EXHIBIT 10(k)
FIRST PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
Effective: January 1, 2001
issued to
21st CENTURY INSURANCE COMPANY
21st CENTURY CASUALTY COMPANY
Woodland Hills, California
and
all other insurance companies 50% or more owned by
21SstCentury Insurance Group
(hereinafter called the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter called the "Reinsurer")
INDEX
-----
CLAUSE ARTICLE
- ------ -------
CLASSES OF BUSINESS REINSURED I
TERM II
SPECIAL TERMINATION OR SETTLEMENT III
TERRITORY IV
EXCLUSIONS V
SELF-INSURED OBLIGATIONS VI
RETENTION AND LIMIT VII
REINSTATEMENT VIII
DEFINITION OF ULTIMATE NET LOSS IX
DEFINITION OF LOSS OCCURRENCE X
NOTICE OF LOSS AND LOSS SETTLEMENT XI
REINSURANCE PREMIUM XII
OFFSET XIII
ACCESS TO RECORDS XIV
NET RETAINED LINES XV
ERRORS AND OMISSIONS XVI
CURRENCY XVII
TAXES XVIII
FEDERAL EXCISE TAX XIX
RESERVE DEPOSIT (NON ADMITTED REINSURERS) XX
INSOLVENCY XXI
ARBITRATION XXII
SERVICE OF SUIT (U.S.A.) - N.M.A.1998 XXIII
GOVERNING LAW XXIV
SEVERABILITY XXV
CONFIDENTIALITY XXVI
INTERMEDIARY XXVII
FIRST PROPERTY CATASTROPHE EXCESS OF LOSS
REINSURANCE CONTRACT
Effective: January 1, 2001
issued to
21ST CENTURY INSURANCE COMPANY
21ST CENTURY CASUALTY COMPANY
Woodland Hills, California
and
all other insurance companies 50% or more owned by
21ST Century Insurance Group
(hereinafter called the "Company')
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter called the "Reinsurer")
ARTICLE I CLASSES OF BUSINESS REINSURED
- --------- -----------------------------
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 on the effective date
hereof or issued or renewed on or after that date, and classified by the Company
as:
1. Property business, including but not limited to Homeowners Multiple
Peril (property perils only), Dwelling Fire, Inland Marine and
2. Workers' Compensation, but only as respects losses arising from
Property perils.
ARTICLE II TERM
- ---------- ----
A. This Contract shall become effective on 12:01 A.M., Pacific Standard Time,
January 1, 2001, with respect to losses arising out of loss occurrences
commencing on or after that date, and shall remain in force until 12:01
A.M., Pacific Standard Time, January 1, 2002.
B. If this Contract expires or is terminated while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder shall,
subject to the other terms and conditions of this Contract, be determined
as if the entire loss occurrence had occurred prior to the termination or
expiration of this Contract, provided that no part of such loss occurrence
is claimed against any renewal or replacement of this Contract.
ARTICLE III SPECIAL TERMINATION OR SETTLEMENT
- ------------ ------------------------------------
Section I (Termination)
- ------------------------
A. Either party may terminate this Agreement upon 45 days notice in the event
that:
1. The other party should at any time become insolvent, or suffer any
impairment of capital, or file a petition in bankruptcy, or go into
liquidation, rehabilitation, or have a receiver appointed, or be
acquired or controlled by any other insurance company or organization,
or
2. There is a severance or obstruction of free and unfettered
communication and/or normal commercial and/or financial intercourse
between the United States of America and the country in which the
Reinsurer is incorporated or has its principal office as a result of
war, currency regulations, or any circumstances arising out of
political, financial or economic emergency.
B. The Company may terminate this Agreement forthwith in the event that:
1. The Reinsurer ceases writing reinsurance and elects to run-off its
existing business.
2. As respects domestic reinsurers:
Upon application of the NAIC Insurance Regulatory Information System
(IRIS) tests to the Reinsurer's quarterly and annual statements (which
the Reinsurer hereby agrees to furnish to the Company upon request),
it is found that four (4) or more of the Reinsurer's IRIS financial
ratio values are outside of the normal range established in the IRIS
system.
