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EXHIBIT 10.2
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement") is made this 1st day
of January, 1998, by and between MEADOWBROOK INSURANCE GROUP, INC., (hereinafter
referred to as "MIG") its wholly owned subsidiaries, STAR INSURANCE COMPANY
(hereinafter referred to as "Star"), a Michigan corporation with its principal
offices in Southfield, Michigan, SAVERS PROPERTY AND CASUALTY INSURANCE COMPANY
(hereinafter referred to as "Savers"), a Missouri corporation with its principal
offices in Overland Park, Kansas, AMERICAN INDEMNITY INSURANCE COMPANY, LTD.
(hereinafter referred to as "American Indemnity"), a Bermuda corporation, and
CREST FINANCIAL CORPORATION (hereinafter referred to as "Crest"), a Nevada
corporation with its principal offices in Cerritos, California (MIG, Star,
Savers, American Indemnity and Crest hereinafter collectively referred to as the
"Company"), and MEADOWBROOK, INC., a Michigan corporation, with its principal
office in Southfield, Michigan (hereinafter referred to as "Manager").
RECITALS
A. MIG owns several insurance-related subsidiary companies as part of the
insurance holding company system pursuant to the insurance laws and
regulations in the various jurisdictions where such subsidiaries are
licensed;
B. This Agreement shall be subject to and interpreted in accordance with
the laws, rules and insurance regulations in the jurisdictions wherein
the subsidiaries are licensed;
Therefore, in consideration of the mutual agreements described in this
Agreement, the Company and the Manager agree as follows:
AGREEMENT
ARTICLE 1 - APPOINTMENT OF MANAGER
The Company and the Manager agree that the Manager will perform services for the
Company as described in this Agreement and in the manner provided in this
Agreement for all subsidiaries in the holding company system. All underwriting
claims and investment services provided to the Company by the Manager are to be
based upon the written criteria, standards and guidelines of the Company.
However, the Company shall have the ultimate and final authority over decisions
and policies, including but not limited to the acceptance, rejection or
canceling of risks, the payment or non-payment of claims and the purchase of
securities.
Notwithstanding any other provision of this Agreement, it is understood that the
business and affairs of the Company shall be managed by its Board of Directors,
and delegated by the Board to the appropriate officers. Also, to the extent
required under law, the Board of Directors shall present those issues to the
Company's Shareholders for vote. The Board of Directors and Officers of the
Manager shall not have any management prerogatives with respect to the business
affairs and operations of the Company.
ARTICLE 2 - DUTIES
2.01 MANAGEMENT SERVICES
A. ACCOUNTING SERVICES, FINANCIAL STATEMENTS AND TAX RETURNS
The Manager will perform services appropriate to the Company's
operations and provide all accounting services required for
purposes of accounting for the results of its
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business operations. The Manager will prepare all of the
Company's financial statements required for filing with
regulatory authorities, including statutory financial
statements as required under the applicable insurance code or
by an applicable insurance bureau. The Manager will perform
these services in a manner and at a time which complies with
the requirements of the insurance bureau, of taxing
authorities, and as otherwise reasonably required by the
Company. Accounting services shall include the maintenance of
proper premium accounts, including provision for unearned
premiums, loss provision and experience statistics as required
for management and for filing with any regulatory authority.
The Manager will prepare and provide the Company financial
statements on a quarterly and annual basis. Prior to their due
dates, the Manager will prepare and deliver to the Company all
tax returns to be filed with any taxing authority for the
Company.
B. ACCOUNTS RECEIVABLE
The Manager will collect all funds due the Company. Manager
shall use due diligence in the collection of accounts but
shall be responsible to the Company only for premiums which
are actually collected. The Manager shall regularly account to
the Company on monies received by the Manager on behalf of the
Company. Due diligence in the collection of accounts
receivable shall mean regular contact of persons owing money
to the Company with the demand for payment and maintenance of
records adequate to enforce any debts owed. Due diligence
shall not include any enforcement of the debts owed.
