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EXHIBIT 10.18
FINANCIAL PACIFIC INSURANCE COMPANY
SACRAMENTO, CALIFORNIA
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
Originally Effective: January 1, 1997
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CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
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CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
REINSURERS PARTICIPATIONS
THROUGH MILLER REINSURANCE BROKERS NORTH AMERICA LTD.
Lloyd's Underwriters and Companies
Per Signing Schedule(s) 100.0%
TOTAL 100.0%
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
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TABLE OF CONTENTS
ARTICLE PAGE
I Classes of Business Reinsured 1
II Commencement and Termination 2
III Territory 2
IV Exclusions 3
V Retention and Limit 7
VI Reinstatement 8
VII Definitions 9
VIII Other Reinsurance 11
IX Claims and Loss Adjustment Expenses 12
X Salvage and Subrogation 12
XI Premium 13
XII Offset (BRMA 36C) 13
XIII Access to Records (BRMA 1D) 13
XIV Net Retained Liability 14
XV Errors and Omissions (BRMA 14F) 14
XVI Taxes (BRMA 50B) 14
XVII Unauthorized Reinsurers 14
XVIII Insolvency 15
XIX Arbitration (BRMA 6J) 16
XX Service of Suit (BRMA 49C) 17
XXI Intermediary (BRMA 23A) 18
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CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
ARTICLE I - Classes OF BUSINESS REINSURED
A. By this Contract the Reinsurer agrees to reinsure the excess liability
which may accrue to the Company under its policies, contracts and binders
of insurance or reinsurance (hereinafter called "policies") in force at the
effective date hereof or issued or renewed on or after that date, and
classified by the Company as Commercial Multiple Peril (Section II) and
Automobile Liability business (hereinafter referred to as "Casualty
business") and Commercial Multiple Peril (Section I), Automobile Physical
Damage and Inland Marine business (hereinafter referred to as "Property
business"), subject to the terms, conditions and limitations hereinafter
set forth.
B. It is understood that the classes of business reinsured under this Contract
are deemed to include:
1. Coverages required for non-resident drivers under the motor vehicle
financial responsibility law or the motor vehicle compulsory insurance
law or any similar law of any state or province, following the
provisions of the Company's policies when they include or are deemed
to include so-called "Out of State Insurance" provisions;
2. Coverages required under Section 30 of the Motor Carrier Act of 1980
and/or any amendments thereto.
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ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1997, with respect to
losses arising under policies allocated to underwriting years commencing on
or after that date, and shall continue in force thereafter until
terminated.
B. Either party may terminate this Contract on December 31, 1997 or any
December 31 thereafter by giving the other party not less than 90 days
prior notice by certified mail.
C. Unless the Company elects that the Reinsurer have no liability for losses
occurring after the effective date of termination, and so notifies the
Reinsurer prior to or as promptly as possible after the effective date of
termination, reinsurance hereunder on business in force on the effective
date of termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the effective date of
termination.
D. "Underwriting year" as used herein shall mean the period from January 1,
1997 through December 31, 1997, and each subsequent 12-month period shall
be a separate underwriting year. All premiums and losses from policies
allocated to an underwriting year shall be credited or charged,
respectively, to such underwriting year, regardless of the date said
premiums earn or such losses occur, it being understood that a policy will
be allocated to the underwriting year which is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Notwithstanding the foregoing, the policies in force on January 1, 1997,
shall be allocated to the first underwriting year hereunder. Such policies
shall remain in the same underwriting year, as originally allocated, until
the next renewal date or premium anniversary date, at which time such
policies shall be reallocated to the underwriting year in effect as of such
date as provided in subparagraphs 2 and 3 above.
ARTICLE III - TERRITORY
This Contract shall only apply to policies issued to insureds domiciled in the
United States of America, its territories and possessions, Puerto Rico and the
District of Columbia; but this limitation shall not apply to losses if the
Company's policies provide coverage outside the aforesaid territorial limits.
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ARTICLE IV - EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
A. The following General Exclusions:
1. Business accepted by the Company as reinsurance from other insurers
except Agency Reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company is
required under any statutes or regulations.
3. Liability of the Company 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
guarantee 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.
4. Any loss or damage which is occasioned by war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection, military
or usurped power, or martial law or confiscation by order of any
government or public authority.
