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EXHIBIT 10.25
INSURANCE SERVICE AGREEMENT
This Agreement is between Mutual Service Casualty Insurance Company, a
Minnesota corporation (hereinafter called "MSI", and IGF Insurance Company, an
Indiana corporation (hereinafter called "IGF").
WHEREAS, IGF insures growing crops; and
WHEREAS, IGF is not licensed to do an insurance business in all states; and
WHEREAS, IGF has requested that MSI front for it in several states in which IGF
is not licensed to do an insurance business; and
WHEREAS, MSI is willing to provide its facilities to IGF, subject to the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the Reinsurance Agreement identified in
paragraph 3, and for other good and valuable consideration, MSI and IGF agree
as follows:
1. Authority of IGF.
A. MSI authorizes IGF:
(1) to procure Crop Hail, Multi-Peril, Named Peril (Agricultural)
and Flood Insurance business (herein called "Insurance")
through properly licensed producers ("Agents") for MSI's
account in the states of California, Florida, Georgia, Idaho,
Kentucky, Michigan, New Mexico, North Carolina, Ohio,
Oklahoma, South Carolina, Tennessee, Texas, Virginia,
Washington and such other states as the parties may mutually
agree to in a writing referencing this Agreement; and
(2) to manage such Insurance on behalf of MSI as set forth in this
Agreement.
B. Subject to the restrictions contained in this Agreement, MSI
grants IGF the authority to perform the following activities on MSI's
behalf:
(1) to file rules, rates and forms applicable to the Insurance
with appropriate regulatory authorities;
(2) to appoint and remove Agents, and to pay commissions on
Insurance produced by Agents;
(3) to accept and decline Insurance risks;
(4) to bind, issue and cancel Insurance policies ("Policies");
(5) to bill, collect and refund Insurance premiums;
(6) to make customary endorsements, changes, assignments,
transfers and modifications of existing Policies; and
(7) to adjust, compromise and process Insurance claims, including
the right to litigate claims in MSI's name.
2. Effective Date. IGF can Issue Policies providing Multi-Peril Crop
Insurance Coverage reinsured by the Federal Crop Insurance Corporation for
the policy period July 1, 1995 - June 30, 1996 upon execution of this
Agreement. IGF can issue Policies for the other lines of insurance
beginning January 1, 1996.
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3. Reinsurance.
A. All Insurance business coming within the scope of this Agreement
shall be the joint and several liability of IGF and PAFCO General
Insurance Company, an Indiana corporation, under a 100% Quota Share
Reinsurance Agreement approved by MSI (the "Reinsurance Agreement").
B. IGF agrees to maintain reinsurance on Insurance underwritten and
assumed by it from time to time as may be required by MSI. IGF shall
not change its reinsurance cover without MSI's written consent.
4. Issuing Fee and Expense.
A. MSI shall be entitled to an annual fee for its participation hereunder
equal to the greater of the sum of the percentages shown below of the
net premium written on Insurance, by line, during the calendar year
and $350,000 (the "Issuing Fee").
(1) Crop Hail
2.50% of the net premium written on the Insurance during the
calendar year for all Crop Hail business.
(2) Multi-Peril Crop Insurance
(a) Non Catastrophe Policies
A minimum rate of 2.00% shall apply to 100% of farmers
paid and subsidy premium and shall slide to maximum of
3.00% if the Grow Loss Ratio (before application of the
Standard Reinsurance Agreement (SRA)) is less than or
equal to 90%, for the applicable crop year in question.
(b) Catastrophe Policies
A minimum rate of .6% of "imputed premium", as defined in
the SRA, and shall slide to a maximum of 1.10% if the
Gross Loss Ratio is less than or equal to 90%, for the
applicable Crop year in question.