3. As respects alien reinsurers:
Upon review of the Insurance Solvency International (ISI) Performance
Tests as published with respect to the Reinsurer (or upon application
of such Performance Tests to the Reinsurer's annual financial
statements which the Reinsurer hereby agrees to furnish to the Company
upon request), it is found that four (4) or more of the Reinsurer's
ratios are outside of the normal range (as defined by the ISI
standard).
Termination under A. or B. shall be effected by written notice of cancellation.
The Company will specify the mode of payment, i.e., a run-off basis or a
clean-cut basis with portfolio transfer, if applicable. In the event the Company
elects a run-off basis, the Reinsurer will fund all of the outstanding ceded
liabilities through a Trust Account or by providing a Letter of Credit that
meets the requirements of the New York State Insurance Department.
Section II (Settlement)
- ------------------------
After termination of this Agreement under this or any article, including the
natural expiry of the Agreement, if the Reinsurer has any residual liability to
the Company, the Reinsurer will, at the request of the Company, furnish to the
Company statements as specified in Section lB., above, and if four or more
values are outside of the usual range established in the IRIS or ISI system (as
applicable in accordance with Section lB., above) the Company shall have the
option of an immediate settlement of all present and future obligations under
this Agreement in accordance with Section III, below, or requiring the Reinsurer
to fund all of the outstanding ceded liabilities through a Trust Account or by
providing a Letter of Credit that meets the requirements of the New York State
Insurance Department. In the event the Company elects the funding option, it
shall notify the Reinsurer in writing and the Reinsurer shall provide such
funding within 15 days of such notification; however, it is agreed that the
Company retains the right to require settlement in accordance with Section III
at any subsequent date.
Section III (Payment)
- ----------------------
A. Amounts due the Company or the Reinsurer under this Article shall include
all present and future obligations and shall include unearned premiums,
outstanding losses (including IBNR), and all other balances.
B. In the event of a clean-cut termination with portfolio transfer or an
immediate settlement of all present and future obligations the Company
will, upon receipt of payment, provide to the Reinsurer a full and final
release of Reinsurer's liability under the Agreement.
C. When requested by either party an appraisal of outstanding losses and IBNR
shall be made by an disinterested actuary.
D. Settlement shall take into account adjustment for net present value.
This Article shall survive the termination of this Agreement.
ARTICLE IV TERRITORY
- ---------- ---------
The liability of the Reinsurer shall be limited to losses under policies
covering property located within the territorial limits of the United States of
America, its territories or possessions, including the District of Columbia; but
this limitation shall not apply to moveable property if the Company's policies
provide coverage when said moveable property is outside the aforesaid
territorial limits.
ARTICLE V EXCLUSIONS
- --------- ----------
This Contract does not apply to and specifically excludes
the following:
1. Reinsurance assumed by the Company under obligatory reinsurance
agreements, except treaty reinsurance written on a portfolio basis
where the policies involved are to be reunderwritten in accordance
with the underwriting standards of the Company and reissued as Company
policies at the next anniversary or expiration date and business
assumed from other member companies of the 2lst Century Insurance
Group.
2. Bodily Injury liability, Property Damage liability and Medical
Payments business.
3. Financial guarantee and insolvency.
4. All Accident and Health, Fidelity and Surety, Boiler and Machinery and
Credit business.
5. All Ocean Marine business.
6. All aviation, aerospace and satellite business.
7. All insurance on growing or standing crops.
8. Mortgage Impairment insurances and similar kinds of insurances,
however styled.
9. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance (U.S.A.)" attached to and forming part
of this Contract.
10. Loss or damage caused by or resulting from 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, but this exclusion shall not apply to
loss or damage covered under a standard policy with a standard War
Exclusion Clause.
11. Loss or liability excluded under the provisions of the "Pools,
Associations and Syndicates Exclusion" attached to and forming part of
this Contract.
12. All 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
guaranty fund, insolvency fund, plan pool, association, fund or other
arrangement, however 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 successor 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.
13. Pollution and seepage coverages excluded under the provisions of the
"Pollution and Seepage Exclusion Clause" attached to and forming part
of this Contract.
14. Flood when written as such except for excess flood written above the
National Flood Insurance Program limits either as part of a Homeowners
policy or separately, however styled.
15. Earthquake, landslide, subsidence or other earth movement or volcanic
eruption.
