EXHIBIT 10(n)
QUOTA SHARE REINSURANCE AGREEMENT
by and among
21st CENTURY INSURANCE COMPANY
21st CENTURY CASUALTY COMPANY
and
BALBOA INSURANCE COMPANY.
Dated as of December 18, 2001
QUOTA SHARE REINSURANCE AGREEMENT
INDEX
CLAUSE ARTICLE PAGE
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DEFINITIONS I 1
BUSINESS REINSURED II 3
REINSURING CLAUSE III 4
COMMENCEMENT AND EXPIRATION IV 4
TERRITORY V 5
EXCLUSIONS VI 5
EXTRA CONTRACTUAL OBLIGATIONS VII 6
REINSURANCE PREMIUM VIII 7
REINSURANCE CEDING COMMISSION IX 7
SALVAGE AND SUBROGATION X 9
REPORTS, REMITTANCES AND CLAIMS XI 10
OFFSET XII 12
ACCESS TO RECORDS XIII 12
ERRORS AND OMISSIONS XIV 12
REINSURANCE SECURITY XV 12
INSOLVENCY XVI 13
ARBITRATION XVII 14
NOTICES XVII 16
GOVERNING LAW XIX 16
SEVERABILITY XX 17
CONFIDENTIALITY XXI 17
ENTIRE AGREEMENT, INTERPRETATION XXII 17
MISCELLANEOUS XXIII 17
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QUOTA SHARE REINSURANCE AGREEMENT
---------------------------------
This AGREEMENT is made and entered into by and between, 21ST CENTURY
INSURANCE COMPANY, 2LST CENTURY CASUALTY COMPANY, both of which are California
domiciled insurance companies (the "COMPANY") and, BALBOA INSURANCE COMPANY a
California insurance company (the "REINSURER"),
WHEREAS, subject to the terms of this AGREEMENT, the Company desires to
cede to the REINSURER, 100% of the INCURRED LOSSES on the BUSINESS REINSURED, as
defined below, arising under certain insurance policies written and renewed by
the Company; and
WHEREAS, the REINSURER desires to accept from the Company as reinsurance
100% of such INCURRED LOSSES on these certain policies in return for 100% of the
REINSURANCE PREMIUM, net of the REINSURANCE CEDING COMMISSION, as defined below;
NOW THEREFORE, for and in consideration of the foregoing premises and the
mutual covenants and agreements hereinafter set forth, (the "AGREEMENT") it is
agreed by the COMPANY and the REINSURER as follows:
ARTICLE I. DEFINITIONS
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1. As used in this AGREEMENT, capitalized terms shall have the following
meanings (the definitions to be applicable to both the singular and the
plural forms of each term defined in this AGREEMENT):
2. ACCIDENT YEAR LOSSES INCURRED shall have the meaning set forth in Article
IX
3. ALLOCATED 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 supersede as and appeal
bonds, and including legal expenses and costs incurred in connection with
coverage questions and EXTRA CONTRACTUAL OBLIGATIONS and legal actions
connected thereto which are allocable to a specific claim or action on
POLICIES covered hereunder. ALLOCATED LOSS ADJUSTMENT EXPENSE shall also
include 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 the COMPANY in the event of a
loss designated as a catastrophic loss. ALLOCATED LOSS ADJUSTMENT EXPENSE
does not include unallocated loss adjustment expense. Unallocated loss
adjustment expense includes, but is not limited to, office and other
overhead expenses and salaries and expenses of COMPANY employees, except as
in this paragraph.
4. COMPANY shall mean 21st Century Insurance Company and 21st Century Casualty
Company.
5. BUSINESS REINSURED shall have the meaning set forth in Article II.
6. EFFECTIVE DATE shall be 12:00 A.M. Pacific Standard Time, January 1, 2002.
7. EARNED REINSURANCE PREMIUM shall have the meaning set forth in Article IX.
8. EXTRA CONTRACTUAL OBLIGATION shall have the meaning set forth in Article
VII.
