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EXHIBIT 10(23)
CONTRACT SURETY BOND REINSURANCE AGREEMENT
ISSUED TO
WESTERN SURETY COMPANY
A SOUTH DAKOTA CORPORATION
(HEREINAFTER REFERRED TO AS THE "COMPANY")
BY
UNIVERSAL SURETY OF AMERICA
A TEXAS CORPORATION
(HEREINAFTER REFERRED TO AS THE "REINSURER)
ARTICLE I
BUSINESS COVERED
(A) The Company obligates itself to cede to the Reinsurer and the
Reinsurer obligates itself to accept as reinsurance from the Company the net
retained liability which may accrue to the Company under all policies, binders,
contracts and agreements of insurance whether oral or written (hereinafter
called "policies") written by the Company pursuant to a Co-Employee Agreement
with the Reinsurer during the continuance of this Agreement and classified by
the Company as Contract Surety Bonds.
(B) The Company will cede to the Reinsurer and the Reinsurer will
accept as reinsurance from the Company the net retained liability which may
accrue to the Company under policies, binders, contracts and agreements of
insurance whether oral or written (hereinafter called "policies") written by
the Company pursuant to a Co-Employee Agreement with the Reinsurer during the
continuance of this Agreement and classified by the Company as Miscellaneous
Bond Business, as shall be mutually agreed upon by the Company and the
Reinsurer.
ARTICLE II
NET RETAINED LINES
This Agreement applies only to that portion of any insurance covered
by this Agreement which the Company retains net for its own account and in
calculating the amount of any loss hereunder only loss or losses in respect of
that portion of any insurance which the Company retains net for its own account
shall be included. It being understood and agreed that the Reinsurer's
liability hereunder in respect of any loss or losses shall not be increased by
reason of the inability of the Company to collect from any other reinsurance
whether specific or general, any amounts which may have become due from them,
whether such inability arises from the insolvency of such other reinsurers or
otherwise.
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LIMITS
The Reinsurer shall accept as reinsurance 100% of the net retained
liability of the Company as respects Contract Surety Bonds written by the
Company pursuant to the Co-Employee Agreement with the Reinsurer.
MAXIMUM BOND LIMITS
The Company shall limit the maximum bond issued subject to this Treaty
to $3,000,000.00 bonded, uncompleted work-in-progress in the aggregate per
principal. These amounts may be increased and made subject to this agreement
as a special acceptance, by mutual agreement of both parties. The Company may
also increase these limits by use of facultative reinsurance or increased net
retention by the Company. If facultative excess of loss reinsurance is
purchased, the Company shall be the sole judge in proportioning premiums.
ARTICLE III
COMMENCEMENT
This Agreement shall take effect 12:01 A.M., Central Standard Time,
____________ ____, 1994 and shall apply to all losses occurring on and
after this date in respect of new and renewal business written on and after
this date and shall remain continuously in force, unless canceled in accordance
with the Termination of Special Termination provisions of this Agreement.
TERMINATION
This Agreement may be terminated by either party by giving 90 days
notice in writing by certified mail to the other party to take effect 12:01
A.M., Local Standard Time, __________ _____, 1995 or any [ANNIVERSARY DATE OF
THE AGREEMENT] thereafter.
Notwithstanding the options available solely to the Company,
termination of this Agreement shall be on a run-off basis and the Reinsurer
shall remain liable as respects business in-force at the date of termination
for losses occurring subsequent thereto; however, the liability of the
Reinsurer shall cease at the expiration of the business in-force at the time of
cancellation but not to extend beyond twelve months, plus odd time, after the
date of termination. Special acceptances exceeding twelve months plus odd time
may be agreed to by the Reinsurer.
TERMINATION ON CUT-OFF BASIS
Solely at the option of the Company this Agreement may be terminated
on a cut-off basis, and the Reinsurer shall incur no liability for losses
occurring subsequent to the effective date of termination. Should the Company
exercise its option to terminate
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this Agreement on a cut-off basis, the Company shall prepare a statement of the
unearned premium, calculated on a monthly pro rata basis, and the Reinsurer
shall return to the Company such unearned premium less the ceding commission
stated in Article VI.
