Effective Transaction Date for Endorsements
- Name and/or number of producing agent
- Gross premium by line of coverage
- Commission due producing agents
- Provisional Commission due General Agent
- Other charges or credits by type
- An Accounting for the differences between gross written
premium and Policy amounts processed and issued.
- Premiums written by
- Month
- Year to Date
- Inception to Date
Note: Policy Register and Return Premium Register may be combined with
written approval of the Company's Accounting Department.
The "Return Premium Register" shall list each cancellation and return
premium endorsement and shall include but not be limited to:
- State and Annual Statement Line of Business
- Date and check number of disbursement
- Policy number
- Name of insured
- Effective date of cancellation and original Policy expiration date
- Payee
- Gross return premium
- Producing agent's return commission
- General Agent's Return Commission
- Net return premium
- Amount of disbursement to payee
- An accounting for the difference (if any) between net return
premium and amount of disbursement
The "Receivable Register" shall be reconciled by Policy and shall include
the following for each Policy:
- Policy number
- Past due premium
- Past due aging (30, 60, 90 days)
- Deferred premium by month (if applicable)
The General Agent shall reconcile the Receivable Register each month as
follows:
Beginning Receivable
plus Premium due Company (per Policy Register)
less Premium deposited (to Premium Bank Account)
equals Ending Receivable
SCHEDULE 2
Policy Master Fields Listings
Following are field descriptions, attributes, maximum lengths and
definitions for the Policy Record
-----------------------------------------------------------------------------------
Policy Master Type Length Required Sample Definitions
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Group Number Character 20 No 20000001 An alphanumeric code to
identify a Group for
Workers Comp and A & H
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Effective Date Date 10 Yes 10/10/1997 Effective date of the
policy in year 2000 format
MM/DD/YYYY
Expiration Date Date 10 Yes 10/10/1998 Expiration date of the
policy in year 2000 format
MM/DD/YYYY
Cancellation Date Date 10 No 10/10/1998 Cancellation date of the
policy in year 2000 format
MM/DD/YYYY; required if
policy is cancelled
Insured Name Character 40 Yes Ford Motor Name of the insured
Insured Address Character 50 Yes 123 Watson Street address of the
Street insured
Insured City Character 30 Yes Painesville Insured City
Insured State Character 2 Yes ND Insured State
Insured Zip Character 10 Yes 12345-1234 Insured Zip Code
Insured County Character 25 No Lake Insured County
Territory Code Character 3 No 19 ISO Territory Code
Risk State Character 2 Yes ND State listed on a policy in
location of risk-not
billing
Risk Zip Code Character 10 Yes 43535-9875 Zip code listed on a policy
in location of risk-not
billing
System Date Date 10 Yes 10/23/1997 A date assigned to a
transaction by the system
in a year 2000 format,
MM/DD/YYYY
Accounting Date Date 10 Yes 10/31/1997 A day, month, and year the
transaction was sent to
company in year 2000
format, MM/DD/YYYY
Policy Premium by Line Fields Listing
Following are field descriptions, attributes, maximum lengths and
definitions for the Policy Premium by Line Record
-----------------------------------------------------------------------------------
Policy Premium Type Length Required Sample Definitions
by Line
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Premium Type Number 2 Yes 10 Numeric code provided by
CNIC
AS Line Character 5 Yes 21.1 Annual Statement Line.
Refer to "Annual Statement
Yellow Book"
Agent's Line of Character 40 Yes Collision To distinguish multiple
Business lines from an annual
statement line*
Premium Number 2 Yes 10 Numeric code provided by
Transaction Code CNIC
Written Premium Number 22 Yes 4525 Amount of Written Premium
Limits Character 30 Yes 1,000,000 Policy limits for this
line of business. If
N/A place 0
Deductibles Number 22 Yes 5,000.00 Dollar deductible for this
line of business on this
risk. If N/A place 0
Policy Effective Date 10 Yes 10/10/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Transaction Date 10 Yes 10/23/1997 A date when a transaction
Effective Date is effective
System Date Date 10 Yes 10/23/1997 A date assigned to a
transaction by the system
in a year 2000 format,
MM/DD/YYYY
Accounting Date Date 10 Yes 10/31/1997 The last day of an
accounting period in year
2000 format, MM/DD/YYYY
Policy Risk State Character 2 No ND State listed on a policy
in location of risk-not
billing
Policy In-force Premium Fields Listing
Following are field descriptions, attributes, maximum lengths and
definitions for the Policy In-force Premium by Line Record
-----------------------------------------------------------------------------------
Policy In-force Type Length Required Sample Definitions
Premium
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Premium Type Number 2 Yes 10 Numeric code provided by
CNIC
AS Line Character 5 Yes 19.4 Annual Statement Line.
