INTEREST AND LIABILITIES CONTRACT
to
RETROCESSIONAL REINSURANCE CONTRACT
between
SOUTHERN HERITAGE INSURANCE COMPANY
DULUTH, GEORGIA
and
DONEGAL MUTUAL INSURANCE COMPANY
It is hereby agreed by and between Southern Heritage Insurance Company (Southern
Heritage), Duluth, Georgia, and Donegal Mutual Insurance Company (Donegal) that
Donegal will assume and retrocede a 100% share and Southern Heritage will assume
a 100% share of the retrocession of the Interests and Liabilities as set forth
in the attached Retrocessional Reinsurance Agreement effective January 1, 2000
until terminated.
This Contract made and executed in duplicate this 10th day of March, 2000
SOUTHERN HERITAGE INSURANCE COMPANY
/s/ Ralph G. Spontak
- -------------------------------------------
RALPH G. SPONTAK, SECRETARY
DONEGAL MUTUAL INSURANCE COMPANY
/s/ Donald H. Nikolaus
- -------------------------------------------
DONALD H. NIKOLAUS, PRESIDENT
REINSURANCE AND RETROCESSION AGREEMENT
between
SOUTHERN HERITAGE INSURANCE COMPANY
DULUTH, GEORGIA
and
DONEGAL MUTUAL INSURANCE COMPANY
Article 1 Business Covered
This Agreement, subject to the terms and conditions herein contained, is for
Donegal Mutual Insurance Company (Donegal) to indemnify Southern Heritage
Insurance Company (Southern Heritage), Duluth, Georgia, in respect of the net
liability as herein provided and specified which may accrue to Southern Heritage
as a result of any loss or losses which may occur during the term of this
Agreement under any and all binders, policies, and contracts of insurance or
reinsurance (hereinafter referred to as "policy" or "policies") heretofore or
hereafter issued or entered into by or on behalf of Southern Heritage and for
Donegal to retrocede the net liability back to Southern Heritage and Southern
Heritage to assume the net liability back from Donegal as part of the
retrocession.
Article 2 Territory
This Agreement shall cover wherever Southern Heritage's policies cover.
Article 3 Exclusions
This Agreement shall not cover:
A. Business classified by the Reinsured as:
(1) Overhead transmission and distribution lines and their supporting
structures other than those on or within 150 meters (or 500 feet) of
the insured premises. It is understood and agreed that public
utilities extension and/or suppliers extension and/or contingent
business interruption coverage are not subject to this exclusion
provided that these are not part of a transmitter's or distributor's
policy.
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(2) Pools, Associations, or Syndicates, including State Insurance Guaranty
Associations. However, such operations which Southern Heritage is
obliged to cover by reason of membership or participation in any
Automobile Assigned Risk Pool, Plan or Facility, any FAIR Plan, or any
Coastal Pool are not to be excluded. Furthermore, this exclusion shall
not apply to any Inter-Company Pooling.
(3) Insurance on Growing and/or Standing Crops.
(4) Reinsurance of any kind assumed by the Reinsured, except local agency
reinsurance accepted in the normal course of business.
(5) Bridges, tunnels and art collections valued at over $150,000,000.
(6) Aviation.
(7) Insolvency Funds, as per clause attached.
(8) Flood, when written as such.
B. Extra Contractual Obligations and Loss in Excess of Original Policy Limits
- Extra Contractual Obligations" are defined as those liabilities not
covered under any other provision of this Agreement and which arise from
the handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure by Southern
Heritage to settle within the policy limit, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting an offer of settlement
or in the preparation of the defense or in the trial of any action against
its Insured or Reinsured or in the preparation or prosecution of an appeal
consequent upon such action.
The term "Loss in Excess of Original Policy Limits" shall mean a net loss
of Southern Heritage which is in excess of the limit of its original
policy, such loss in excess of the limit having been incurred because of
the following: failure by Southern Heritage to settle within the policy
limit or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer or settlement or in the preparation of the defense or in
the trial of any action against its Insured or Reinsured or in the
preparation or prosecution of an appeal
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consequent upon such action.
C. Fidelity, Surety, Credit, Title, Insolvency and Financial Guaranty.
D. Loss or Liability excluded by the provisions of the Nuclear Incident
Exclusion Clause - Physical Damage Reinsurance, as per clause attached
hereto.
E. War, as defined in the original policy.
F. Ocean Marine
Article 4 Term
This Agreement shall become effective on January 1, 2000 at 12:01 A. M.
Standard Time. It is unlimited as to its duration and may be terminated by
either party upon giving ninety (90) days notice of cancellation in writing. In
the event either party terminates in accordance with the above, it is understood
that all transactions coming within the terms of this Agreement will continue in
effect within the said ninety (90) days and that losses well be included within
the contract on a cut-off basis (losses with dates of loss within the contract
period only will be included).
Article 5 Definition of Loss Occurrence
The term "Loss Occurrence" shall mean any one occurrence or series of
occurrences arising out of one event.
Article 6 Net Retained Lines
This Agreement applies only to that portion of any insurance or reinsurance
covered by this Agreement which Southern Heritage retains net for its own
account, and in calculating the amount of any loss hereunder and also in
computing the amount in excess of which this Agreement attaches, only loss or
losses in respect of that portion of any insurance or reinsurance which Southern
Heritage retains net for its own account shall be included. It being understood
and agreed that the amount of Donegal's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the Southern
Heritage to collect from any other reinsurers whether specific or general any
amounts which may have become due from them whether such inability arises from
the insolvency of such other reinsurer or otherwise.