9. FIRST MANIFESTED shall mean with respect to MOLD LOSSES, the date the MOLD
first begins to appear, grow, cause damage to property, or emit toxins,
allergens, irritants vapors or gas as a result of a condition or event
occurring prior to the EFFECTIVE DATE.
10. GROSS NET WRITTEN PREMIUM shall have the meaning set forth in Article VIII.
11. Incurred Losses shall mean with respect to the BUSINESS REINSURED, subject
to the terms, conditions, exclusions and limitations contained in this
AGREEMENT, all LOSSES and ALLOCATED LOSS ADJUSTMENT EXPENSES ("ALAE") first
occurring on or after the EFFECTIVE DATE, less Salvage, and Subrogation,
provided, however, that any claims for LOSSES related to exposure to MOLD
shall be deemed to have occurred prior to the EFFECTIVE DATE if the LOSSES
are related to or resulting from a LOSS occurring prior to the EFFECTIVE
DATE or FIRST MANIFESTED prior to the EFFECTIVE DATE and, provided further,
that all LOSSES related to a claim of a continuing nature, or resulting
from continuous or repeated exposure to substantially the same conditions
will be considered as resulting from one occurrence and if the first
manifestation of the LOSS is prior to the EFFECTIVE DATE, shall be deemed
to have occurred prior to the EFFECTIVE DATE.
12. LOSSES shall mean gross amounts payable by the Company in settlement of
claims under the POLICIES including EXTRA CONTRACTUAL OBLIGATIONS, and,
with respect to Losses arising from or related to Mold, any costs or
expenses associated, in any way, with the abatement, mitigation,
remediation, containment, detoxification, neutralization, monitoring,
removal, or disposal of Mold or property affected or contaminated by Mold.
13. MOLD shall mean any form of fungus, fungi, mold, mushroom, microbes, or
spores and any substance, toxin, allergen, irritant, vapor or gas produced
by or arising out of any MOLD.
14. POLICIES shall have the meaning set forth in Article II.
15. REINSURANCE CEDING COMMISSION shall have the meaning set forth in Article
IX.
16. REINSURANCE PREMIUM shall have the meaning set forth in Article VIII.
17. REINSURER shall mean Balboa Insurance Company.
ARTICLE II. BUSINESS REINSURED
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1. "BUSINESS REINSURED" hereunder is defined to mean:
A. All policies, certificates and binders of insurance covering inforce,
new and renewal business under-written and classified by the COMPANY
as Homeowners', Condominium Owners', and Dwelling Fire policies on the
list of policies set forth on Exhibit I-A hereto, ("POLICIES") issued
or renewed on or after January 1, 2001 but prior to the EFFECTIVE
DATE. COMPANY represents and warrants that Exhibit 1-A sets forth
complete and accurate details of the POLICIES reinsured hereunder;
provided, however, that notwithstanding the foregoing, if and to the
extent that Exhibit 1-A is inaccurate, the sole remedy of the parties
hereto is to correct the inaccuracy in Exhibit 1-A and, as corrected,
Exhibit 1-A will be incorporated herein.
B. All POLICIES issued or renewed by the COMPANY on or after the
EFFECTIVE DATE through March 31, 2002, but only to the extent that
such POLICIES are renewals of POLICIES written by the COMPANY prior to
the EFFECTIVE DATE that, despite its best efforts, the COMPANY has
been unable to non-renew.
ARTICLE III. REINSURING CLAUSE
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1. Subject to the terms, conditions, exclusions and limitations contained in
this AGREEMENT, the COMPANY hereby cedes and the REINSURER hereby accepts
as reinsurance of the COMPANY a 100% Quota Share reinsurance, without
limitation as to the amount of liability, of the INCURRED LOSSES of the
COMPANY.
