EXHIBIT 10.24
REINSURANCE
AGREEMENT NO. 00-0000-0
QUOTA SHARE REINSURANCE AGREEMENT
(hereinafter referred to as the "AGREEMENT")
between
EMPIRE FIRE AND MARINE INSURANCE COMPANY
Omaha, Nebraska
EMPIRE INDEMNITY COMPANY
Oklahoma City, Oklahoma
(herein collectively referred to as the "COMPANY")
and
FIRST MERCURY INSURANCE COMPANY
(hereinafter referred to as the "REINSURER")
Effective: 12:01 a.m., July 1, 1996
Term: Continuous
TABLE OF CONTENTS
Page
Article 1 Scope of Agreement ................................. 1
Article 2 Reinsuring Clause ................................. 1
Article 3 Term ................................................ 2
Article 4 Retention and Limits ................................ 2
Article 5 Exclusion ........................................... 2
Article 6 Premium ............................................. 4
Article 7 Commission ...................................... 4
Article 8 Reports and Remittances ............................. 5
Article 9 Losses and Allocated Loss Adjustment Expense......... 5
Article 10 Offset ........................................... 7
Article 11 Definitions ......................................... 7
Article 12 Territory .......................................... 8
Article 13 Taxes .............................................. 9
Article 14 Currency............................................. 9
Article 15 Errors and Omissions ............................... 9
Article 16 Access to Records ................................... 9
Article 17 Insolvency .......................................... 9
Article 18 Arbitration ......................................... 10
Article 19 Other Reinsurance ................................... 11
Article 20 Termination ........................................ 12
Article 21 Funding of Reserves; Unearned Premium, Outstanding
Losses and IBNR .................................... 13
Signing Page ........................................ 14
In consideration of payment of the premium and upon the terms,
conditions, and limitations set forth in this AGREEMENT, the parties
agree as follows:
ARTICLE 1 SCOPE OF AGREEMENT
By this AGREEMENT, the COMPANY obligates itself to cede to the
REINSURER and the REINSURER obligates itself to accept the liability
business described in this AGREEMENT. The liability of the REINSURER
with respect to each cession hereunder shall commence obligatory and
simultaneously with that of the COMPANY, subject to the terms,
conditions and limitations set forth herein. The terms of this
AGREEMENT shall determine the rights and obligations of the parties.
This AGREEMENT is solely between the COMPANY and the REINSURER. When
more than one COMPANY is named as a party to this AGREEMENT, the first
COMPANY named shall be the agent of the other companies as to all
matters pertaining to this AGREEMENT. Performance of the obligations
of each party under this AGREEMENT shall be rendered solely to the
other party. However, if the COMPANY becomes insolvent, the liability
of the REINSURER shall be modified to the extent set forth in the
Article entitled "Insolvency." In no instance shall any insured of
the COMPANY have any rights under this AGREEMENT.
ARTICLE 2 REINSURING CLAUSE
The REINSURER agrees to indemnify the COMPANY for that amount of net
loss reinsured hereunder after deduction of all other reinsurance,
whether collectable or not, which the COMPANY has become obligated to
pay or has agreed to pay arising out of any and all policies, binders
and contracts of insurance (hereinafter referred to as "policies") for
in force, new and renewal business underwritten on behalf of the
COMPANY by CoverX Corporation of Southfield, Michigan, on risks
domiciled in all those states in which the COMPANY is licensed or
otherwise authorized to do business.
ARTICLE 3 TERM
This AGREEMENT shall become effective at 12:01 a.m., Central Daylight
Time on July 1, 1996, and shall continue in force for an unlimited
period subject to Article 20, Termination. The REINSURER shall be
subject to the same conditions as the original policies and shall
follow, subject to the terms of this AGREEMENT, the fortunes of the
COMPANY in respect of all business ceded hereunder.
