--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
MEDICAL PROFESSIONAL LIABILITY EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1998
issued to
Midwest Medical Insurance Company
Minneapolis, Minnesota
(HEREINAFTER REFERRED TO AS THE "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(HEREINAFTER REFERRED TO AS THE "Reinsurer")
Article I - Classes of Business Reinsured
A. By this Contract the Reinsurer agrees to reinsure the excess liability
which may accrue to the Company under its policies, contracts and binders
of insurance or reinsurance (hereinafter called "policies") issued or
renewed on or after the effective date hereof, and classified by the
Company as follows:
1. Professional Liability business as respects physicians, surgeons,
dentists and ancillary health care professionals written on a claims
made basis;
2. General Liability business as respects physicians, surgeons, dentists
and ancillary health care professional entities written on an
occurrence basis; and
3. Primary and Umbrella Excess Health Care Systems Professional
Liability, General Liability and Employee Benefits Liability business
providing both claims made and occurrence basis coverages and issued
to health care facilities, it being understood that the combination of
the Company's primary and umbrella/excess policies issued to any one
health care facility shall be considered one policy. It is further
understood that the umbrella excess business covered hereunder shall
be written in excess of the following primary coverages:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Page 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
a. Professional and General Liability insurance with minimum limits of
liability of $1,000,000 as respects each claim or each occurrence (as
applicable) and in the aggregate;
b. Automobile Liability insurance with minimum limits of liability of
$500,000 as respects each accident, combined single limit;
c. Employers Liability insurance written under Workers' Compensation and
Employers Liability policies with minimum limits of liability of
$100,000 as respects each accident bodily injury by accident, $500,000
as respects policy limit bodily injury by disease, and $100,000 as
respects each employee bodily injury by disease.
in accordance with the Company original policies and subject to the terms,
conditions and limitations hereinafter set forth.
B. The Company may issue prior acts and extended reporting coverage in
accordance with its original policies. Any claim under extended reporting
coverage shall be deemed to have been reported on the day the original
policy expired or was canceled. Premium, if any, for such extended
reporting coverage period shall be considered fully earned by the Reinsurer
on the last full day the original policy was in force.
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1998, with respect to
losses occurring under policies allocated to underwriting years commencing
on or after that date (or, as respects policies written on a claims made
basis, claims made against and/or reported to the Company on or after that
date), and shall continue in force thereafter until terminated.
B. Either party may terminate this Contract on any December 31 by giving the
other party not less than 90 days prior written notice.
C. Unless the Company elects that the Reinsurer have no liability for losses
arising out of occurrences with dates of loss after the effective date of
termination, and so notifies the Reinsurer prior to or as promptly as
possible after the effective date of termination, reinsurance hereunder on
business in force on the effective date of termination shall remain in full
force and effect until expiration, cancellation or next premium anniversary
of such business, whichever first occurs, but in no event beyond 12 months
following the effective date of termination.
D. "Underwriting year" as used herein shall mean the period from January 1,
1998 through December 31, 1998, and each subsequent 12-month period shall
be a separate underwriting year. All premiums and losses from policies
allocated to an underwriting year shall be credited or charged,
respectively, to such underwriting year, regardless of the date said
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
premiums earn or such losses occur. It is understood that a policy will be
allocated to the underwriting year which is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Such policies shall remain in the same underwriting year, as originally
allocated, until the next renewal date or premium anniversary date, at
which time such policies shall be reallocated to the underwriting year in
effect as of such date as provided in subparagraphs 2 and 3 above.
ARTICLE III - TERRITORY
This Contract shall be worldwide in its geographical scope.
ARTICLE IV - EXCLUSIONS
A. This Contract does not apply to and specifically excludes the following:
1. Reinsurance assumed by the Company under obligatory reinsurance
agreements, except agency reinsurance where the policies involved are
to be reunderwritten in accordance with the underwriting standards of
the Company and reissued as Company policies at the next anniversary
or expiration date or reinsurance of "fronting carriers," including
Genesis Indemnity Insurance Company, where the policies involved are
underwritten, rated and administered by the Company.