COMMUTATION OPTION
Solely at the option of the Company, the Company may reassume from the
Reinsurer the losses outstanding under this Agreement at the date of
termination. Should the Company exercise this option, a settlement shall be
made by the Reinsurer to the Company based on the Company's estimate of losses
outstanding as of the date of termination. Such payment shall be considered
final by mutual agreement of the parties hereto. Otherwise, further periodic
adjustments shall be made so that the total amounts paid by the Reinsurer shall
equal the actual loss settlements made by the Company for losses outstanding as
of the date of termination.
SPECIAL TERMINATION
It is understood and agreed that should at any time the Company or the
Reinsurer lose 20% or more of its policyholders' surplus, become insolvent, or
be placed in conservation, rehabilitation or liquidation, or have a receiver
appointed, or be acquired or controlled by, merged with, or reinsure its entire
business with any other company or corporation, the other party shall have the
right to terminate this Agreement forthwith upon the giving of 30 days notice
in writing, which shall be in accordance with the termination provisions of
this Article.
This Agreement may be terminated by the Company on a cut-off basis
should the Reinsurer's rating by A.M. Best Company be lowered a letter grade or
more. The Company shall have the right to exercise its option to commute the
losses outstanding under this Agreement at the date of any termination under
this paragraph pursuant to the commutation provisions set forth above. Thirty
days written notice by the Company, shall be given to the Reinsurer by
Certified Mail.
If any law or regulation of the federal or state or local government
of any jurisdiction in which the Company is doing business shall render illegal
the arrangements made in this Agreement, this Agreement can be terminated
immediately insofar as it applies to such jurisdiction by the Company giving
notice to the Reinsurer to such effect.
ARTICLE IV
TERRITORY
The liability of the Reinsurer under this Agreement shall be limited
to losses located in the United States of America, its territories and
possessions, including U.S. Embassies and Military Bases outside the United
States of America and Canada.
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ARTICLE V
EXCLUSIONS
This Agreement shall exclude business accepted by the Company as
assumed reinsurance.
ARTICLE VI
PREMIUM AND COMMISSION
The Company shall cede to the Reinsurer 100% of the original net
written premium charged by the Company for the business covered hereunder. The
Reinsurer shall allow the Company a commission equal to the Company's original
commission plus 7.5% ceding commission. The commission allowances shall cover
premium taxes of all kinds, local board assessments, and all other expenses and
charges whatsoever based upon premium (except losses and loss adjustment
expenses) ceded under this Agreement.
The term "original, net written premium" shall be understood to mean
all written premium subject to this Treaty less cancellations, returns, and
premiums paid to the Company's facultative reinsurers (if any).
ARTICLE VII
REINSURER'S LIABILITY
The liability of the Reinsurer shall commence obligatorily and
simultaneously with that of the Company; the premium on account of such
liability to be credited to the Reinsurer from the original date of the
Company's liability.
REINSURER TO FOLLOW COMPANY
All reinsurances for which the Reinsurer shall be liable by virtue of
this Agreement shall be subject in all respects to the same rates, terms,
conditions, interpretations adopted by the Company, waivers, modifications,
alterations, and cancellations, as the respective insurances of the Company to
which such reinsurances relate, the true intent of this Agreement is that the
reinsurer shall in every case to which the Agreement applies and in the
proportion specified, follow the fortunes of the Company.
ARTICLE VIII
ACCOUNTS AND STATISTICAL REPORTS
The Company shall render a monthly account to the Reinsurer within 30
days after the close of each calendar quarter, summarizing premium, return
premium, allowance for commission, losses paid, loss adjustment expenses paid
and salvage recovered,
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and showing the net balance due from either party. Balances shall be paid by
the debtor party within 45 days following the end of the quarter.
The Company agrees to furnish unearned premium and outstanding loss
figures monthly as soon as possible after the close of the corresponding
quarter, and the customary year end statistics for completion of the
Reinsurer's annual statement within thirty days after the close of the calendar
year.
ARTICLE IX
(Applies only to the Reinsurer when it does not qualify for full
credit as admitted reinsurance by any State or any other governmental authority
having jurisdiction over the Company's reserves.)