Refer to "Annual Statement
Yellow Book"
Agent's Line of Character 40 Yes Collision To distinguish multiple
Business lines from an annual
statement line*
End of Month Date Date 10 Yes 10/31/1999 The last day of an
accounting period in year
2000 format, MM/DD/YYYY
In-force Premium Number 22 Yes 4525 Full term amount of
premium In-force as of end
of an accounting period.
Unearned Premium Number 22 Yes 4525 Amount of unearned premium
as of end of an accounting
period.
Policy Effective Date 10 Yes 10/10/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Policy Risk State Character 2 No ND State listed on a policy
in location of risk-not
billing
Policy Billing Transactions Fields Listing
Following are field descriptions, attributes, maximum lengths and
definitions for the Policy Billing Transactions Record
Policy Billing Type Length Required Sample Definitions
Transactions
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Billing Type Number 2 Yes 11- Numeric code provided by
Installment CNIC
Billing Date Date 10 Yes 10/31/99 Date the insured was bille
Billed Amount Number 22 Yes 1,380.00 Current amount billed on
policy transaction, net of
commissions*
Premium Billed Number 22 Yes 1,680.00 Current premium amount
Amount billed on policy
transaction, not net of
commissions *
Commission Billed Number 22 Yes 300.00 Current commission amount
Amount billed on policy
transaction. If N/A
place 0*
System Date Date 10 Yes 10/31/99 A date assigned to a
transaction by the system
in a year 2000 format,
MM/DD/YYYY
Accounting Date Date 10 Yes 10/31/1999 The last day of an
accounting period in year
2000 format, MM/DD/YYYY
Policy Effective Date 10 Yes 10/10/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Policy Risk State Character 2 No ND State listed on a policy
in location of risk-not
billing
* If there is no Commission Billed Amount then Billed Amount and Premium
Billed Amount are the same. Otherwise Billed Amount is equal to Premium
Billed Amount less Commission Billed Amount.
Policy Cash Transactions Fields Listing
Following are field descriptions, attributes, maximum lengths and
definitions for the Policy Cash Transactions Record
-----------------------------------------------------------------------------------
Policy Cash Type Length Required Sample Definitions
Transactions
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Payment ID Character 15 Yes 6754 Record number on method of
payment
Cash Received Date 10 Yes 11/12/99 Date actual payment posted
Date to Account Receivable
Billing Type Number 2 Yes 11- Method of payment in which
Installment cash is received
Collected Amount Number 22 Yes 1,134 An actual dollar value of
payment received, net of
commissions
Premium Collected Number 22 Yes 1,380.00 An actual dollar value of
Amount gross premium received, if
NA place 0. *
Commission Number 22 Yes 246 An actual dollar value of
Collected Amount gross commission paid, if
NA place 0. *
Payment Comments Character 40 No payment Used to note offsets-
comments and partials-credit transfers
or notes from another policy, etc.
System Date Date 10 Yes 10/31/99 A date assigned to a
transaction by the system
in a year 2000 format,
MM/DD/YYYY
Accounting Date Date 10 Yes 10/31/1999 The last day of an
accounting period in year
2000 format, MM/DD/YYYY
Policy Effective Date 10 Yes 10/0/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Policy Risk State Character 2 No ND State listed on a policy i
location of risk-not
billing
Aged Policy Receivables Fields Listing
Following are field descriptions, attributes, maximum lengths and
definitions for the Net Policy Receivables Record
-----------------------------------------------------------------------------------
Aged Policy Type Length Required Sample Definitions
Receivables
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Total Amount Due Number 22 Yes 3,420.00 Total amount due on a
policy, if NA place 0, the
sum of all current due
Advance Premium Number 22 Yes Total cash received in
advance
Total Current Number 22 Yes 300 Total current amount due o
Amount Due a policy, if NA place 0,
the sum of all current due
Amount due 0-30 Number 22 Yes 300 Current amount due in 30
days days on a policy
Amount due 31-60 Number 22 Yes Current amount due between
days 31-60 days on a policy
Amount due 61-90 Number 22 Yes Current amount due between
days 61-90 days on a policy
Amount due Over Number 22 Yes Current amount due over 30
90 days days on a policy
Amount Deferred Number 22 Yes 3,120.00 Amount deferred on policy
transaction, if N/A
place 0. **
End Of Month Date Date 10 Yes 10/31/1999 The last day of an
accounting period in year
2000 format, MM/DD/YYYY
Policy Effective Date 10 Yes 10/10/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Policy Risk State Character 2 No ND State listed on a policy i
location of risk-not
billing
Total Amount Due = Sum(PremiumByLine[Written Premium])-PolicyCash[Premium
Collected Amount]
Total Current Amount Due = PolicyBilling[Premium Billed Amount]-
PolicyCash[Premium Collected Amount]
Amount Deferred = Total Due - Total Current Due or
Sum(PremiumByLine[WrittenPremium]-PolicyBilling[PremiumBilledAmount])
Advanced Premium = Premium Collected Amount Cash Received per Policy Cash
Listing when no billing exists yet.
