EXHIBIT 10.20
MANAGEMENT AGREEMENT
THIS AGREEMENT is entered into this 28th day of February, 1998 among
Midwestern United Life Insurance Company ("Midwestern"), HealthPlan Services,
Inc. ("HPS"), and Connecticut General Life Insurance Company ("CGLIC").
RECITALS
WHEREAS, effective January 1, 1998 (the "Effective Date"), Midwestern
will issue and HPS will, through its Master Broker distribution system and NML
Group Specialists (the "Distribution Force"), market the group life, AD&D, and
Health insurance policies described on Exhibit "A," and subsequently agreed upon
additional group policies (the "Group Policies"), in the states identified in
Exhibit "A";
WHEREAS, Midwestern has entered into a definitive reinsurance agreement
attached hereto and made a part hereof as Exhibit "B" (the "Treaty") with CGLIC,
pursuant to which Midwestern will cede to CGLIC, and CGLIC will reinsure from
Midwestern, the Group Policies, on the terms and conditions set forth in the
Treaty; and
WHEREAS, pursuant to the Treaty, CGLIC has assumed reinsurance with
respect to the ceded business (as defined in the Treaty).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
PURPOSE
The parties seek to achieve solid annual growth in in-force and new
premiums, sales, numbers of employers and insured employees, size of the
Distribution Force, profitability, business retention, overall quality, and
customer satisfaction. It is the intention of the parties to provide for the
terms under which HPS will provide marketing and field distribution as well as
administrative services for the Group Policies issued by Midwestern and
administered by HPS, and such additional policies as may be submitted for sale
and administration hereunder, and accepted by HPS, each of which shall thereupon
become a Group Policy. Midwestern and CGLIC shall at all times be and remain the
issuer and reinsurer respectively while this Agreement is in force.
ARTICLE II
RELATIONSHIPS
A. The relationship of HPS to Midwestern is that of independent
contractor and nothing in the Agreement will be construed as creating any other
relationship.
B. Midwestern, CGLIC, and HPS acknowledge and agree that this Agreement
does not create a partnership or joint venture relationship among them. The
parties agree that none of them is assuming any liability, agreeing to pay any
amount, or undertaking performance of any task or obligation not expressly set
forth herein.
C. CGLIC's role with respect to any and all Group Policies referred to
in this Agreement is solely that of reinsurer. Nothing contained in the
Agreement shall be deemed or construed to constitute an agreement on the part of
CGLIC to assume responsibilities of Midwestern with respect to any Group Policy
or to create any direct relationship with any policyholder, beneficiary or other
party claiming an interest thereunder. To the extent CGLIC has rights and
obligations under this Agreement that relate to such Group Policies, such rights
and obligations are in place solely for the purpose of providing the conditions
acceptable to CGLIC to assure reinsurance liabilities with respect to such Group
Policies, and in the furtherance of performance of such reinsurance liabilities.
ARTICLE III
REPRESENTATIONS
A. HPS hereby represents and warrants to Midwestern and CGLIC that:
1. HPS is a corporation duly organized, validly existing, and
in good standing under the laws of Florida with full power and
authority (corporate or otherwise) to own or lease its properties and
to conduct its business in the manner and in the places where such
properties are owned or leased or such business is currently conducted,
and to consummate the transactions contemplated by this Agreement. It
is qualified or has applied to do business as a foreign corporation in
each jurisdiction in which the Group Policies are marketed and
distributed. For example, if required by state law, HPS shall hold or
apply for a valid license or certificate of registration as a third
party administrator or as a managing general agent, as applicable, from
the Departments of Insurance or other regulatory bodies having
jurisdiction and post any bond required by any such regulatory bodies.
2. The execution, delivery, and performance of this Agreement,
and all other documents contemplated by the Agreement by or on behalf
of HPS, have each been duly and validly authorized by HPS, and, when
executed and delivered, this Agreement and such other documents
executed by HPS will be a valid and binding obligation of HPS
enforceable against HPS in accordance with their respective terms.
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3. The execution, delivery, and performance of this Agreement
and other documents contemplated hereby by HPS does not, and the
consummation of the transactions contemplated hereby will not (a)
violate the provision of any applicable law, the Articles of
Organization or By-Laws of HPS or (b) violate any material provision
of, or result in a default or acceleration of any obligation under, or
result in any change in the rights or obligations of HPS under any
material mortgage, lien, lease, agreement, contract, instrument, order,
arbitration award, judgment, or decree to which HPS is a party or by
which HPS is bound, or to which any property of HPS is subject.
B. Midwestern hereby represents and warrants to HPS and CGLIC that:
1. Midwestern is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate or otherwise)
to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or
such business is currently conducted, and to consummate the
transactions contemplated by the Agreement. Midwestern is qualified to
do business as a foreign corporation in all states except New York.
2. The execution, delivery, and performance of the Agreement,
and all other documents contemplated by this Agreement by or on behalf
of Midwestern, have each been duly and validly authorized by
Midwestern, and, when executed and delivered, the Agreement and such
other documents executed by Midwestern will be valid and binding
obligations of Midwestern enforceable against Midwestern in accordance
with their respective terms.
3. The execution, delivery, and performance of this Agreement
and other documents contemplated hereby by Midwestern does not, and the
consummation of the transactions contemplated hereby will not, violate
any material provision of, or result in a default or acceleration of
any obligation under, or result in any change in the rights or
obligations of Midwestern under, any material mortgage, lien, lease,
agreement, contract, instrument, order, arbitration award, judgment, or
decree to which Midwestern is a party or by which Midwestern is bound,
or to which any property of Midwestern is subject.
ARTICLE IV
DUTIES OF HPS
A. HPS agrees to perform, subject to the terms of this agreement and
consistent with the reinsurance agreement and the rules and practices of
Midwestern and CGLIC, the following services for (and to the extent possible) in
Midwestern's name in all U.S. states, identified on Exhibit "A", in which the
Group Policies, and related forms, are required to be filed, have been filed and
approved:
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1. MARKETING/SALES
(a) Provide marketing (in accordance with guidelines
provided by Midwestern and such other guidelines as might
hereafter be agreed upon by the parties) and sales services,
advice and strategy, including product development, product
promotion, creation of sales materials and the distribution of
products through independent agents appointed and approved by
HPS on behalf of Midwestern in accordance with Midwestern's
guidelines. Included within HPS' management responsibilities
relating to marketing activities will be the management of the
Distribution Force. In order to facilitate the delivery of
such services, HPS shall submit, on or before the 1st day of
September in each year of the Term hereof, a business plan in
a format agreed to by the parties consisting of relevant
financial and sales information. In connection with the
proposals contained in such business plan, Midwestern, CGLIC,
and HPS will establish and agree on certain goals, milestones,
and strategies to be targeted for attainment during the
calendar year following the submission date, including without
limitation HPS' use of any sales or marketing contests to
enhance the performance of HPS' producers. HPS will provide
the additional number of qualified marketing and sales
personnel dedicated exclusively (subject to Article XIV.D) to
Midwestern services that are, in HPS' reasonable judgment,
sufficient to achieve the specified goal, milestones, or
strategies presented. At any time in response to a material
change in the law, legal or business environment, Midwestern
and/or CGLIC may terminate HPS' authority to underwrite and/or
issue new or renewal policies in any state or terminate HPS'
authority to underwrite any sub-class of business that is the
subject of this Agreement.
(b) Develop standard forms of policies and special
benefit provisions, approved by Midwestern and CGLIC, for
issuance by Midwestern, and other desirable marketing and
sales forms;
(c) Prepare for Midwestern's and CGLIC's review and
approval marketing and other information materials related to
such policies, provisions, or forms.
(d) Provide forms and materials necessary for
enrolling new employers and employees, as well as any other
administrative materials needed for the proper administration
of the Group Policies.
(e) Process employer requests for participation in
the Multiple Employer Trust.
(f) HPS shall schedule and conduct regular
communication meetings with the dedicated marketing and sales
personnel and the Distribution Force to discuss service and
product issues. The parties may attend any product,
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marketing or sales meetings, and regional sales director
("RSD") meetings connected with the Group Policies.
(g) Provide ongoing oversight of the Distribution
Force; for example, production information, education, market
conduct and compliance.