5. Business written to apply in excess of a deductible or self-insured
amount of more than $ 100,000 or business written to apply
specifically in excess over underlying insurance. However, this
exclusion shall not apply to Umbrella business.
6. Aviation liability including aerospace and satellite business.
7. Workers' Compensation business, including Longshoremen's and Harbor
Workers' Act and Jones Act.
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
9. Retail liquor law liability, except where liquor constitutes less than
50.0% of sales. Specifically excluded are bars and retail liquor
stores.
10. Insurance covering damages claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or of
any property of which such products form
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a part of, or if such products or property are withdrawn from the
market or from use because of any known or suspected defect or
deficiency therein.
11. Liabilities for bodily injury, personal damage and/or property damage
from asbestos and/or asbestos products, including but not limited to
liability arising from the mining, manufacture, installation,
transport, storage, habitation or use of materials, products or
structure containing asbestos.
12. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or amendments
thereto.
13. Fidelity and Surety.
B. The following Property Exclusions:
1. Insurance against earthquake, when written as such.
2. Insurance on growing crops.
3. Insurance against flood, surface water, waves, tidal water or tidal
wave, overflow of streams or other bodies of water or spray from any
of the foregoing, all whether driven by wind or not, when written as
such.
4. Liability under coverage specifically afforded for loss or damages
resulting from misappropriation, secretion, conversion, infidelity or
any dishonest act on the part of the insured or other party of
interest, his/her or their employees or agents, or any person or
persons to whom merchandise may be entrusted (carriers for hire
excepted).
5. Liability under coverage afforded for loss or damage resulting from
failure to account or pay for any goods or merchandise sold on credit,
delivered under deferred payment agreements, consigned for sale, or
delivered under any trust or floor plan agreements, except under
standard accounts receivable policies.
6. Boiler and Machinery, when written as such.
7. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled.
8. Difference in conditions insurance and similar kinds of insurance,
howsoever styled.
9. Risks which have a total insurable value of more than $250,000,000.
10. Mobile homes, unless written as part of a commercial multiple peril
policy.
11. Loss and/or damage and/or costs and/or expenses arising from seepage
and/or pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment of the
cost of removing debris of property
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damaged by a loss otherwise covered hereunder, subject always to a
limit of 25% of the Company's property loss under the applicable
original policy.
12. Satellites.
13. Ocean Marine when written as such.
14. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Physical Damage Reinsurance" attached to and forming part of this
Contract.
15. Railroad business, specifically insurance for "line" or "track"
operations of actual railroads.
16. Oil and gas risks, by which is meant drilling rigs, exploration risks,
cracking plants, refineries and depots, oil and gas pipelines,
offshore oil and gas properties.
17. As respects aviation, hull and ingestion.
C. The following Casualty Exclusions:
1. Watercraft liability except for boats less than 50 feet in length.
2. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
3. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products;
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil drilling
equipment;
4. Liability insurance relating to premises or operations primarily
involving:
a. Aircraft or airports, as respects coverage for all liability
arising out of the ownership, maintenance, or use of any aircraft
or flight operations;
b. Amusement parks, carnivals, circuses, speed contests and racing;
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c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerine, celluloid, pyroxylin or explosive substances
intended for use as an explosive;
d. Gas or public utility companies, gas or public utility works, or
gas lease operations;
e. Production, refining, handling, shipping or storage of natural or
artificial fuel gases, synthetic or coal or shale based fuel,
butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs, exploration
risks, cracking plants, refineries and depots, and oil and gas
pipelines;
g. Railroad operations, specifically "line" or "on track" operations
of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
j. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
l. Ski resorts;
m. Waste disposal and deposit sites, except when written in
conjunction with either a refuse hauler or recycling account;
n. Crane rentals without operators whose primary business is crane
rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Existence, construction or maintenance of dams;
q. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
r. Warehousemen's legal liability;
s. Automobile racing and racetracks;
t. Taxis;
u. Blasting contractors;
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v. Licensed roofing contractors whose primary business is such;
w. General contractors with revenues in excess of $50,000,000;
x. Wrap up construction projects.
5. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability-Reinsurance" attached to and forming part of this Contract.