Amount Due 0-30 days + Amount Due 31-60 days + Amount Due 61-90 days +
Amount Due Over 90 days =
Total Current Amount Due.
Aging bucket for Amount Due determined by End of Month Date - Original
Billing Date.
Gross Policy Collected and Change in Receivables Fields Listing
Following are field descriptions, attributes, maximum lengths and
definitions for the Gross Policy Receivables Record
-----------------------------------------------------------------------------------
Gross Policy Type Length Required Sample Definitions
Receivables
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Monthly Written Number 22 Yes 4500 Total premium written
Premium transferred to accounts
receivable for this month,
including policy fees.*
Monthly Policy Number 22 Yes 25 Total policy fee collected
Fees Collected for this month.
Monthly Number 22 Yes 1380 Total dollars gross
Collected premium received, if NA
Premium place 0. **
Service Charge Number 22 Yes 25 Total service charge
Amount collected for this month.
Inspection Fee Number 22 Yes 75 Total inspection fee
collected for this month
Installment Fee Number 22 Yes 0 Total installment fee
collected for this month.
Late Fee Number 22 Yes 0 Total late fees collected
for this month.
MVR Fee Number 22 Yes 0 Total MVR fees collected
for this month.
NSF Fee Number 22 Yes 0 Total NSF fees collected
for this month.
Expense ConstantNumber 22 No 55 Pertains to workers
Amount compensation, expense
constant fee collected per
policy.
Security DepositNumber 22 Yes 0 Total security deposit
collected for this month.
Municipal Tax Character 2 No KY The state of municipal tax
State 1 charged to the company
that is recoverable from
the insured.
Municipal Tax Number 22 Yes 55 Total municipal tax
Amount 1 collected for this month
Municipal Tax Character 2 No The state of municipal tax
State 2 charged to the company
that is recoverable from
the insured.
Municipal Tax Number 22 Yes 0 Total municipal tax
Amount 2 collected for this month
Municipal Tax Character 2 No The state of municipal tax
State 3 charged to the company
that is recoverable from
the insured.
Municipal Tax Number 22 Yes 0 Total municipal tax
Amount 3 collected for this month
Municipal Tax Character 2 No The state of municipal tax
State 4 charged to the company
that is recoverable from
the insured.
Municipal Tax Number 22 Yes 0 Total municipal tax
Amount 4 collected for this month
Municipal Tax Character 2 No The state of municipal tax
State 5 charged to the company
that is recoverable from
the insured.
Municipal Tax Number 22 Yes 0 Total municipal tax
Amount 5 collected for this month
Surcharge Type 1Character 30 No NJ The type of surcharge
charged to the company
that is recoverable from
the insured.
Surcharge 1 Number 22 Yes 55 Total surcharge dollars
for the specified
surcharge type
Surcharge Type 2Character 30 No The type of surcharge
charged to the company
that is recoverable from
the insured.
Surcharge 2 Number 22 Yes 0 Total surcharge dollars
for the specified
surcharge type
Surcharge Type 3Character 30 No The type of surcharge
charged to the company
that is recoverable from
the insured.
Surcharge 3 Number 22 Yes 0 Total surcharge dollars
for the specified
surcharge type
Surcharge Type 4Character 30 No The type of surcharge
charged to the company
that is recoverable from
the insured.
Surcharge 4 Number 22 Yes 0 Total surcharge dollars
for the specified
surcharge type
Surcharge Type 5Character 30 No The type of surcharge
charged to the company
that is recoverable from
the insured.
Surcharge 5 Number 22 Yes 0 Total surcharge dollars
for the specified
surcharge type
Other Premium Number 22 Yes 10 Total other charges
Charges collected for this month.