FUNDING OF RESERVES
As regards policies or bonds issued by the Company coming within the
scope of this Agreement, the Company agrees that when it shall file with the
South Dakota Insurance Division or set up on its books reserves for unearned
premium and losses covered hereunder which it shall be required by law to set
up, it will forward to the Reinsurer a statement showing the proportion of such
reserves which is applicable to the Reinsurer. The Reinsurer hereby agrees to
fund such reserves in respect of unearned premium and known outstanding losses
that have been reported to the Reinsurer and allocated loss expenses relating
thereto (excluding reserves for losses incurred but not reported) , as shown in
the statement prepared by the Company, by either funds withheld or cash
advances deposited with a bank or trust company pursuant to the terms of a
separate Trust Agreement. The Reinsurer shall have the option of determining
the method of funding provided it is acceptable to the insurance regulatory
authorities involved.
Notwithstanding any other provision of this Agreement, the Company or
its successors in interest may draw upon such reserve funding at any time
without diminution because of the insolvency of the Company or of the Reinsurer
for one or more of the following purposes only, unless otherwise provided for
in a separate Trust Agreement:
(a) To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any loss reinsured by the Agreement,
the payment of which has been agreed by the Reinsurer and
which has not otherwise been paid.
(b) To make refund of any sum which is in excess of the actual
amount required to pay the Reinsurer's share of any liability
reinsured by this Agreement.
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(c) To establish a deposit of the Reinsurer's share of unearned
premium and known and reported outstanding losses and
allocated expenses relating thereto excluding reserves for
losses incurred but not reported under this Agreement. Such
cash deposit shall be held in an interest bearing account
separate from the Company's other assets, and interest thereon
shall accrue to the benefit of the Reinsurer.
(d) To pay or reimburse the Company for the Reinsurer's share of
any other amounts which are due the Company under the terms of
this Agreement, but not to include IBNR.
The bank or trust company holding any cash advance pursuant to a
separate Trust Agreement shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Company.
At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific statement, for
the sole purpose of adjusting the amount of any cash funding, of the
Reinsurer's share of unearned premium and known and reported outstanding losses
and allocated expenses relating thereto excluding reserves for losses incurred
but not reported. If the statement shows that the Reinsurer's share of such
unearned premium and losses and allocated loss expenses excluding reserves for
losses incurred but not reported exceeds the balance of credit as of the
statement date, the Reinsurer shall, within thirty (30) days after receipt of
notice of such excess, increase any cash funding by the amount of such
difference. If, however, the statement shows that the Reinsurer's share of
unearned premium and known and reported outstanding losses and allocated loss
expenses relating thereto, excluding reserves for losses incurred but not
reported is less than the balance of credit as of the statement date, the
Company shall, within thirty days (30) days after receipt of written request
from the Reinsurer, release such excess credit by reducing any cash funding by
the amount of such difference.
ARTICLE X
LOSSES AND LOSS SETTLEMENTS
The Company or its designated representatives shall adjust, settle or
compromise all losses hereunder. All such adjustments, settlements and
compromises, including ex-gratia payments shall be binding on the Reinsurer, in
proportion to its participation and the Reinsurer shall benefit proportionately
in all salvage, subrogation and recoveries.
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The Reinsurer shall bear all loss adjustment expenses incurred by the
Company, (but not including office expenses or salaries of and expenses
incurred by the Company's regular employees) in the investigation, adjustment,
appraisal or defense of all claims under policies reinsured hereunder and the
Reinsurer shall receive any and all recoveries of such expense, excluding
office expenses or salaries of and expenses incurred by the Company's regular
employees. The Reinsurer's portion of loss adjustment expenses shall be in
addition to its limit of liability.
Collateral, if applicable, will be used as loss and/or loss adjustment
expenses where applicable, and will be assigned proportionately between the
Company and the Reinsurers.
ARTICLE XI
EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company, within the limits hereof,
where the loss includes any Extra Contractual Obligations incurred by the
Company. "Extra Contractual Obligations" are defined as those liabilities not
covered under any other provisions 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 the Company to settle
within the policy limit, or by reason of alleged or actual negligence, fraud or
bad faith in rejecting an offer of settlement, or in the preparation of the
defense, or in the trial of any action against its insured, or in the
preparation or prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
loss.
However, this Article shall not apply where the loss has been incurred
due to the fraud of a member of the Board of Directors or a corporate officer
of the Company acting individually or collectively in collusion with any
individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
However, only 80% of any loss as described above may be included in
the loss hereon, the remaining 20% to be retained by the Company and not
reinsured in any way.