B. IGF agrees to pay and/or reimburse MSI for all expenses related to
insurance produced pursuant to this Agreement. Such expenses shall
include, but shall not be limited to Agent licenses, Agent
Commissions, agency supplies (such as application forms, policy
blanks, daily reports, adjuster supplies and loss drafts),
advertising, premium taxes, local board and association fees, state
policy filing fees, and other fees pursuant to those laws and
regulations creating obligatory funds, pools, joint underwriting
associations, FAIR plans and similar plans, and reinsurance facilities
designed to provide insurance on risks upon which coverage cannot be
obtained through the normal insurance market.
C. IGF agrees to hold MSI harmless and reimburse it for all other
amounts, including claims and adjustment fees and judgments, to pay as
a result of insurance produced pursuant to this Agreement and not
covered by the Reinsurance Agreement, it being the intent of the
parties that MSI shall be entitled to earn a profit in each year that
this Agreement is in effect equal to the Issuing Fee.
D. As used in this Agreement "net premium written" means gross premium
written less returns and cancellations.
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5. Reports and Remittances.
A. IGF shall prepare and submit to MSI within forty-five (45)
days after the end of each month a bordereau report showing
for that month gross premiums written less returns and
cancellations; Agent's commissions; paid losses and loss
adjustment expenses; and reserves for outstanding losses. IGF
shall also provide MSI with such other information as MS[ may
require to complete its Annual Statement and satisfy internal
and external reporting requirements.
B. IGF shall remit to MSI within forty-five (45) days after the
end of each month an amount equal to MSI's liability for
premium taxes on the net premium written on insurance during
such month.
C. Each year, by December 1, IGF shall remit to MSI an amount
equal to the greater of the percentage fees noted in 4.A.
1.-2. of the net premium on Insurance written through October
of that year and $350,000.
D. Beginning in 1996 and each year thereafter, on or before April
15, IGF shall remit to MSI the amount, if any, by which the
percentage fees noted In 4.A. 1.-2. of the net premium on
Insurance written during the preceding calendar year exceeds
the amount paid to MSI under paragraph 5.C. In the event the
amount previously paid by IGF under paragraph 5.C. for the
year exceeds the difference to IGF following receipt of notice
form IGF on the amount due.
E. IGF shall be liable to MSI for all premiums on Insurance
produced under this Agreement, regardless of whether such
premiums are collected by IGF.
F. IGF shall have its financial affairs audited annually by an
Independent auditor acceptable to MSI, and shall provide MSI
with a copy of such audit promptly upon its completion.
6. Restrictions.
A. IGF shall underwrite, issue and non-renew Policies in accordance with
the following underwriting guidelines:
(1) Maximum annual net written premium: $21 million (inclusive of
direct subsidies).
(2) Maximum limits of liability: For Crop Hail or Named Peril
(Agricultural) - $1,600,000 in any one township; for
Multi-Peril - $10,000,000 in any township; for Flood - $1,000,000
per risk.
(3) Maximum policy period: For Crop Hail, Multi-Peril and Named
Peril (Agricultural) - 12 months; for Flood - 36 months.
(4) Lines and classes of business to be written: Crop Hail,
Multi-Peril, Named Peril (Agricultural) and Flood - 36 months.
(5) Policy rates and rating basis: For Crop Hail, Multi-Peril and
Named Peril (Agricultural) - the rules and rates approved by MSI
and, where required, applicable regulatory authorities, and in
effect in the various territories in which Insurance is being
marketed; for Flood - in accordance with the rules and rates
promulgated under the National Flood Insurance Program.
(6) Required policy wording and exclusions: For Crop Hail,
Multi-Peril and Named Peril (Agricultural) - as set forth in the
various policy forms developed by IGF, and approved by MSI and,
where required, applicable regulatory authorities; for Flood -
as set forth in forms promulgated under the National Flood
Insurance Program.
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(7) Territorial limitations: Risks resident in the states identified
in paragraph 2.A.
Subject to applicable laws, regulations and policy terms, IGF
shall have the right to cancel or non-renew any Policy at its
discretion.