Change in PolicyNumber 22 Yes 4800 Total dollars transferred
Receivable to accounts receivable for
this month. ***
Commissionable Number 22 Yes 1080 Total dollars transferred
Collected to accounts payable for
Premium this month. ****
End Of Month Date 10 Yes 10/31/1999 The last day of an
Date accounting period in year
2000 format, MM/DD/YYYY
Policy EffectiveDate 10 Yes 10/10/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Policy Risk Character 2 No ND State listed on a policy
State in location of risk-not
billing
* Written Premium = Sum(PremiumByLine[Written Premium]), which includes
Policy Fees
** Monthly Collected Premium = Sum(PolicyCashTransactions[Premium Collected
amount])
*** Change in Policy Receivable = Monthly Written Premium - Monthly
Collected Premium
**** Commissionable Collected Premium = Monthly Collected Premium - (Monthly
Policy Fees + Inspection Fee + Installment Fee + Late Fee + MVR Fee + NFS
Fee + Service Charge + Expense Constant + Security Deposit + Municipal Tax 1
+ Municipal Tax 2 + Municipal Tax 3 + Municipal Tax 4 + Municipal Tax 5 +
Surcharge 1 + Surcharge 2 + Surcharge 3 + Surcharge 4 + Surcharge 5 + Other
Premium Charges)
Policy Premium by Category Fields Listing
Workers Compensation
Following are field descriptions, attributes, maximum lengths and
definitions for the Policy Premium by Category Record
-----------------------------------------------------------------------------------
Policy Premium by Type Length Required Sample Definitions
Category
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Group Number Number 10 Yes 20000001 An alphanumeric code to
identify a Group for
Workers Comp and A & H.
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Manual Premium Number 22 Yes 6,800 The NAIC Manual premium.
Modified Premium Number 22 Yes 5,800 The NAIC Manual premium
less the Experience
Modification Factor.
Standard Premium Number 22 Yes 4,800 The modified premium less
additional credits.
Actual Premium Written.
Experience Number 22 Yes 1,000 Credit used to calculate
Modification Manual Premium to Modified
Credit Premium
Schedule Credits Number 22 Yes 143 Credit used to calculate
Modified Premium to
Standard Premium.
Drug Free Credits Number 22 Yes 143 Credit used to calculate
Modified Premium to
Standard Premium.
Managed Care Number 22 Yes 143 Credit used to calculate
Credits Modified Premium to
Standard Premium.
Premium Discount Number 22 Yes 143 Credit used to calculate
Credits Modified Premium to
Standard Premium.
Contracting Number 22 Yes 143 Credit used to calculate
Premium Credit Modified Premium to
Standard Premium.
Safety Premium Number 22 Yes 143 Credit used to calculate
Credit Modified Premium to
Standard Premium.
Other Credits Number 22 Yes 143 Credit used to calculate
Modified Premium to
Standard Premium.
Other Debits Number 22 Yes 143 Debits used to calculate
Modified Premium to
Standard Premium.
Accounting Date Date 10 Yes 10/31/1997 The last day of an
accounting period in year
2000 format, MM/DD/YYYY
System Date Date 10 Yes 10/23/1997 A date assigned to a
transaction by the system
in a year 2000 format.
MM/DD/YYYY
Policy Effective Date 10 Yes 10/10/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Policy Risk State Character 2 No ND State listed on a policy
in location of risk-not
billing
Policy Facultative by Line Listing
Following are field descriptions, attributes, maximum lengths and
definitions for the Policy Facultative by Line Listing Record
-----------------------------------------------------------------------------------
Policy Premium by Type Length Required Sample Definitions
Category
-----------------------------------------------------------------------------------
Program ID Number 6 Yes 34 Numeric code provided by
CNIC
Policy Number Character 30 Yes 00000001 An alphanumeric code used
by the program to identify
a policy
Policy Effective Date 10 Yes 10/10/1997 Effective date of the
Date policy in year 2000 format
MM/DD/YYYY
Premium Type Number 2 Yes 15 A Numeric Code provided by
CNIC
AS Line Number 5 Yes 17 Annual Statement Line.
Refer to " Annual
Statement Yellow Book"
Agent's Line of Character 40 Yes D&O To distinguish multiple
Business Liability lines from an annual
statement line
Premium Number 2 Yes 10 A Numeric Code provided by
Transaction Code CNIC
Attachment Point Number 22 Yes 10,000,000 Amount of Clarendon
Retained Loss Paid where
Fac Coverage First Kicks
in
Limits Number 22 Yes 15,000,000 Amount of Clarendon
Retained Loss Paid where
Fac Coverage is exhausted
Participation Number 22 Yes 20% Rate of Fac Coverage to
Rate Clarendon Retained Loss
Reinsurer Character 40 Yes General Re Name of Reinsurer Covering
Fac Cert.
Facultative Character 30 Yes GR567123 An Alphanumeric code used
Certificate # by the program to identify
a Fac Policy
Facultative Date 10 Yes 10/10/1997 Effective Date of the Fac
Certificate Cert.
Effective Date
Facultative Date 10 Yes 10/10/1998 Expiration Date of the Fac
Certificate Cert.