C. DEPOSITS OF MONIES RECEIVED
The Manager shall deposit daily into accounts of the Company
maintained for that purpose all monies received by the Manager
for the Company, except where Manager is the agent for the
risk, in which case funds must be deposited within 15 days of
receipt of report of settlement reports. All premiums
collected by the Manager shall be held in a fiduciary
capacity.
D. ACCOUNTS PAYABLE
The Manager will make payments of the accounts payable of the
Company which are incurred by the Company in the ordinary
course of business; and which represent expenses of the
Company in areas for which the Manager is responsible under
this Agreement.
For that purpose, the Manager may be designated as the
signatory on certain depository and checking accounts of the
Company. The Manager shall provide regular accounting to the
Company of the payments which the Manager has paid.
E. REPORTS AND RECORDS
At least annually, and more often as may reasonably be
requested by the Company, the Manager will provide information
on the Company's overall financial conditions, results of
business operations and future capital requirements. The
Manager will maintain the coverage documents or policies
offered through the Company and any amendments, and will be
responsible for developing and furnishing all necessary forms
for the coverage of policyholders of the Company. These forms
shall include applications, claims reports, premium collection
or invoice forms, loss control, coverage documents, rating
forms, and related reports or explanatory forms required for
operations of the Company. The printing
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of such forms and policies shall be the responsibility of the
Company. All reports and records as described above will be
provided as mutually agreed with the Manager and the Company.
F. ADVICE AND OTHER SERVICES
The Manager will have no responsibility as to other matters
pertaining to the Company and its business operations. The
Manager will perform such other related services as may be
reasonably necessary for the proper conduct of the Company's
business operations and which are within the scope of this
Agreement.
G. UNDERWRITING
The Company shall retain the ultimate right and responsibility
to refuse any risk and/or cancel any policy. The Manager shall
perform such underwriting services as the Company shall from
time to time request. Underwriting services shall include the
review of applications for policies of insurance, making
decisions on coverage, follow up with applicants for
additional information, and working with reinsurers of the
Company as requested. Certain underwriting services to be
performed by the Manager may be delegated to a third-party
upon approval of such third parties and the terms of the
delegation by the Company. The Manager will comply with all
written guidelines set forth by the Company with respect to
underwriting, the acceptance or rejection of certain classes
of business, the scope of coverage and the provisions of the
coverage document or related to the issuance of policies.
H. REINSURANCE
The Manager shall seek to arrange for appropriate reinsurance,
including the preparation of all necessary documents with
respect to such reinsurance. The Manager shall act as the
liaison with the reinsurers with respect to both the
acceptance of applications, the payment and remittance of
premiums, the collection of reinsurance payments due and the
negotiation of the terms, conditions and premiums for the
reinsurance.
I. INVESTMENTS
The Company shall have custody of, responsibility for and
control all investments of the Company. The Manager will
comply with all written guidelines set forth by the Company
with respect to investments and the acceptance or rejection of
certain investments. However, the Company shall have the
ultimate and final authority over decisions regarding the
purchase and sale of securities.
J. EXPENSES ARISING IN MANAGEMENT SERVICES
The Manager shall pay all expenses which it incurs in the
performance of its duties for the Company under Section 2.01.
The Company shall pay all expenses which it incurs, including
the expenses of examinations and other governmental expenses,
the expenses of printing, premium auditing, financial
statements, claims auditing, boards, bureaus and taxes, legal
services, reinsurance premiums, and premiums for any other
insurances purchased by the Company or as is set forth
elsewhere in this Agreement. In addition, any third-party data
processing costs or fees shall be paid by the Company.
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2.02 CLAIMS
A. CLAIMS ADMINISTRATION
The Company shall have ultimate responsibility for claims
adjustments and payments. The Manager will receive all claims
and notice of claims from policyholders of the Company. The
Manager will review, process, investigate, adjust, settle or
resist all claims received in accordance with the Company's
direction, the terms of Company coverage documents, and any
written guidelines or decision of the Company regarding
coverage, handling or payment of claims. The Manager will
establish loss reserves for each claim as deemed necessary in
accordance with the Company's direction. The Manager will make
subrogation investigations and consult with the Company or its
representatives for the proper handling of subrogation
matters. The Manager will engage attorneys as necessary, to
represent policyholders in any suit covered by the Company's
policy.
