EXHIBIT (i)(2)(h)
September 1, 2003
The United States Life Insurance Company
in the City of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Dear Sir or Madam:
This is to confirm our understanding regarding the Service and Expense
Agreement (the "Agreement") incepted as of February 1, 1974 among American
International Group, Inc. ("AIG") and those subsidiaries of AIG which have or
may become a party thereto from time to time, including The United States Life
Insurance Company in the City of New York ("USL").
1. As of each year-end any services provided or received by USL pursuant to
the Agreement on a regular and systematic basis will be identified on a
schedule setting forth the type of service provided or received, the provider
or recipient of such service and the amount paid or received by USL for such
service.
2. AIG will not provide to USL and will not permit any of its subsidiaries
to provide to USL, and USL will not provide, any services under the Agreement
unless such services are provided in accordance with the following standards:
a. If the provider is utilizing proprietary software to perform services
under the Agreement, subject to the terms (including any limitations and
restrictions) of any applicable software licensing agreement then in
effect between the provider and any licensor, the provider shall, upon
termination of the Agreement, grant to USL a perpetual license, without
payment of any fee, in any electronic data processing software developed
or used by the provider in connection with the service provided to USL
thereunder, if such software is
not commercially available and is necessary, in the USL's reasonable
judgment for USL to perform subsequent to termination the functions
provided by the provider thereunder. Upon termination, the provider
shall promptly deliver to USL all books and records that are, or are
deemed by the Agreement, the property of USL. Six months' notice shall
be required to cancel the Agreement with respect to electronic data
process services provided to USL.
b. Whenever the provider utilizes its personnel to perform services for USL
pursuant to the Agreement, such personnel shall at all times remain
employees of the provider, subject solely to its direction and control.
USL shall have no liability to such employees for their welfare,
salaries, fringe benefits, legally required employer contributions and
tax obligations. No facility of the provider used in performing services
for or subject to use by USL shall be deemed to be transferred,
assigned, conveyed or leased by performance or use pursuant to the
Agreement.
c. All records, books and files established and maintained by provider by
reason of its performance of services under the Agreement, which absent
the Agreement would have been held by USL, shall be deemed the property
of USL and shall be maintained in accordance with applicable law and
regulation, including but not limited to, New York Insurance Department
Regulation No. 152. The provider and USL each shall maintain its own
books, accounts and records in such a way as to disclose clearly and
accurately the nature and detail of the transactions between them,
including such accounting information as is necessary to support the
reasonableness of charges under the Agreement, and such additional
information as USL may reasonably request for purposes of its internal
bookkeeping and accounting operations. Copies of such records, books and
2
files shall be delivered to USL on demand. All such records, books and
files shall be promptly transferred to USL by the provider upon
termination of the Agreement. USL and persons authorized by it or any
governmental agency having jurisdiction over USL shall have the right,
at USL's expense, to conduct an audit of the relevant books, records and
accounts of the provider upon giving reasonable notice of its intent to
conduct such an audit. In the event of such audit, the provider shall
give to the party requesting the audit reasonable cooperation and access
to all books, records, and accounts necessary to audit normal business
hours. The provider shall maintain acceptable backup (hard copy or
another durable medium, as defined in New York Insurance Department
Regulation No. 152, as long as the means to access the durable medium is
also maintained at USL's principal office) of the records constituting
USL's books of account. Such backup will be available to USL in the
event of a disaster. Such backup shall be forwarded to USL on a monthly
basis and shall be maintained by USL at its principal office in New
York. The provider shall be responsible for maintaining a disaster
recovery site.
d. With respect to any accounting services provided to USL which involves
USL's books of account, a computer terminal, which is linked to the
electronic system that generates the electronic records that constitute
USL's books of account shall be kept and maintained at USL's principal
office in New York. During all normal business hours, there shall be
ready availability and easy access through such terminal (either
directly by New York Insurance Department personnel or indirectly with
the aid of USL's employees) to the electronic media used to maintain the
records comprising USL's books of account. The electronic records shall
be in a readable form. The entity providing such accounting services
shall maintain format integrity and compatibility of the electronic
records that
3
constitute USL's books of account. If the electronic system that created
such records is to be replaced by a system with which the records would
be incompatible, the provider shall convert such pre-existing records to
a format that is compatible with the new system.
e. With respect to any underwriting functions and services that are
performed for or provided to USL by the provider pursuant to the
Agreement, it is understood that (i) the provider shall perform such
services in accordance with underwriting guidelines and procedures
established by USL from time to time and communicated in writing to the
provider by USL; and (ii) USL shall retain all final underwriting
authority.
f. With regard to the collection of premiums, deposits and other
remittances from policyholders (including payment of principal or
interest on policy loans), USL shall establish a lockbox arrangement in
the name of USL for the deposit of amounts collected. In the event a
lockbox arrangement is not so established, the provider shall deliver to
USL an acknowledgement that the provider is acting in a fiduciary
capacity with respect to such payments and that the provider shall hold
such payments for the benefit of USL and, after the required processing
of such payments, will immediately deposit such payments in one or more
bank accounts established by USL and subject to the control of officers
of USL. In addition, the provider shall furnish a description of the
funds handling process and related internal controls.