16. All Automobile Physical Damage.
ARTICLE VI SELF-INSURED OBLIGATIONS
- ---------- ------------------------
A. As respects all business the subject matter hereof, where the coverage has
been agreed upon between the Company and the Reinsurer this Contract shall
cover all obligations of the Company assumed by it as a self-insurer (or
self-insured obligations in excess of any valid and collectible insurance
available to the Company) to the same extent as if all types of insurance
covered by this Contract were afforded under the broadest form of contracts
issued by the Company.
B. Any exposure of the Company in respect of the classes of business included
in this Contract for which the Company has issued a policy naming itself
and/or an affiliated and/or subsidiary Company as the insured or reinsured
party, whether alone or jointly with some other party, shall be deemed to
be an insurance or reinsurance coming within the scope of this Contract.
ARTICLE VII RETENTION AND LIMIT
- ----------- -------------------
A. The Company shall retain and be liable for the first $10,000,000 of
ultimate net loss arising out of 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
$15,000,000 as respects any one loss occurrence.
B. In addition to its initial retention each loss occurrence the Company shall
retain 2.5% part of 100% share in the interests and liabilities of the
Reinsurer.
C. No claim shall be made under this Contract in any one loss occurrence
unless at least two risks insured or reinsured by the Company are involved
in such loss occurrence.
ARTICLE VIII REINSTATEMENT
- ------------ -------------
A. In the event all or any portion of the reinsurance thereunder is exhausted
by loss, the amount so exhausted shall be reinstated immediately from the
time the loss 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 loss
paid by the Reinsurer); times
2. The reinsurance premium for the term of this Contract (exclusive of
reinstatement premium)
B. Whenever the Company requests payment by the Reinsurer of any loss
hereunder, the Company shall submit a statement to the Reinsurer of
reinstatement premium due the Reinsurer. If the reinsurance premium for the
term of this Contract 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 reinsurance
premium for the term of this Contract 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 shall not exceed $15,000,000 as respects loss or losses arising
out of any loss occurrence, nor shall it exceed $30,000,000 in all during
the term of this Contract.
ARTICLE IX DEFINITION OF ULTIMATE NET LOSS
- ---------- -------------------------------
A. The term "Ultimate Net Loss" shall mean the actual loss sustained by the
Company, such loss to include 80% of extra contractual obligations and all
expenses (regardless of how such expenses are classified for statutory
reporting purposes) incurred by the Company in connection with the
settlement of losses or resistance to or negotiations concerning a loss
(including those losses which are the result of actions and/or disputes
between the insured and the Company and legal expenses incurred in
connection with coverage questions and legal actions connected thereto),
excluding, however, any part of the office expenses of the Company and
salaries of employees other than salary charges for staff adjusters,
fieldpersons or other employees while actually engaged in the settlement of
losses.
B. Salvages and recoveries, whether recovered or received prior or subsequent
to loss settlement under this Contract, including amounts recoverable under
all reinsurances, whether collected or not, shall be applied as if
recovered or received prior to the aforesaid settlement and shall be first
deducted from the actual loss sustained to arrive at the amount of ultimate
net loss. Nothing, however, in this Article shall be construed to mean
losses are not recoverable hereunder until the ultimate net loss to the
Company has been ascertained.
C. Any reinsurance effected by the Company where ultimate purpose is to
procure a catastrophe bond or other financial instrument, shall inure
solely to the benefit of the Company and is to be disregarded in
determining the ultimate net loss.
D. The Company is granted permission to carry pro rata and/or excess
reinsurance, recoveries under which shall inure to the sole benefit of the
Company and shall be entirely disregarded for the purposes of determining
the Company's ultimate net loss under this Contract, unless otherwise
stipulated by the Company.
E. "Extra contractual obligations" as used herein shall mean any punitive,
exemplary, compensatory or consequential damages paid or payable by the
Company as a result of an action against it by its insured or its insured's
assignee, which action alleges negligence or bad faith on the part of the
Company in handling claim under a policy subject to this Contract. However,
for the purposes of this Contract, extra contractual obligations arising
out of any one loss occurrence shall not exceed 25% of the contractual loss
under all policies involved in the loss occurrence. An extra contractual
obligation shall be deemed to have occurred 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 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.