6. Pollution liability as excluded by the Company's policies. It is
hereby warranted that any Commercial General Liability policy issued
by the Company will include ISO pollution exclusion language.
7. Any loss, cost, or expense arising out of any governmental direction
or request that the insured test for, monitor, clean up, remove,
contain, treat, detoxify or neutralize pollutants.
If the Company provides insurance for an insured with respect to any
premises, operations, products or completed operations listed in
subparagraphs 3 and 4 of this paragraph, except subparagraphs 4(c) and
4(d), and if such premises, operations, products or completed operations
constitute only a minor incidental part of the total premises, operations,
products or completed operations of the insured, such exclusion(s) shall
not apply.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set
forth in this paragraph, these exclusions, except those set forth in
subparagraphs 2, 4(c), 4(d), 5, 6 and 7, shall be suspended with respect to
such business until 30 days after an underwriting supervisor of the Company
acquires knowledge of such business.
ARTICLE V - RETENTION AND LIMIT
A. Coverage A: As respects Casualty business subject to this Contract, the
Company's retention and the Reinsurer's liability shall be determined as
follows:
1. As respects business with policy limits of $1,000,000 or less, the
Company shall retain and be liable for the first $ 1,000,000 of
ultimate net loss (whether involving any one or any combination of the
casualty classes of business covered hereunder, regardless of the
number of policies under which such loss is payable) as respects each
insured, each occurrence. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
$2,000,000 as respects any one insured, any one occurrence.
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2. As respects business with policy limits greater than $ 1,000,000, the
Company shall retain and be liable for the first $5,000,000 of
ultimate net loss (whether involving any one or any combination of the
casualty classes of business covered hereunder, regardless of the
number of policies under which such loss is payable) as respects each
insured, each occurrence. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
$2,000,000 as respects any one insured, any one occurrence.
B. Coverage B: As respects Property business subject to this Contract, the
Company shall retain and be liable for the first $2,000,000 of ultimate net
loss as respects any one risk, each loss occurrence. The Reinsurer shall
then be liable for the amount by which such ultimate net loss exceeds the
Company's retention, but the liability of the Reinsurer shall not exceed
$2,000,000 as respects any one risk, each loss occurrence.
C. Coverage hereunder shall apply only in the event the Company sustains
liability for extra contractual obligations and/or losses in excess of
original policy limits, arising under policies written by the Company.
D. In the event that two or more policies covered under this Contract are
involved in the same occurrence but allocated to different underwriting
years, the amount to be retained by the Company for each underwriting year
shall be reduced to the percentage that the Company's retained losses on
the policies allocated to each underwriting year bears to the total of all
the Company's retained losses contributing to the same occurrence. The
indemnity and/or recovery shall be arrived at in the same manner.
E. The maximum policy limits shown in paragraphs A and B shall be extended to
follow the Company's policy if the Company's ultimate net loss is greater
than one or more of said amounts because its policy includes or is deemed
to include:
1. So-called "Out of State Insurance" provisions;
2. Limits of liability required under Section 30 of the Motor Carrier Act
of 1980 and/or any amendments thereto.
ARTICLE VI - REINSTATEMENT
A. In the event all or any portion of the reinsurance hereunder is exhausted
by loss, the amount so exhausted shall be reinstated immediately from the
time the occurrence commences hereon. For each amount so reinstated the
Company agrees to pay additional premium equal to the product of the
following:
1. The percentage of the occurrence limit reinstated (based on the
ultimate net loss paid by the Reinsurer); times
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2. The earned reinsurance premium for the underwriting year in which the
occurrence commences (exclusive of reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any ultimate net
loss hereunder, the Company shall submit a statement to the Reinsurer of
reinstatement premium due the Reinsurer. If the earned reinsurance premium
for the contract year has not been finally determined as of the date of any
such statement, the calculation of reinstatement premium due shall be based
on the annual deposit premium and shall be readjusted when the earned
reinsurance premium for the contract year has been finally determined. Any
reinstatement premium shown to be due the Reinsurer as reflected by any
such statement (less prior payments, if any) shall be payable by the
Company concurrently with payment by the Reinsurer of the requested loss.