B. CLAIMS EXPENSES
The Company will pay allocated loss expenses, which include
reasonable expense items, such as attorney's fees, incidental
legal fees, experts' fees, witnesses' travel expense,
extraordinary travel expense incurred by the Manager at the
request of the Company, court reporter's fees, transcript
fees, and the cost of obtaining public records and witness
fees. The Company will pay expenses associated with the
investigation, negotiation, settlement or defense of any claim
hereunder or as required for the collection of subrogation
payments from third parties on behalf of the Company. All
claims expenses other than allocated loss expenses shall be
considered unallocated loss expenses and shall be paid by the
Manager.
C. CLAIMS REPORTS
The Manager will establish claim files for each reported claim
which will be subject to review by the Company or its
representatives at any reasonable time without prior notice.
Reports for the Company will be furnished, in formats and
frequencies approved by the Company, to show claims fund
activity and payments, losses paid, pending and reserved, by
participant coverage, type, cause function, size, and so on.
The Manager will assist as needed with all litigation and
defense activities related to claims pursuant to the Company
program within guidelines established by the Company. These
activities shall include recommendation of attorneys on a case
or retainer basis for approval by the Company, preparation of
all claim documentation, retention of witnesses and
performance of other steps as necessary to properly defend
against claims against insureds of the Company.
2.03 LOSS PREVENTION
The Manager will arrange for and coordinate loss prevention services as
agreed with the Company, including furnishing assistance and
professional consultation to participating insureds, in developing loss
prevention systems, making inventories and surveys regarding exposures
and risks covered under the Company program, analyzing claim causes and
trends, including frequency and severity, developing and conducting
training programs, and other
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information for loss prevention. The type of services which will be
provided to individual insureds to help them to develop loss prevention
systems will include review and analysis of past claims, management
controls and development of recommendations to improve risk management.
2.04 ALLOCATION OF EXPENSES
The allocation method for shared expenses shall be consistent with the
provisions of Regulation 30 (11 NYCRR 105-109) or other appropriate and
applicable provisions or regulations.
ARTICLE 3 - COMPENSATION
3.01 FEES
In consideration of the services rendered by the Manager pursuant to
this Agreement, Star and Savers will pay such fee as is agreed between
the parties hereto and applicable to each of Star and Savers' programs
on an individual basis in consideration of the costs and expenses
associated with each, and as specified in the attached addenda; such
fees shall be no greater than the Company would expend in providing
such services for itself. On the other hand, Crest and American
Indemnity shall reimburse Meadowbrook for the actual costs for those
services provided by Meadowbrook.
3.02 TIME OF PAYMENT
The amount agreed upon as described in paragraph 3.01 will be payable
monthly in advance. At the end of each calendar quarter, the Manager
and the Company may adjust the fee based upon the costs and expenses of
each program. Crest shall be billed separately for services provided by
Manager.
3.03 INCENTIVE BONUS
The Manager shall be paid an amount equal to fifteen percent (15%) of
the Company's annual net operating income before provision for federal,
state and local income taxes. Income earned on the investment of the
Company's accumulated retained earnings or on any other funds held by
the Company which are not received by it as a result of an insurance or
reinsurance transaction shall not be included in the determination of
this amount. If Savers' bonus to the Manager, in addition to any
ordinary dividends paid, exceeds the amount as noted in Section
382.210(2) of the Missouri Insurance Statutes, Savers shall notify the
Missouri Department of Insurance and request prior approval for payment
of the bonus. The amount described herein will be payable annually in
arrears as soon as the year-end audit figures are known. Crest shall
not be responsible for any incentive bonus payments to Manager.
3.04 DEFAULT
No incentive bonus will be paid to the Manager if the Manager is in
default on any material provisions of this Agreement.
ARTICLE 4 - THIRD PARTIES
The Manager and the Company agree that the Manager may engage or employ or
terminate third-parties, including without limitation, agents to perform the
duties of the Manager under this Agreement; however, the Company shall have the
ultimate veto on appointment or cancellation of any agency and final approval of
all commission rates which shall be mutually agreed upon.