(h) Provide fair and accurate advertising, sales
materials, and proposals approved by the parties, in
accordance with the Midwestern "Guidelines for Advertising
Marketing Materials" and in accordance with insurance
regulations; provide a process for the parties' approval of
materials prepared by Master Brokers, brokers, or agents.
(i) Facilitate, as applicable, in conjunction with
HPS' marketing of the Group Policies, life and health
conversion policies issued on the paper of Gerber Life
Insurance Company.
2. BILLING, COLLECTION AND RATE SETTING
(a) Develop pricing methodologies and suggest rates
for all products, subject to Midwestern's and CGLIC's
approval, that in HPS' judgment will optimize the gross
margins on sales while achieving acceptable volume. Review and
make recommendations with respect to modification or
discontinuance of any products that in HPS' judgment may not
be sold profitably at competitive market rates subject to
Midwestern's and CGLIC's approval. HPS will perform actuarial
services to support its rate proposals but shall not be
required to perform statutory actuarial certifications on
Midwestern's behalf. CGLIC will provide to Midwestern an
actuarial certification of rates.
(b) Perform billing services, and arrange for the
collection and remittance of premiums in accordance with
procedures as outlined on Exhibit "C" Cash Handling and
Financial Settlement Procedures.
(i) RECEIPT OF PREMIUM PAYMENTS. HPS shall
receive and credit all Premium payments made by
participating employers, and shall make all cash
adjustments for Premium refunds and other required
cash transfers with respect to such Premium payments.
Any Premium payments that are received by HPS shall
be deemed to have been received by Midwestern, but
the payment of return Premium amounts by Midwestern
to HPS shall not be deemed payment to an insured or
claimant until such payment is received by such
insured or claimant. Nothing in this section shall
limit any right of Midwestern against HPS resulting
from HPS' failure to make payments to Midwestern or
to any insured claimant.
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(ii) REMITTANCE. HPS shall immediately remit
each Premium payment it receives from a participating
employer to Midwestern by depositing such payment in
an account through which only Midwestern premium will
be processed, then into an HPS account at a bank
selected by HPS (the "Premium Account"). HPS shall
have sole and exclusive authority to make withdrawals
from the Premium Account.
(iii) RECONCILIATION. On or before noon
E.S.T. on the last business day of each month, HPS
shall deliver to Midwestern and CGLIC a
reconciliation report relating to Premium payments it
received in the Premium Account in the previous month
(the "Reconciliation Report"), which Reconciliation
Report shall set forth (i) the total amount of
Premium payments deposited in the Premium Account
during such previous month, as adjusted for Premium
refunds and other required cash transfers under this
Agreement with respect to such Premium payments (the
"Collected Premium"), and (ii) the Remittance Due
with respect to such previous month. For purposes of
this Agreement, "Remittance Due" shall mean, with
respect to any month, an amount equal to the
Collected Premium for such month, minus the
compensation provided in Article IX.A. At the time
that HPS delivers the Reconciliation Report to
Midwestern and CGLIC, HPS shall transfer, by
Automated Clearing House Transfer, to an account
specified by Midwestern and CGLIC, the Remittance Due
with respect to the previous month. HPS may retain
all interest earned on the Premium Account. HPS may
offset the Remittance Due to Midwestern and CGLIC for
each month by any amount that Midwestern and CGLIC
owes to HPS or that HPS owes to Midwestern and CGLIC,
pursuant to this Agreement. In the event of such
offset, HPS shall indicate the nature and amount of
such offset in the applicable Reconciliation Report.
Notwithstanding any other provisions in this section,
the first Reconciliation Report to be provided by HPS
to CGLIC and Midwestern may be provided to CGLIC and
Midwestern by no later than March 31, 1998.
(iv) REPORTS. In addition to the
Reconciliation Reports described in section (iii)
above, HPS shall provide Midwestern and CGLIC with
data regarding Premium billing and remittance as are
reasonably required by Midwestern and CGLIC for
statutory and GAAP accounting, in a format and on a
timetable to be mutually agreed upon by the parties.
HPS shall maintain records of cash receipts and
disbursements relating to the program as required by
laws and regulations applicable to third party
administrators.
(v) DEPOSITS. Any Premium payment received
from an employer prior to the final coverage
determination with respect to such
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employer (any "Deposit") shall not at that time be
deemed to be a "Premium" for purposes of this section
or any other provision of this Agreement. In the
event that such employer is not accepted for coverage
under a Policy, then HPS shall return the employer's
undeposited check to such employer in accordance with
procedures reasonably required by Midwestern and
CGLIC.
3. CLAIMS
(a) HPS shall provide all claims handling services,
including medical and limited litigation management (as
defined below), necessary to resolve health, life, and AD&D
claims presented under the Group Policies, subject to the
claims settlement guidelines to be agreed upon. For the
purposes of this contract, an Insured is defined as a person
who is covered for insurance under the Group Policy to whom or
on behalf of whom Midwestern agrees to pay benefits. Claims
handling services include the following:
(i) HPS shall promptly process all claims
submitted by or on behalf of the Insured in
accordance with policy terms and the rights of the
Insured and pursuant to a claim manual, generated by
Midwestern and CGLIC, or any other manual or
procedures reviewed and approved by Midwestern and
CGLIC (the "Claims Manual"). All claims must be
reported to Midwestern and CGLIC within the period
set forth in Article V. HPS shall make prompt
payments for claims using checks drawn on a
Midwestern bank account designated the "Claims
Payment Account" established at a bank chosen by
Midwestern and funded by CGLIC. All interest earned
on monies contained in the Claims Payment Account
shall be for the sole use of the benefit obligations
arising under the Group Policies.
HPS shall designate in writing the names of those
persons it wishes Midwestern to authorize to sign
checks and shall provide sample signatures for
approval by Midwestern and CGLIC and approval will be
presumed if no response is given within thirty (30)
days. All checks shall be paid on checks or drafts as
authorized or specified by Midwestern. HPS shall
promptly notify Midwestern of any changes in the list
of persons so identified with check signature
authority. HPS shall also notify Midwestern of the
names of those persons responsible for the security
of the check stock and the signature plate, if
applicable. Midwestern shall have the right to sign
checks; however, the parties agree to cooperate to
the end that Midwestern shall at all times have in
effect designations whereby at least four (4) of HPS'
personnel have claims settlement and check signing
authority.
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(ii) All HPS personnel designated as having
claims settlement and check signing authority
pursuant to Article IV.A(3)(a)(i), above, shall have
a maximum limit of such authority of $50,000 per
claim. To the extent that authority in excess of
$50,000 is required on a given claim, HPS will seek
additional authority from Midwestern and CGLIC.
(iii) HPS shall receive notices of claims.
(iv) HPS shall verify the eligibility of
claimants.
(v) HPS shall calculate the amount of the
benefits payable in accordance with the applicable
Group Policy.
(vi) HPS shall decline non-covered claims
with an appropriate explanation of the policy
provision(s) upon which such declination is based,
consistent with the policy, state law, insurance
regulations, and federal law.
(vii) HPS shall issue benefit checks.
(viii) HPS shall administer cost containment
measures including, but not limited to: coordination
of benefits, vendor reporting, utilization review,
case management (the last two of which may be
performed by a subcontractor of HPS at the cost to
HPS) in accordance with procedures set forth in
Article VI.
(ix) HPS shall provide assistance as
requested by Midwestern to research and resolve aged
outstanding checks including, but not limited to,
making inquiries of claimants.
(x) HPS shall report requests for review of
denied claims, rescissions, or ERISA appeals promptly
to Midwestern and CGLIC prior to response on all
issues involving the application or lack thereof of
federal or state regulatory requirements.
(xi) HPS shall promptly review claims and
pay approved claims consistent with the parties'
written claims policy.
(xii) HPS shall identify underpayments or
overpayments, correct underpayments, and implement
reasonable collection efforts for overpayments,
including direct recapture from the provider or
policyholder, recapture via reduction of future
payments, and/or using a vendor to collect such
payments.
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(xiii) HPS shall report to Midwestern any
local, state, or federal taxes and withholding, if
applicable.
(xiv) HPS or its designee shall produce a
monthly report showing the number of claims reviewed
for cost containment purposes and the results. All
claims that have the potential to exceed, on an
occurrence basis, $50,000 and all claims that come
within the parameters set forth on the ICD-9 list
contained in the approved claims policies shall be
included in the monthly report.