ARTICLE 4 RETENTION AND LIMITS
The REINSURER shall indemnify the COMPANY for 50% of the amount of net
loss allocable to the first $1,000,000 of insurance for each
occurrence/$10,000,000 annual aggregate, under policies of the COMPANY
covered by this AGREEMENT plus a proportionate share of the allocated
loss adjustment expenses. The COMPANY shall retain for its own
account the remaining 50% of the first $1,000,000 each
occurrence/$10,000,000 annual aggregate; however, this requirement
shall be satisfied if such amount is retained by the COMPANY or, if
applicable, its affiliated COMPANIES under the common management or
ownership or both in accordance with Article 1 of this AGREEMENT. It
is warranted that the maximum policy limits covered by this AGREEMENT
are $1,000,000 each occurrence/$10,000,000 annual aggregate. However,
the COMPANY is permitted to obtain facultative or other reinsurance
for limits in excess of $1,000,000.
ARTICLE 5 EXCLUSIONS
1. All assumed reinsurance.
2. All liability arising out of nuclear risks, including, without
limitation, that described in the attached Nuclear Incident
Exclusion Clause.
3. Losses directly or indirectly caused by:
a. War, invasion, act of foreign enemy, hostilities, or war-
like operations (whether war be declared or not), civil war;
b. Mutiny, civil commotion assuming the proportions of or
amounting to a popular rising, military rising,
insurrections, rebellion, revolution, military or usurped
power, or any act of any person acting on behalf or in
connection with any organization with activity directed
toward the overthrow by force of its Government.
4. Liability arising from Insurance Loss Portfolio Transfers of any
kind.
5. Retroactive liability except for Prior Acts Coverage under a
claims-made policy.
6. Liability underwritten or accepted by any third party other than
CoverX Corporation.
7. Liability assumed by the COMPANY as a member of a syndicate,
pool, or underwriting association; however, this exclusion does
not apply to participation in assigned risk plans.
8. Insurance Guarantee Associations as provided by the Insolvency
Fund Exclusion Clause which is attached.
9. Liability of the COMPANY classified by the COMPANY as arising out
of XXXXX.
00. Xxxxxxxx, Xxxxxx, Xxxxx and Slander, Credit, Financial Guarantee,
Bankers Blanket Bond Risks and contingency risks such as
personal injury insurances when written as such.
11. Liability arising out of the ownership, maintenance, operation or
use of aircraft, air cushioned vehicles and airports or the
installation of equipment therein.
12. Kidnap and Xxxxxx and/or Extortion Coverage.
13. Insurance coverage for punitive or exemplary damages.
14. Security Exchange Commission Liability.
15. Business classified by the COMPANY as Ocean Marine or arising out
of the operation or navigation of ships or vessels other than
yachts or small pleasure craft.
16. Liability of the COMPANY classified by the COMPANY as arising
from risks having an exposure to asbestos resulting from the
existence, mining, handling, processing, manufacture, sale,
distribution, storage or use of asbestos, asbestos products,
and/or products containing asbestos.
17. Environmental impairment of Pollution Liability.
18. Workers' Compensation and Employers' Liability.
19. Automobile Liability.
Notwithstanding the exclusions set forth in Items 15 through 19 above,
any reinsurance that is specifically accepted by the REINSURER from
the COMPANY shall be covered under this AGREEMENT and subject to the
terms hereof, except as such terms shall be modified by such
Special Acceptance.
In the event that the COMPANY insures such an excluded risk under its
Policies, either because an existing insured has expanded its
operations or because CoverX has placed such an excluded risk with the
COMPANY, the COMPANY shall be protected by and afforded reinsurance
under this AGREEMENT to the extent as if there were no exclusion, but
only until the COMPANY is able to effect cancellation of such coverage
and then not for more than forty-five (45) days from the date of
discovery of such excluded risk by the underwriters of the COMPANY's
home office.
ARTICLE 6 PREMIUM
A. The COMPANY shall pay to the REINSURER its pro rata share, being
50% of the gross net written premiums and the REINSURER shall refund
to the COMPANY its pro rata share of any return premiums, on
business which is the subject matter of this AGREEMENT, less gross
premium ceded for other reinsurance inuring to the benefit of this
AGREEMENT as specified in Article 19, Other Reinsurance, and less the
applicable ceding commission if any, as specified in Article 7, Ceding
Commission.