ARTICLE X DEFINITION OF LOSS OCCURRENCE
- --------- -----------------------------
A. 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 (or the District of Columbia) of the United States
and states (or the District of Columbia) 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 166 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 the District of Columbia)
or states (or the District of Columbia) 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 fire following an earthquake (the epicentre of which need
not necessarily be within the territorial confines referred to in
paragraph A above) directly occasioned by the earthquake, only those
individual fire losses 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 of
frozen pipes and tanks)may be included in the Company's "loss
occurrence".
B. For all those "loss occurrences", other than those referred to in
subparagraph 2 of paragraph A 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, except for any
"loss occurrences" referred to in subparagraph 1 of paragraph A above where
only one such period of 72 consecutive hours shall apply with respect to
one event, regardless of the duration of the event.
B. As respects those "loss occurrences" referred to in subparagraph 2 of
paragraph A above, if the disaster, accident or loss occasioned by the
event is of greater duration than 72 consecutive hours, then the Company
may divide the disaster, accident or loss into two or more "loss
occurrences", provided 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.
D. 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.
ARTICLE XI NOTICE OF LOSS AND LOSS SETTLEMENTS
- ----------- ----------------------------------------
A. In the event of a loss which either results in or appears to be of
serious enough nature to result in the involvement of this Contract, the
Company shall give notice as soon as reasonably practicable to the
Reinsurer and the Company shall keep the Reinsurer advised of all
subsequent developments in connection therewith.
C. The Reinsurer agrees to abide by the loss settlements of the Company, such
settlements to be considered as satisfactory proofs of loss, and amounts
falling to the share of the Reinsurer shall be immediately payable to the
Company by the Reinsurer upon reasonable evidence of the amount paid or to
be paid within 10 working days by the Company being presented to the
Reinsurer by the Company.
ARTICLE XII REINSURANCE PREMIUM
- ----------- -------------------
A. As premium for the reinsurance provided hereunder, the Company shall pay
the Reinsurer 4.54% of its net earned premium for the term of this Contract
as respects all business reinsured hereunder, subject to a minimum premium
of $1,020,000. However, if this Contract is terminated, the minimum premium
shall be pro rated.
B. The Company shall pay the Reinsurer a deposit premium of $1,275,000 in four
installments of $318,750 on January 1, April 1, July 1, and October 1,
2001. However, if this Contract is terminated, no deposit premium shall be
due after the effective date of termination.
C. Within 60 days after the expiration or termination of this Contract, the
Company shall provide a report to the Reinsurer setting forth the premium
due hereunder, computed in accordance with paragraph A, and any additional
premium due the Reinsurer or return premium due the Company shall be
remitted promptly.
D. "Net earned premium" as used herein is defined as gross premium of the
Company for the classes of business reinsured hereunder, less the earned
portion of premiums ceded by the Company for reinsurance which inures to
the benefit of this Contract.
ARTICLE XIII OFFSET
- ------------ ------
A. Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any undisputed balance or balances, whether on
account of premiums or on account of losses or otherwise, due from such
party to the other (or, if more than one, any other) party hereto under
this Contract or under any other reinsurance contract heretofore or
hereafter entered into by and between them, and may offset the same against
any undisputed balance or balances due to the former from the latter under
the same or any other reinsurance contract between them, and the party
asserting the right of offset shall have and may exercise such right
whether the undisputed balance or balances due to such party from the other
are on account of premiums or on account of losses or otherwise and
regardless of the capacity, whether as assuming insurer or a ceding
insurer, in which each party acted under the contract or, if more than one,
the difference contracts involved, provided, however, that, in the event of
the insolvency of a party hereto, offsets shall only be allowed in
accordance with the applicable provisions of the Insurance Law of the State
of California.
ARTICLE XIV ACCESS TO RECORDS
- ----------- -----------------
The Reinsurer, or its duly authorized representative, shall have free access at
all reasonable times during and after the currency of this Contract, to books
and records maintained by any of the division, department and branch offices of
the Company which are involved in the subject matter of this Contract and which
pertain to the reinsurance provided hereunder and all claims made in connection
therewith. Notwithstanding the provisions of the preceding sentence, if
undisputed balances due from the Reinsurer under this Contract have not been
paid for the two most recent reported calendar quarters, the Reinsurer shall not
have access to any of the Company's records relating to this Contract without
the specific consent of the Company.