ARTICLE XII
TAXES
It is understood and agreed that in consideration of the terms under
which this Agreement is issued, the Company undertakes not to claim any
deduction with respect to the premium hereon when making
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tax returns, other than income or profits tax returns, to the appropriate tax
authorities.
ARTICLE XIII
CURRENCY
All payments made under this Agreement shall be in currency of the
United States of America.
ARTICLE XIV
ACCESS TO RECORDS
The Reinsurer, or its duly appointed representatives, shall at all
reasonable times have free access to the books and records of the Company so
far as they relate to the business reinsured under this Agreement.
ARTICLE XV
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, provided such delay, omission
or error is rectified immediately upon discovery.
ARTICLE XVI
INSOLVENCY
In the event of the insolvency of the Company this reinsurance shall
be payable by the Reinsurer directly to the Company or its liquidator,
receiver, conservator or statutory successor on the basis of the liability of
the Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of the
Company has failed to pay all or a portion of any claim.
It is agreed however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer
of the pendency of a claim against the insolvent Company indicating the policy
or bonds 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 proceedings or in the receivership, and that during
the pendency of such claims the Reinsurer may investigate such claims and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or
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defenses which it may deem available to the Company or its liquidator,
receiver, conservator or statutory successor; that the expense thus incurred by
the Reinsurer shall be chargeable subject to court approval against the
insolvent Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.
This reinsurance shall be payable by the Reinsurer directly to the
Company, or to its liquidator, receiver, conservator or statutory successor,
except (a) where the Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the Company, and (b) where the
Reinsurer with the consent of the direct insured or uninsureds has assumed such
policy obligations of the Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the
Company to such payees.
ARTICLE XVII
ARBITRATION
As a precedent to any right of action hereunder, if any differences
shall arise between the contracting parties with reference to the
interpretation of this Agreement or the rights with respect to any transaction
involved, whether arising before or after termination of this Agreement, such
differences shall be submitted to arbitration upon the written request of one
of the contracting parties.
Each party shall appoint an arbitrator within thirty days of being
requested to do so, and the two named shall select a third arbitrator before
entering upon the arbitration. If either party refuses or neglects to appoint
an arbitrator within the time specified, the other party may appoint the second
arbitrator. If the two arbitrators fail to agree on a third arbitrator within
thirty days of their appointment, each of them shall name three individuals, of
whom the other shall decline two, and the choice shall be made by drawing lots.
All arbitrators shall be active or retired disinterested officers of insurance
or reinsurance companies or Underwriters at Lloyd's, London not under the
control of either party to this Agreement.
Each party shall submit its case to its arbitrator within thirty days
of the appointment of the third arbitrator or within such period as may be
agreed by the arbitrators. All arbitrators shall interpret this Agreement as
an honorable engagement rather than as merely a legal obligation. They are
relieved of all judicial formalities and may abstain from following the strict
rules of law. They shall make their award with a view to effecting the general
purpose of this Agreement rather than in accordance with a literal
interpretation of the language.
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The decision in writing of any two arbitrators, when filed with the
contracting parties, shall be final and binding on both parties. Judgment upon
the award rendered may be entered in any court having jurisdiction thereof.
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. In the event that two arbitrators are chosen by one party as
above provided, the expense of the arbitrators and the arbitration shall be
equally divided between the two parties. Any arbitration shall take place in
Sioux Falls, South Dakota unless some other place is mutually agreed upon by
the contracting parties.
ARTICLE XVIII
OFFSET CLAUSE
The Company and the Reinsurer, each at its option, may offset any
balance or balances, whether on account of premiums, claims and losses, loss
expenses or salvages due from one party to the other under this Agreement,
provided, however, that in the event of the insolvency of a party hereto,
offsets shall only be allowed in accordance with the provisions of the statutes
and/or regulations of the state having jurisdiction over the insolvency.
ARTICLE XIX
CHOICE OF LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of South Dakota.
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Signed and accepted, effective September 22, 1994 on behalf of
Western Surety Company, "the Company" by Bruce A. Esselborn this 22nd day of
September, 1994.
Signed and accepted, effective September 22, 1994 on behalf of
Universal Surety of America, "the Reinsurer" by John Knox, Jr. President,
this 22nd day of September, 1994.