B. When the reinsurance of in-force policies is specified in Article
2, Reinsurance Clause, the REINSURER shall receive its pro rata share
of the unearned premium on such business subject to the conditions
specified in Paragraph A above. In the event of a change in the
reinsurance cession quota or a change in the REINSURER's share, this
procedure shall be applied accordingly.
ARTICLE 7 CEDING COMMISSION
A. The REINSURER shall allow the COMPANY a ceding commission in
accordance with the attached Schedule A 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
allocated loss adjustment expense.
ARTICLE 8 REPORTS AND REMITTANCES
A. Reinsurance Premium - within 45 days after the close of each
month, the COMPANY shall render to the REINSURER a report of the gross
net written premium and unearned premiums for the month with respect
to business covered hereunder summarizing the reinsurance premiums and
commissions applicable.
B. Within 15 days after the close of each month the COMPANY shall
render to the REINSURER a claims summary, on a form acceptable to the
REINSURER, giving details of any losses paid and outstanding,
allocated loss adjustment expenses, salvage and recoveries.
The COMPANY shall include a summary sheet with "A" and "B" above,
reflecting the net balance. The net balance due shall be payable by
the debtor party within 75 days after the close of the month involved.
The net balance will be adjusted by inclusion of the REINSURER's part
of losses settled, allocated loss adjustment expenses, salvage and
other recoveries, through the most current month at the time of
payment.
ARTICLE 9 LOSSES AND ALLOCATED LOSS ADJUSTMENT EXPENSE
A. The COMPANY shall promptly notify the REINSURER of all claims
which:
1. Originate from fatal injuries,
2. Originate from bodily injuries as specified below:
a. Serious brain damage,
b. Spinal injuries resulting in partial or total
paralysis,
c. Amputations or permanent loss of use of upper or lower
extremities,
d. All other injuries likely to result in a serious
permanent disability,
e. Severe burn injuries involving 25% or more of the body,
f. Loss of sight of one or both eyes,
g. Multiple fractures,
h. Sexual abuse or molestation,
and will also promptly notify the REINSURER of other applicable
reinsurance that would affect the REINSURER's liability.
B. The COMPANY, as its sole discretion, may commence, continue,
defend, compromise, settle, or withdraw from any action, suit or
prosecution and generally do such matters relating to any loss, claim
or damage which, in its judgement, may be beneficial. The COMPANY
agrees to investigate and conduct diligently the defense of all claims
arising under its policies with respect to which this AGREEMENT
applies. The COMPANY shall have original and primary responsibility
for all claim settlements. However, the REINSURER shall have the
right and opportunity to be associated at its own expense with the
COMPANY in the defense of any claim, suit, or proceeding which might
involve the REINSURER's obligations under this AGREEMENT and the
COMPANY and the REINSURER shall cooperate in every respect in the
defense of any such claim, suit or proceeding, but the REINSURER shall
not have any obligation to assume the defense of any claim.
C. The REINSURER shall proportionally share with the COMPANY all
allocated loss adjustment expense. The term "allocated loss
adjustment expense" shall mean sums actually disbursed by the COMPANY
in payment of allocated expenses to investigate, appraise, adjust,
settle, arbitrate, defend or resist claims for losses, whether valid
or not, including court costs (when such costs are not included in the
judgment) and interest accrued after judgement. Such expenses shall
not include sums paid to attorneys as retainer nor salaries of
officials and employees of the COMPANY, and shall exclude office or
overhead expenses of the COMPANY. In the event of salvage,
subrogation, a verdict, award, or judgement is reduced or reversed by
an appeal taken by the COMPANY or other recovery, the REINSURER shall
share in such recovery in the same proportion as the Quota Share
amount.