(xv) HPS shall receive and respond promptly
to inquiries from the Insured regarding its benefits
including, but not limited to, questions concerning
coverage, deductibles, other financial thresholds and
claim status.
(xvi) HPS shall monthly report complaints in
accordance with insurance regulations and according
to the format currently used by HPS or otherwise
reasonably requested by Midwestern.
(xvii) HPS shall report on all aged and
unresolved claims, monthly, outlining issues
involved.
(xviii) For purposes hereof, HPS'
performance of "Litigation Management" shall include
making recommendations as to available counsel to
defend, if necessary, Midwestern and/or CGLIC,
coordinating with such counsel at the initial stage
of litigation to ensure that counsel has received
copies of the complaint and other relative documents,
ensuring that HPS personnel are available, if
necessary, to serve as witnesses in connection with
the litigation, and otherwise reasonably assisting
Midwestern and/or CGLIC as necessary in connection
with such defense. Notwithstanding anything contained
herein to the contrary, HPS shall not make decisions
for or on behalf of Midwestern and/or CGLIC in
connection with such litigation, which decisions will
be made by the appropriate party/defendant. HPS shall
report to Midwestern and CGLIC on a monthly basis the
status of all unresolved litigation.
(b) HPS will submit reports and data on its
activities in a form, medium, and time frame agreed upon by
Midwestern, CGLIC, and HPS. The reports shall include, but not
be limited to, those details as specified by Midwestern and of
each check issued within one (1) week of its issuance.
If Midwestern and/or CGLIC notify HPS that such report data is
unacceptable because of the form in which data are submitted
or the need for further information or clarification, HPS will
make every effort to resubmit the data
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specified as unacceptable within twenty-four (24) hours of the
notice but in no event later than ten (10) days after HPS'
receipt of such notice. If Midwestern and CGLIC change their
required format for data reporting, HPS will comply with such
changes upon notification from Midwestern and/or CGLIC,
provided that such changes do not result in unreasonable
costs. HPS shall also respond to such other requests for
reports and data as Midwestern and CGLIC shall reasonably
request.
(c) HPS will permit representatives of Midwestern
and/or CGLIC or state insurance department to audit and
inspect files and record, and review practices regarding Group
Policy business. HPS shall cooperate to the fullest extent in
such audits, the cost of which shall be borne by Midwestern
and CGLIC; however, in no event shall Midwestern and CGLIC be
responsible for HPS' costs relating to labor, legal,
accounting, and the like which are incurred by HPS in the
normal course of business in assisting or cooperating with
such audits.
(d) Each quarter during the term, HPS will conduct a
quality assurance review, in accordance with quality assurance
criteria specified by Midwestern and CGLIC and prepare a
report of the results of the review by the 15th day of the
month following the end of such quarter. The number of claims
reviewed and reported shall be no less than ten (10) claims
per claims processor assigned to process claims under the
Agreement. The claims reviewed shall represent a normal cross
section of the claims processed.
(e) HPS may arrange to have checks printed. All
checks, regardless of vendor, shall be tested and approved by
HPS. The parties contemplate that checks may eventually be
prepared by laser print.
(f) HPS shall employ security and internal control
procedures that meet with generally accepted and reasonably
prudent standards concerning the handling of checks and
drafts. HPS shall immediately report to Midwestern and CGLIC
any loss or destruction of checks or any unauthorized use of
checks.
(g) HPS shall maintain fidelity coverage, including
bonding of employees, in a reasonable amount. Such fidelity
coverage shall have a maximum deductible of $100,000 per
occurrence, or $500,000 in the aggregate, and shall have, at
minimum, limits of $5,000,000 per occurrence, $10,000,000 in
the aggregate. A certificate of insurance evidencing such
coverage shall be provided to Midwestern and CGLIC at least
annually. Midwestern and CGLIC expressly acknowledge that in
accordance with such policy, HPS is the first named insured.
Accordingly, any losses or payments received by HPS shall be
forwarded to Midwestern and CGLIC to the extent of their
respective interests Said policy shall provide that it cannot
be canceled or materially modified except on thirty (30) days
prior written notice to Midwestern and CGLIC.
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HPS shall also maintain an errors and omissions liability
policy in a reasonable amount providing for indemnification to
cover any loss arising as a result of any real or alleged
negligence on the part of HPS, its officers, agents, or
employees under this Agreement. Such errors and omissions
coverage shall have a maximum deductible of $100,000 per
occurrence, or $500,000 in the aggregate, and shall have, at
minimum, limits of $6,000,000 per occurrence, $10,000,000 in
the aggregate. HPS shall cause the issuer of said policy to
deliver to Midwestern and CGLIC a certificate evidencing such
coverage to Midwestern at least annually. Said policy shall
provide that it cannot be canceled or materially modified
except on thirty (30) days prior written notice to Midwestern
and CGLIC.
(h) HPS shall notify Midwestern and CGLIC, in a
format reasonably acceptable to them, of claims (i) that have
incurred expenses in excess of $10,000 and arise from an ICD-9
code; (ii) that have been pending for more than three (3)
months; (iii) referred for case management; (iv) that involve
an attorney whether or not legal proceedings have been
initiated; (v) that involve a complaint or potential action by
a regulatory agency; and (vi) that may involve rescission of
coverage. Midwestern and CGLIC reserve the right to request
claim files.
(i) HPS or a subcontractor of its choosing shall
pursue on behalf of Midwestern and CGLIC all subrogation and
loss transfer opportunities, where applicable, at the cost to
HPS, and shall credit Midwestern with collected net proceeds,
if any.
4. ELIGIBILITY AND UNDERWRITING
(a) HPS shall verify eligibility and underwrite all
employers and their covered employees and dependents in
accordance with such underwriting guidelines as will hereafter
be promulgated by Midwestern and CGLIC and in accordance with
Midwestern's reasonable and lawful instructions or as required
by state or federal law or regulation. Midwestern and CGLIC
will retain ultimate underwriting authority. HPS will make
underwriting decisions in accordance with each criteria set
forth in the underwriting guidelines promulgated by Midwestern
and CGLIC, which will include levels of expected
profitability.
(b) HPS shall perform the risk selection process
including, but not limited to, completion of underwriting
questionnaires, and making underwriting recommendations.
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(c) HPS shall process non-renewals, cancellations,
and renewals, following guidelines approved by, or
instructions from, Midwestern and CGLIC.
(d) Pursuant to Article VII, Midwestern and CGLIC
reserve the right to audit, on a monthly basis, HPS'
underwriting decisions and shall retain the right to modify
the applicable criteria from time to time upon reasonable
advance written notice to HPS.
(e) Midwestern and/or CGLIC shall retain the right to
cancel or non-renew any policy of insurance where permitted by
law. In the event, of such cancellation or non-renewal,
Midwestern and CGLIC will agree to discuss whether such
cancellation or non-renewal warrants an increase in HPS'
compensation hereunder. Such discussions, which in no way
shall be binding, shall only take place if the remaining
subject business was profitable to Midwestern and CGLIC over
the previous twelve months prior to HPS' request for an
increase in compensation.
(f) HPS shall not issue or renew on behalf of
Midwestern any insurance which is not covered by reinsurance.
5. ADMINISTRATIVE SERVICES
(a) HPS shall perform necessary and desirable
customer services, including but not limited to responding to
calls concerning benefits, underwriting status, billing, and
claim eligibility, to insureds and agents in the name of
Midwestern, in compliance with all applicable insurance
department requirements, and preparing timely responses to
complaints other than litigation, which is separately
addressed herein.
(b) HPS shall process appointments ensuring that all
agents and enrollers are properly licensed for states in which
products are solicited and that appropriate agent appointment
information is provided to Midwestern and CGLIC in a timely
fashion. HPS will pay and is solely and exclusively
responsible for all Distribution Force compensation (and any
expense reimbursement). Midwestern has no compensation or
expense reimbursement liability or responsibility of any kind
to the Distribution Force. For the periods during which HPS is
receiving compensation pursuant to Article IX hereof, HPS
indemnifies and holds the parties harmless from any claim or
liability from the Field Force, but only to the extent that
such claim or liability relates to field force compensation or
expense reimbursement, including, without limitation, costs,
expenses, and attorneys fees. "Compensation" shall also
include, without limitation, any benefits and awards. There is
no compensation to HPS from Midwestern other than the
compensation described in Article IX. HPS will
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prepare and distribute HPS service fee statements and HPS
checks to Master Brokers and Agents.