2. Business written by the Company above self-insured retentions (SIRs).
3. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability - Reinsurance" attached to and forming part of this
Contract. However, this exclusion shall not apply to nuclear
exposures emanating from health care facilities.
4. Liability as a member, subscriber or reinsurer of any pool, syndicate
or association.
5. All liability of the Company arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, however denominated, established or governed,
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee or other
obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which
is otherwise deemed unable to meet any claims, debt, charge, fee or
other obligation in whole or in part.
6. Loss or damage caused by or resulting from war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection, military
or usurped power, or martial law or confiscation by order of any
government or public authority, but this exclusion shall not apply to
loss or damage covered under a standard policy with a standard War
Exclusion Clause.
7. Pollution under any General Liability policy written by the Company
which does not contain the pollution exclusion set forth in ISO
Commercial General Liability Coverage Form CG 00 01 (Ed. 11/88) or as
subsequently amended; however, this exclusion does not apply to any
risk located in a jurisdiction which has not approved the Insurance
Services Office exclusion or where other regulatory constraints
prohibit the Company from implementing such exclusion. If the Company
elects to implement an exclusion different from that of ISO, such
exclusion will be deemed a suitable substitute provided the Company
has submitted the wording to the Reinsurers and received the
Reinsurers' prior approval.
8. Business written on a co-indemnity basis.
9. Directors and Officers liability and managed care liability.
10. Any business obtained through Company merger or acquisition unless
submitted to the Reinsurer for special acceptance and accepted by the
Reinsurer.
B. Business falling within the scope of one or more of the exclusions set
forth in paragraph A may be submitted to the Reinsurer for special
acceptance and, if accepted by the Reinsurer, shall be subject to all the
terms of this Contract except as modified by the special acceptance.
ARTICLE V - RETENTION AND LIMIT
A. COVERAGE A: The Company shall retain and be liable for the first $750,000
of ultimate net loss as respects each insured, each occurrence. The
Reinsurer shall then be liable for the amount by which such ultimate net
loss exceeds the Company's retention, but the liability of the Reinsurer
shall not exceed $1,250,000 as respects each insured, each occurrence.
B. COVERAGE B: The Company shall retain and be liable for the first amount of
ultimate net loss as follows:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 4
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1. As respects policies with primary limits of $2,000,000 each occurrence
and $4,000,000 in the aggregate, $2,000,000 each insured, each
occurrence and $4,000,000 in the aggregate;
2. As respects policies with primary limits of $2,000,000 each occurrence
and in the aggregate, $2,000,000 each insured, each occurrence and in
the aggregate.
The Reinsurer shall then be liable for the amount by which such ultimate
net loss exceeds the Company's retention, but the liability of the
Reinsurer shall not exceed $10,000,000 as respects each insured, each
occurrence and in the aggregate, where applicable.
C. COVERAGE C: The Company shall retain and be liable for the first
$1,125,000 of ultimate net loss arising out of each loss event. The
Reinsurer shall then be liable for the amount by which such ultimate net
loss exceeds the Company's retention, but the liability of the Reinsurer
shall not exceed $5,000,000 as respects any one loss event.
It is understood that recoveries under individual facultative reinsurance
and under Coverages A and B of this Article shall inure to the benefit of
Coverage C.
D. COVERAGE D: The Company shall retain and be liable for the first $750,000
of the following as respects any one loss event:
1. The Company's initial retention of ultimate net loss under Coverage A
above; and then
2. Any loss in excess of policy limits and/or extra contractual
obligations (as defined in Article VI).
The Reinsurer shall then be liable for the amount of loss in excess of
policy limits and/or extra contractual obligations which exceeds the
Company's retention, but the liability of the Reinsurer shall not exceed
$5,000,000 as respects loss in excess of policy limits and/or extra
contractual obligations arising out of any one loss event.
E. As respects Coverages C and D, the maximum amount recoverable on a combined
basis shall be $5,000,000 as respects any one loss event.