2. The REINSURER'S liability shall attach simultaneously with that of the
COMPANY and shall be subject in all respects to the same risks, terms,
conditions, interpretations, waivers, and to the same modification,
alterations and cancellations as the respective insurances of the COMPANY,
the true intent of this AGREEMENT being that the REINSURER shall, in every
case to which this AGREEMENT applies, follow the underwriting fortunes of
the COMPANY.
ARTICLE IV. COMMENCEMENT AND EXPIRATION
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1. This AGREEMENT shall incept on the EFFECTIVE DATE and the liability and
obligations of the Reinsurer shall be continuous and shall, subject to
section IV.2, below, remain in effect until the date on which the parties
mutually agree (or it is judicially determined) that all obligations of the
Reinsurer under this AGREEMENT have been discharged.
2. Within forty-five (45) days after December 31, 2003 the COMPANY shall
provide the REINSURER with a report on outstanding LOSSES. Based on said
report the parties will in good faith attempt to negotiate a portfolio
transfer from the COMPANY to the REINSURER of all remaining unpaid INCURRED
LOSSES and upon entry into such a loss portfolio transfer agreement this
AGREEMENT shall terminate.
ARTICLE V. TERRITORY
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1. 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 VI. EXCLUSIONS
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1. This AGREEMENT does not apply to and specifically excludes, unless required
by operation of law to be covered by the COMPANY, the following:
A. Reinsurance assumed by the COMPANY.
B. Bodily Injury liability, Property Damage liability and Medical
Payments business other than as covered or required to be covered by
POLICIES.
C. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clauses--Physical Damage-Reinsurance (U.S.A.)" attached to and forming
part of this AGREEMENT.
D. 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.
E. Loss or liability excluded under the provisions of the "Pools,
Associations and Syndicates Exclusion Clause" attached to and forming
part of this AGREEMENT.
F. 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.
G. Pollution and seepage coverages excluded under the provisions of the
"Pollution and Seepage Exclusion Clause" attached to and forming part
of this AGREEMENT.
H. 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.
I. Earthquake, landslide, subsidence or other earth movement or volcanic
eruption, provided, however, that nothing in this Article shall be
interpreted as excluding "fire following earthquake".
Article VII. EXTRA CONTRACTUAL OBLIGATIONS
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1. This AGREEMENT, to the extent permitted by applicable law, shall protect
the COMPANY for 100% of any EXTRA CONTRACTUAL OBLIGATIONS relating to
INCURRED LOSSES. The term "EXTRA CONTRACTUAL OBLIGATIONS" is defined as
those liabilities resulting from loss in excess of the limit of the
Company's original policy or not covered under any other provision of this
AGREEMENT and which arise from the handling of any claim on business
covered hereunder, such liabilities arising because of, but not limited to,
the following: failure by the COMPANY to settle within the policy limit, or
by reason of alleged or actual negligence, fraud or bad faith in claims
adjustment, rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
2. The date on which any EXTRA CONTRACTUAL OBLIGATION is incurred by the
COMPANY shall be deemed, in all circumstances, to be the date of the
INCURRED LOSS.
3. However, this Article shall not apply where the loss has been incurred due
to fraud by a member of the Board of Directors or a corporate officer 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 VIII. REINSURANCE PREMIUM
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1. The COMPANY shall cede and pay to the REINSURER the Unearned Premium
Reserve established by the Company as of December 31, 2001 for the POLICIES
issued prior to the EFFECTIVE DATE, less returned premium for Policies
issued prior to the EFFECTIVE DATE and cancelled after the EFFECTIVE DATE
and 100% of the Gross Net Written Premium subject to this AGREEMENT on all
POLICIES issued on or after the Effective Date (the "REINSURANCE PREMIUM").
2. The term "GROSS NET WRITTEN PREMIUM" as used herein means gross premiums on
POLICIES issued by the COMPANY after the EFFECTIVE DATE, less return
premiums.
ARTICLE IX. REINSURANCE CEDING COMMISSION
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1. The REINSURER shall allow the COMPANY a provisional REINSURANCE CEDING
COMMISSION of sixteen percent (16%) on all REINSURANCE PREMIUM. The COMPANY
shall allow the REINSURER return commission on return premiums at the same
rate.