(c) HPS is not responsible for paying agent initial
or renewal appointment fees, but HPS is responsible for paying
all costs associated with investigations and background checks
performed, including those performed on all new Master Brokers
and Agents not affiliated with HPS on January 1, 1998.
(d) HPS shall process enrollment of new employees as
they become eligible and maintain employment records.
(e) HPS shall issue and deliver all policies,
certificates, and any other related forms.
(f) HPS shall perform any other general services
required for the efficient marketing and administration of the
insurance provided under the Group Policies as may be agreed
to by the parties and in accordance with law.
(g) HPS shall supply data to assist Midwestern and
CGLIC in supporting its statutory accounting, GAAP accounting,
and tax accounting statements and/or returns, agent licensing
and statistical reports, production reports, and field
oversight reports, which reports will contain such items as
"Earned Premium," "Paid Claims," "Loss Reserve Calculation,"
"Incurred Claims," and such other necessary information as the
parties may reasonably request.
(h) HPS shall furnish Midwestern and CGLIC with such
other reports as Midwestern and/or CGLIC may reasonably
request from time to time.
(i) HPS shall provide, operate, maintain and manage
all data and software systems necessary, timely, and
accurately with mutually acceptable formats, to collect,
process, systems and electronic interfaces, and report
Midwestern's Group Policies, underwriting, claims, and
marketing information. HPS system upgrades shall be made from
time to time during the term of this Agreement, at the expense
of HPS, to optimize the processing of Group Policy data and
servicing of Group Policies and electronic interfacing between
the three parties and accommodate laws, regulations and
compliance. Such systems should include appropriate security
and back up systems and off site data backup and business
continuation so that all data is protected from electrical or
computer failure or interruptions, as well as periodic copying
and off line storage of data. HPS is responsible for ensuring
that all data and software systems will be compliant with
"year 2000" requirements by no later than June 30, 1999. Year
2000 readiness includes but is not limited to the following:
that operating systems, application software, and computer
hardware execute correctly with "run dates" both prior to and
after the year 2000; that no date
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value will cause interruptions in computer operations,
equipment, or hardware for dates that span across year end or
century end; that application software produces accurate
results from all calculations, manipulations, and comparisons
involving dates; that leap year logic accurately identifies
and processes the year 2000 as a leap year; that data is
maintained in a format which is accurately portrayed in a
format acceptable to other year 2000 compliant users of the
data.
(j) HPS shall provide all computer produced and
manually produced forms required e.g., for policy issuance
(including those to be used for policy billing, cancellation
notices, reinstatements, certificates of insurance, etc.),
claims management, and general correspondence.
(k) If "Group Policies" are issued to a multiple
employer trust, HPS shall serve as the trust administrator.
(l) HPS is responsible, subject to Midwestern and
CGLIC's prior approval, to make arrangements for utilization
management and case management services. HPS will ensure that
these entities and individuals have, subject to HPS due
diligence, all the necessary credentials, state licenses,
certificates, or registrations.
(m) HPS is responsible, subject to Midwestern's and
CGLIC's prior financial approval, for identifying and making
arrangements with appropriate "provider networks" and
negotiating financial applicable discounts for health care
services delivered through those networks. The parties shall
discuss appropriate network selection and oversight criteria.
HPS shall make best efforts to assure that all network
contracts include indemnity and hold harmless provisions in
favor of HPS and Midwestern for liabilities arising from
provider services.
(n) HPS is responsible for issuing certifications of
prior coverage as required by law or regulation to terminating
employees and/or dependents covered under Group Policies.
(o) HPS shall bear the cost of establishing and
maintaining the trust to which group master policies are
issued for the Group Policies.
(p) HPS shall issue the necessary group master
policies and updates in the trust.
6. COMPLIANCE
(a) All marketing, distribution, and administrative
services provided by HPS and its Distribution Force and all
services provided by HPS under this Agreement shall be
rendered in compliance with all life and health insurance
14
laws or regulations of any state in the United States and
applicable federal laws or regulations presently or
hereinafter in effect. It is HPS' responsibility to update and
implement in a timely manner the practices, procedures,
benefits, data processing systems and policy production and
claim facilities as necessary to maintain compliance with
applicable regulations and laws to enable Midwestern to remain
current with regulatory changes as they occur. Costs arising
as a result of such duties shall be borne by HPS.
(b) HPS shall provide Midwestern with copies of its
Annual Report, Form 10-K, Form 10-Q, and such other Securities
and Exchange Commission filings as are publicly available,
including press releases.
(c) Upon two hundred forty (240) days advance written
notification (inclusive of applicable department of insurance
notification) given by CGLIC and/or Midwestern to HPS of
either CGLIC's or Midwestern's desire to withdraw in whole or
in part from the issuance by Midwestern of, or CGLIC's
reinsurance of, any or all Group Policies from any
jurisdiction, HPS will take all necessary steps to implement
the withdrawal of the identified business from that
jurisdiction in accordance with statutory and federal
requirements.
(d) HPS is responsible for any regulatory filing and
licensing (but HPS will be reimbursed for agent appointment,
renewal, or termination fees actually paid) related to
marketing the Group Policies, including but not limited to
registration of PPO networks, small employer reinsurance pool
participation. HPS, on Midwestern's behalf, shall file such
policies, certificates, booklets, booklet-certificates, rates,
rate manuals, advertising, actuarial-certificates, provisions,
or forms and other materials with appropriate regulatory
authorities. HPS also shall monitor relevant legislative and
regulatory activity and implement in a timely manner when
changes are required in policy forms. HPS is responsible to
make the necessary changes with Midwestern's and CGLIC's prior
approval and file such changes with the appropriate regulatory
authorities as necessary. To the extent that Midwestern and
CGLIC incur any penalties, assessments, or liabilities by
state or federal government action as a result of HPS' failure
to timely notify Midwestern and CGLIC of any such legislative
or regulatory changes and HPS' failure to act in good faith,
HPS shall indemnify Midwestern and CGLIC for those penalties,
assessments, or liabilities and related expenses, costs and
attorneys' fees.
(e) HPS is responsible for maintaining files and
records for completing and submitting information requested by
regulatory authorities on behalf of Midwestern or, otherwise
required to be maintained including but not limited to
advertising files.
(f) HPS will cooperate fully in the event that
Midwestern is involved in a regulatory authority examination.
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(g) HPS on behalf of Midwestern shall file or provide
minimum benefits in all states where policies are solicited,
subject to the filing requirements in each state.
(h) HPS is responsible for its tax information at
source reporting such as 1099s, including, for example,
payments to its Distribution Force and to the providers.
B. HPS shall deliver to policyholders, participant employers, or
insurers any policies, certificates, booklets, booklet-certificates, termination
notices, or other written communications including, without limitation, current
or future regulatory-mandated forms and such other documents as might be
requested by Midwestern and/or CGLIC.
C. If any notice of the commencement of any legal proceeding involving
any Midwestern insured, Midwestern, or CGLIC is received by HPS, or if it
receives any communication from any Insurance Department or other administrative
agency or any other person relating to a complaint by a Midwestern insured or
relating to a hearing involving any Midwestern or CGLIC insurance practice, HPS
shall advise Midwestern and CGLIC of the proceeding within five (5) business
days of receipt by HPS. HPS shall immediately thereafter forward copies of any
correspondence or necessary files in its possession to Midwestern and/or CGLIC
for determination of appropriate handling.
D. If any notice of the commencement of any legal proceeding involving
HPS is received by Midwestern, or Midwestern receives any communication from any
Insurance Department or other administrative agency or any other person relating
to a complaint against HPS or relating to a hearing involving HPS, Midwestern
shall advise HPS of the proceeding within five (5) business days of receipt by
Midwestern. Midwestern shall immediately thereafter forward any copies of
necessary correspondence or files in its possession to HPS.
E. HPS shall conform to all underwriting standards as will hereafter be
adopted by Midwestern and/or CGLIC and all other standards agreed to between the
parties after consultations, but if agreement cannot be reached, HPS agrees to
act in accordance with the reasonable and lawful directions of Midwestern and
CGLIC. HPS may presume that its underwriting and other standards, previously
reviewed by CGLIC, are acceptable to Midwestern until written notice to the
contrary is received from Midwestern and/or CGLIC.