Expiration Date
Facultative Date 10 No 04/10/1998 Expiration Date of the Fac
Certificate Cert., required if
Cancellation Date cancelled
Facultative Gross Number 22 Yes 20,000.00 Amount of the Fac Written
Premium Premium
Facultative GA Number 22 No 2,000.00 General Agent's portion of
Commission Fac Commission
Facultative Number 22 No 1,000.00 Broker's portion of Fac
Broker Commission Commission
Facultative Number 22 No 6,000.00 Total Ceding Commission to
Ceding CNIC on Fac Policy
Commission
Policy Risk State Character 2 No NY State listed on a policy
in location of risk-not
billing
Transaction Date 10 Yes 10/23/1997 A date when a transaction
Effective Date is effective in year 2000
format, MM/DD/YYYY
System Date Date 10 Yes 10/23/1997 A date assigned to a
transaction by the system
in a year 2000 format,
MM/DD/YYYY
Accounting Date Date 10 Yes 10/31/1997 The last day of an
accounting period in year
2000 format, MM/DD/YYYY
NAIC # Number 5 Yes 12345 Five Digit Insurer /
Reinsurer NAIC Code
FEIN # Character 10 Yes 12-3456789 Nine Digit, 10 Character
Federal Tax Identification
Number of Reinsurer
Domiciliary Character 25 Yes Chicago, City, State of Reinsurer
Jurisdiction IL Domiciled (City, Country
if Foreign Reinsurer)
Reinsurer Character 3 Yes yes See Comment Below for
Authorized in State of Authorization
State of Insurer
Note on State of Authorization. The following is a list of Clarendon
Insurance Group Insurance Companies, and their corresponding state of
Domicile:
Clarendon National Insurance Company - New Jersey
Clarendon America Insurance Company - New Jersey
Harbor Specialty Insurance Company - New Jersey
Clarendon Select Insurance Company - Florida
Redland Insurance Company - New Jersey
SCHEDULE 3
----------
GUARANTEE OF PAYMENT OF TRUST FUNDS
RECITALS
--------
A. CLARENDON NATIONAL INSURANCE COMPANY (the "Company")
and HALLMARK GENERAL AGENCY, INC. (the "General Agent") are parties to
a General Agency Agreement dated July 1, 2004 (the "Agency Agreement"),
pursuant to which, among other things, (i) premiums, return premiums,
Profit Commissions, Corridor Return Commissions, Return Commissions (as
such things are defined in the Agency Agreement) and other funds are due
the Company or due the insureds under the Policies covered by the Agency
Agreement, which funds are collectively withheld as and deemed to be
"Trust Funds" with respect to which the General Agent is a fiduciary of
the Company, and (ii) the General Agent is obligated to cause the principal
shareholder(s) and the president of the General Agent to guarantee payment
of the Trust Funds.
B. Hallmark Financial Services, Inc. (the "Parent Guarantor") is
the ultimate parent corporation of the General Agent
C. The Company desires, as a condition precedent to its entering
into the Agency Agreement, that the Parent Guarantor unconditionally
guarantee to the Company, its successors and assigns, the full and prompt
payment of Trust Funds as and when they are due and payable pursuant to the
Agency Agreement.
NOW, THEREFORE, in consideration of the mutual promises exchanged
in the Agency Agreement, the Parent Guarantor hereby unconditionally
guarantees to the Company, its successors and assigns, the full and prompt
payment of trust funds as and when they are due and payable pursuant the
Agency Agreement.
The Parent Guarantor further agrees as follows:
1. The Parent Guarantor waives (a) notice of, and consent
to, any amendment or extension of the Agency Agreement, (b) notice of any
non-performance of, or default under, the Agency Agreement, (c) trial by
jury in any action brought on this guarantee as well as any right to
interpose a defense based upon any statute of limitations or claim of
laches, and (d) the performance of every condition precedent to which the
Parent Guarantor or the General Agent might otherwise be entitled by law.
The Parent Guarantor agrees that the Company may institute an action or
claim under this guarantee without joining the General Agent as a party.
2. The Company shall have no obligation to mitigate the
Parent Guarantor's liability under this guarantee, and nothing herein shall
require the Company, as a condition of this guarantee, to take any action
against the General Agent to enforce payment of trust funds or to realize
on the Company's security interest in any collateral provided for under the
Agency Agreement; and any of the foregoing actions taken by the Company
shall not be deemed an election of remedies or waiver of any rights under
this guarantee.