ARTICLE VI - DEFINITIONS
A. "Ultimate net loss" as used herein is defined as the sum or sums (including
deductibles of $250,000 or less paid by the Company or the insured and any
loss adjustment expense, as hereinafter defined, which reduces the
Company's limit of liability under the policy involved) paid or payable by
the Company in settlement of claims and in satisfaction of judgments
rendered on account of such claims, after deduction of all salvage, all
recoveries and all claims on inuring insurance or reinsurance, whether
collectible or not. Nothing
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 5
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
herein shall be construed to mean that losses under this Contract are not
recoverable until the Company's ultimate net loss has been ascertained.
B. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 90.0% of any amount paid
or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover damages
the insured is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in discharging its
duty to defend or prepare the defense in the trial of an action
against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 90.0% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid or payable by the Company as a result of
an action against it by its insured, its insured's assignee or a third
party claimant, which action alleges negligence or bad faith on the
part of the Company in handling a claim under a policy subject to this
Contract. An extra contractual obligation shall be deemed to have
occurred on the same date as the loss covered or alleged to be covered
under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director or employee of the Company acting individually
or collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
C. "Insured" as used herein shall mean any party or parties provided with a
separate policy limit by the Company.
D. "Occurrence" shall have the same meaning as the term occurrence, claim,
medical incident, wrongful act or such similar term, as applicable, under
the Company's policy forms.
E. The term "Event" shall mean each accident, occurrence, medical incident,
wrongful act or series of accidents, occurrences, medical incidents or
wrongful acts arising out of one event, whether involving one or several of
the Company's policies or insureds. All bodily injury or property damage
arising out of continuous or repeated exposure to substantially the same
general conditions shall be considered as arising out of one event, whether
involving one or several of the Company's policies or insureds. The date
of event shall be deemed to be the following:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 6
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1. As respects a loss involving one or more coverages written on an
occurrence basis, the date on which bodily injury or property damage
occurs.
2. As respects a loss involving one or more coverages written on a
claims-made basis, the date when the claim is first made in accordance
with the policy terms, and any related claims reported subsequent to
such date shall be included in such loss. However, if the claim is
first made during an extended reporting period, the date of Event
shall be deemed to be the last day of the policy period.
3. As respects a loss involving one or more coverages written on an
occurrence basis and one or more coverages written on a claims-made
basis, the date on which bodily injury or property damage occurs, and
any related claims reported subsequent to such date shall be included
in such loss whether they are covered under occurrence or claims-made
policies.
F. "Loss adjustment expense" as used herein shall mean expenses assignable to
the appraisal, adjustment, settlement, litigation, investigation, defense
and/or appeal of specific claims, regardless of how such expenses are
classified for statutory reporting purposes. Loss adjustment expense shall
include, but not be limited to interest on judgments, legal expenses, costs
incurred in connection with coverage questions and legal actions connected
thereto and declaratory judgment expense, as outlined below, but shall not
include other salaries and expenses of the Company's employees or office
and normal overhead expenses.
G. "Declaratory judgment expense" as used herein shall mean all court costs,
attorney's fees and expense incurred by the Company during the underwriting
year in contesting insurance coverage on policies reinsured hereunder and
shall be further limited as follows:
1. Expenses associated with unsuccessful actions shall constitute loss
adjustment expense;
2. Expenses associated with successful or compromised actions shall be
recoverable at 80.0%, and shall be subject to a $75,000 deductible per
action, which shall be retained by the Company.
Declaratory judgment expenses shall be deemed to have occurred on the same
date as the loss covered or alleged to be covered under the policy.
It is understood and agreed the maximum reinsurance recovery, as respects
all declaratory judgment expense arising out of all business reinsured
hereunder, shall be limited to $1,000,000 for each underwriting year.