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ARTICLE 5 - TERM AND TERMINATION
5.01 ORIGINAL TERM
The term of this Agreement will begin on the date of this Agreement and
will continue through December 31, 2002 ("Original Term"). The term
will automatically be extended for successive five (5) year periods
thereafter, unless either party provides written notice ninety (90)
days prior to the end of the original term or any extended term, as
applicable, that it does not wish to extend the term.
5.02 EFFECT OF TERMINATION
Upon written notice of termination, the Manager shall not continue to
act as such for more than ninety (90) days following receipt of said
notice.
ARTICLE 6 - OWNERSHIP OF RECORDS
The Manager will maintain all appropriate records, files, ledgers, and reports
so as to accurately reflect at all times the financial transactions of the
Company. All records of any kind relating to the Company shall be the property
of the Company and shall be in the Company's custody and control or will be
available for inspection.
ARTICLE 7 - GENERAL REQUIREMENTS OF THE MANAGER
7.01 MANAGER'S GENERAL DUTIES
The Manager is responsible to perform the duties assumed under this
Agreement in accordance with standard procedures for the performance of
such duties which exist in the insurance industry.
7.02 DEALING WITH THIRD PARTIES
The Manager is authorized and may act for, bind, make commitments, and
represent the Company to any third-party, in the ordinary course of
business and in fulfillment of its obligations under this Agreement.
ARTICLE 8 - MISCELLANEOUS
8.01 NOTICES
All notice requirements and other communications indicated shall be
deemed given when personally delivered or on the third succeeding
business day after being mailed by registered or certified mail, return
receipt requested, to the appropriate party at its address below or at
such other address as shall be specified by notice given hereunder.
THE COMPANY: MEADOWBROOK INSURANCE GROUP, INC.
00000 Xxxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000-0000
STAR INSURANCE COMPANY
00000 Xxxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000-0000
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SAVERS PROPERTY AND
CASUALTY INSURANCE COMPANY
Suite 135
10985 Cody
Xxxxxxxx Xxxx, XX 00000-0000
AMERICAN INDEMNITY
INSURANCE COMPANY, LTD.
Belvedere Xxxxxxxx
00 Xxxx'x Xxx Xxxx
Xxxxxxxx, Xxxxxxx XX00
CREST FINANCIAL CORPORATION
000 Xxxx Xxxxxxx Xxxxxx
Xxxx, Xxxxxx 00000
THE MANAGER: MEADOWBROOK, INC.
00000 Xxxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000-0000
8.02 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, representatives, successors
and assigns; however, this Agreement may not be assigned without mutual
consent, such consent shall not be unreasonably withheld.
8.03 AMENDMENT
This Agreement may not be amended, altered or modified except in
writing signed by the party against whom enforcement or any waiver,
change, discharge, alteration or modification is sought.
8.04 INVALIDITY
The invalidity of any provision of this Agreement shall not affect the
validity of the remainder of any such provision or the remaining
provisions of this Agreement.
8.05 INTERPRETATION
The article, section and paragraph headings included in this Agreement
have been used solely for convenience and shall not be used in
conjunction with the interpretation of this Agreement. References to
articles, sections and paragraphs shall refer to such provisions in
this Agreement unless otherwise stated.
8.06 WAIVER
The failure of either party at any time to require performance by the
other party of any provision of this Agreement shall not be deemed a
continuing waiver of that provision or a waiver of any other provision
of this Agreement, and shall in no way affect the full right to require
such performance from the other party at any time thereafter.
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8.07 SEVERABILITY
This Agreement and the transaction contemplated herein constitute one
transaction and shall not be divisible in any manner. A breach of any
portion of this Agreement shall be deemed a breach of the whole
Agreement.
8.08 COUNTERPARTS
If photocopies or duplicates of the original of this Agreement are
signed by the parties then each such originally signed document shall
be deemed to be an original of this Agreement.