3. The obligations of the Parent Guarantor under this
guarantee shall be absolute and unconditional and shall remain in full
force and effect without regard to, and shall not be released, suspended,
discharged, terminated, or otherwise affected by, any circumstance or
occurrence, including without limitation: (a) any renewal, extension,
amendment or substitution of, addition or supplement to, or deletion from,
this guarantee or the Agency Agreement, (b) any waiver, consent, extension,
indulgence or other action or inaction under or in respect of this guarantee
or the Agency Agreement, (c) any furnishing of additional security to the
Company or release of security by the Company, (d) any limitation on any
party's liability or obligations under this guarantee or the Agency
Agreement, (e) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
the Parent Guarantor or the General Agent, or any assets pledged to the
Company by either of them, or any action taken with respect to this
guarantee or the Agency Agreement by any trustee or receiver, or by any
court, in any such proceeding, whether or not the Parent Guarantor or the
General Agent shall have knowledge of any of the foregoing, and (f) any
unenforceability, illegality or invalidity of the obligation being
guaranteed hereunder.
4. This guarantee and its validity, construction and
performance shall be governed in all respects by the laws of the State of
New York. Any action or proceeding arising out of or relating to this
guarantee or the enforcement thereof shall be brought in the Supreme Court
of the State of New York, County of New York, or in the United States
District Court for the Southern District of New York, and the Parent
Guarantor submits and consents to the non-exclusive jurisdiction of either
of such courts for the purposes of such action or proceeding; and the Parent
Guarantor further consents that process in any such action or proceeding may
be served by registered or certified mail addressed to the party at his or
its last known address, and such service shall be sufficient to confer in
personam jurisdiction over the party so served.
5. This guarantee:
(a) may not be terminated, amended or supplemented,
nor may any provision be waived, except by a writing signed by the party to
be bound thereby;
(b) may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall be deemed one
and the same instrument;
(c) shall bind and benefit the heirs, executors,
administrators, personal representatives, successors and assigns of the
Parent Guarantor and the Company.
HALLMARK FINANCIAL SERVICES, INC.
By: /s/ Mark Morrison
-----------------------------------
ADDENDUM ONE
------------
PROFIT COMMISSION AND CORRIDOR RETURN COMMISSION
------------------------------------------------
This Addendum One to the General Agency Agreement ("Agreement") dated July
1, 2004 between Hallmark General Agency, Inc. ("General Agent") and
Clarendon National Insurance Company ("Clarendon") is effective as of July
1, 2004. This Addendum One shall be considered an integral part of the
Agreement and shall be deemed incorporated into the Agreement.
1. Capitalized terms used in this Addendum One and not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
As used in the Agreement, the following terms have the following meanings,
which apply to both the singular and plural forms of the terms defined, and
are hereby added to Section 1.1.
"Base Loss Ratio" is defined in Section 3.3(a).
"Corridor Loss Ratio" is defined in Section 3.3(d).
"Corridor Return Commission" is defined in Section 3.3(d).
"Losses" is defined in Sections and 3.3(c) and 3.3(f), respectively.
"Loss Ratio" is defined in Sections 3.3(c) and 3.3(f), respectively.
"Net Net Written Premium" means Net Written Premium less premiums paid by
Clarendon for inuring excess reinsurance for the Policies.
"Profit Commission" is defined in Section 3.3(a).
2. The definitions provided for "Loss Corridor Collateral" and "Loss
Corridor Rate" set forth in Section 1.1 are hereby deleted in their
entirety.
3. Section 3.3 is deleted in its entirety and the following is
inserted in place thereof:
3.3 Profit Commission and Corridor Return Commission.
(a) Profit Commission. Subject to Section 3.3(b), in the event
the Loss Ratio (as defined in Section 3.3(c)) for Policies produced during
the first Underwriting Year is less than sixty-four and two tenths percent
(64.2%) (the "Base Loss Ratio"), then the Provisional Commission shall be
increased by an amount equal to (i) collected and earned Net Net Written
Premium for Policies produced during the first Underwriting Year, multiplied
by (ii) the percentage difference between the Base Loss Ratio less the Loss
Ratio (the "Profit Commission").
(b) Payment of Profit Commission. Within thirty (30) days
following the second anniversary of the first Underwriting Year, the
Company's accountants shall calculate the Loss Ratio (as defined in Section
3.3(c)) and corresponding Profit Commission, if any, with respect to
Policies produced during the first Underwriting Year. Within thirty (30)
days thereafter, the Company shall remit a copy of its Loss Ratio
calculation to the General Agent along with payment of the Profit
Commission, if any, owed to the General Agent. On or before August 1st of
each year thereafter (until such time as all losses under the Policies at
issue have been fully settled and paid), the Company's accountants shall
annually recalculate the Loss Ratio and, if necessary, adjust the Profit
Commission as set forth herein. In the event the Profit Commission
recalculated during the year at issue is less than the Profit Commission
calculated in the immediately preceding year, the General Agent shall return
the difference between such amounts to the Company. In the event the Profit
Commission recalculated during the year at issue is greater than the Profit
Commission calculated in the immediately preceding year, the Company shall
pay the difference to the General Agent as additional Profit Commission.