ARTICLE XV NET RETAINED LINES
- ----------- --------------------
A. This Contract applies only to that portion of any insurance or reinsurance
which 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 also in computing the
amount or amounts in excess of which this Contract attaches, only loss or
losses in respect of that portion of any insurance or reinsurance which the
Company retains net for its own account shall be included.
B. The amount of 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 reinsurers, whether specific or general, any amounts
which may become due from them whether such inability arises from the
insolvency of such other reinsurers or otherwise.
B. Reinsurances or pooling agreements effected or entered into by the Company
with any of its affiliated companies under common management or common
ownership, including member companies of the American International Group,
which reduce the individual retained line of the Company shall be
disregarded for the purposes of this Contract.
ARTICLE XVI ERRORS AND OMISSIONS
- ----------- --------------------
Any inadvertent delay, omission or error shall not 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 XVII CURRENCY
- ------------ --------
A. Wherever the sign "$" or the word "Dollars" is used herein it is understood
to mean United States Dollars.
B. All premium and loss payments hereunder shall be in United States currency.
C. All foreign currencies for premiums and losses shall be converted to United
States currency at the same rates of exchange as used by the Company in
recording the transactions in the Company's records.
ARTICLE XVIII TAXES
- ------------- -----
In consideration of the terms under which this Contract is issued, the Company
undertakes not to claim any deduction of the premium hereon when making Canadian
tax returns or when making tax returns, other than Income or Profits Tax
returns, to any state or territory of the United States, the District of
Columbia or to Canada.
ARTICLE XIX FEDERAL EXCISE TAX
- ----------- ------------------
(Federal Excise Tax applies only to those Reinsurers, excepting Underwriters at
Lloyd's and other Reinsurers exempt from Federal Excise Tax, who are domiciled
outside the United States of America).
A. The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax 1% of the premium payable hereon to the extent such premium is
subject to Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder, the Reinsurer
will deduct 1% from the amount of the return and the Company or its agent
should take steps to recover the Tax from the United States Government.
ARTICLE XX RESERVE DEPOSIT (NON ADMITTED REINSURERS)
- ----------- --------------------------------------------
A. With respect to loss liability on an insured risk in any jurisdiction in
which the Reinsurer is not admitted, the Reinsurer shall fund an amount
herein called the "deposit". The deposit initially shall equal the
Reinsurer's share of outstanding loss and loss adjustment expense reserves.
However, the deposit for the Reinsurer not federally licensed in Canada
shall instead initially equal 115% of the statutory loss reserves.
B. The deposit shall be adjusted quarterly to equal the outstanding loss and
loss adjustment expense reserves, calculated on the basis of the
requirements of the California State Insurance Department and/or applicable
Insurance Regulatory Agencies, corresponding to the Reinsurer's
proportionate share.
C. The Company may at any time after default by the Reinsurer of payments
owing to the Company require, by notice in writing to the Reinsurer, the
payment of the sum due. In the event the Reinsurer shall not pay such sum
within seven days after receipt of said notice, the Company shall be
entitled to appropriate so much of the deposit as may be required to
eliminate the default. Until the deposit shall have been utilized in the
manner aforesaid, interest thereon shall be credited to the Reinsurer
quarterly at the rate of four percent per annum.
D. The Company may at its discretion, instead of taking any part of the
deposit, require payment of any sum in default, and it shall be no defense
to any such claim that the Company might have had recourse to the deposit.
E. The deposit may be in the form of cash, a Letter of Credit, or other
security, provided such Letter of Credit or other security satisfies the
requirements of the law and the applicable Insurance Regulatory Agency.
However, a Letter of Credit is not an acceptable substitute in Canada.
F. Notwithstanding any other provisions of this Contract, the Letter of Credit
or other security may be drawn upon by the Company at any time to fund the
deposit or for any amounts due from the Reinsurer under this Contract.