B. IGF shall process and adjust all claims incurred under binders,
endorsements or Policies issued by IGF under this Agreement at its own
expense. Settlement of any individual claim exceeding the sum of
$70,000 shall be subject to the approval of MSI. In connection with
lawsuits seeking the recovery of damages in excess of $100,000, IGF
shall furnish MSI with copies of all pleadings, and related file
material, pertaining thereto in a prompt and timely fashion. IGF
shall consult with MSI in the handling of all such litigation.
C. MSI reserves the right to inspect and audit IGF's claim files
pertaining to insurance business written pursuant to this Agreement
and to evaluate and establish claim reserves on such Agreement and to
evaluate and establish claim reserves on such business at it sole
discretion. Furthermore, MSI reserves the right to determine that any
Insurance claim denied by IGF is payable and, upon such determination,
IGF shall promptly pay such claim.
D. All files and records pertaining to claims arising out of business
subject to this Agreement shall be the property of both parties hereto
and, upon request, MSI shall have unrestricted access to such files
and records during IGF's business hours. IGF shall not delete or
destroy such files and records without MSI's prior consent.
E. In the event of any disagreement or dispute regarding the performance
of any delegated underwriting or claim settlement function, or upon
discovery of any failure on the part of IGF to comply with all
established underwriting or claim settlement provisions, guidelines or
instructions, MSI shall have the right to immediately suspend IGFs
authority to perform such function pending satisfactory resolution of
the disagreement, dispute or instance of non-compliance and perform
such function itself. IGF shall provide MSI, at IGF's expense, with a
copy of the requisite files and shall reimburse MSI for the expenses
MSI shall incur in performing any suspended function.
7. Records.
A. IGF shall maintain separate records on the Insurance produced
under this Agreement. MSI and the State Insurance Commissioners
shall each have access to, and the right to copy, all accounts
and records related to such insurance at any time during IGFs
business hours. Such records shall be retained for at least
three (3) years after the termination of the Reinsurance
Agreement, or until the completion of MSI's statutory
examination by the Minnesota Department of Commerce covering the
period during which the Reinsurance Agreement was in effect,
whichever is later.
B. MSI shall have the right at any time to inspect and audit the
books and records of IGF on business produced under this
Agreement, which shall be made available by IGF at its normal
place of business.
B. Arbitration.
A. As a condition precedent to any right of action hereunder, in
the event of any dispute or difference of opinion hereafter
arising with respect to this Agreement, it is hereby mutually
agreed that such dispute or difference of opinion shall be
submitted to arbitration. One Arbiter shall be chosen by MSI,
the other by IGF, and an Umpire shall be chosen by the two
Arbiters before they enter arbitration, all of which shall be
active or retired disinterested executive officers of insurance
and reinsurance companies or Lloyd's of London Underwriters. In
the event that either party should fail to choose an Arbiter
within thirty (30) days following a written request by
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the other party to do so, the requesting party may choose two
Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the
selection of an Umpire within thirty (30) days following their
appointment, each Arbiter shall nominate three (3) Candidates
within ten (10) days thereafter, two (2) of whom the other shall
decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within thirty
(30) days following the date of appointment of the Umpire. The
Arbiters shall consider this Agreement as an honorable
engagement rather than merely as a legal obligation, and they
are relieved of all judicial formalities and may abstain from
following the strict rules of the law. The decision of the
Arbiters shall be final and binding on both parties; but failing
to agree, they shall call in the Umpire and the decision or the
majority shall be final and binding upon both parties. Judgment
upon the final decision of the Arbiters may be entered in any
court of competent jurisdiction.
C. Each party shall bear the expense of its own Arbiter, and shall
jointly and equally bear with the other expense of the Umpire
and of the arbitration. In the event that the two Arbiters are
chosen by one party, as above provided, the expense of the
Arbiters, the Umpire and the arbitration shall be equally
divided between the two parties.