ARTICLE VII - CLAIMS AND LOSS ADJUSTMENT EXPENSE
A. Whenever a claim is reserved by the Company for an amount greater than
66.0% of its retention hereunder and/or whenever a claim appears likely to
result in a claim under this
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 7
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Contract, the Company shall notify the Reinsurer. All cases of serious
injury which, regardless of considerations of liability or coverage,
might result in a claim under this Contract, shall be reported to the
Reinsurer, including but not limited to the following:
1. Brain injury with significant cognitive, behavioral or physical
residual damages;
2. Quadriplegia or paraplegia including Cauda Equina Syndrome;
3. Fatalities or significantly diminished life expectancy of wage earners
or women with minor children;
4. Significant xxxxx (i.e., third degree xxxxx over 33.0% of body surface
area or second degree xxxxx over 66.0% of body surface area),
including over-exposure to radiation;
5. Any other serious injury which, in the judgment of the Company, might
involve the Reinsurer;
6. Any action alleging extra contractual obligations against the Company;
7. Any declaratory judgment action brought by or against the Company.
The Company will provide quarterly updates on reported claims to the
Reinsurer in bordereau format. The Reinsurer shall have the right to
participate, at its own expense, in the defense or control of any claim or
suit or proceeding involving this reinsurance.
B. All claim settlements made by the Company, provided they are within the
terms of this Contract, shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable immediately
upon receipt of reasonable evidence of the amount paid by the Company.
C. In the event of loss hereunder, loss adjustment expense incurred by the
Company in connection therewith which does not reduce the Company's limit
of liability under the policy involved shall be shared by the Company and
the Reinsurer in the proportion the ultimate net loss paid or payable by
the Reinsurer bears to the total loss paid or payable by the Company, prior
to any reinsurance recoveries, but after deduction of all salvage,
subrogation and other recoveries. However, if a verdict or judgment is
reduced by any process other than by the trial court, resulting in an
ultimate saving to the Reinsurer, or a judgment is reversed outright, the
expenses incurred in securing such reduction or reversal shall be shared by
the Company and the Reinsurer in the proportion that each benefits from
such reduction or reversal, and the expenses incurred up to the time of the
original verdict or judgment shall be shared in proportion to each party's
interest in such original verdict or judgment. The Reinsurer's liability
for such loss adjustment expense shall be in addition to its liability for
ultimate net loss.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 8
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
ARTICLE VIII - SUBROGATION
The Reinsurer shall be credited with recoveries from subrogation (i.e.,
reimbursement obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and sums paid to
attorneys as retainer, of obtaining such reimbursement or making such recovery)
on account of claims and settlements involving reinsurance hereunder.
Recoveries therefrom shall always be used to reimburse the excess carriers in
the reverse order of their priority according to their participation before
being used in any way to reimburse the Company for its primary loss. The
Company hereby agrees to enforce its rights to subrogation relating to any loss,
a part of which loss was sustained by the Reinsurer, and to prosecute all claims
arising out of such rights.
ARTICLE IX - REINSURANCE PREMIUM
A. COVERAGE A
As premium for the reinsurance provided hereunder during each underwriting
year, the Company shall pay the Reinsurer a provisional and deposit premium
of $2,800,000 for the underwriting year in four equal installments of
$700,000 on March 31, June 30, September 30 and December 31 of each
underwriting year.
B. COVERAGE B
1. As premium for the reinsurance provided hereunder during each
underwriting year, the Company shall pay the Reinsurer the percentage
of its excess limits earned premium set forth in Schedule A, subject
to the minimum premiums, net of ceding commission, for health care
facilities set forth below:
a. As respects hospitals with at least 100 occupied beds, $2,000 per
$1,000,000 of policy limit;
b. As respects hospitals with less than 100 occupied beds, $1,500
per $1,000,000 of policy limit;
c. As respects non-hospital health care exposures, $1,500 per
$1,000,000 of policy limit;
d. As respects nursing homes or long-term care facilities, $1,000
per $1,000,000 of policy limit.
2. The Company shall pay the Reinsurer a provisional and deposit premium
of $600,000 for the underwriting year in four equal installments of
$150,000 on March 31, June 30, September 30 and December 31 of each
underwriting year.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 9
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
3. As soon as possible after the end of each underwriting year, the
Company shall report its excess limits earned premium for the
underwriting year. Any additional premium due the Reinsurer, at the
rate shown in subparagraph 1 of paragraph B, shall be paid by the
Company with its report, and any return premium due the Company shall
be remitted promptly.