ARTICLE XXI INSOLVENCY
- ----------- ----------
In the event of insolvency and the appointment of a conservator, liquidator, or
statutory successor of the ceding company, the portion of any risk or obligation
assumed by the Reinsurer shall be payable to the conservator, liquidator, or
statutory successor on the basis of claims allowed against the insolvent company
by any court of competent jurisdiction or by any conservator, liquidator, or
statutory successor of the company having authority to allow such claims,
without diminution because of that insolvency, or because the conservator,
liquidator, or statutory successor has failed to pay all or a portion of any
claims. Payments by the Reinsurer as set forth in this subdivision shall be made
directly to the ceding insurer or to its conservator, liquidator, or statutory
successor, except where the contract of insurance or reinsurance specifically
provides another payee of such reinsurance in the event of the insolvency of the
ceding insurer. The conservator, liquidator, or statutory successor of a ceding
insurer shall give written notice of the pendency of a claim against the ceding
insurer indicating the policy or bond reinsured, within a reasonable time after
such claim is filed and the Reinsurer may interpose, at its own expense, in the
proceeding where such claim is to be adjudicated, any defense or defenses which
it may deem available to the ceding insurer or its conservator, liquidator, or
statutory successor. The expense thus incurred by the Reinsurer shall be payable
subject to court approval out of the estate of the insolvent ceding insurer as
part of the expense of conservation or liquidation to the extent of a
proportionate share of the benefit which may accrue to the ceding insurer in
conservation or liquidation, solely as a result of the defense undertaken by the
Reinsurer.
ARTICLE XXII ARBITRATION
- ------------ -----------
A. Any and all disputes or differences arising out of this Agreement,
including its formation and validity, shall be submitted to binding
arbitration. Any arbitration shall be based upon the Procedures for the
Resolution of U.S. Insurance and Reinsurance Disputes dated September 1999
(the "Procedures"), as supplemented by the paragraphs below.
B. The Panel shall consist of three Disinterested arbitrators, one to be
appointed by the Petitioner, one to be appointed by the Respondent and the
third to be appointed by the two Party-appointed arbitrators. The third
arbitrator shall serve as the umpire, who shall be neutral. The arbitrators
and umpire shall be persons who are current or former officers or
executives of an insurer, or reinsurer. Within thirty days of the
commencement of the arbitration proceeding (or, if applicable, the longer
period provided in paragraph E below), each Party shall provide the other
Party with the identification of its Party-appointed arbitrator, his or her
address (including telephone, fax and e-mail information), and provide a
copy of the arbitrator's curriculum vitae. If either Party fails to appoint
an arbitrator within that thirty-day period (or applicable longer period),
the non-defaulting Party will appoint an arbitrator to act as the Party-
appointed arbitrator for the defaulting Party. The umpire shall be
appointed by the two Party-appointed arbitrators as soon as practical (but
no later than 30 days) after the appointment of the second arbitrator. The
party-appointed arbitrators may consult, in confidence, with the Party who
appointed them concerning the appointment of the umpire.
C. Where the two Party-appointed arbitrators have failed to reach agreement on
an umpire within the time specified in paragraph B, each Party shall
propose to the other in writing, within 7 days thereafter, eight umpire
candidates from the ARIAS U.S. Certified Arbitrators List in effect at the
time of the commencement of the arbitration. The umpire will then be
selected in accordance with 6.7(b)-(e)of the procedures. (Unless the
Parties agree otherwise, the ARIAS-U.S. Umpire Questionnaire Form in effect
at the time of the commencement of the arbitration shall be used.)
D. The arbitration shall take place in Woodland Hills, California.
E. If the Company and more than one Reinsurer are involved in the same
dispute(s) or difference(s) arising out of this Agreement, and the Company
requests consolidated arbitration with those Reinsurers in an initial
Notice of Arbitration or Response, then those Reinsurers shall constitute
and act as one Party for purposes of the arbitration and thus shall select
a single Party-appointed arbitrator among them. (If the Company requests
consolidation in a Response, then (i) that Response shall be appended to
the Company's Notice of Arbitration to the additional Reinsurer(s) joined
in the proceeding, (ii) any arbitral appointment made before that Response
shall be of no effect, and (iii) the Reinsurers shall select their
arbitrator within 30 days of their receipt of those pleadings.) For
purposes of this paragraph, any instance in which two or more Reinsurers
have not paid their proportional shares of the same balance claimed due by
the Company shall be deemed to involve the "same dispute(s) or
difference(s) arising out of this Agreement." Communications shall be made
by the Company to each of the Reinsurers constituting one Party. Nothing in
this paragraph shall impair the rights of Reinsurers to assert several
rather than joint defenses or claims, change their liability under this
Agreement from several to joint, or impair their rights to retain separate
counsel in connection with the arbitration.