2. The provisional REINSURANCE CEDING COMMISSION allowed the COMPANY shall be
adjusted periodically in accordance with the provisions set forth herein.
The first adjustment period shall be from the EFFECTIVE DATE through
December 31, 2002. The second and final adjustment period shall be January
1, 2003 through December 31, 2003.
3. The adjusted REINSURANCE CEDING COMMISSION rate shall be calculated on an
accident year basis as follows separately for each adjustment period and be
applied to the EARNED REINSURANCE PREMIUM for the period under
consideration:
A. If the ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURED
PREMIUM is 100% or greater, the adjusted REINSURANCE CEDING COMMISSION
rate for the period under consideration shall be negative 12.8%;
B. If the ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE
PREMIUM is less than 100% but not less than 82.2%, the adjusted
REINSURANCE CEDING COMMISSION rate for the period under consideration
shall be 87.2%, minus the actual ratio of ACCIDENT YEAR LOSSES
INCURRED to EARNED REINSURANCE PREMIUM;
C. If the ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE
PREMIUM is less than 82.2% but not less than 67.2%, the adjusted
REINSURANCE CEDING COMMISSION rate for the period under consideration
shall be 5%, plus 75% of the difference between 82.2% and the actual
ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE PREMIUM;
D. If the ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE
PREMIUM is less than 67.2% but not less that 62.2%, the adjusted
REINSURANCE CEDING COMMISSION rate for the period under consideration
shall be 16.25% and 50% of the difference between 67.2% and the actual
ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE PREMIUM.
E. If the ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE
PREMIUM is less than 62.2% but not less than 52.2%, the adjusted
REINSURANCE CEDING COMMISSION rate for the period under consideration
shall be 16.25%, plus 75% of the difference between 62.2% and the
actual ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE
PREMIUM.
F. If the ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE
PREMIUM is less than 52.2%, the adjusted REINSURANCE CEDING COMMISSION
rate for the period under consideration shall be 26.25%, plus 100% of
the difference in percentage points between 52.2% and the actual ratio
of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE PREMIUM.
4. If the ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED REINSURANCE PREMIUM
for any period is greater than 100%, the difference in percentage points
between the actual ratio of ACCIDENT YEAR LOSSES INCURRED to EARNED
REINSURANCE PREMIUM and 100% shall be multiplied by EARNED REINSURANCE
PREMIUM for the period and the product shall be carried forward to the next
adjustment period and added to ACCIDENT YEAR LOSSES INCURRED for that
period.
5. Within forty-five (45) days after the end of each adjustment period The
REINSURER shall calculate and report the adjusted REINSURANCE CEDING
COMMISSION on EARNED REINSURANCE PREMIUM for the adjustment period. If the
adjusted REINSURANCE CEDING COMMISSION on EARNED REINSURANCE PREMIUM is
less than REINSURANCE CEDING COMMISSIONS previously allowed by the
REINSURER on EARNED REINSURANCE PREMIUM for the adjustment period, the
COMPANY shall remit the difference to the REINSURER within 15 days of the
receipt of the REINSURER'S report. If the adjusted REINSURANCE CEDING
COMMISSION on EARNED REINSURANCE PREMIUM is greater than REINSURANCE CEDING
COMMISSIONS previously allowed by the REINSURER on EARNED REINSURANCE
PREMIUM for the adjustment period, REINSURER shall remit the difference to
the Company within 15 days of the issuance of the report by the Reinsurer.
Any verifications of data provided in the report will be made within the 15
days following receipt of the report from the REINSURER.
6. "ACCIDENT YEAR LOSSES INCURRED" as used herein means Losses, and ALLOCATED
LOSS ADJUSTMENT EXPENSE paid during the adjustment period under
consideration, plus the reserves for LOSSES, including IBNR, and reserves
for ALLOCATED LOSS ADJUSTMENT EXPENSE outstanding as of the end of the
adjustment period under consideration, plus the adjustment to ACCIDENT YEAR
LOSSES Incurred from the preceding adjustment period, if any.