F. HPS acknowledges that Midwestern has responsibilities respecting
Group Policies marketing, distribution, claims, administration, regulatory
compliance and market conduct of the Distribution Force. Further, Midwestern has
obligations under its reinsurance treaty with CGLIC respecting the Group
Policies. The purpose of this agreement is for HPS to undertake and perform
directly these responsibilities. Notwithstanding anything in this agreement to
the contrary, HPS will perform Midwestern's foregoing responsibilities and
treaty requirements. To the extent that the terms and conditions of the
following articles and exhibits of the Treaty conflict with any provision of
this Agreement, the terms of this
16
Agreement shall control: Articles IX, X, XI, XII, XIII, XV, and XVIII; Exhibits
A, B, C, D, E, and F.
G. HPS shall not:
1. Bind reinsurance or retrocession on behalf of Midwestern;
2. Commit Midwestern to participate in insurance or
reinsurance syndicates;
3. Without Midwestern's and CGLIC's prior approval, pay or
commit Midwestern to pay a claim over an amount which would exceed
$50,000;
4. Collect any payment from a reinsurer or commit Midwestern
to any claim settlement with a reinsurer without prior approval of
Midwestern.;
5. Permit any Distribution Force member to serve on HPS' board
of directors;
6. Jointly employ any individual who is employed with
Midwestern;
7. Appoint a sub-agent pursuant to the applicable MGA
statutes;
8. Borrow money or incur debts or liabilities on behalf of
Midwestern;
9. Employ persons on behalf of Midwestern; or
10. Except as otherwise provided herein, enter into any
contract in Midwestern's name without Midwestern's prior approval.
H. MARKET CONDUCT: HPS will maintain a market conduct and compliance
function to provide communications, enforcement, legislative and regulatory
updates, and implementation, education, and focus on quality. The HPS market
conduct and compliance function should report to HPS' General Counsel. In
connection with such function, HPS shall, for example:
1. Conduct regular on site visits (including compliance and
market conduct reviews) of Master Broker offices at least quarterly
(and Midwestern may participate in such visits);
2. Ensure that members of the Distribution Force are
performing consistently with their contracts with HPS and, in
particular, the HPS Code of Conduct, all as approved by Midwestern;
17
3. To enforce Master Broker market conduct and oversight over
their assigned agents; for example, as outlined in this HPS Code of
Conduct;
4. Regularly review agent recruitment work flows and
practices, agent training, content and use of HPS materials
comprehension and use of the quoting system, and the presentation of
HPS products;
5. Review a random sample of new business case files to
evaluate the entire proposal, sales and enrollment process, and
correspondence from the quote through the issue and delivery process
(including, but not limited to, reviewing the new business checklist,
required documentation, and the quality of the HPS case submissions);
6. Review a random sample of renewal cases to ensure the
completion of the process and documentation;
7. Otherwise, keep the Distribution Force current of such
industry and company-specific regulation and practices of the parties
as are appropriate under the circumstances; and
8. For all new Master Brokers, utilize the Distribution Force
Code of Conduct Agreements attached hereto as Composite Exhibit "D."
Existing Master Brokers use their existing Master Broker Contract and
signed Master Broker Code of Conduct.
ARTICLE V
STANDARD OF PERFORMANCE
HPS represents to Midwestern that it is well qualified and experienced
in the field of group health, life, and AD&D insurance marketing and
administration and that HPS will perform its obligations hereunder in a proper
and timely manner, in good faith, and in the best interests of Midwestern and
its reinsurers.
HPS agrees to certain minimum performance standards as are identified
below and to adhere to such other standards that might reasonably be hereafter
propounded by Midwestern and for CGLIC:
A. CLAIM SERVICE
1. Accuracy Dollars Paid: 98% shall be paid accurately;
2. Turnaround Time: 95% of completed claims shall be processed
within ten (10) working days of receipt;
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3. Accuracy of procedural processing: 95% of field data shall
be entered accurately; Data Fields measured include charge entered,
ICD-9 diagnosis, CPT4 service codes, Cause codes, etc.;
4. Work-on-hand shall not exceed twenty (20) business days;
5. Complaints and lawsuits: Midwestern and CGLIC to be
notified with five (5) days of HPS' receipt;
6. Unresolved claims and complaints responded to within thirty
(30) days.
B. ADMINISTRATION
1. Telephone calls: 80% shall be answered by customer service
within forty-five (45) seconds;
2. Abandonment Rates: no more than 5% during any period
audited;
3. Response to Telephone Inquiries: 95% within two (2) working
days;
4. Response to Written Inquiries: 80% within ten (10) working
days, 100% within fifteen (15) working days of receipt.
5. New Case Analysis: 95% of new case submissions shall be
reviewed within three (3) working days of receipt, and 100% of new case
submissions shall be reviewed within five (5) days of receipt.
6. New Case Administration: 90% of new sold cases shall be
processed within five (5) days of date sold; "sold date" calculated as
the date on which rate quotation has been accepted by the group and all
relevant information has been received by HPS;
7. Certificate Issuance: 90% of certificates and
identification cards, as applicable, shall be mailed within fifteen
(15) days after the issued date or renewal date;
8. Enrollment changes: 95% of changes in enrollment status
shall be processed within five (5) working days after requested change
is received;
9. Response to department of insurance complaints within
applicable time frame.
C. PENALTIES. HPS shall perform services under this Agreement in
accordance with the standards set forth in this Article V. Failure to meet such
standards for circumstances within the control of HPS may result in the
penalties specified herein for each standard. Compliance with these standards
shall be measured by review of the documentation maintained
19
and reported by HPS and such periodic audits as Midwestern and/or CGLIC may
conduct in accordance with this Agreement. Effective July 1, 1998, the following
penalties shall apply for noncompliance with the above performance standards:
1. Claim Service -- failure to achieve compliance with 2 out
of 6 of the requirements set forth in Article V.A. above shall result
in a penalty of 3.0% of HPS' compensation (defined to include only
HPS' 8.7% portion of the compensation referred to in Article IX) for
the month reviewed.
2. Administration -- failure to achieve compliance with 3 out
of 9 of the requirements set forth in Article V.B. above shall result
in a penalty of 1.5% of HPS' compensation (defined to include only
HPS' 8.7% portion of the compensation referred to in Article IX) for
the month reviewed.
3. The parties expressly acknowledge that penalties shall not
be effective until the quarter commencing July 1, 1998. Within thirty
(30) days after the end of such quarter and of each quarter thereafter,
Midwestern and/or CGLIC shall submit to HPS its proposed penalty for
each month during such quarter, in accordance with the formulas
established above. Within ten (10) days after its receipt of such
proposed penalty, HPS may submit a response to rebut Midwestern's
and/or CGLIC's findings and/or submit additional information that may
affect the results of the review. Within ten (10) days after its
receipt of HPS' submissions, Midwestern and/or CGLIC shall, in its sole
discretion, deliver the final penalty assessment to HPS, which shall be
paid in accordance with the procedures established in Article IV.A.2(b)
and reflected in the Reconciliation Report prepared by HPS.
4. Notwithstanding anything contained herein to the contrary,
in no event shall the sum of all penalties assessed against HPS exceed
Thirty Thousand Dollars ($30,000) for any month or Three Hundred
Thousand Dollars ($300,000) for any 12 month period commencing July 1,
1998; nor shall HPS pay duplicate penalties to Midwestern and/or CGLIC.
5. To the extent penalties are assessed in a breach of
contract action or arbitration or otherwise related to failure to meet
performance standards in connection herewith, such damages will be
reduced by the dollar amount of any penalties that have been imposed
under this Article V.
ARTICLE VI
RESTRICTION ON PERFORMANCE
A. The parties agree that all Insured's and Insurers' records shall be
processed with due regard for rights to privacy and confidentiality.