Any return reinstatement premium shown to be due the Company shall be
remitted by the Reinsurer as promptly as possible after receipt and
verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the Reinsurer
hereunder for ultimate net loss shall not exceed $2,000,000 as respects any
one occurrence, nor shall it exceed $4,000,000 as respects all occurrences
commencing during any one contract year.
Article VII - DEFINITIONS
A. "Ultimate net loss" as used herein is defined as the sum or sums paid or
payable by the Company in settlement of claims and in satisfaction of
judgments rendered on account of such claims, after deduction of all
salvage, all recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. Nothing herein shall be construed to mean that
losses under this Contract are not recoverable until the Company's ultimate
net loss has been ascertained.
B. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 100% of any amount paid
or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover damages
the insured is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in discharging its
duty to defend or prepare the defense in the trial of an action
against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 100% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid or payable by the Company as a result of
an action against it by its insured, its insured's assignee or a third
party claimant, which action alleges negligence or bad faith on the
part of the Company in handling a claim under a policy subject to this
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Contract. An extra contractual obligation shall be deemed to have
occured on the same date as the loss covered or alleged to be covered
under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
C. As respects Coverage A of Article V, "occurrence" as used herein is
defined as an accident or occurrence or a series of accidents or
occurrences arising out of or caused by one event. However, as respects
policies where the Company's limit of liability for Products and Completed
Operations coverages is determined on the basis of the insured's aggregate
losses during a policy period, all such losses proceeding from or traceable
to the same causative agency shall, at the Company's option, be deemed to
have been caused by one occurrence commencing at the beginning of the
policy period, it being understood and agreed that each renewal or annual
anniversary date of the policy involved shall be deemed the beginning of a
new policy period.
D. As respects Coverage B of Article V, the term "loss occurrence" shall mean
the sum of all individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses arising out of
one event which occurs within the area of one state of the United States or
province of Canada and states or provinces contiguous thereto and to one
another. However, the duration and extent of any one "loss occurrence"
shall be limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising out of and
directly occasioned by the same event, except that the term "loss
occurrence" shall be further defined as follows:
1. As regards windstorm, hail, tornado, hurricane, cyclone, including
ensuing collapse and water damage, all individual losses sustained by
the Company occurring during any period of 72 consecutive hours
arising out of and directly occasioned by the same event. However, the
event need not be limited to one state or province or states or
provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil commotion, vandalism
and malicious mischief, all individual losses sustained by the Company
occurring during any period of 72 consecutive hours within the area of
one municipality or county and the municipalities or counties
contiguous thereto arising out of and directly occasioned by the same
event. The maximum duration of 72 consecutive hours may be extended in
respect of individual losses which occur beyond such 72 consecutive
hours during the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the aforesaid
period.
3. As regards earthquake (the epicentre of which need not necessarily be
within the territorial confines referred to in the introductory
portion of this paragraph ) and fire following directly occasioned by
the earthquake, only those individual fire losses
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which commence during the period of 168 consecutive hours may be
included in the Company's "loss occurrence."
4. As regards "freeze," only individual losses directly occasioned by
collapse, breakage of glass and water damage (caused by bursting
frozen pipes and tanks) may be included in the Company's "loss
occurrence."
Except for those "loss occurrences" referred to in subparagraphs 1 and 2
above, the Company may choose the date and time when any such period of
consecutive hours commences, provided that it is not earlier than the date
and time of the occurrence of the first recorded individual loss sustained
by the Company arising out of that disaster, accident or loss, and provided
that only one such period of 168 consecutive hours shall apply with respect
to one event.
However, as respects those "loss occurrences" referred to in subparagraphs
1 and 2 above, if the disaster, accident or loss occasioned by the event is
of greater duration than 72 consecutive hours, then the Company may divide
that disaster, accident or loss into two or more "loss occurrences,"
provided that no two periods overlap and no individual loss is included in
more than one such period, and provided that no period commences earlier
than the date and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster, accident or
loss.
No individual losses occasioned by an event that would be covered by 72
hours clauses may be included in any "loss occurrence" claimed under the
168 hours provision.