D. Any arbitration proceedings shall take place at a location
mutually agreed upon by both parties to this Agreement, but
notwithstanding the location of the arbitration, all proceedings
pursuant hereto shall be governed by the law of the state of
Minnesota.
9. Termination. This Agreement shall terminate:
A. Automatically, upon the termination of the Reinsurance
Agreement. It is of the essence of this Agreement that the
Reinsurance Agreement, as approved by MSI, shall be in place at
all time.
B. Immediately, following written notice from the other party, upon
the placement of a party to this Agreement under supervision by
a State Insurance Commissioner.
C. Immediately, following receipt of written notice from MSI, on
account of IGF's failure to comply with a condition or provision
of this Agreement within thirty (30) days after such failure is
brought to IGF's attention in writing.
D. On December 31 of any year, by either party. The party desiring
to terminate this Agreement shall give the other at least ninety
(90) days advance written notice of its intention to terminate
this Agreement.
E. Unless otherwise directed by MSI in writing. In the event this
Agreement is terminated, IGF shall continue to perform the
duties necessary to service all Policies, at its own expense,
until all liability underlying the Policies shall have been
terminated. Such services shall consist of, but shall not
necessarily be limited to, cancellations, return premiums,
endorsements, account current reporting and claim settlements.
IGF shall also Issue, for and on behalf of MSI, an effective
notice of non-renewal to all policyholders terminating their
coverage upon the expiration of their Policy term next following
the termination of this Agreement. Should good cause exist for
MSI shall incur in performing such duties. IGF shall also
provide MSI, at IGF's expense, with a copy of all Insurance
records on unexpired Policies, and all Insurance claim files.
F. Should this Agreement terminate on a date other than December
31, IGF shall remit to MSI within forty-five (45) days following
the date of termination an amount equal to the sum of the
percentages show in 4.A. 1.-2. of the net premium written on
Insurance in that year to the date of termination. If the date
of termination shall be on or after July 1, IGF shall remit to
MSI the greater of the amount described in the preceding
sentence and $350,000.
10. General Provisions.
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A. Payment of all commissions due on Policies secured by Agents
shall be made directly by IGF to the Agents. IGF shall
indemnify and hold MSI harmless from all expenses, costs, causes
of action, and damages resulting from or growing out of claims
made by Agents against MSI for commissions or other payments
allegedly due them on Insurance produced under this Agreement.
B. IGF warrants that it will abide by all statues, rules and
regulations of the various territories in which Insurance is
being marketed. Furthermore, IGF shall indemnify and hold MSI
harmless from any and all wrongful acts or conduct by its
representatives, employees and/or the Agents on account of
failure to properly license Agents with MSI, failure to provide
Insurance to applicants, failure to handle claims properly, and
any other act that creates a financial obligation for MSI as a
result of acts or omissions by said representatives, employees
and/or the Agents, including but not limited to all costs,
expenses and attorney fees incurred by MSI as a result thereof.
C. IGF shall reimburse MSI for any out-of-pocket expenses MSI may
incur in connection with any audit of IGF's underwriting and
claims processing operations, including testing for reserve
adequacy on Insurance claims. IGF's maximum obligation under
this paragraph is limited to $5,000 per calendar year.
D. IGF's obligations hereunder to reimburse MSI for all expenses
related to business produced under this Agreement, and to
indemnify and hold MSI harmless, shall survive the termination
of the Agreement.
E. This Agreement shall not be assigned by IGF without the written
consent of MSI.
IN WITNESS THEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the date shown.
Arden Hills, Minnesota, this 15th day of May ,1996
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By: /s/ Lloyd A. Keller
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Lloyd A. Keller, Director of
Reinsurance
Mutual Service
Casualty Insurance company
Des Moines, Iowa, this 20th day of May ,1996
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BY: /s/ Dennis G. Daggett
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IGF Insurance Company
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