B. HPS will not subcontract any of its management or administrative
functions, duties, or responsibilities without prior written approval by
Midwestern and CGLIC, which
20
approval Midwestern and CGLIC shall not unreasonably withheld. Outside vendors
retained by HPS to provide goods or render services, excluding professional,
legal, or accounting services, in connection with the Group Policies shall be
subject to Midwestern's and CGLIC's prior approval, which shall not unreasonably
be withheld. Subcontracting does not relieve HPS of its responsibilities or
liabilities under this Agreement. In the event Midwestern and CGLIC, in their
reasonable discretion, determining that any specific vendor or sub-contracted
function is critical to the performance of this Agreement by HPS, Midwestern and
CGLIC may require HPS to establish a back-up contingency plan to assure
continuing fulfillment of such critical function, which plan must be
satisfactory to Midwestern and CGLIC. Notwithstanding anything contained herein
to the contrary, Midwestern and CGLIC acknowledge and accept that HPS may
subcontract in the name of HPS its care management and utilization review
responsibilities to other entities, consistent herewith.
C. HPS shall continue to maintain an appropriate disaster recovery
plan.
ARTICLE VII
AUDIT AND ACCESS RIGHTS
A. Upon reasonable prior written notice, or upon such notice as is
otherwise specified herein, and at their expense (such expenses not to include
HPS' labor, legal, accounting costs, and the like), Midwestern and/or CGLIC or
their agents shall have the right to conduct periodic audits of HPS' Group
Policy administration, underwriting, marketing, compliance, market conduct, and
claim operations at the offices of HPS, and Midwestern and/or CGLIC shall have
the right of access to HPS' premises during normal business hours for such
purpose. If Midwestern and/or CGLIC choose to conduct an audit at their own
offices, HPS shall, upon request, ship all necessary records (or complete and
accurate copies thereof) to the designated Midwestern or CGLIC office, at the
expense of Midwestern or CGLIC.
B. At all times during the term of this Agreement and following its
termination for any reason, Midwestern and/or CGLIC shall have access to all
records of Group Policies of Midwestern for so long as they are maintained by
HPS pursuant to Article IV, Sections G and H. Midwestern and/or CGLIC shall, at
their own expense, be entitled to obtain copies of any and all such records.
C. Commencing as of the Effective Date, HPS shall maintain its books,
records, and files that relate to this Agreement, the business administered
hereunder, or any claim (collectively, "Records") in accordance with all laws,
guidelines, regulations and accounting and audit to the extent that HPS
possesses such data. The Records shall at all times remain the property of
Midwestern.
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ARTICLE VIII
DUTIES OF MIDWESTERN
A. Midwestern, in connection with the Group Policy administration
provided by HPS hereunder, agrees as follows:
1. Midwestern shall, upon request of HPS, review and approve
forms and materials needed to enroll new employers and new employees
and maintain employee records.
2. Midwestern will provide ninety (90) days advance written
notice to HPS of any change in new business rates and ninety (90) days
advance notice of any rate changes for Group Policies, and such notices
will specify the percentage change in both instances. Midwestern
acknowledges that it must provide one hundred twenty (120) days advance
written notice of any material changes to the program, where "material
change" is defined to include changes requiring computer programming
amendments or reprinting of marketing and supporting materials.
3. Midwestern will take all steps necessary to establish and
maintain in good standing its status as a licensed insurer in all
states except New York, except that HPS shall provide such information
and assistance regarding HPS' duties and responsibilities hereunder
that may be helpful in connection with Midwestern's obtaining and
maintaining a license to issue life and health insurance policies and
to perform related activities. Midwestern will advise HPS in writing of
all limitations under federal, state, or local authorities on its
authority to underwrite insurance business (after Midwestern becomes
aware of any such limitations).
4. Midwestern shall prepare and file all federal, state, and
local income tax returns required to be filed by it with data supplied
to Midwestern by HPS.
5. Midwestern shall prepare and file securities filings or
statutory statements required by any state regulatory authority with
data supplied to Midwestern by HPS.
6. Midwestern shall make premium tax returns, and any other
applicable taxes, imposed on Midwestern in connection with Midwestern's
receipt of revenues from the Group Policies with data supplied to
Midwestern by HPS.
7. Midwestern will make best efforts to assure that all
policies or certificates issued contain appropriate disclaimers of any
liabilities arising from provider services.
B. If there arises any conflict between any guidelines or instructions
provided by Midwestern, CGLIC, and HPS and this Agreement, the terms of this
Agreement shall control.
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ARTICLE IX
COMPENSATION
A. HPS will receive as it sole and exclusive compensation from
Midwestern and CGLIC a fee and Distribution Force appointment, renewal, and
termination fees actually paid and received by Midwestern under the Treaty. The
fee is equal to 23.7% of the Net Monthly Premiums collected with respect to
Group Policies. For purposes of this Agreement, "Net Monthly Premiums" shall
mean the gross amount of all premiums received by HPS on behalf of Midwestern
with respect to the Group Policies during any calendar month during the Term (or
a fraction thereof at the beginning and termination of the Term), less the
amount of any return premiums or premium adjustments given or remitted to Group
policyholders during such period. At such time as the annual gross premium
connected herewith is less than $80 million or exceeds $200 million, the parties
shall engage in discussions, which in no way shall be binding, concerning HPS'
compensation hereunder.
B. HPS may charge, and retain for its own account, employers and/or
policyholders additional administrative fees, including late fees and NSF fees,
with respect to certain products or services, provided the amount and scope of
such administrative fees are in compliance with state regulations and, if
required by law, that the rate filing accommodates the inclusion of such fees.
Any future changes to such additional administrative fees must be approved by
Midwestern and CGLIC.
C. Subject to the restrictions set forth in Article IV.A(1)(a) --
including, without limitation, the requirement that HPS secure Midwestern's and
CGLIC's prior approval of all marketing activities -- HPS shall be solely
responsible for all Distribution Force fees, costs and expense incurred by HPS
in connection with the services provided hereunder including, without
limitation, special production incentive costs which Midwestern and CGLIC have
not specifically agreed in advance to pay or share in and all of HPS' own
license and appointment costs.
D. The compensation defined under this Article covers all expenditures
of HPS for services defined in the Agreement, including but not limited to HPS'
administration costs, marketing and sales costs, underwriting and issuing of
policies, Distribution Force compensation and expenses, computer systems
(including software), agent due diligence (in accordance with Article
IV.A(5)(c)), accounting, claims, administration, legal, personnel, compliance,
market conduct, and other direct and indirect expenses for marketing, sales, and
administration of Midwestern Group Policies.
ARTICLE X
INDEMNIFICATION
A. 1. Notwithstanding any other provision in this Agreement, HPS agrees
to indemnify, defend, and hold Midwestern and CGLIC harmless from all liability,
loss, damage, judgments, magnified or punitive damages, penalties and costs,
including expenses and
23
reasonable attorney fees, which result from any negligence or misconduct in
breach of this Agreement in performing HPS' obligations under this Agreement.
2. Midwestern agrees to indemnify, defend, and hold HPS harmless from
all liability, loss, damage, judgments, magnified, or punitive damages,
penalties and costs, including expenses and reasonable attorneys fees, which
result from any negligence or misconduct in breach of this Agreement in
performing Midwestern's obligations under this Agreement.
3. CGLIC agrees to indemnify, defend, and hold HPS harmless from all
liability, loss, damage, judgments, magnified, or punitive damages, penalties
and costs, including expenses and reasonable attorneys fees, which result from
any negligence or misconduct in breach of this Agreement in performing its
obligations under this Agreement.
4. CGLIC agrees to indemnify, defend, and hold Midwestern harmless from
all liability, loss, damage, judgments, magnified, or punitive damages,
penalties and costs, including expenses and attorneys fees, which result from
any negligence, lack of good faith, breach of this Agreement or the Treaty, or
misconduct in breach of this Agreement in performing its obligations under this
Agreement.
B. Notwithstanding the provisions of the foregoing Paragraph A,
Midwestern and/or CGLIC agrees to indemnify and defend HPS against all losses,
damages, liabilities, suits, administrative proceedings, judgments, awards and
expenses, including court costs, reasonable attorneys fees and other litigation
expenses resulting from any act of HPS or that of any officer or employee of HPS
which is performed in accordance with specific instructions or such underwriting
guidelines that are hereafter promulgated by Midwestern and/or CGLIC and which
is performed in good faith and without negligence or misconduct.