F. Unless prohibited by law, the Supreme Court of the State of California and
the United States District Court for the Southern District of California
shall have exclusive jurisdiction over any and all court proceedings that
either Party may initiate in connection with the arbitration, including
proceedings to compel, stay, or enjoin arbitration or to confirm, vacate,
modify, or correct an Arbitration Award.
G. For purposes of this Article, the terms "Arbitration Award,"
"Disinterested," "Notice of Arbitration," "Panel," "Party" (or "Parties"),
"Petitioner," "Respondent," and "Response' shall have the meanings set
forth in article 2 of the Procedures (Definitions).
H. In the event of any conflict between the Procedures and this Article, this
Article, and not the Procedures, will control.
I. This Article shall survive the termination of this Agreement.
ARTICLE XXIII SERVICE OF SUIT (U.S.A.) - N.M.A. 1998
- -------------- --------------------------------------------
(Applicable only to reinsurers domiciled outside the United States of America)
A. It is agreed that in the event of the failure of the Reinsurer hereon to
pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a 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. It is further agreed that service of process in such suit may be
made upon Mendes & Mount, 750 Seventh Avenue, New York, New York
10019-6929, and that in any suit instituted against any one of them upon
this Contract, the Reinsurer will abide by the final decision of such Court
or of any Appellate Court in the event of an appeal.
B. The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit
shall be instituted.
C. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision thereof, the Reinsurer hereon hereby
designates 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 may be
served any lawful process in any action, suit or proceeding instituted by
or on behalf of the Company and any beneficiary hereunder arising out of
this Contract of reinsurance, and hereby designated the above-named Mendes
& Mount as the firm to whom the said officer is authorized to mail such
process or a true copy thereof.
ARTICLE XXIV GOVERNING LAW
- ------------ -------------
The Contract shall be governed by and construed in accordance with the laws of
the State of California.
ARTICLE XXV SEVERABILITY
- ----------- ------------
If any provision of this Contract shall be rendered illegal or unenforceable by
the laws, regulations or public policy of any state, such provision shall be
considered void in such state, but this shall not affect the validity or
enforceability of any other provision of this Contract or the enforceability of
such provision in any other jurisdiction.
ARTICLE XXVI CONFIDENTIALITY
- ------------ ---------------
All terms and conditions of this Contract and any material provided in the
course of inspection shall be kept confidential by the Reinsurer as against
third parties, unless the disclosure is required pursuant to process of law or
unless the disclosure is to Reinsurer's retrocessionaires, financial auditors or
governing regulatory bodies. Disclosing or using this information for any
purpose beyond the scope of this Contract, or beyond the exceptions set forth
above, is expressly forbidden without the prior consent of the Company.
ARTICLE XXVII INTERMIDIARY
- ------------- ------------
John P. Woods Co., Inc. is hereby recognized as the Intermediary through whom
all communications relating hereto (including but not limited to notices,
statements, premiums, return premiums, commissions, taxes, losses, loss
adjustment expenses, salvage and loss settlements) shall be transmitted to both
parties. It is understood, as regards remittances due either party hereunder,
that payment by the Company to John P. Woods Co., Inc. shall constitute payment
to the Reinsurer, but payment by the Reinsurer to John P. Woods Co., Inc., shall
only constitute payment to the Company to the extent such payments are actually
received by the Company.
NUCLEAR INCIDENT EXCLUSION CLAUSE -
PHYSICAL DAMAGE - REINSURANCE - U.S.A
1. This Reinsurance does not cover any loss or liability accruing to
the Company, directly or indirectly, and whether 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 Company, 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 Reinsured, 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 Company 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 1st 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 Company, 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 Company 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. Company 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 Company 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
Reinsured 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.