Article 7 Ultimate Net Loss Incurred
The term "Ultimate Net Loss Incurred" shall be understood to
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mean the actual loss or losses incurred or to be incurred by Southern Heritage
under its policies, such loss or losses to include expenses of litigation, if
any, interest accrued where such interest is part of the judgement and all other
loss expenses of Southern Heritage including legal expenses and costs incurred
in connection with coverage and validity questions and legal actions connected
thereto which are allocable only to a specific claim or action on policies
covered hereunder less proper deductions for all recoveries (including amounts
recoverable under other reinsurance) and salvages actually made by the Southern
Heritage; provided always that nothing in this Article shall be construed to
mean that losses under this Agreement are not recoverable until Southern
Heritage's ultimate net loss has been ascertained.
All salvages, recoveries and payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the said settlement and all necessary adjustments shall be made by the
parties hereto.
Article 8 Ceding and Retroceding Net Loss
A. As of the effective date and time of this agreement Southern Heritage will
cede and Donegal will accept 100% of Southern Heritage's Net Liability for
losses. Net Liability for losses includes case basis reserves and reserves
for allocated loss adjusting retained for Southern Heritage's own account
in accordance with Article 6. Thereafter Southern Heritage will cede and
Donegal will accept 100% of Southern Heritage's Net Losses Incurred, Net
losses incurred include losses and allocated loss adjusting expense
incurred in accordance with Article 6.
B. As of the effective date and time of this agreement Donegal will retrocede
and Southern Heritage will accept 100% of the net liability for losses
Donegal assumed from Southern Heritage and, thereafter, Donegal will
retrocede 100% of the Net Incurred Losses it assumed from Southern Heritage
including allocated loss adjusting expenses incurred.
Article 9 Rate and Premium
Southern Heritage shall pay to Donegal and Donegal will retrocede to Southern
Heritage during the term of this Agreement Net Earned Premium Income of Southern
Heritage during such term in respect of business the subject matter of this
Agreement.
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The term "Net Earned Premium Income" as used herein shall be understood to mean
gross premiums earned by Southern Heritage less premiums for reinsurance which
inure to the benefit of this Agreement.
All premiums and losses paid under this Agreement shall be made in United States
currency.
Article 10 Access to Records
Southern Heritage and Donegal, by their duly appointed representatives, shall
have the right at any reasonable time, to examine all papers in the possession
of the other referring to business effected hereunder.
Article 11 Errors and Omissions
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made. Such delay, omission or error shall
be rectified immediately upon discovery.
Article 12 Rate and Premium
As a precedent to any right of action hereunder, if any dispute shall arise
between Southern Heritage and Donegal with reference to the interpretation of
this Agreement or their rights with respect to any transaction involved, whether
such dispute arises before or after termination of this Agreement, such dispute
upon the written request of either party, shall be submitted to three
arbitrators, one to be chosen by each party, and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within thirty days
after the receipt of written notice from the other party requesting it to do so,
the requesting party may appoint two arbitrators. If the two arbitrators fail to
agree in the selection of a third arbitrator within thirty days of their
appointment, each of them shall name two, of whom the other shall decline one
and the decision shall be made by drawing lots. All arbitrators shall be
disinterested active or retired executive officers of insurance or reinsurance
companies or Underwriters at Lloyd's, London not under the control of either
party to this Agreement.
The Arbitrators shall interpret the Agreement and make their decision with
regard to the custom and usage of the insurance and reinsurance business. They
shall issue their decision in writing based upon a hearing in which evidence may
be introduced without following strict rules of evidence, but in
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which cross examination and rebuttal shall be allowed. They shall make their
award with a view to effecting the general purpose of this Agreement in a
reasonable manner rather than in accordance with a literal interpretation of the
language.
The decision in writing of any two arbitrators, when filed with the parties
hereto, shall be final and binding on both parties. Judgment may be entered upon
the final decision of the arbitrators in any court having jurisdiction. Each
party shall bear the expense of its own arbitrator and shall jointly and equally
bear with the other party the expense of the third arbitrator and of the
arbitration. Said arbitration shall take place in the state of Georgia.
Article 13 Insolvency Funds Exclusion Clause
This Agreement excludes all liability of Southern Heritage arising, by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed; which provides for
any assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or its successors
or assigns, which has been declared by any competent authority to be insolvent,
or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
The term of this exclusion shall not operate so as to result in a diminution of
the subscribing Reinsurer's obligation to the Company under policy obligations
subject to cessions under this Agreement.
Article 14 Reporting and Settlement
Southern Heritage shall provide to the reinsurer, no less frequently than at the
end of each quarter, the necessary reports needed to document the calculation of
premiums and losses ceded under this agreement. Net amounts due under this
contract must be remitted within 15 days from the issuance of said reports.
Article 15 Insolvency
In the event of the insolvency of the Reinsured, this reinsurance shall be
payable directly to the reinsured, or to its liquidator, receiver, conservator
or statutory successor on the basis of the liability of the Reinsured without
diminution because of the insolvency of the Reinsured or because the liquidator,
receiver, conservator or statutory successor of the Reinsured has failed to pay
all or a portion of any claim. It is agreed, however that the liquidator,
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receiver, conservator or statutory successor of the Reinsured shall give written
notice to the Reinsurer of the pendency of a claim against the Reinsured
indicating the policy or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the receivership,
and that during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at their own expense, in the proceeding where such claim is
to be adjudicated any defense or defenses that they may deem available to the
Reinsured or its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable subject to the
approval of the court, against the Reinsured as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Reinsured solely as a result of the defense undertaken
by the Reinsurer.
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