Any Profit Commission adjustments payable to the Company or the General
Agent, as the case may be, shall be paid on or before September 1st of the
year at issue. The Company's obligation to pay Profit Commission or
Provisional Commission shall be subject at all times to any offset rights
the Company may have under the Agreement or otherwise, including, without
limitation, the right to offset against such amounts any Corridor Return
Commission owed to the Company. If the General Agent fails to return any
portion of the Profit Commission due the Company, the Company shall be
entitled to draw against the Letter of Credit required under Section 3.3(e)
to satisfy any shortfall or seek payment under the guarantee attached as
Schedule 3 to the Agreement.
(c) Definition of Loss Ratio. For purposes of calculating the
Profit Commission, the term "Loss Ratio" means an amount equal to Losses
divided by collected and earned Net Net Written Premium. For purposes of
Sections 3.3(c) only, the term "Losses" means the sum of (a) all losses
incurred under the Policies (including outstanding case reserves), plus (b)
all allocated and unallocated loss adjustment expenses incurred in
connection with such losses (provided that the amount of Legal Loss
Adjustment Expenses, as defined in that certain Claims Administration
Agreement between the General Agent and the Company, dated August 15, 2001,
shall be limited to four percent (4.0%) of Net Written Premium), plus (c)
losses incurred but not reported, as determined using the applicable IBNR
factor listed in the chart below, provided that if such IBNR factor is less
than the expected amount of losses incurred but not reported, as determined
by Clarendon's actuaries at their sole reasonable discretion, then the
amount of losses incurred but not reported for purposes of this Section
3.3(c) shall be the amount determined by Clarendon rather than the
applicable IBNR factor.
-----------------------------------------------------------------
IBNR Factors for Calculating the Loss Ratio
For Profit Commission
-----------------------------------------------------------------
25-36 Month Calculation 15.0% of Net Written Premium
37-48 Month Recalculation 12.0% of Net Written Premium
49-60 Month Recalculation 7.0% of Net Written Premium
61-72 Month Recalculation 5.0% of Net Written Premium
All Subsequent Recalculations 0.0% of Net Written Premium
(d) Corridor Return Commission. If at any time the Corridor Loss
Ratio (as defined below) exceeds the Base Loss Ratio, as determined by the
Company in its sole reasonable discretion, the General Agent shall return to
the Company immediately upon written notice a portion of the Provisional
Commission equal to one percent (1.0%) of collected Net Written Premium for
each corresponding one percent (1.0%) increase in the Corridor Loss Ratio
above the Base Loss Ratio (or any portion thereof), subject to a cap or
limit on the portion of the Provisional Commission to be returned equal to
fifteen and eight tenths percent (15.8%) of collected Net Written Premium
(the "Corridor Return Commission"). If the General Agent fails to promptly
remit the entire amount of Corridor Return Commission due the Company upon
request, the Company shall be entitled to draw against the Letter of Credit
required under Section 3.3(e) to satisfy any Corridor Return Commission
shortfall or seek payment under the guarantee attached as Schedule 3 to the
Agreement. For purposes of calculating the Corridor Return Commission, the
term "Corridor Loss Ratio" means an amount equal to (a) all losses and
allocated and unallocated loss adjustment expenses paid under the Policies
(provided that the amount of Legal Loss Adjustment Expenses, as defined in
that certain Claims Administration Agreement between the General Agent and
the Company, dated August 15, 2001, shall be limited to four percent (4.0%)
of Net Written Premium), divided by (b) collected and earned Net Net Written
Premium.
(e) Letter of Credit. As security for performance by the General
Agent of its obligations under this Article 3, the General Agent shall,
substantially contemporaneously with the execution of the Agreement, provide
the Company a clean, irrevocable, evergreen Letter of Credit, or other
deposits or guarantees acceptable to the Company in its sole discretion.
The Letter of Credit, or any replacement or renewal thereof, shall be in a
form, and from a bank, acceptable to the Company in its sole discretion.
For this purpose, any NAIC approved bank shall be deemed to be acceptable to
the Company. The initial amount of the Letter of Credit shall be not less
than Two Million Dollars ($2,000,000). Commencing October 1, 2004 and each
quarter thereafter, the General Agent shall cause the amount of the Letter
of Credit to be increased by an additional Two Million Dollars ($2,000,000).
In the event the amount of Net Written Premium at the end of the first
Underwriting Year exceeds Eighty Million Dollars ($80,000,000), the General
Agent shall cause the Letter of Credit to be increased to an amount equal to
ten percent (10%) of Net Written Premium within ninety days thereafter.