ARTICLE XI
USE OF INFORMATION
Any confidential information, including but not limited to general
business data, business information, technical information, legal information,
specifications, forms, computer programs and documentation, whether furnished in
written, oral, or electronic form or otherwise ("Information"), owned and
furnished by either party ("Furnishing Party") to the other party hereunder or
in contemplation hereof shall remain the property of the Furnishing Party. All
copies of such Information in written, graphic, or other tangible form,
including computer systems discs and tapes, shall be returned to the Furnishing
Party upon request at any time. Unless such Information is supplied free of any
obligation of confidentiality, or has been or subsequently enters the public
domain (without fault of the party too which it is furnished), or is required by
law to be disclosed by any party, the Information shall be kept confidential by
the party to which furnished and shall be used only upon such terms as may be
agreed upon in writing by the Furnishing Party. For purposes of this Article,
Information pertaining to HPS shall mean proprietary materials such as
underwriting, claims, administration, compliance and rate manuals, as well as
information regarding the financial
24
operation, position or condition of HPS unrelated to the business of Midwestern,
but shall not include the systems and procedures established at Midwestern with
the assistance of HPS or general and specific information relevant to
Midwestern's business practices or to its insured or is contained in or
comprises all or part of any form or report Midwestern may receive, distribute,
or utilize in the ordinary course of business.
ARTICLE XII
AMENDMENTS
This Agreement may be amended at any time but only by any instrument in
writing and signed by the parties.
ARTICLE XIII
TERM AND TERMINATION
A. TERM. The term of this Agreement shall commence on January 1, 1998
and shall terminate on December 31, 2000, and thereafter shall be renewed
automatically for successive terms of one (1) year unless terminated in
accordance with this Article XIII.
B. TERMINATION. Any party may terminate this Agreement for any reason
upon two hundred seventy (270) calendar days written notice (inclusive of any
applicable state and federal notification requirements) to the other parties. In
the event that a party serves a notice of termination, the parties shall meet
within fifteen (15) calendar days of receipt of such notice and discuss an
appropriate transition strategy, consistent with Article XIII.D. On or before
the date of such meeting, Midwestern shall notify HPS and CGLIC in writing
whether it intends to withdraw its Group Policies.
1. WITHDRAWAL BY MIDWESTERN. If Midwestern elects to withdraw
its Group Policies and HPS and CGLIC are unable to identify and
contract with a replacement carrier on or before the effective date of
termination, then the parties will commence with the non-renewal of
Group Policies, as applicable, and as allowable under state law. The
parties agree that Midwestern shall have elected to withdraw from the
market as primary carrier no later than twenty-one (21) months, or
longer if required by law, after the date of the written notification
of desire to terminate referred to above, at which time the obligations
of all parties hereto shall terminate.
2. NO WITHDRAWAL BY MIDWESTERN. If Midwestern does not elect
to withdraw its Group Policies, all duties and obligations of HPS and
CGLIC shall terminate two hundred seventy (270) days after the notice
provided for herein.
C. REMEDIES. Midwestern and CGLIC shall not, and hereby waive any right
to, pursue any right or remedy at law or equity to recover any losses, costs,
claims, demands, damages, or attorneys' fees arising out of or caused by (i) any
breach (other than an intentional breach) of this Agreement or (ii) any other
occurrence relating to this Agreement, including any negligent act or omission
by HPS, except as provided in the indemnification provisions
25
above. The remedies available to Midwestern and CGLIC pursuant to the
indemnification provisions of this Agreement shall be the sole remedies
available to Midwestern and CGLIC with respect to any losses, costs, claims,
damages, or attorneys' fees arising out of this Agreement. Notwithstanding the
foregoing, Midwestern and CGLIC do not waive their rights to pursue the remedies
available to it in law or equity for an intentional breach of this Agreement by
HPS.
D. TRANSITION. HPS, Midwestern, and CGLIC agree that they will
cooperate and assist each other upon termination for any reason to the degree
possible consistent with the intent of this Agreement. It is the intent of the
parties that there be an orderly transition with no gaps in administration or
reinsurance. Such cooperation and assistance shall include, without limitation,
taking all necessary actions to transfer in an orderly way, if applicable, HPS'
duties and obligations arising hereunder to another third party administrator to
be identified by Midwestern and CGLIC.
E. POST-TERMINATION. After termination of this Agreement for any
reason, HPS shall continue to xxxx and receive Premiums and pay agent
commissions in accordance with, and shall continue to retain a service fee and
collect other fees in accordance with, with respect to any policy and any
renewal or other continuation of such policy provided that HPS continues to
provide services in accordance with Article XVII.
ARTICLE XIV
NON-SOLICITATION AND NON-COMPETITION
A. Commencing on the date hereof and continuing for a period of one (1)
year following the expiration or termination of this Agreement, Midwestern shall
not, without the prior written consent of HPS, either itself or through any
third party, directly or indirectly, solicit, entice, or persuade or attempt to
solicit, entice, or persuade any employee of or consultant to HPS or any present
or future parent, subsidiary, or affiliate of HPS to leave the service of HPS or
any such parent, subsidiary or affiliate for any reason.
B. Commencing on the date hereof and continuing for a period of one (1)
year following the expiration or termination of the Agreement, HPS shall not,
without the prior written consent of Midwestern, either itself or through any
third party, directly or indirectly solicit, entice, or persuade or attempt to
solicit, entice, or persuade any employee of or consultant of Midwestern or any
present future parent, subsidiary, or affiliate of Midwestern to leave the
service of Midwestern or any such parent, subsidiary, or affiliate for any such
parent, subsidiary, or affiliate for any reason.
C. Commencing with the expiration or earlier termination of this
Agreement, and continuing for twelve months thereafter, neither HPS or, at its
direction, through any third party, shall knowingly solicit, entice, persuade,
induce, or attempt to solicit, entice, persuade, or induce any insured under any
Group Policy to cancel or terminate such policy or purchase a policy from a
company other than Midwestern in lieu of such Group Policy.
26
D. HPS will take all reasonable steps to assure (it being understood
that HPS cannot prohibit certain Master Broker conduct) that no current Master
Brokers within the Select Brokerage Services System, a division of HPS, sell,
market, or distribute any group health care product on behalf of any group life,
or AD&D, or health insurer that competes with Midwestern within any territory or
jurisdiction in which HPS acts on behalf of Midwestern pursuant to the terms of
this Agreement. Notwithstanding anything contained herein to the contrary, and
consistent with Exhibit "E," this Section XIV.D. shall not apply with respect to
any HMO product, nor to any other health care product HPS currently sells,
markets, or distributes; it shall also not apply with respect to any health care
product HPS wishes to sell, market, or distribute in the future to the extent
that:
1. HPS desires to sell, market, or distribute such product in
a state in which Midwestern is either not licensed to conduct business
or is not willing to conduct business; or
2. Midwestern does not meet specifications for a particular
health insurance product offering which HPS desires to sell, market, or
distribute or with regard to a similar product that HPS desires to
sell, market, or distribute, and Midwestern, after receiving a right of
first refusal, releases HPS from the obligations contained in this
Section XIV.D.; or
3. HPS has asked Midwestern to supply such product or service
in connection with a marketing opportunity, and Midwestern either
declines to make the product available.
E. In return for the exclusive provided in Section XIV.D., Midwestern
grants an exclusive to HPS that Midwestern will only market first dollar small
employer group health care indemnity products through HPS and HPS Distribution
Force.
ARTICLE XV
[INTENTIONALLY DELETED]
ARTICLE XVI
[INTENTIONALLY DELETED]
ARTICLE XVII
RUN OUT PERIOD
Upon termination or expiration of this Agreement, at the option of
Midwestern and/or CGLIC, HPS shall continue to administer all Group Policies and
claims emanating from the Group Policies issued prior to such termination or
expiration in accordance with all duties and obligations undertaken by HPS
pursuant to this Agreement. HPS' obligation to administer all such claims shall
continue until such time as all Group Policies have expired and until all claims
have been fully and finally resolved to the satisfaction of Midwestern and CGLIC
(the "Claims Run Out Period").
27
ARTICLE XVIII
EXPENSES
Except as otherwise provided herein, each party to the Agreement shall
bear its respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the transactions contemplated
hereby including, without limitation, all fees and expenses of agents,
representatives, counsel, actuaries, and accountants. No brokerage, commissions,
finders, nor other fees, respecting this Agreement are owed by any party to any
third person or organization, other than as herein described; and each party
indemnifies and holds the other parties harmless, including, without limitation,
payments to Security Life of Denver Insurance Company by CGLIC.