8.09 CONFLICT OF INTEREST
The Manager shall not engage in conduct or activities that constitute
actual business competition with the Company.
8.10 INDEMNIFICATION
Both the Company and the Manager shall hold harmless and defend and
indemnify the other party against any expenses, damages, liability,
action, cost or other claims, including attorney fees arising out of
the other party's material breach of any duty or obligation hereunder.
8.11 ERRORS AND OMISSIONS INSURANCE COVERAGE
The Manager shall maintain an Errors and Omissions insurance policy in
an amount not less than $1,000,000 per claim.
MEADOWBROOK INSURANCE GROUP, INC.
DATE: July 8, 1999 /s/ Xxxxxx X. Xxxxx
------------------ --------------------------------------------
BY: Xxxxxx X. Xxxxx
--------------------------------------------
ITS: Chairman of the Board
--------------------------------------------
STAR INSURANCE COMPANY
DATE: July 8, 1999 /s/ Xxxxxx X. Xxxxx
------------------ --------------------------------------------
BY: Xxxxxx X. Xxxxx
--------------------------------------------
ITS: President
--------------------------------------------
SAVERS PROPERTY AND
CASUALTY INSURANCE COMPANY
DATE: July 8, 1999 /s/ Xxxxx X. Xxxxx, Xx.
------------------ --------------------------------------------
BY: Xxxxx X. Xxxxx, Xx.
--------------------------------------------
ITS: Executive Vice President
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AMERICAN INDEMNITY
INSURANCE COMPANY, LTD.
DATE: July 8, 1999 /s/ Xxxxxx X. Xxxxxx
------------------ --------------------------------------------
BY: Xxxxxx X. Xxxxxx
--------------------------------------------
ITS: President
--------------------------------------------
CREST FINANCIAL CORPORATION
DATE: July 8, 1999 /s/ Xxxxxxx X. Xxxxxxxx
------------------ --------------------------------------------
BY: Xxxxxxx X. Xxxxxxxx
--------------------------------------------
ITS: Sr. VP, General Counsel & Secretary
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MEADOWBROOK, INC.
DATE: July 8, 1999 /s/ Xxxxxxx X. Xxxxxxxx, III
------------------ --------------------------------------------
BY: Xxxxxxx X. Xxxxxxxx, III
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ITS: Sr. VP and Chief Financial Officer
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Addendum I to the Management Services Agreement
Addendum I to the Management Services Agreement ("Agreement") is
effective this day 31st day of December, 1998, by and between
Meadowbrook Insurance Group, Inc. (hereinafter referred to as "MIG"),
Star Insurance Company (hereinafter referred to as "Star"), a Michigan
Corporation, Savers Property and Casualty Insurance Company
(hereinafter referred to as "Savers"), a Missouri Corporation, American
Indemnity Insurance Company, Ltd. (hereinafter referred to as "American
Indemnity"), a Bermuda Corporation, Crest Financial Corporation
(hereinafter referred to as "Crest"), a Nevada Corporation, (unless
designated otherwise, hereinafter collectively referred to as the
"Company") and Meadowbrook, Inc., ("Meadowbrook") Michigan Corporation.
The Agreement shall be amended as follows:
ARTICLE 3 - COMPENSATION SECTION 3.03 shall be deleted from the
Agreement and the Company shall no longer pay the Manager an
incentive bonus under the terms and conditions of the Agreement.
All other terms and conditions of the Agreement shall remain unchanged.
IN WITNESS THEREOF, all parties have executed Addendum I to the
Agreement.
MEADOWBROOK INSURANCE GROUP, INC.
/s/ Xxxxxx X. Xxxxx
------------------------------------------------
BY: Xxxxxx X. Xxxxx
--------------------------------------------
ITS: Chairman of the Board and CEO
--------------------------------------------
STAR INSURANCE COMPANY
/s/ Xxxxxx Xxxxx
------------------------------------------------
BY: Xxxxxx Xxxxx
--------------------------------------------
ITS: President
--------------------------------------------
SAVERS PROPERTY AND
CASUALTY INSURANCE COMPANY
/s/ Xxxxx X. Xxxxx, Xx.