C. COVERAGES C AND D
1. As premium for the reinsurance provided hereunder during each
underwriting year, the Company shall pay the Reinsurer 0.7% of its net
earned premium applicable to all subject business for the underwriting
year.
2. The Company shall pay the Reinsurer a deposit premium of $294,000 in
four equal installments of $73,500 on March 31, June 30, September 30
and December 31 of each underwriting year.
3. As soon as possible after the end of each underwriting year, the
Company shall provide a report to the Reinsurer setting forth the
premium due hereunder for the underwriting year, computed in
accordance with subparagraph 1 of paragraph C, and any additional
premium due the Reinsurer or return premium due the Company shall be
remitted promptly.
4. "Net earned premium" as used in this paragraph C is defined as all
gross earned premium of the Company for the classes of business
reinsured hereunder, less the earned portion of premiums ceded by the
Company for facultative reinsurance which inures to the benefit of
these Coverages C and D. Net earned premium shall include such
premium for extended reporting periods, which shall be considered
fully earned by the Company on the last day of the policy period.
ARTICLE X - COMMISSION - COVERAGE B
A. As respects Coverage B business only, the Reinsurer shall allow the Company
a 25% commission on all premiums ceded to the Reinsurer hereunder. The
Company shall allow the Reinsurer return commission on return premiums at
the same rate.
B. It is expressly agreed that the ceding commission allowed the Company
includes provision for all dividends, commissions, taxes, assessments, and
all other expenses of whatever nature, except loss adjustment expense.
ARTICLE XI - PREMIUM ADJUSTMENT - COVERAGE A
A. As respects Coverage A business only, the provisional and deposit premium
paid by the Company shall be adjusted periodically in accordance with the
provisions set forth herein.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 10
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
The first adjustment period shall be from the effective date of this
Contract through December 31, 2000, and each subsequent 36-month period
shall be a separate adjustment period. However, if this Contract is
terminated, the final adjustment period shall be from the beginning of
the then current adjustment period through the date of termination.
B. The adjusted premium for each adjustment period shall be equal to the
Reinsurer's losses incurred for the adjustment period, plus 1.27% of the
Company's net earned premium for the same adjustment period, but the
adjusted premium shall not exceed an amount equal to 9.21% of the Company's
net earned premium for the adjustment period, nor be less than 1.27% of the
Company's net earned premium for the adjustment period.
C. Within 45 days after 24 months following the beginning of each underwriting
year within each adjustment period, the Company shall calculate and report
the adjusted premium for the period from the beginning of the then current
adjustment period through the underwriting year under consideration, based
on the Reinsurer's losses incurred and the Company's net earned premium for
the adjustment period as of the date of the calculation. If the adjusted
premium exceeds the reinsurance premiums previously paid for the same
period, the Company shall remit the difference to the Reinsurer with its
report. If the adjusted premium is less than reinsurance premiums
previously paid for the adjustment period, the Reinsurer shall remit the
difference to the Company as promptly as possible after receipt and
verification of the Company's report.
D. The Company shall calculate and report the adjusted premium for each
adjustment period within 45 days after 12 months following the end of the
adjustment period, and within 45 days after the end of each 12-month period
thereafter until all losses under policies with effective or renewal dates
during the adjustment period have been finally settled. If the adjusted
premium exceeds the reinsurance premiums previously paid for the adjustment
period, the Company shall remit the difference to the Reinsurer with its
report. If the adjusted premium is less than reinsurance premiums
previously paid for the adjustment period, the Reinsurer shall remit the
difference to the Company as promptly as possible after receipt and
verification of the Company's report.
E. "Net Earned Premium" as used in this Article is defined as the gross earned
premium of the Company for primary policy limits of $2,000,000 or less for
the classes of business reinsured hereunder, including policies with
effective or renewal dates during the adjustment period, as set forth in
the Company's report entitled "Subject Premium by Limit," less the earned
portion of premiums ceded by the Company for reinsurance which inures to
the benefit of this Coverage A, if any. Net earned premium shall include
such premium for extended reporting periods, which shall be considered
fully earned by the Company on the last day of the policy period.