E. Loss adjustment expense means all costs and expenses allocable to a
specific claim that are incurred by the Company in the investigation,
appraisal, adjustment, settlement, litigation, defense or appeal of a
specific claim, including court costs and costs of supersedeas and appeal
bonds, and including 1) pre-judgment interest, unless included as part of
the award or judgment; 2) post-judgment interest; 3) legal expenses and
costs incurred in connection with coverage questions and legal actions
connected thereto; and 4) a pro rata share of salaries and expenses of
Company field employees, and expenses of other Company employees who have
been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract. Loss
adjustment expense does not include unallocated loss adjustment expense.
Unallocated loss adjustment expense includes, but is not limited to,
salaries and expenses of employees, other than (4) above, and office and
other overhead expenses.
F. The Company shall be the sole judge of what constitutes "one risk."
ARTICLE VIII - OTHER REINSURANCE
A. The Company shall maintain in force facultative certificates or
semi-automatic facultative facilities that apply on an individual risk
basis which cover indemnity loss and may or may not cover extra contractual
obligations and loss in excess of policy limits in accordance with
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the terms of the individual certificate or semi-automatic facultative
facility. Recoveries under such reinsurance shall inure to the benefit of
this Contract.
B. The Company shall be permitted to carry underlying reinsurance, recoveries
under which shall inure solely to the benefit of the Company and be
entirely disregarded in applying all of the provisions of this Contract.
ARTICLE IX - CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Whenever a claim is reserved by the Company for an amount greater than its
retention hereunder and/or whenever a claim appears likely to result in a
claim under this Contract, the Company shall notify the Reinsurer. The
Reinsurer shall have the right to participate, at its own expense, in the
defense or control of any claim or suit or proceeding involving this
reinsurance.
B. All claim settlements made by the Company, provided they are within the
terms of this Contract, shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable upon receipt
of reasonable evidence of the amount paid by the Company.
C. In the event of loss hereunder, loss adjustment expenses incurred by the
Company in connection therewith which do not reduce the Company's limit of
liability under the policy involved shall be shared by the Company and the
Reinsurer in the proportion the ultimate net loss paid or payable by the
Reinsurer bears to the total loss paid or payable by the Company, prior to
any reinsurance recoveries, but after deduction of all salvage, subrogation
and other recoveries. However, if a verdict or judgment is reduced by any
process other than by the trial court, resulting in an ultimate saving to
the Reinsurer, or a judgment is reversed outright, the expenses incurred in
securing such reduction or reversal shall be shared by the Company and the
Reinsurer in the proportion that each benefits from such reduction or
reversal, and the expenses incurred up to the time of the original verdict
or judgment which do not reduce the Company's limit of liability under the
policy involved shall be shared in proportion to each party's interest in
such original verdict or judgment. The Reinsurer's liability for such loss
adjustment expenses shall be in addition to its liability for ultimate net
loss.
ARTICLE X - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its
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primary loss. The Company hereby agrees to enforce its rights to salvage or
subrogation relating to any loss, a part of which loss was sustained by the
Reinsurer, and to prosecute all claims arising out of such rights.
ARTICLE XI - PREMIUM
A. As premium for the reinsurance provided hereunder for each underwriting
year, the Company shall pay the Reinsurer .2825 % of its net written
premium for the underwriting year subject to an annual minimum premium of
$130,000 for the underwriting year. However, in the event this Contract is
terminated on a "cutoff" basis, the minimum premium for the final
underwriting year shall be $65,000.
B. The Company shall pay the Reinsurer an annual deposit premium of $130,000
in four equal installments of $32,500 on, January 1, April 1, July 1 and
October 1 of each underwriting year.
C. Within 45 days after the end of each underwriting year, the Company shall
provide a report to the Reinsurer setting forth the premium due hereunder
for the underwriting year, computed in accordance with paragraph A, and if
the premium so computed is greater than the previously paid minimum and
deposit premium, the balance shall be remitted by the Company with its
report.
D. "Net written premium" as used herein is defined as gross written premium of
the Company for the classes of business reinsured hereunder, less
cancellations and return premiums, and less premiums ceded by the Company
for reinsurance which inures to the benefit of this Contract.