------------------------------------------------
BY: Xxxxx X. Xxxxx, Xx.
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ITS:Executive Vice President
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AMERICAN INDEMNITY
INSURANCE COMPANY, LTD.
/s/ Xxxxxx X. Xxxxxx
------------------------------------------
BY: Xxxxxx X. Xxxxxx
ITS: President
CREST FINANCIAL CORPORATION
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------------------
BY: Xxxxxxx X. Xxxxxxxx
ITS: Sr. Vice President and General Counsel
MEADOWBROOK, INC.
/s/ Xxxxxxx Xxxxxxxx, III
------------------------------------------
BY: Xxxxxxx Xxxxxxxx, III
ITS: Sr. Vice President and Chief Financial Officer
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ADDENDUM II TO THE MANAGEMENT SERVICES AGREEMENT
Addendum II to the Management Services Agreement ("Agreement") is effective this
31 day of July, 1998, by and between Meadowbrook Insurance Group, Inc.
(hereinafter referred to as "MIG"), a Michigan corporation, Star Insurance
Company (hereinafter referred to as "Star"), a Michigan Corporation, Savers
Property and Casualty Insurance Company (hereinafter referred to as "Savers"), a
Missouri corporation, American Indemnity Insurance Company, Ltd. (hereinafter
referred to as "American Indemnity"), a Bermuda corporation, Crest Financial
Corporation (hereinafter referred to as "Crest"), a Nevada corporation, (unless
designated otherwise, hereinafter collectively referred to as the "Company") and
Meadowbrook, Inc. ("Meadowbrook"), a Michigan corporation.
The Agreement shall be amended as follows:
- Ameritrust Insurance Corporation (hereinafter referred to as "Ameritrust"),
a Florida Corporation, shall be included as a party to the Management
Services Agreement, dated January 1, 1998. Ameritrust, along with its
affiliates, shall be referred to collectively as "Company", unless
designated otherwise.
- ARTICLE 3 - COMPENSATION
3.01 FEES
In consideration of the services rendered by the Manager and pursuant to
this Agreement, Star and Savers will pay such fee as is agreed between the
parties hereto and applicable to each of Star and Savers' programs on an
individual basis in consideration of the costs and expenses associated with
each, and as specified in the attached addenda; such fees shall be no
greater than the Company would expend in providing such services for
itself. On the other hand, Crest, American Indemnity and Ameritrust shall
reimburse Meadowbrook for the actual costs for those services provided by
Meadowbrook.
All other terms and conditions of the Agreement shall remain unchanged.
IN WITNESS THEREOF, all parties have executed Addendum II to the Agreement.
MEADOWBROOK INSURANCE GROUP, INC.
----------------------------------------
BY: Xxxxxx X. Xxxxx
------------------------------------
ITS: Chairman of the Board
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STAR INSURANCE COMPANY
----------------------------------------
BY: Xxxxxx X. Xxxxx
----------------------------------------
ITS: President
----------------------------------------
SAVERS PROPERTY AND CASUALTY
INSURANCE COMPANY
------------------------------------------------
BY: Xxxxx X. Xxxxx, Xx.
------------------------------------------------
ITS: Executive Vice President
------------------------------------------------
AMERICAN INDEMNITY INSURANCE
COMPANY, LTD.
------------------------------------------------
BY: Xxxxxx X. Xxxxxx
------------------------------------------------
ITS: President
------------------------------------------------
CREST FINANCIAL CORPORATION
------------------------------------------------
BY: Xxxxxxx X. Xxxxxxxx
------------------------------------------------
ITS: Sr. Vice President and General Counsel
------------------------------------------------
MEADOWBROOK, INC.
------------------------------------------------
BY: Xxxxxxx X. Xxxxxxxx, III
------------------------------------------------
ITS: Sr. Vice President and Chief Financial Officer
------------------------------------------------
AMERITRUST INSURANCE CORPORATION
------------------------------------------------
BY: Xxxxxxx X. Xxxxxxxx
------------------------------------------------
ITS: Sr. Vice President and General Counsel
------------------------------------------------