ARTICLE XIX
AMENDMENTS AND WAIVER
This Agreement may be amended, and the terms hereof may be waived, only
by a written instrument signed by all parties, or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power, or privilege hereunder shall operate as a continuing waiver
thereof, nor shall any waiver on the part of a party of any such right, power,
or privilege, nor any single or partial exercise of any such right, power, or
privilege preclude any further exercise thereof or the exercise of any other
such right, power, or privilege.
ARTICLE XX
BENEFIT OF AGREEMENT
This Agreement shall bind and inure to the benefit of the respective
parties and their successors and permitted assigns and does not confer any
right, benefit, or privilege upon any person or entity that is not a signatory
to the Agreement. This Agreement is not for the benefit of any third party.
ARTICLE XXI
ASSIGNMENT
No party may assign its rights, interests, or obligations hereunder
without the prior written consent in each such instance of the other parties.
ARTICLE XXII
ARBITRATION
A. Any dispute or other matter in question between Midwestern and HPS
arising out of or relating to this Agreement shall be settled by arbitration. In
order to initiate an arbitration, Midwestern or HPS (as the case may be) shall
deliver a written notice of demand for arbitration to the other party.
28
B. HPS and Midwestern shall each appoint an individual as arbitrator
and the party arbitrators so appointed shall then promptly appoint an umpire. If
any party refuses or neglects to appoint an arbitrator within forty (40)
Business Days of receipt of a written notice of demand for arbitration, any
other party may appoint the missing arbitrator. If the two arbitrators do not
agree on an umpire within forty (40) Business Days of their appointment, each of
the arbitrators shall, at the end of such period, nominate three individuals as
umpires. Each arbitrator shall, on or before the tenth Business Day after such
nomination, decline two of the nominees presented by the other arbitrator. On
the fifth Business Day after the last nominee has been so declined, the umpire
shall be chosen from the remaining two nominees by drawing lots. Each
party-appointed arbitrator and the umpire shall be active or former officers of
an insurance or reinsurance companies or Lloyd's of London Underwriters, and
shall not have personal, financial, or other conflicts of interest in the result
of the arbitration. In addition, the umpire shall be impartial.
C. The situs of the arbitration shall be Denver, Colorado; however,
upon the mutual consent of the parties or upon the order of the arbitration
panel, meetings and hearings related to the arbitration may be held elsewhere.
Each party shall submit its case to the arbitrators within sixty (60) Business
Days of the selection of the umpire or within such longer period as may be
agreed by the arbitrators. The decision rendered by a majority of the
arbitrators shall be final and binding on HPS and Midwestern. Such decision
shall be a condition precedent to any right of legal action arising out of the
arbitrated dispute which HPS and Midwestern may have against each other.
Judgment upon the award may be rendered in any court of competent jurisdiction.
D. HPS and Midwestern shall pay (i) the fees and expenses of its own
arbitrator, (ii) one-half of the fees and expenses of the umpire and (iii)
one-half of the fees and expenses that HPS and Midwestern jointly incur directly
related to the arbitration proceeding. Other than as set forth above, HPS and
Midwestern shall bear their own costs in connection with any such arbitration
including, (i) all legal, accounting, and other professional fees and expenses
and (ii) all other costs and expenses HPS and Midwestern incur to prepare for
such arbitration.
E. CGLIC may join or initiate or be joined in any arbitrated dispute
arising under this Agreement. Moreover, in the event that a dispute arises
between Midwestern and HPS relating to the operation of this Agreement, and
Midwestern elects not to commence arbitration in accordance with this Article,
CGLIC may, solely at its election, commence or defend arbitration in the name
and on behalf of Midwestern, pursuant to the terms and conditions of this
Article.
F. Arbitrators are directed to seek efficiencies in both time and
expense, for example, to limit the use of discovery and not follow strict rules
of evidence.
29
ARTICLE XXIII
PUBLICITY
No party to this Agreement shall issue any press release or make any
public announcement concerning the Agreement or the transactions contemplated
hereby without the prior written approval of all other parties.
ARTICLE XXIV
BOOKS AND RECORDS
HPS shall maintain at its administrative office for the duration of the
Agreement and seven (7) years thereafter, or such longer period of time as may
be required under the Employee Retirement Income Security Act of 1974, adequate
books and records of all transactions, including without limitation all claim
files, underwriting files, premium and loss information, producer information,
state insurance department documents, GAAP accounting documents, tax documents,
accounting, and letters of complaint from any Midwestern insured, among
Midwestern, CGLIC, HPS, participant employers, and insured persons. Such books
and records shall be maintained in accordance with prudent standards of
insurance record keeping.
ARTICLE XXV
NOTICES, GOVERNING LAW, ENTIRE AGREEMENT
A. Any notice which may or must be sent hereunder shall be in writing
and shall be given to the party to whom it is addressed by delivery by a
nationally recognized overnight delivery service providing a receipt for the
deliveries, by certified or registered U.S. mail, or by telecopier transmission
to the following addresses:
If to HPS: HealthPlan Services, Inc.
0000 Xxxxxxxx Xxxx
Xxxxx, XX 00000
Attn: Chief Counsel
If to Midwestern: Midwestern United Life Insurance Company
Suite 1000
0000 Xxxxxxxx
Xxxxxx, XX 00000-0000
Attn: Xxxx Xxxxxxxx, Esq.
General Counsel of Reinsurance
If to CGLIC: CGLIC/CIGNA Reinsurance
000 Xxxxxxx Xxxxx Xxxx
Xxxxxxxx, Xxxx. 00000
Attn: Xxxxx Xxxxxxxx
30
or at such other address as the party may specify for that purpose by notice to
the other party. A notice shall be deemed given and received (a) if delivered by
messenger, when receipted for by the addressee; (b) if delivered by a nationally
recognized overnight delivery service, when the notice is delivered, as
evidenced by records or receipts provided by such service; (c) if delivered by
certified or registered U.S. mail when received by the addressee, as evidenced
by a return receipt card, or (d) if made by telecopy of facsimile transmission,
when such transmission is electronically confirmed and a copy of the notice is
mailed.
B. This Agreement shall be governed and interpreted by the laws of the
State of Colorado, except for conflicts of laws.
C. In the event that any provision of this Agreement or the application
thereof shall be unenforceable in any respect, then the provision shall be
deemed deleted, but the rest of this Agreement shall nevertheless remain in full
force and effect.
The parties hereto acknowledge and agree that: (i) each party and its
counsel reviewed and negotiated the terms and provisions of this Agreement,
including all addenda thereto and have contributed to its revision; (ii) the
rule of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of the Agreement shall be construed fairly as
to all parties hereto, and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of the Agreement.
D. This Agreement and the Exhibits annexed hereto, and schedules
constitutes the entire Agreement between the parties with respect to its subject
matter and supersedes all prior agreements, commitments, and negotiations on the
same subject matter.
E. Notwithstanding anything contained herein to the contrary,
Midwestern and CGLIC hereby expressly acknowledge that the relationship between
HPS and its master brokers and agents is that of an independent contractor.
ARTICLE XXV
At the request of Midwestern or any of its affiliates, HPS may contract
with agents of Midwestern or its affiliates as HPS agents or, in its sole
discretion, Master Brokers, to market Group Policies.
[Remainder of Page Intentionally Left Blank]
31
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed in duplicate to be effective of the date specified above.
MIDWESTERN UNITED LIFE INSURANCE COMPANY
By: /s/ E. L. XXXXXXXX
------------------------------------------
Name: E. L.XXXXXXXX
-----------------------------------------
Title: SENIOR VICE PRESIDENT
----------------------------------------
Date: 2/28/98
-----------------------------------------
HEALTHPLAN SERVICES, INC.
By: /s/ XXXXXXX X. XXXXXX
------------------------------------------
Name: XXXXXXX X. XXXXXX
-----------------------------------------
Title: SENIOR VICE PRESIDENT, SECRETARY
AND CHIEF COUNSEL
----------------------------------------
Date: 2/13/98
------------------------------------------
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /s/ XXXXX X. XXXXX
------------------------------------------
Name: XXXXX X. XXXXX
-----------------------------------------
Title: SENIOR VICE PRESIDENT
----------------------------------------
Date: 2/17/98
-----------------------------------------
32
LIST OF EXHIBITS
Exhibit A Definitions
Exhibit B Compensation
As required by applicable law, the Company will furnish supplementally any
omitted Exhibit or Schedule upon request.
33