ARTICLE XII - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XIII - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
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ARTICLE XIV - NET RETAINED LIABILITY
This Contract shall apply only to that portion of any insurance or reinsurance
the Company retains net for its own account (prior to deduction of any
underlying reinsurance specifically permitted in this Contract), and in
calculating the amount of any loss hereunder and the amount in excess of which
this Contract attaches, only loss or losses with respect to that portion of any
insurance or reinsurance the Company retains net for its own account shall be
included. It is understood and agreed, however, that the Reinsurer's liability
hereunder with respect to any loss or losses shall not be increased by reason of
the inability of the Company to collect from any other reinsurers, whether
specific or general, any amounts which may be due from them, whether such
inability arises from the insolvency of such other reinsurers or otherwise.
ARTICLE XV - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.
ARTICLE XVI - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
ARTICLE XVII - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its share
of the Company's ceded outstanding loss and loss adjustment expense
reserves by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
Page 14
19
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the insurance
regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to insurance
regulatory authorities involved, will be issued for a term of at least one
year and will include an "evergreen clause," which automatically extends
the term for at least one additional year at each expiration date unless
written notice of non-renewal is given to the Company not less than 30 days
prior to said expiration date. The Company and the Reinsurer further agree,
notwithstanding anything to the contrary in this Contract, that said
letters of credit may be drawn upon by the Company or its successors in
interest at any time, without diminution because of the insolvency of the
Company or the Reinsurer, but only for one or more of the following
purposes:
1. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expense paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
3. To fund a cash account in an amount equal to the Reinsurer's share of
any ceded outstanding loss and loss adjustment expense reserves funded
by means of a letter of credit which is under non-renewal notice, if
said letter of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded
outstanding loss and loss adjustment expense reserves, if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1) or B(3), or in the case of
B(2), the actual amount determined to be due, the Company shall promptly
return to the Reinsurer the excess amount so drawn.
ARTICLE XVIII - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator
or statutory successor immediately upon demand, with reasonable provision
for verification, 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 Company indicating the policy or bond reinsured which
Page 15
20
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
its own expense, in the proceeding where such claim is to be adjudicated,
any defense or defenses that it may deem available to the Company 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 Company 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 Company solely as a result of the defense undertaken by the
Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency of
the Company, the reinsurance under this Contract shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance
Law or except (a) where this Contract specifically provides another payee
of such reinsurance in the event of the insolvency of the Company or (b)
where the Reinsurer with the consent of the direct insured or insureds 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.
D. Any hold harmless and indemnity agreement affecting payment under this
Contract shall be considered an endorsement to and therefore part of this
Contract, irrespective of any language to the contrary. Any indemnitee
shall be considered a "payee" within this Article. In no event shall any
reinsurer have double indemnity for any loss or expense under this
Contract, it being the intent that any payments by the reinsurer to any
payee as provided herein shall not be subject to and also collectible in
any liquidation or similar proceeding.
Article XIX - ARBITRATION (BRMA 6J)
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
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by
the Company, the other by the Reinsurer, and an Umpire shall be chosen by
the two Arbiters before they enter upon arbitration, all of whom shall be
active or retired disinterested executive officers of insurance or
reinsurance companies or Lloyd's London Underwriters. In the event that
either party should fail to choose an Arbiter within 30 days following a
written request by 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 30 days following their appointment, each Arbiter shall
nominate three candidates within 10 days thereafter, two of whom the other
shall decline, and the decision shall be made by drawing lots.
Page 16
21
B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Contract 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 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 of 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. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the 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.
E. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Contract, but notwithstanding the location of
the arbitration, all proceedings pursuant hereto shall be governed by the
law of the state in which the Company has its principal office.
ARTICLE XX - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of any court of competent jurisdiction
within the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States or
of any state in the United States.
B. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom
Page 17
22
may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract.
ARTICLE XXI - INTERMEDIARY (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent that such
payments are actually received by the Company.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this ___ day of __________________________________ 199_.
-------------------------------------
Financial Pacific Insurance Company
Page 18
23
U.S.A.
------
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and either as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on the
site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for processing
substantial quantities of "special nuclear material," and for
reprocessing, salvaging, chemically separating, storing or disposing
of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above using
substantial quantities of radioactive isotopes or other products of
nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear reactor power
plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after lst January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2) and
(3) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note.-Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that
(a) all policies issued by the Reassured on or before 31st December
1957 shall be free from the application of the other provisions
of this Clause until expiry date or 31st December 1960 whichever
first occurs whereupon all the provisions of this Clause shall
apply.