POOLS, ASSOCIATIONS AND SYNDICATES
EXCLUSION CLAUSE
SECTION A
- ----------
Excluding:
(a) All Business derived directly or indirectly from any Pool, Association
or Syndicate which maintains its own reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory) formed after March
1, 1968 for the purpose of insuring property whether on a country-wide
basis or in respect of designated areas. This exclusion shall not
apply to so-called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.
SECTION B
- ----------
Nevertheless the Reinsurer specifically agrees that liability accruing to
the Company from its participation in residual market mechanisms including but
not limited to:
(1) The following so-called "Coastal Pools":
Alabama Insurance Underwriting Association
Florida Windstorm Underwriting Association ("FWUA")
Louisiana Insurance Underwriting Association
Mississippi Windstorm Underwriting Association
North Carolina Insurance Underwriting Association
South Carolina Windstorm and Hail Underwriting Association
Texas Catastrophe Property Insurance Association
AND
(2) All "Fair Plan" and "Rural Risk Plan" business
AND
(3) The Florida Property and Casualty Joint Underwriting
Association ("FPCJUA"), the Florida Residential
Property and Casualty Joint Underwriting Association
("RPCJUA") and the California Earthquake Authority
(CEA)
For all perils otherwise protected hereunder shall not be excluded, except,
however, that this reinsurance does not include any increase in such liability
resulting from:
(i) The inability of any other participant in such "Coastal Pool" and/or
"Fair Plan" and/or "Rural Risk Plan" and/or Residual Market Mechanisms
to meet its liability.
(ii) Any claim against such "Coastal Pool" and/or "Fair Plan" and/or "Rural
Risk Plan" and/or Residual Market Mechanisms, or any participant
therein, including the Company, whether by way of subrogation or
otherwise, brought by or on behalf of any insolvency fund (as defined
in the Insolvency Fund Exclusion Clause incorporated in the Contract)
SECTION C
- ----------
(1) Notwithstanding Section B above, in respect of the CEA, where an assessment
is made against the Company by the CEA, the Company may include in it
Ultimate Net Loss only that assessment directly attributable to each
separate loss occurrence covered hereunder. The Company's initial capital
contribution to the CEA shall not be included in the Ultimate Net Loss.
(2) Notwithstanding Section B above, in respect of the FWUA, FPCJUA and RPCJUA,
where an assessment is made against the Company by the FWUA, the FPCJUA,
the RPCJUA, or any combination thereof, the maximum loss that the Company
may include in the Ultimate Net Loss in respect of any loss occurrence
hereunder shall not exceed the lesser of:
(a) The Company's assessment from the relevant entity (FWUA, FPCJUA and/or
RPCJUA) for the accounting year in which the loss occurrence
commenced, or
(b) The product of the following:
(i) The Company's percentage participation in the relevant entity for
the accounting year in which the loss occurrence commenced; and
(ii) The relevant entity's total losses in such loss occurrence.
Any assessments for accounting years subsequent to that in which the loss
occurrence commenced may not be included in the Ultimate Net Loss
hereunder. Moreover, notwithstanding Section B above, in respect of the
FWUA, the FPCJUA and/or the RPCJUA, the Ultimate Net Loss hereunder shall
not include any monies expended to purchase or retire bonds as a
consequence of being a member of the FWUA, the FPCJUA and/or the RPCJUA.
For the purposes of this Contract, the Company may not include in the
Ultimate Net Loss any assessment or any percentage assessment levied by the
FWUA, the FPCJUA and/or the RPCJUA to meet the obligations of an insolvent
insurer member or other party, or to meet any obligations arising from the
deferment by the FWUA, the FPCJUA and/or the RPCJUA of the collection of
monies.
NOTES:
Wherever used herein the terms:
"Company" shall be understood to mean "Company", "Reinsured", "Reassured"
or whatever other terms is used in the attached reinsurance
document to designate the reinsured company or companies.
"Agreement" shall be understood to mean "Agreement", "Contract", "Policy",
or whatever other term is used to designate the attached
reinsurance document.
"Reinsurers" shall be understood to mean "Reinsurers", Underwriters" or
whatever other term is used in the attached reinsurance document
to designate the reinsurer or reinsurers.
POLLUTION AND SEEPAGE EXCLUSION CLAUSE
This Contract excludes 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 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.