g. In the event claims processing services are provided, final decisions
relating to claims will be based upon guidelines and procedures
established and approved by USL from time to time and communicated in
writing to the provider by USL, and (ii) USL shall retain final approval
authority on all claim payments. Payment of claims shall be made
4
using USL checks. In performing claim services for USL pursuant to the
Agreement, the provider shall obtain and maintain all necessary licenses
and permits required in order to comply with applicable laws and
regulations, including an independent adjuster's license.
h. In providing services with respect to the Agreement, any and all
personal contact or communication, both oral and written, with USL's
policyholders, insureds, beneficiaries and applicants will be done in
the name of and on behalf of USL. The provider shall use USL's
letterhead for all such written communications. If any of the provider's
employees who have direct contact with USL policyholders, insureds,
beneficiaries or applicants perform such services from a location
outside the State of New York, the provider will establish and maintain
a toll-free telephone number for use by USL policyholders, insureds,
beneficiaries and applicants. If the provider is a New York-licensed
insurer, such provider may use the provider's name, followed by "as
administrator for" USL".
i. The performance of services by the provider for USL pursuant to the
Agreement shall in no way impair the absolute control of the business
and operations of the provider or USL by their respective Boards of
Directors. The provider shall act hereunder so as to assure the separate
operating identity of USL. The business and operations of USL shall at
all times be subject to the direction and control of the board of
directors of USL.
j. In performing or providing functions or services hereunder, the provider
shall use that degree of ordinary care and reasonable diligence that an
experienced and qualified provider of similar services would use acting
in like circumstances and experience in such matters and in accordance
with the standards, practices and procedures established by the provider
for its own business. The provider shall perform services according to
5
servicing standards of USL or such other standards as may be mutually
agreed upon by USL and the provider. The provider shall comply with all
laws, regulations, rules and orders applicable to (i) USL with respect
to the services provided hereunder or (ii) to the provider. The provider
shall maintain sufficient facilities and trained personnel of the kind
necessary to perform the services under the Agreement. All facilities,
services, space or equipment supplies hereunder shall be of good quality
and suitable for the purpose for which they are intended.
k. USL shall develop standards and guidelines for all services to be
furnished to it under the Agreement which require the exercise of
judgment and the provider of such services shall conform to such
standards and guidelines with respect to such services. In performing
any services hereunder, the provider of the service shall at all times
act in a manner reasonably calculated to be in or not opposed to the
best interests of USL.
l. All notices, statements or requests provided for hereunder shall be in
writing and shall be deemed to have been given when delivered by hand to
an officer of the other party or when sent by certified or registered
mail, postage prepaid or overnight courier service or upon confirmation
of transmission if sent by telecopier or e-mail.
m. Any unresolved dispute or difference between the parties arising out of
or relating to the Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Association
and the Expedited Procedures thereof. USL shall appoint one arbitrator,
and provider shall appoint one arbitrator, within fifteen (15) days
after a call for appointment by any party. The two arbitrators selected
shall within fifteen (15) days select a third arbitrator. Each
arbitrator shall be officers or former officers of life insurance
companies and unaffiliated with any of the parties or any of their
affiliates.
6
Each party shall bear the costs and expenses of the arbitrator it
appoints and one half of the costs of the third arbitrator.
n. The award rendered by the arbitrator shall be final and binding upon the
parties, and judgment upon the award rendered by the arbitrator may be
entered in any court of competent jurisdiction. The arbitration shall
take place in New York and the substantive law of New York shall apply
in such proceedings.
o. Any assignment of the Agreement shall not be effective without the
consent of each of the parties thereto and only upon 30 days' prior
notice to the New York Department of Insurance (unless such period is
extended by the New York Department of Insurance) or upon the earlier
approval or non-disapproval of such assignment by the New York
Department of Insurance.
p. The provider shall implement and maintain appropriate measures designed
to meet the objectives of New York Insurance Department Regulation
No. 173, with respect to safeguarding USL's customer information and
customer information systems. The provider shall adjust its information
security program at the request of USL for any relevant changes dictated
by USL's assessment of risk around its customer information and customer
information systems. Confirming evidence that the provider has satisfied
its obligations hereunder shall be made available, during normal
business hours, for inspection by USL, anyone authorized by USL, and any
governmental agency that has regulatory authority over USL's business
activities.
q. This letter of understanding together with the Agreement constitutes the
entire agreement between the parties; and no other agreement, statement
or promise not contained in this Letter of Understanding or the
Agreement shall be valid or binding.
7
If you are in agreement with the foregoing, please indicate the same by signing
and returning the copy of this letter enclosed herewith.
AMERICAN INTERNATIONAL GROUP, INC.
By:
-------------------------------
By:
-------------------------------
Agreed to this __ day of _________, 2003
THE UNITED STATES LIFE INSURANCE
COMPANY IN THE CITY OF NEW YORK
By:
---------------------------
8