(b) with respect to any risk located in Canada policies issued by the
Reassured on or before 31st December 1958 shall be free from the
application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.
24
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(Approved by Lloyd's Underwriters' Fire and Non-Marine Association)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this reinsurance all
the original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II of this paragraph (2) from the time specified in
Clause III in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage, to (injury, sickness, disease, death or destruction
with respect to which an insured under the (bodily injury or
property damage policy is also an insured under a nuclear energy
liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or
Nuclear Insurance Association of Canada, or would be an insured
under any such policy but for its termination upon exhaustion of
its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either (a) become effective on or after 1st May,
1960, or (b) become effective before that date and contain the
Limited Exclusion Provision set out above; provided this
paragraph (2) shall not be applicable to Family Automobile
Policies, Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on New York
risks, until 90 days following approval of the Limited Exclusion
Provision by the Governmental Authority having jurisdiction
thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional
and Malpractice Liability, Storekeepers Liability, Garage Liability,
Automobile Liability (including Massachusetts Motor Vehicle or Garage
Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage to (injury, sickness, disease, death
or destruction (bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such
policy but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would
be, entitled to indemnity from the United States of America,
or any agency thereof, under any agreement entered into by
the United States of America, or any agency thereof, with
any person or organization.
25
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to immediate medical or surgical
relief first aid, to expenses incurred with respect to bodily
injury, sickness, disease or death, bodily injury resulting from
the hazardous properties of nuclear material and arising out of
the operation of a nuclear facility by any person or
organization.
III. Under any Liability Coverage to injury, sickness, disease, death
or destruction bodily injury or property damage resulting from
the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned
by, or operated by or on behalf of, an insured or (2) has
been discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
(c) the injury, sickness, disease, death or destruction arises
out of the furnishing by an insured bodily injury or
property damage of services, materials, parts or equipment
in connection with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such
facility is located within the United States of America, its
territories, or possessions or Canada, this exclusion (c)
applies only to injury to or destruction of property at such
nuclear facility property damage to such nuclear facility
and any property there at.
IV. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special
nuclear material or byproduct material; "source material",
"special nuclear material", and "byproduct material" have the
meanings given them in the Atomic Energy Act of 1954 or in any
law amendatory thereof; "spent fuel" means any fuel element or
fuel component, solid or liquid, which has been used or exposed
to radiation in a nuclear reactor; "waste" means any waste
material (1) containing byproduct material and (2) resulting from
the operation by any person or organization of any nuclear
facility included within the definition of nuclear facility under
paragraph (a) or (b) thereof, "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling processing or
packaging waste,
(c) any equipment or device used for the processing, fabricating
or alloying of special nuclear material if at any time the
total amount of such material in the custody of the insured
at the premises where such equipment or device is located
consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste, and includes
the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for
such operations; "nuclear reactor" means any apparatus
designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass
of fissionable material; ( With respect to injury to or
destruction of property, the word "injury" or "destruction"
"property damage" includes all forms of radioactive
contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on
or after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured on
New York risks, or
(ii) statutory liability insurance required under Chapter 90,
General Laws of Massachusetts, until 90 days following
approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association of the Independent Insurance Conference of Canada.
NOTE. The words printed in italics in the Limited Exclusion Provision and in the
Broad Exclusion Provision shall apply on relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
26
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Underwriting Members of Lloyd's
shown in the Signing Schedule attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 64.27% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 725 South Figueroa Street, Suite 1990, Los Angeles, California
90017.
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule
attached hereto.
27
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Insurance Companies
shown in the Signing Schedule(s) attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 35.73% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 725 South Figueroa Street, Suite 1990, Los Angeles, California
90017.