7. "EARNED REINSURANCE PREMIUM" as used herein means (i) for the first
adjustment period, the sum of the Unearned Premium Reserves paid to the
REINSURER (less returned premium) plus the premium earned during the first
adjustment period by the COMPANY for POLICIES renewed after the EFFECTIVE
DATE and (ii) for the second adjustment period, the premium earned during
the second adjustment period by the COMPANY for POLICIES renewed after the
EFFECTIVE DATE.
ARTICLE X. SALVAGE AND SUBROGATION
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1. The REINSURER shall be credited with its proportionate share of salvage or
subrogation recoveries (i.e., reimbursement actually obtained or recovery
actually made by the COMPANY, less the actual cost, excluding salaries of
officials and employees of the COMPANY, of obtaining such reimbursement or
making such recovery) on account of claims and settlements involving
reinsurance hereunder.
ARTICLE XI. REPORTS, REMITTANCES AND CLAIMS
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1. The COMPANY shall pay and transfer to the REINSURER on the first Business
Day after the EFFECTIVE DATE cash equal to the unearned premium reserves as
of 11:59 P.M. Pacific Standard Time December 31, 2001 with respect to
POLICIES issued or renewed by the COMPANY prior to the EFFECTIVE DATE, net
of the provisional REINSURANCE CEDING COMMISSION.
2. The COMPANY shall directly deposit or immediately electronically transfer
into a bank account established by the REINSURER all written premiums
received by the COMPANY with respect to POLICIES issued after the EFFECTIVE
DATE, net of the provisional REINSURANCE CEDING COMMISSION.
3. The COMPANY shall provide the REINSURER with monthly bordereaus of premium
and loss information, which bordereaus will be first provided for the month
of January 2002 on or before February 10, 2002, and will thereafter be
provided within 10 days after the last day of each month after January
2002. Within thirty (30) days after the close of each quarter, the COMPANY
shall furnish the REINSURER with a report summarizing the written premium
ceded less return premium, LOSSES paid by the COMPANY, LOSSES reimbursed by
or paid directly by the REINSURER pursuant to Article XI section 7,
ALLOCATED LOSS ADJUSTMENT EXPENSE paid, monies recovered, the provisional
REINSURANCE CEDING COMMISSION and net balance due either party. In
addition, the COMPANY shall furnish the REINSURER a quarterly statement
showing the unearned premium, the total reserves for outstanding LOSSES
including ALLOCATED LOSS ADJUSTMENT EXPENSE, IBNR, FAIR Plan assessments, a
breakdown by Property Claims Services catastrophic code numbers for paid
and outstanding catastrophe losses and loss adjustment expense, and such
other information as may be required by the REINSURER for completion of its
NAIC annual statements. The net balance shall be paid within forty five
(45) days after the close of the respective quarter.
4. All reports required to be provided by the COMPANY to the REINSURER
pursuant to this Article XI, shall be provided (i) electronically to the
e-mail address set forth in Article XVIII, and (ii) with a paper copy
delivered to the REINSURER by overnight delivery or express mail.
5. The COMPANY shall adjust, settle or compromise all LOSSES arising under the
POLICIES. All such adjustments, settlements or compromises shall be binding
upon the REINSURER.
6. The COMPANY will immediately advise the REINSURER of all large losses by
issuing a large loss notice and of all lawsuits involving (a) allegations
of bad faith, extra contractual claims or claims in excess of policy limits
or for liability indemnity, or (b) declaratory relief actions. For purposes
of this section, large losses means any claim or LOSS for which the COMPANY
makes a payment (individually or in the aggregate) or establishes a reserve
in excess of $25,000.
7. Should payment due from the REINSURER exceed $250,000 as respects any one
loss, the COMPANY may give the REINSURER notice of payment made or its
intention to make payment on a certain date. If the COMPANY has paid the
loss, payment shall be made by the REINSURER immediately. If the COMPANY
intends to pay the loss by a certain date and has submitted a satisfactory
proof of loss or similar document, payment shall be due from the REINSURER
twenty-four (24) hours prior to that date, provided the REINSURER has a
period of five (5) working days after receipt of said notice to dispatch
the payment. Cash loss amounts specifically remitted by the REINSURER as
set forth herein shall be credited to its next quarterly account.
8. With respect to all claims, suits and proceedings relating to the POLICIES,
the COMPANY will afford the Reinsurer an opportunity to be associated with
the COMPANY in the defense or control of any such claim, suit or proceeding
at the REINSURER'S expense, and the REINSURER and the COMPANY shall
cooperate in every respect in the defense of such suit, claim, or
proceeding, provided further, that in the event the ratio of ACCIDENT YEAR
LOSSES INCURRED to EARNED REINSURANCE PREMIUM has exceeded or is likely to
exceed 100%, the REINSURER, at its own expense, shall have the right to
become directly involved in the administration of claims and claim
settlement decisions, including the right to have counsel of its choosing
actively participate in, inter alia, all court proceedings, alternative
dispute resolution processes and settlement discussions.
ARTICLE XII. OFFSET
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1. 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 party hereto under this AGREEMENT or under any other
reinsurance agreement 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 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 different 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 XIII. ACCESS TO RECORDS
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1. The REINSURER, or its duly authorized representative, shall have free
access at all reasonable times during and after the currency of this
AGREEMENT, 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 AGREEMENT and which pertain to the reinsurance
provided hereunder and all claims made in connection therewith.
ARTICLE XIV. ERRORS AND OMISSIONS
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1. 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 XV. REINSURANCE SECURITY
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1. To the extent that security is required in order to allow the COMPANY to
obtain financial statement credit under this AGREEMENT, the REINSURER
shall, at its expense assure that adequate security satisfying the
insurance laws of the state of California is provided. The security so
provided shall be adjusted quarterly to equal the unearned premium reserve,
Incurred Loss and ALLOCATED LOSS ADJUSTMENT EXPENSE reserves, including
incurred but not reported losses.
ARTICLEXVI. INSOLVENCY
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1. In the event of insolvency and the appointment of a conservator,
liquidator, or statutory successor of the 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 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. Payment by the REINSURER as set forth in this
Article shall be made directly to the COMPANY or to its conservator,
liquidator, or statutory successor, except where this AGREEMENT
specifically provides another payee of such reinsurance in the event of the
insolvency of the COMPANY.
2. The conservator, liquidator, or statutory successor of the COMPANY shall
give written notice of the pendency of a claim against the COMPANY
indicating the policy reinsured, within a reasonable time after such claim
is filed. During the pendency of such claim, the REINSURER may investigate
said claim and interpose, at the REINSURER'S 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 to 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 COMPANY as
part of the expense of conservation or liquidation to the extent that such
proportionate share of the benefit shall accrue to the COMPANY in
conservation or liquidation, solely as a result of the defense undertaken
by the REINSURER.
ARTICLE XVII. ARBITRATION
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1. 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") (which are attached hereto as Exhibit XVII-l), as
supplemented by the paragraphs below.
2. 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 shall 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.
3. 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 ARIASU.S. Certified Arbitrators List in effect at the
time of the commencement of the arbitration. The umpire shall then be
selected in accordance with 6.7(b)-(e) of the Procedures. (Unless the
Parties agree otherwise, the ARIASU.S. Umpire Questionnaire Form in effect
at the time of the commencement of the arbitration shall be used.)
4. The arbitration shall take place in Woodland Hills, California.
5. 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.
6. Unless prohibited by law, the Superior 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.
7. Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expense of the umpire. The
remaining costs of the arbitration proceedings shall be allocated by the
board.
8. 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).
9. In the event of any conflict between the Procedures and this Article, this
Article, and not the Procedures, shall control.
10. This Article shall survive the termination of this Agreement.
ARTICLE XVIII. NOTICES
- --------------- -------
1. Any notice or other communication required or permitted under this
AGREEMENT shall be in writing and shall be delivered personally, or sent by
certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, or, if mailed, on the
date of receipt as follows:
A. if to the COMPANY to:
21st Century Insurance Company
6301 Owensmouth Avenue
Woodland Mills, California 91367
Attention: General Counsel
B. if to the Reinsurer to:
Balboa Insurance Company
18581 Teller Avenue
Irvine, California 92612-1627
ATTENTION: General Counsel
2. All reports that are required to be electronically transmitted by the
COMPANY to REINSURER pursuant to Article XI shall be transmitted to the
following e-mail addresses:
betsy_white@balboainsurance.com
and nick_lannutti@countrywide.com
-----------------------------
3. By notice given in accordance with this Article to the other party, any
party may designate another address or person or e-mail address for receipt
of notices or reports hereunder.
ARTICLE XIX. GOVERNING LAW
- ------------- --------------
1. This AGREEMENT shall be governed by and construed in accordance with the
laws of the State of California.
ARTICLE XX. SEVERABILITY
- ------------ ------------
1. If any provision of this AGREEMENT 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 AGREEMENT or
the enforceability of such provision in any other jurisdiction.
ARTICLE XXI. CONFIDENTIALITY
- ------------- ---------------
1. All terms and conditions of this AGREEMENT 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 AGREEMENT, or beyond
the exceptions set forth above, is expressly forbidden without the prior
consent of the COMPANY.
ARTICLE XXII. ENTIRE AGREEMENT,INTERPRETATION
- ------------- --------------------------------
1. With respect to the BUSINESS REINSURED hereunder, (i) this AGREEMENT
constitutes the entire agreement between the parties, and (ii) there are no
understandings or agreements between the parties other than those expressed
in this AGREEMENT. Any change to or modification of this AGREEMENT shall be
made by written amendment to this AGREEMENT and signed by the parties
hereto.
2. This AGREEMENT is between sophisticated parties, each of which has reviewed
the AGREEMENT and is fully knowledgeable about its terms and conditions.
The parties therefore agree that this AGREEMENT shall be construed without
regard to the authorship of the language and without any presumption or
rule of construction in favor of either of them.
ARTICLE XXIII. MISCELLANEOUS
- --------------- -------------
1. This AGREEMENT:
A. may be executed in counterparts (or by counterpart signature pages),
each of which shall be deemed an original and all of which constitute
one and the same instrument;
B. is not intended to confer any rights upon any party other than the
parties hereto and their respective successors and assigns; and
C. shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to be
executed by their duly authorized representatives.
Signed at WOODLAND HILLS, CALIFORNIA
21ST CENTURY INSURANCE COMPANY
21ST CENTURY CASUALTY COMPANY
Signature: /s/ Douglas K. Howell
-------------------
Douglas K. Howell
Senior Vice President & Chief Financial Officer
Attest: /s/ Michael J. Cassanego Date: December 18, 2001
----------------------
Michael J. Cassanego
Senior Vice President, Secretary & General Counsel
Signed at IRVINE, CALIFORNIA
BALBOA INSURANCE COMPANY
Signature: /s/ Patrick Driscoll
-----------------
Patrick Driscoll
Executive Vice President
Attest: /s/ Robert P. Barbarowicz Date: December 18, 2001
---------------------
Robert P. Barbarowicz
Executive Vice President & Secretary
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
V. 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
a. AND
(2) All "Fair Plan" and "Rural Risk Plan" business
b. 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
AGREEMENT).
SECTION C
(l) 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 AGREEMENT, the COMPANY may not include in the
Ultimate Net Loss any assessment or any percentage assessment levied by the
FWEJA, 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 AGREEMENT 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.