F. "Losses incurred" as used herein shall mean losses and loss adjustment
expense paid by the Reinsurer as of the effective date of calculation, plus
the ceded reserves for losses and loss adjustment expense outstanding as of
the same date, it being understood and agreed that all losses under
policies with effective or renewal dates during an adjustment period shall
be
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 11
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
charged to that adjustment period, regardless of the date said losses
actually occur, unless this Contract is terminated on a "cutoff" basis, in
which event the Reinsurer shall have no liability for losses occurring
after the effective date of termination.
ARTICLE XII - OFFSET
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract or any
other contract heretofore or hereafter entered into between the Company, whether
acting as assuming reinsurer or ceding company. The party asserting the right
of offset may exercise such right any time whether the balances due are on
account of premiums or losses or otherwise.
ARTICLE XIII - ACCESS TO RECORDS
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
ARTICLE XIV - NET RETAINED LINES
A. This Contract applies only to that portion of any policy which the Company
retains net for its own account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of which
this Contract attaches, only loss or losses in respect of that portion of
any policy which the Company retains net for its own account shall be
included.
B. The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Company to
collect from any other reinsurer(s), whether specific or general, any
amounts which may have become due from such reinsurer(s), whether such
inability arises from the insolvency of such other reinsurer(s) or
otherwise.
ARTICLE XV - ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 12
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
ARTICLE XVI - CURRENCY
A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they
shall be construed to mean United States Dollars and all transactions under
this Contract shall be in United States Dollars.
B. Amounts paid or received by the Company in any other currency shall be
converted to United States Dollars at the rate of exchange at the date such
transaction is entered on the books of the Company.
ARTICLE XVII - TAXES
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
ARTICLE XVIII - FEDERAL EXCISE TAX
(Applicable to those reinsurers, excepting Underwriters at Lloyd's London and
other reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon as
imposed under Section 4371 of the Internal Revenue Code to the extent such
premium is subject to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder the Reinsurer
will deduct the applicable percentage from the return premium payable
hereon and the Company or its agent should take steps to recover the tax
from the United States Government.
ARTICLE XIX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator
or statutory successor immediately upon demand, with reasonable provision
for verification, on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. It is agreed, however, that
the liquidator, receiver, conservator or statutory successor of the Company
shall give written notice to the Reinsurer of the pendency of a claim
against the Company indicating the policy or bond reinsured which claim
would involve a possible liability on the part of the Reinsurer within a
reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership,
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 13
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
and that during the pendency of such claim, the Reinsurer may investigate
such claim and interpose, at its own expense, in the proceeding where
such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the Company
as part of the expense of conservation or liquidation to the extent of a
pro rata share of the benefit which may accrue to the Company solely as
a result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency of
the Company, the reinsurance under this Contract shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance
Law or except (1) where this Contract specifically provides another payee
of such reinsurance in the event of the insolvency of the Company or
(2) where the Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the Company as direct obligations of
the Reinsurer to the payees under such policies and in substitution for the
obligations of the Company to such payees.
ARTICLE XX - ARBITRATION (BRMA 6M)
A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Contract,
including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration
will be in writing and sent certified or registered mail, return receipt
requested.
B. One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its
arbitrator within 30 days after being requested to do so by the other
party, the latter, after 30 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
C. If the two arbitrators are unable to agree upon the third arbitrator within
30 days of their appointment, the third arbitrator shall be selected from a
list of six individuals (three named by each arbitrator) by a judge of the
federal district court having jurisdiction over the geographical area in
which the arbitration is to take place, or if the federal court declines to
act, the state court having general jurisdiction in such area.
D. All arbitrators shall be disinterested active or former executive officers
of insurance or reinsurance companies or Underwriters at Lloyd's, London.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 14
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
E. Within 30 days after notice of appointment of all arbitrators, the panel
shall meet and determine timely periods for briefs, discovery procedures
and schedules for hearings.
F. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel
agrees otherwise, arbitration shall take place in Minneapolis, Minnesota,
but the venue may be changed when deemed by the panel to be in the best
interest of the arbitration proceeding. Insofar as the arbitration panel
looks to substantive law, it shall consider the law of the State of
Minnesota. The decision of any two arbitrators when rendered in writing
shall be final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
G. The panel shall make its decision considering the custom and practice of
the applicable insurance and reinsurance business as promptly as possible
following the termination of the hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof.
H. Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the cost of the third arbitrator.
The remaining costs of the arbitration shall be allocated by the panel.
The panel may, at its discretion, award such further costs and expenses as
it considers appropriate, including but not limited to attorneys fees, to
the extent permitted by law.
ARTICLE XXI - SERVICE OF SUIT
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of a court of competent jurisdiction within
the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States or
of any state in the United States.
B. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Page 15
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE PAGE
I Classes of Business Reinsured 1
II Commencement and Termination 2
III Territory 3
IV Exclusions 3
V Retention and Limit 4
VI Definitions 5
VII Claims and Loss Adjustment Expense 8
VIII Subrogation 9
IX Reinsurance Premium 9
X Commission - Coverage B 10
XI Premium Adjustment - Coverage A 11
XII Offset 12
XIII Access to Records 12
XIV Net Retained Lines 12
XV Errors and Omissions 12
XVI Currency 13
XVII Taxes 13
XVIII Federal Excise Tax 13
XIX Insolvency 13
XX Arbitration (BRMA 6M) 14
XXI Service of Suit 15
Schedule A
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SCHEDULE A
MEDICAL PROFESSIONAL LIABILITY EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1998
issued to
Midwest Medical Insurance Company
Minneapolis, Minnesota
COVERAGE PERCENTAGE OF
BY LAYER PRECEDING
$1,000,000 PREMIUM
$1,000,000 excess of 50.0%
$2,000,000
$1,000,000 excess of 55.0%
$3,000,000
$1,000,000 excess of 60.0%
$4,000,000
$1,000,000 excess of 65.0%
$5,000,000
$1,000,000 excess of 70.0%
$6,000,000
$1,000,000 excess of 70.0%
$7,000,000
$1,000,000 excess of 70.0%
$8,000,000
$1,000,000 excess of 70.0%
$9,000,000
$1,000,000 excess of 70.0%
$10,000,000
$1,000,000 excess of 70.0%
$11,000,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
GENERAL LIABILITY POLLUTION EXCLUSION APPENDIX
In accordance with the provisions of Article IV - Exclusions, this exclusion
applies:
1. To bodily injury or property damage arising out of the actual, alleged or
threatened discharge, dispersal, release or escape of pollutants:
a. at or from premises owned, rented or occupied by a named insured;
b. at or from any site or location used by or for a named insured or
others for the handling, storage, disposal, processing or treatment of
waste;
c. which are at any time transported, handled, stored, treated,
disposed of, or processed as waste by or for a named insured or any
person or organization for whom a named insured may be legally
responsible; or
d. at or from any site or location on which a named insured or any
contractors or subcontractors working directly or indirectly on behalf
of a named insured are performing operations;
i. if the pollutants are brought on or to the site or location
in connection with such operations; or
ii. if the operations are to test for, monitor, clean up,
remove, contain, treat, detoxify, or neutralize the pollutants.
2. To any loss, cost or expense arising out of any governmental direction or
request that a named insured test for, monitor, clean up, remove, contain,
treat, detoxify or neutralize pollutants.
Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste
includes materials to be recycled, reconditioned or reclaimed.
Subparagraphs (a) and (d)(i) of paragraph (1) do not apply to bodily injury or
property damage caused by heat, smoke or fumes from a hostile fire. As used in
this exclusion, a hostile fire means one which becomes uncontrollable or breaks
out from where it was intended to be.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
MEDICAL PROFESSIONAL LIABILITY EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1998
issued to
Midwest Medical Insurance Company
Minneapolis, Minnesota
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