The following Article shall apply to the Subscribing Reinsurer's share in the
attached Contract, in lieu of the provisions of Article XVII - Unauthorized
Reinsurers - of the Contract:
"ARTICLE XVII - LOSS RESERVES
(Applicable only if the Reinsurer cannot qualify for credit by any state or
any other governmental authority having jurisdiction over the Company's
loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Contract, the Company agrees that, when it shall file
with the Insurance Department or set up on its books reserves for
losses covered hereunder which it shall be required by
Page 1
28
law to set up, it will forward to the Reinsurer a statement showing
the proportion of such loss reserves which is applicable to the
Reinsurer. The Reinsurer hereby agrees that it will apply for and
secure delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit issued and confirmed, if confirmation
is required by the regulatory authority(ies) having jurisdiction over
the Company's loss reserves, by a bank or banks meeting the NAIC
Securities Valuation Office credit standards for issuers of Letters of
Credit and which is (are) acceptable to said regulatory
authority(ies), in an amount equal to the Reinsurer's proportion of
reserves in respect of known outstanding losses that have been
reported to the Reinsurer and allocated loss expenses relating thereto
as shown in the statement prepared by the Company. Under no
circumstances shall any amount relating to reserves in respect of
Incurred But Not Reported losses be included in the amount of the
Letter of Credit.
B. The Letter of Credit shall be in a form acceptable to insurance
regulatory authority(ies) having jurisdiction over the Company's loss
reserves, shall be issued for a period of not less than one year, and
shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior
to any expiration date the issuing bank shall notify the Company by
registered mail that the issuing bank elects not to consider the
Letter of Credit extended for any additional period. An issuing bank,
not a member of the federal reserve system or not chartered in New
York State, shall provide sixty (60) days notice to the Company prior
to any expiration in the event of non-extension.
C. Notwithstanding any other provision of this Contract, the Company or
its successors in interest may draw upon such credit 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:
1. To pay the Reinsurer's share or to reimburse the Company for the
Reinsurer's share of any loss reinsured by this Contract, the
payment of which has been agreed by the Reinsurer and which has
not been otherwise paid;
2. 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 Contract;
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of known
and reported outstanding losses and allocated expenses relating
thereto under this Contract. 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.
The issuing bank 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.
Page 2
29
D. 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 amending the Letter of Credit, of
the Reinsurer's share of known and reported outstanding losses and
allocated expenses relating thereto. If the statement shows that the
Reinsurer's share of such losses and allocated loss expenses exceeds
the balance of credit as of the statement date, the Reinsurer shall,
within thirty (30) days after receipt of notice of such excess, secure
delivery to the Company of an amendment of the Letter of Credit
increasing the amount of credit by the amount of such difference. If,
however, the statement shows that the Reinsurer's share of known and
reported outstanding losses plus allocated loss expenses relating
thereto is less than the balance of credit as of the statement date,
the Company shall, within thirty (30) days after receipt of written
request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit."
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule(s)
attached hereto.
Page 3
30
SIGNING PAGE ATTACHING TO AND FORMING PART OF THE INTERESTS AND
LIABILITIES AGREEMENT
CONTINGENT EXCESS OF LOSS REINSURANCE CONTRACT
ISSUED TO AND DULY EXECUTED BY
FINANCIAL PACIFIC INSURANCE COMPANY
SACRAMENTO, CALIFORNIA
AND
REINSURERS AS PER FOLLOWING SCHEDULE
The Underwriters who are signatories hereto, each for the proport
on underwritten and not for another, namely,
SCHEDULE OF REINSURERS
Percentage Name Number Reference
- ---------- ---- ------ ---------
11.91% Terra Nova Insurance Company Limited. T3902 097BL11705AA
94L09A8CACY
23.82% St. Paul Reinsurance Co. Ltd. N0435 000661971AXC
31
We, the subscribing Reinsurers hereby bind ourselves to the Reinsured for the
performance of this reinsurance contract.
The subscribing Reinsurers' obligations under this contract are several and not
joint and are limited solely to the extent of their individual signed
subscriptions. The subscribing Reinsurers are not responsible for the
subscription of any co-subscribing Reinsurer who for any reason does not
satisfy all or part of its obligations.
In witness whereof the name of the Chief Executive of the LONDON INTERNATIONAL
INSURANCE AND REINSURANCE MARKET ASSOCIATION ("LIRMA") is subscribed on behalf
of each of the LIRMA companies and such companies not being members of LIRMA
who are participating in a qualifying consortium arrangement with LIRMA members
in accordance with the Memorandum and Articles of Association of LIRMA.
Signed /s/ Mari Louise Rossi
----------------------------------
Chief Executive
97032000 52 124
LIRMA1