(f) Additional Funding Obligations. If at any time (i) the Loss
Ratio (as defined in this Section 3.3(f)) for the Policies exceeds seventy
four and two tenths percent (74.2%), which calculation shall be performed
within thirty days following the end of each anniversary of the first
Underwriting Year, (ii) the Agreement is not renewed at the end of any
Underwriting Year or is otherwise terminated, (iii) regulatory action is
taken against the General Agent resulting in the loss, cancellation,
declination, or suspension of any license or certificate of authority
required by the General Agent to perform its obligations hereunder, (iv)
there is a Change of Control of the General Agent, as defined in Section
9.5, or (v) the policyholders' surplus for either American Hallmark
Insurance Company of Texas or Phoenix Indemnity Insurance Company falls
below Eight Million Dollars ($8,000,000), then the General Agent shall
immediately cause the Letter of Credit to be increased to, and subsequently
maintained at, an amount equal to fifteen and eight tenths percent (15.8%)
of Net Written Premium. For purposes of this Section 3.3(f) only, the term
"Loss Ratio" means an amount equal to Losses divided by collected and earned
Net Net Written Premium, where the term "Losses" is equal to the sum of (a)
all losses incurred under the Policies (including outstanding case
reserves), plus (b) all allocated and unallocated loss adjustment expenses
incurred in connection with such losses (provided that the amount of Legal
Loss Adjustment Expenses, as defined in that certain Claims Administration
Agreement between the General Agent and the Company, dated August 15, 2001,
shall be limited to four percent (4.0%) of Net Written Premium), plus (c)
losses incurred but not reported, as determined using the applicable IBNR
factor listed in the chart below, provided that if such IBNR factor is less
than the expected amount of losses incurred but not reported, as determined
by Clarendon's actuaries at their sole reasonable discretion, then the
amount of losses incurred but not reported for purposes of this Section
3.3(f) shall be the amount determined by Clarendon rather than the
applicable IBNR factor.
-----------------------------------------------------------------
IBNR Factors for Calculating the Loss Ratio for
Additional Funding Obligations
-----------------------------------------------------------------
13-24 Month Calculation 25.0% of Net Written Premium
25-36 Month Recalculation 15.0% of Net Written Premium
37-48 Month Recalculation 12.0% of Net Written Premium
49-60 Month Recalculation 7.0% of Net Written Premium
61-72 Month Recalculation 5.0% of Net Written Premium
All Subsequent 0.0% of Net Written Premium
Recalculations
(g) Release of Collateral. Within thirty days following the third
anniversary of the end of the first Underwriting Year, Clarendon shall
evaluate the expected ultimate incurred Losses. If at such time (i)
Clarendon determines that the amount of the Letter of Credit exceeds the
General Agent's expected ultimate Corridor Return Commission obligations
with respect to the Policies (as determined from Clarendon's calculation of
the expected ultimate incurred Losses), (ii) the Agreement has not been
terminated, and (iii) the General Agent is not then in default of its
obligations to Clarendon under the Agreement, then, at Clarendon's sole
discretion, Clarendon may allow the General Agent to decrease the amount of
the Letter of Credit to an amount necessary to satisfy the General Agent's
expected ultimate Corridor Return Commission obligations going forward. A
similar evaluation will be performed at twelve (12)-month intervals
thereafter until all Losses are paid. The General Agent agrees that in the
event the General Agent's expected ultimate Corridor Return Commission
obligations with respect to the Policies, valued at the most current
evaluation date, exceed the then present amount of the Letter of Credit,
then the General Agent shall immediately fund, in cash or other security
deemed in writing by Clarendon to be acceptable, any such deficiency. In no
event shall the Letter of Credit be reduced to an amount less than the
amount necessary to satisfy in full Hallmark's Corridor Return Commission
obligations, as set forth herein.
(j) Subsequent Underwriting Years. Unless otherwise agreed by
the parties hereto, the provisions of this Section 3.3 shall apply to the
Policies issued or renewed during each such Underwriting Year in the same
manner as they apply to the Policies produced during the first Underwriting
Year. For purposes of this Section 3.3, the first Underwriting Year is the
period from July 1, 2004 to and including June 30, 2005 and each subsequent
Underwriting Year will be the period commencing July 1st and ending June
30th of such year.
3. In all other respects the Agreement shall remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, the parties have cause this Addendum One to be
executed by their duly authorized officers as of the day and year first
written above.
Attest: HALLMARK GENERAL AGENCY, INC.
/s/ Joyce Wilhelm By: /s/ Kevin Kasitz
---------------------- ------------------------------
Title:
Attest: CLARENDON NATIONAL INSURANCE COMPANY
/s/ Luba Ilyasova By: /s/ Gary Ketels
---------------------- ------------------------------
Title: