QUOTA SHARE REINSURANCE AGREEMENT
Exhibit 10(GG)
THIS QUOTA SHARE REINSURANCE AGREEMENT (this “Agreement”) is made this 30th day of
October, 2009 but effective as of 11:59 p.m. on October 31, 2009 (the “Effective Date”) between
SOUTHERN MUTUAL INSURANCE COMPANY, a Georgia mutual insurance company with its principal office in
Athens, Georgia (“Southern Mutual”), and DONEGAL MUTUAL INSURANCE COMPANY, a Pennsylvania mutual
fire insurance company with its principal office in Marietta, Pennsylvania (“Donegal Mutual”).
WITNESSETH:
WHEREAS, Donegal Mutual has offered to provide reinsurance to Southern Mutual to the extent
and on the terms and conditions set forth in this Agreement and nothing stated in this Agreement
shall in any manner create any obligations or establish any rights against Donegal Mutual in favor
of any person not a party to this Agreement; and
WHEREAS, Southern Mutual has agreed to place such reinsurance with Donegal Mutual to the
extent and on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, and
intending to be legally bound hereby, Donegal Mutual and Southern Mutual agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement:
“Actual Effective Date Reserves” shall have the meaning set forth in Section 6.1(a)(ii) of
this Agreement.
“Allocated Loss Adjustment Expenses” shall mean all court costs, interest upon judgments and
mitigation, investigation, adjustment and legal expenses chargeable to or incurred in (i) the
mitigation, investigation, negotiation, settlement of or defense against a Loss under a Covered
Policy, (ii) loss prevention mitigation or investigation in respect of any Covered Policy as to
which Southern Mutual has posted a loss reserve, (iii) the investigation, prevention and workout of
a potential Loss under a Covered Policy, (iv) the protection, perfection and exercise of any
subrogation or salvage or rights of reimbursement with respect to any Covered Policy or (v) any
deficiency resulting from the loss settlement or the workout of a potential Loss under a Covered
Policy. Allocated Loss Adjustment Expenses shall
exclude all office expenses and salaries of officers and employees of Southern Mutual. All
loss adjustment expenses that are not Allocated Loss Adjustment Expenses shall constitute
Unallocated Loss Adjustment Expenses.
“Ceding Commission” shall have the meaning set forth in Section 6.1(b).
“Covered Policies” shall mean an insurance policy first issued by Southern Mutual on or after
12:01 a.m. on January 1, 1976. Donegal Mutual is not assuming any liability from any insurance
policy Southern Mutual first issued on or before 12:01 a.m. on January 1, 1976.
“Donegal Mutual” shall have the meaning set forth in the introductory paragraph of this
Agreement.
“Effective Date” shall have the meaning set forth in the introductory paragraph of this
Agreement.
“Estimated Effective Date Reserves” shall have the meaning set forth in Section 6.1(a)(ii) of
this Agreement.
“Extra Contractual Obligations” shall mean all liabilities (i) for compensatory,
consequential, exemplary, punitive or similar damages which directly relate to any alleged or
actual act, error, omission, fraud or misrepresentation by any Person, any of its affiliates or any
of its or its affiliates’ officers or employees, whether intentional or otherwise, in connection
with the Covered Policies or (ii) from any alleged or actual reckless conduct or bad faith by any
Person, any of its affiliates or any of its or its affiliates’ officers or employees in connection
with such Person’s handling of any claim under any of the Covered Policies, including the
settlement, defense of or appeal of any claim or in connection with the issuance, offer, sale,
delivery, cancellation or administration by any Person or any of its affiliates or any of its or
its affiliates’ officers or employees under any of the Covered Policies.
“Loss” shall mean (i) amounts incurred by Southern Mutual in settlement or satisfaction of
claims under or in respect of the Covered Policies, (ii) any and all Allocated Loss Adjustment
Expenses Southern Mutual incurs under or in respect of the Covered Policies, (iii) amounts payable
to reinsurers other than Donegal Mutual under or with respect to the Covered Policies and (iv)
Extra Contractual Obligations arising after the Effective Date from the acts of Donegal Mutual, in
each case net of amounts actually collected by Donegal Mutual or Southern Mutual under Third Party
Reinsurance Agreements.
“Occurrence” shall be the definition of said term as set forth in Southern Mutual’s Covered
Policies, provided, however, in the event “Occurrence” is not defined in any Covered Policy that is
reinsured pursuant to this Agreement, then, as to such policy, the term “each Occurrence” shall
mean each accident or Occurrence or series of accidents or Occurrences arising out of one event,
and shall include aggregate limits of liability for a period not exceeding 12 months when a Covered
Policy applies in excess of aggregate limits.
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If Southern Mutual and Donegal Mutual cannot specifically determine the date of any Loss,
accident, casualty or loss Occurrence, the date of such Loss, accident, casualty or loss Occurrence
shall be the inception date of the original Covered Policy reinsured pursuant to this Agreement,
provided that such policy period shall be deemed not to exceed 12 calendar months.
“Person” shall mean any individual, corporation, limited liability company, association,
joint-stock company, business trust or other similar organization, partnership, joint venture,
trust, unincorporated association or government or any agency, instrumentality or political
subdivision of a government.
“Quota Share” shall mean 100%.
“Recovery” shall mean any amount actually received by Southern Mutual in respect of any Loss
covered by Donegal Mutual under this Agreement, whether by subrogation, salvage, reimbursement or
other recovery.
“Recovery Expenses” shall mean any expense, including court costs and legal expenses Southern
Mutual incurs for purposes of obtaining a Recovery with respect to Losses, but excluding the
expenses and salaries of the officers and employees of Southern Mutual or its affiliates or normal
overhead expenses of Southern Mutual and its affiliates and excluding any expense that would
constitute an Allocated Loss Adjustment Expense.
“Southern Mutual” shall have the meaning set forth in the introductory paragraph of this
Agreement.
“Termination Date” shall have the meaning assigned to it in Section 17.1.
“Third-Party Reinsurance Agreements” shall mean, to the extent such treaties or agreements
relate to Covered Policies, (i) all reinsurance treaties and agreements under which Southern Mutual
is a ceding party that were in force on the date of this Agreement, and (ii) any such treaty or
agreement that is terminated or expired but under which Southern Mutual may continue to receive
reinsurance coverage.
“Unallocated Loss Adjustment Expenses” shall have the meaning set forth in the definition of
Allocated Loss Adjustment Expenses.
“Ultimate Net Loss” as used in this Agreement means the actual loss Southern Mutual pays or
that Southern Mutual becomes liable to pay under the Covered Policies reinsured pursuant to this
Agreement, including all loss adjustment expense, 100% of any Extra Contractual Obligations and
100% of any Loss in Excess of Policy Limits as defined in Sections 12.1 and 12.2 of this Agreement.
“Ultimate Net Loss” shall include any expenses of litigation, accrued interest where such accrued
interest is a part of any judgment, and all other loss expenses of Southern Mutual including legal
expenses and costs incurred in
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connection with coverage and validity issues and any legal proceedings with respect thereto
that are allocable to a Covered Policy.
ARTICLE 2
APPLICATION OF AGREEMENT
2.1 Business Covered. This Agreement applies to all insurance policies Southern
Mutual issued that are in effect as of the Effective Date and all policies that Southern Mutual
issues after the Effective Date and which Southern Mutual issues during the term of this Agreement
until 11:59 p.m. on the Termination Date.
ARTICLE 3
COVER
3.1 Quota Share Reinsurance. Subject to the terms and conditions of this Agreement,
Southern Mutual hereby cedes to Donegal Mutual, and Donegal Mutual hereby accepts and reinsures
from Southern Mutual, the Quota Share of any Losses, including loss development on all Covered
Policies issued prior to the Effective Date, under the Covered Policies. Such Losses and all
other liabilities of Southern Mutual with respect to the Covered Policies are sometimes
collectively referred to in this Agreement as the “Reinsured Liabilities.” Such cession by
Southern Mutual and acceptance and reinsurance by Donegal Mutual shall, in the sole discretion of
Donegal Mutual, be gross or net of any losses covered by the Third-Party Reinsurance Agreements of
Southern Mutual. To the extent Donegal Mutual elects to accept and reinsure such cession net of
any losses covered by Third Party Reinsurance Agreements of Southern Mutual, Donegal Mutual hereby
guarantees Southern Mutual from and against any uncollectible third-party reinsurance recoverables.
Donegal Mutual is not assuming under this Agreement any liabilities of Southern Mutual that do not
constitute Reinsured Liabilities and any liabilities of Southern Mutual that are not Reinsured
Liabilities shall remain the liabilities of Southern Mutual.
ARTICLE 4
REINSURANCE FOLLOWS ORIGINAL POLICIES
4.1 Follow the Fortunes. Except to the extent specifically otherwise provided in this
Agreement or as Southern Mutual and Donegal Mutual may agree in writing, all reinsurance under this
Agreement shall be subject in all respects to the same rates, terms, conditions, waivers and
interpretations, and to the same modifications, cancellations and alterations as the Covered
Policies, the true intent of this Agreement being that Donegal Mutual shall, in every case to which
this Agreement applies, follow the fortunes of Southern Mutual; provided, however, that the
Agreement shall not be construed to expand the liability
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of Donegal Mutual beyond the liabilities Donegal Mutual has specifically assumed pursuant to
this Agreement.
4.2 Third-Party Rights. Except as set forth in Sections 7.1 or 13.1, nothing in this
Agreement shall in any manner create any obligations or establish any rights against Donegal Mutual
in favor of any Person not a party to this Agreement.
ARTICLE 5
CHANGE IN POLICY FORMS
5.1 Policy Forms. Southern Mutual and Donegal Mutual have agreed on the forms of
Covered Policies that Southern Mutual will issue and that Donegal Mutual will reinsure pursuant to
this Agreement. Southern Mutual shall advise Donegal Mutual of any change in any form of any
Covered Policy no less than 90 days prior to the implementation of any such change, and such change
shall not be implemented unless Donegal Mutual shall have approved such change in writing within 30
days after receipt of such notice from Southern Mutual, such approval not to be unreasonably
withheld by Donegal Mutual.
ARTICLE 6
PREMIUMS AND COMMISSIONS
6.1 Premiums and Commissions. In consideration of the respective obligations of
Southern Mutual and Donegal Mutual under this Agreement, Donegal Mutual and Southern Mutual shall
make the following respective payments:
(a) On the Effective Date, Southern Mutual shall pay to Donegal Mutual an amount equal to the
Effective Date Reserves (as defined below) as follows:
(i) On the Effective Date, Southern Mutual shall pay to Donegal Mutual an amount equal to the
Estimated Effective Date Reserves to this Agreement net of the Estimated Effective Date Ceding
Commission. The payment this Section 6.1(a)(i) requires shall be made by Southern Mutual’s
delivery to Donegal Mutual of cash or securities whose value Donegal Mutual shall have approved no
earlier than the third business day preceding the Effective Date having a fair market value as of
the market close on the business day immediately preceding the Effective Date equal to the amount
payable pursuant to this Section 6.1(a)(i).
(ii) Promptly following the Effective Date, Southern Mutual and Donegal Mutual agree to
determine the Actual Effective Date Reserves on a definitive basis. Not later than 60 days after
the Effective Date, Southern Mutual shall deliver a statement to Donegal Mutual that sets forth
Southern Mutual’s determination of the Actual Effective Date Reserves. If Donegal Mutual does not
provide an objection notice to such statement, such
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Southern Mutual statement shall be deemed to have been accepted in the form in which it was
delivered to Donegal Mutual and shall be final and binding upon the parties in the absence of fraud
or manifest error. If Donegal Mutual shall object to such Southern Mutual statement or if Southern
Mutual shall object to any response to such statement by Donegal Mutual, the objecting party shall
give the other party written notice of such objection within 30 days of the objecting party’s
receipt of such statement or response. Such notice of objection shall set forth in reasonable
detail the elements and amounts to which the objecting party objects and the basis for such
objections. If either party provides an objection notice, the other party, within 15 days after
its receipt of the objection notice, shall seek to resolve the objection. In the event Southern
Mutual and Donegal Mutual are unable to resolve the objection within 15 days thereafter, the
parties shall submit the matter to KPMG LLP (“KPMG”) for final resolution of the matter. Within 30
days of the submission of the matter to KPMG, KPMG shall deliver its resolution of the matter to
Southern Mutual and Donegal Mutual. KPMG’s resolution of the matter shall be binding on Southern
Mutual and Donegal Mutual. Southern Mutual and Donegal Mutual shall bear equally the costs of KPMG
in determining such resolution.
(iii) To the extent the amount of the Actual Effective Date Reserves as so determined was less
than the Estimated Effective Date Reserves, Donegal Mutual shall forthwith remit to Southern Mutual
the amount by which the Estimated Effective Date Reserves exceeded the Actual Effective Date
Reserves.
(iv) To the extent the amount of the Actual Effective Date Reserves as so determined was
greater than the Estimated Effective Date Reserves, Southern Mutual shall forthwith remit to
Donegal Mutual the amount by which the Actual Effective Date Reserves exceeded the Estimated
Effective Date Reserves.
(b) On the Effective Date, Donegal Mutual shall pay to Southern Mutual a Ceding Commission
equal to 36% of the amount of Southern Mutual’s unearned premium reserves included in the Estimated
Effective Date Reserves as follows:
(i) On the Effective Date, Donegal Mutual shall be deemed to have paid to Southern Mutual an
Estimated Ceding Commission equal to 36% of the Estimated Effective Date Reserves (the “Estimated
Effective Date Ceding Commission”) upon Southern Mutual’s netting the amount of the amount of the
Estimated Effective Date Ceding Commission against the amount of the Estimated Effective Date
Reserves.
(ii) Promptly following the Closing Date, Southern Mutual and Donegal Mutual agree to
determine the Actual Effective Date Ceding Commission on a definitive basis according to the
determination of the Actual Effective Date Reserves. Not later than 60 days after the Effective
Date, Donegal Mutual shall deliver a statement to Southern Mutual that sets forth the amount of the
Actual Effective Date Ceding Commission.
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(iii) To the extent that the amount of the Actual Effective Date Ceding Commission as so
determined exceeds the amount of the Estimated Effective Date Ceding Commission, Donegal Mutual
shall forthwith remit to Southern Mutual the amount by which the Actual Effective Date Ceding
Commission exceeds the Estimated Effective Date Ceding Commission.
(iv) To the extent that the amount of the Estimated Effective Date Ceding Commission as so
determined was greater than the amount of the Actual Effective Date Ceding Commission, Southern
Mutual shall forthwith remit to Donegal Mutual the amount by which the Estimated Effective Date
Ceding Commission exceeded the Actual Effective Date Ceding Commission.
(c) As additional consideration in connection with the reinsurance this Agreement establishes,
Donegal Mutual shall be entitled to the Quota Share of any premium, fee and other amounts actually
collected, with the exception of service charges, on or after the Effective Date by Southern Mutual
with respect to the Covered Policies and Donegal Mutual shall be responsible for all Losses,
including loss development, on Covered Policies after the Effective Date. Southern Mutual shall
promptly remit to Donegal Mutual any such amounts that Southern Mutual receives net of any
reinsurance reinstatement premiums paid.
(d) If, after the Effective Date, either Southern Mutual or Donegal Mutual discovers an error
or omission in the calculation of any amount under this Section 6.1, Southern Mutual and Donegal
Mutual shall rectify such error or omission as promptly as practicable after the discovery of the
error or omission. Without limiting the foregoing, after the Effective Date, Donegal Mutual will
promptly pay to Southern Mutual, upon notice from Southern Mutual, without interest, any amount
Southern Mutual paid to Donegal Mutual pursuant to this Agreement, net of Ceding Commissions
without interest, with respect to any insurance policy that Southern Mutual or Donegal Mutual
determines was not a Covered Policy as of the Effective Date. In addition, in the event that after
the Effective Date, Southern Mutual or Donegal Mutual discover that Southern Mutual has made
payments to Donegal Mutual pursuant to this Section 6.1 with respect to premiums that have been
refunded in whole or in part, Donegal Mutual will promptly upon notice from Southern Mutual return
to Southern Mutual, without interest, all of the amount Southern Mutual paid to Donegal Mutual
pursuant to this Section 6.1 in respect of such insurance policy to the extent necessary to put
Southern Mutual in the same position it would have been in had Southern Mutual been aware of the
return of premium prior to the Effective Date net of Ceding Commissions.
ARTICLE 7
LOSSES AND LOSS ADJUSTMENT EXPENSES
7.1 Payment to Southern Mutual for Ultimate Net Losses. Donegal Mutual shall pay to
Southern Mutual the Quota Share of sums actually paid by Southern Mutual in
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settlement of the Ultimate Net Losses under the Covered Policies, on and after the Effective
Date; provided, however, that in the event of the insolvency of Southern Mutual, Donegal Mutual
shall pay such amount to the liquidator, receiver or statutory successor of Southern Mutual in
accordance with the provisions of Article 13 of this Agreement.
7.2 Expenses to be Borne by Donegal Mutual. Donegal Mutual shall bear its Quota Share
of all external loss adjustment expenses Southern Mutual incurs in the investigation, adjustment
and litigation of all claims under the Covered Policies.
7.3 Salvage. Donegal Mutual shall receive its Quota Share of all salvage, recoveries
and payments received subsequent to a Loss settlement under this Agreement whether received before
or after the final adjudication of any claim under the Covered Policies.
7.4 Loss Development. Southern Mutual shall advise Donegal Mutual promptly of all
claims and any subsequent loss reserve developments pertaining to the Covered Policies reinsured
pursuant to this Agreement.
7.5 Defense of Claims. Southern Mutual shall investigate and, to the extent that may
be required by the Covered Policies reinsured under this Agreement, defend any claim affecting the
reinsurance provided by this Agreement and pursue such claim to final determination.
7.6 Donegal Mutual Participation. Southern Mutual agrees, upon the request of Donegal
Mutual, that when so requested, Southern Mutual will afford Donegal Mutual an opportunity to
participate with Southern Mutual, at the expense of Donegal Mutual, in the defense or control of
any claim, suit or proceeding involving the reinsurance provided pursuant to this Agreement; and
Southern Mutual and Donegal Mutual shall cooperate in all material respects in the defense of such
suit, claim or proceeding.
ARTICLE 8
PREMIUM
8.1 Payment of Direct Written Premium. During the term of this Agreement, Donegal
Mutual shall assume from Southern Mutual 100% of Southern Mutual’s net written premiums applicable
to its liability under the Covered Policies for the reinsurance provided pursuant to this
Agreement. Southern Mutual shall pay such premiums, net of any premiums for third-party
reinsurance.
8.2 Summary Statements. As soon as possible after the end of each month, Southern
Mutual shall submit to Donegal Mutual a statement that summarizes the net premiums ceded, return
premiums and conversions on Southern’s net written business, the actual premiums due, net of
commission, and Southern Mutual shall pay to Donegal Mutual any amount due within 15 days of
Southern Mutual’s delivery of such statement to Donegal
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Mutual. Southern Mutual shall furnish quarterly to Donegal Mutual, Southern Mutual’s unearned
premium reserve on the Covered Policies. Southern Mutual shall compute its unearned premium
reserve on the daily pro rata basis.
8.3 Payment of Losses. Donegal Mutual shall pay its proportion of Loss and loss
expenses paid by Southern Mutual to Southern Mutual within 15 days after Southern Mutual renders a
monthly account summarizing the Losses and loss expenses. Donegal Mutual shall have the right, at
its option, to offset the amount of such Loss or loss expense as provided in Article 14.
ARTICLE 9
CEDING COMMISSION
9.1 Payment of Ceding Commission. Donegal Mutual shall pay a ceding commission as
provided in Article 6 to Southern Mutual on the net written premiums Southern Mutual cedes to
Donegal Mutual under this Agreement. On all return premiums, Southern Mutual shall promptly return
to Donegal Mutual the Ceding Commission applicable to such returned premium.
9.2 Statement of Ceding Commission. As soon as possible after the end of each month,
Donegal Mutual shall submit to Southern Mutual a statement that sets forth the Ceding Commission
fees, and Donegal Mutual shall pay any amount due within fifteen (15) days of Donegal Mutual’s
receipt of the monthly statements required by Section 8.2.
9.3 Taxes. The Ceding Commission allowance that Donegal Mutual pays to Southern
Mutual on the Covered Policies reinsured pursuant to this Agreement includes provision for all
premium taxes, licenses and fees with the exception of service charges, assessments and any other
expenses whatsoever, except external loss adjustment expenses.
ARTICLE 10
INSPECTION
10.1 Right of Inspection. Southern Mutual shall place at the disposal of Donegal
Mutual and Donegal Mutual shall have the right to inspect, through its authorized representatives,
at all reasonable times during the term of this Agreement and thereafter, the books, records and
papers of Southern Mutual pertaining to the reinsurance provided pursuant to this Agreement and all
claims made in connection therewith.
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ARTICLE 11
RESERVES AND TAXES
11.1 Maintenance of Reserves. Donegal Mutual shall maintain legal reserves with
respect to the unearned premiums and claims it assumes pursuant to this Agreement.
11.2 Premium Taxes. Southern Mutual shall be liable for all taxes on premiums
reported to Donegal Mutual under this Agreement and Southern Mutual shall reimburse Donegal Mutual
for such taxes where Donegal Mutual is required to pay the same.
ARTICLE 12
EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS
12.1 Extra Contractual Obligations. The obligations reinsured pursuant to this
Agreement shall include Extra Contractual Obligations under the Covered Policies.
12.2 Losses In Excess of Policy Limits. The obligations reinsured pursuant to this
Agreement shall include Loss in Excess of Policy Limits with respect to any Covered Policy. “Loss
in Excess of Policy Limits” shall mean losses in excess of the policy limit, having been incurred
because of, but not limited to, failure by Southern Mutual to settle within the Covered Policy
limit or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of
settlement or in 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.
12.3 Date of Occurrence. An Extra Contractual Obligation and Loss in Excess of Policy
Limits shall be deemed to have occurred on the same date as the Loss covered under a Covered
Policy, and shall constitute part of the original Loss.
12.4 Meaning of Loss. For the purposes of the Loss in Excess of Policy Limits
coverage under this Agreement, the word “Loss” shall mean any amount for which Southern Mutual
would have been contractually liable to pay had it not been for the limit of the Covered Policy.
12.5 Loss Adjustment Expense. Loss adjustment expense in respect of Extra Contractual
Obligations and Loss in Excess of Policy Limits shall be covered under this Agreement in the same
manner as other loss adjustment expense.
12.6 Georgia Law. In no event shall Donegal Mutual provide reinsurance to Southern
Mutual to the extent not permitted under the laws of Georgia.
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ARTICLE 13
INSOLVENCY CLAUSE
13.1 Insolvency. In the event of the insolvency and the appointment of a conservator,
rehabilitator, liquidator or statutory successor of Southern Mutual,
(a) the reinsurance provided by this Agreement and each and every reinsurance agreement
heretofore or hereafter entered into between Donegal Mutual and Southern Mutual shall be payable,
subject to Section 13.1(b) by Donegal Mutual directly to Southern Mutual or to its conservator,
rehabilitator, liquidator, receiver or statutory successor on the basis of the liability of
Southern Mutual under the Covered Policies without diminution because of the insolvency of Southern
Mutual or because the conservator, rehabilitator, liquidator, receiver, or statutory successor has
failed to pay all or any portion of any claims.
(b) Donegal Mutual shall make the payments as set forth above directly to Southern Mutual or
to its conservator, rehabilitator, liquidator, receiver or statutory successor. If an insured
under a Covered Policy submits a claim to Southern Mutual’s conservator, rehabilitator, liquidator,
receiver or statutory successor, Donegal Mutual shall have the right, in lieu of making a payment
to such conservator, rehabilitator, liquidator, receiver or statutory successor, to make a payment
on the claim directly to the insured. Any such payment by Donegal Mutual shall discharge Donegal
Mutual from its related payment obligation under such Covered Policy.
ARTICLE 14
OFFSET CLAUSE
14.1 Offset. Except for payments to be made pursuant to Section 6.1, which may only
be offset against each other, Donegal Mutual and Southern Mutual shall each have, and may exercise
at any time and from time to time, the right to offset any balance or amount, whether on account of
premiums, premium adjustments, commissions, claims, Losses, Recoveries or otherwise, due from such
party to the other party hereto under this Agreement. The party asserting the right of offset
shall have and may exercise such right at any time whether the balance or balances due or to become
due to such party from the other are on account of premiums or on account of Losses or otherwise.
If Donegal Mutual is required to make a payment directly to an insured under a Covered Policy, no
offset shall be allowed between Donegal Mutual and the insured under a Covered Policy, provided,
however, that Donegal Mutual shall continue to maintain its offset rights against Southern Mutual
pursuant to this Agreement.
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ARTICLE 15
ARBITRATION
15.1 Arbitration. Should an irreconcilable difference of opinion arise between
Southern Mutual and Donegal Mutual as to the interpretation of this Agreement or the transactions
this Agreement contemplates, as a condition precedent to any right of action under this Agreement,
such difference shall be submitted to arbitration to the decision of a board of arbitration
composed of two arbitrators and an umpire, meeting in Atlanta, Georgia under the rules of the
American Arbitration Association.
15.2 Identity of Arbitrators. The members of the board of arbitration shall be active
or retired disinterested executive officers of insurance or reinsurance companies. Each party
shall appoint one arbitrator and the two arbitrators shall choose an umpire before they enter into
arbitration. If either party fails to appoint its arbitrator within four weeks after being
requested to do so, the other party shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the appointment of an umpire within four weeks after their
nominations, each of them shall name three nominees for umpire, of whom each arbitrator shall
decline two nominees and the decision among the two remaining nominees shall be made by the
claimant party drawing lots.
15.3 Default Selection. In the event that either party shall fail to choose an
arbitrator within four weeks following a request by Donegal Mutual or Southern Mutual for
arbitration, the requesting party shall choose two arbitrators who shall choose the umpire.
15.4 Submission of Initial Brief. The claimant shall submit its initial brief within
20 days from appointment of the umpire. The respondent shall submit its brief within 20 days after
receipt of the claimant’s brief and the claimant may submit a reply brief within 10 days after
receipt of the respondent’s brief.
15.5 Arbitrator Decision. The board of arbitration shall make its decision with
regard to the custom and usage of the insurance and reinsurance business. The board of arbitration
shall issue its decision in writing based upon a hearing in which evidence may be introduced
without following strict rules of evidence but in which cross examination and rebuttal shall be
allowed. The board of arbitration shall make its decision within 60 days following the conclusion
of the hearings unless the parties consent to an extension. The majority decision of the board of
arbitration shall be final and binding upon all parties to the proceeding. Judgment may be
entered upon the award of the board of arbitration in any court having jurisdiction thereof.
15.6 Multiple Reinsurers. If more than one reinsurer is involved in the same dispute,
all such reinsurers shall constitute and act as one party for purposes of this clause and
communications shall be made by Southern Mutual to each of the reinsurers constituting
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the one party, provided, however, that nothing therein shall impair the rights of such
reinsurers to assert several, rather than joint defenses or claims, nor be construed as changing
the liability of the reinsurers under the terms of this Agreement from several to joint.
15.7 Arbitration Expenses. 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 of arbitration.
ARTICLE 16
GOVERNING LAW
16.1 Governing Law. This Agreement shall be interpreted under and pursuant to the
laws of the State of Georgia in all respects.
ARTICLE 17
COMMENCEMENT AND TERMINATION
17.1 Effective Time. This Agreement shall take effect as of 12:01 A.M. on the
Effective Date and is entered into for an unlimited term, but either party may terminate the term
of this Agreement at any time by giving not less than 12 months notice in writing to the other
party of a date of termination of this Agreement (the “Termination Date”).
17.2 Participation Until Termination. Donegal Mutual shall participate in business
coming within the terms of this Agreement until the date of termination of this Agreement.
17.3 Run-Off. In the event either party terminates this Agreement the reinsurance
pursuant to this Agreement shall be provided on a “run-off” basis for all Covered Policies under
this Agreement written prior to the Termination Date until all liabilities under the Covered
Policies have been satisfied in full.
ARTICLE 18
CURRENCY OF PAYMENT
18.1 Currency of Payment. All payments under this Agreement shall be made in the
currency of the United States of America.
ARTICLE 19
ACCESS TO RECORDS
19.1 Access to Records. Donegal Mutual, by its duly appointed representatives, shall
have the right at any reasonable time, to examine all papers in the possession of
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Southern Mutual that relate to the Covered Policies that Donegal Mutual has reinsured pursuant
to this Agreement.
ARTICLE 20
STATISTICS
20.1 Statistics. Southern Mutual shall furnish Donegal Mutual such statistics as may
be necessary to comply with statutory requirements and in such form as Donegal Mutual may
reasonably request from Southern Mutual.
ARTICLE 21
ERRORS AND OMISSIONS
21.1 Errors and Omissions. Any inadvertent delay, omission or error by either party
shall not relieve the other party from any liability that would have attached under this Agreement,
provided that such delay, omission or error shall not impose any greater liability on Donegal
Mutual than would have attached under this Agreement if such act, delay, omission or error had not
occurred, and such act, delay, omission or error is promptly and reasonably rectified upon
discovery by the responsible party.
ARTICLE 22
MISCELLANEOUS
22.1 Notices. All reports, remittances, notices, letters, financial statements or any
other communications between the parties to this Agreement shall be addressed as follows:
To Donegal Mutual:
Donegal Mutual Insurance Company
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
To Southern Mutual:
Southern Mutual Insurance Company
000 Xxxx Xxxx
Xxxxxx, Xxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
000 Xxxx Xxxx
Xxxxxx, Xxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
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22.2 Assignment. Neither this Agreement nor any rights or obligations under this
Agreement may be assigned or otherwise transferred by any party to this Agreement, including by
operation of law, without the consent of the other party to this Agreement and the prior approval
of the Commissioner of Insurance of the State of Georgia; provided, however, that Donegal Mutual
may assign its rights or obligations under this Agreement to any entity that has a current A.M.
Best rating equal to or greater than A.
22.3 Severability. If any provision of this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been part of this Agreement unless the
deletion of such provision would result in such a material change as to cause completion or
continuation of the transactions contemplated by this Agreement to be unreasonable or materially
frustrate the objectives of Southern Mutual and Donegal Mutual as expressed in this Agreement.
22.4 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be an original, but such counterparts together shall constitute one and the same
agreement.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed in duplicate
and delivered as of the day and year first above written.
| DONEGAL MUTUAL INSURANCE COMPANY |
||||
| By: | /s/ Xxxxxx X. Xxxxxxxx | |||
| Xxxxxx X. Xxxxxxxx, President | ||||
| SOUTHERN MUTUAL INSURANCE COMPANY |
||||
| By: | /s/ Xxxxx X. Xxxxx | |||
| Xxxxx X. Xxxxx, President | ||||
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