D. Where a judgement has been entered against the COMPANY which
results in the liability of the REINSURER under this AGREEMENT, and
the COMPANY does not wish to appeal such judgement, or the possibility
of subrogation exists and the COMPANY elects not to subrogate, the
COMPANY will nevertheless prosecute such appeal or subrogation at the
request of the REINSURER and the REINSURER shall pay all the expenses
thereof. If the appeal or subrogation is successful, the COMPANY
shall share proportionately in the recovery and, the COMPANY shall
bear its proportion of the expenses, such proportion being determined
by the relationship of the COMPANY's net retention to the total
gross amount of the judgement.
ARTICLE 10 OFFSET
The COMPANY or the REINSURER may offset any balance due the other
party under this AGREEMENT or any others previously or
subsequently entered into between them.
ARTICLE 11 DEFINITIONS
A. NET LOSS
The term "net loss" shall mean all amounts which the COMPANY has
paid or has become liable to pay in the settlement of claims or
losses, payment of benefits or satisfaction of verdicts, awards,
or judgements for which it is liable, including prejudgement
interest or delay damages, and excess of original policy limits
and extra contractual obligations (as specified in their
respective articles) after deduction of all net recoveries,
salvages and amounts due from other reinsurance which inures to
the benefit of the REINSURER under this AGREEMENT, whether
collectible or not. However, in the event of the insolvency of
the COMPANY, "net loss" shall mean the amount of loss which the
COMPANY has incurred or for which it is liable, including
prejudgement interest or delay damages, and excess of original
policy limits and extra contractual obligation (as specified in
their respective articles) after deduction of all net recoveries,
salvages and amounts due from other reinsurance which inures to
the benefit of the REINSURER under this AGREEMENT, whether
collectible or not, and payment by the REINSURER shall be made to
the liquidator, receiver or statutory successor of the COMPANY in
accordance with the provisions of the article entitled
"Insolvency."
Net Loss shall exclude Allocated Loss Adjustment Expense unless
Allocated Loss Adjustment Expense is included as part of the
policy limit under the COMPANY's original policy. If Allocated
Loss Adjustment Expense is included within the policy limit,
Allocated Loss Adjustment Expense will be included in the
definition of Net Loss.
B. PREJUDGEMENT INTEREST OR DELAY DAMAGES
This term shall mean interest or damages added to a settlement,
verdict, award or judgement based on the amount of time prior to
the settlement, verdict, award or judgement that the claim or
loss occurred, whether or not made a part of the settlement,
verdict, award or judgement.
C. OCCURRENCE
The term "Occurrence" means the happening of one or a series of
related or consequential accidents, acts, errors, omissions or
mistakes arising out of one event regardless of the number of
persons, claimants, insureds, policies or coverage involved,
which results in loss payable by the COMPANY, under its policy or
policies. All loss or series of losses having a common origin or
traceable to the same accident, omission, error, mistake,
injurious condition or occurrence, shall be construed to be the
result of one occurrence. The COMPANY shall be the sole judge of
what constitutes one occurrence under this definition.
D. SALVAGE
This term shall mean any recovery made by the COMPANY in
connection with a claim or loss less all expenses paid by the
COMPANY other than payments to any salaried employee of the
COMPANY making such recovery. Salvage recoveries shall be
apportioned between the COMPANY and the REINSURER in the same
ratio as the payment of loss.
X. XXXXX NET WRITTEN PREMIUMS
This term shall mean the COMPANY's gross original premiums on
policies which are the subject matter of this AGREEMENT, prior to
any deductions except applicable return premiums and premiums
ceded for reinsurance which inures to the benefit of this
AGREEMENT as specified in the Article entitled "Other
Reinsurance."
F. POLICIES
The term "Policies" shall mean policies, contracts, and binders
of insurance issued by the COMPANY, including endorsements
thereto.
ARTICLE 12 TERRITORY
The REINSURER shall be liable only in respect to policies written
and providing coverage within the United States of America,
except for such incidental foreign exposure as may be covered
under the territorial provisions of these policies.
ARTICLE 13 TAXES
The COMPANY shall pay taxes on premium ceded under this
AGREEMENT. If the REINSURER is obligated to pay any taxes on
such premiums, the COMPANY shall reimburse the REINSURER;
however, the COMPANY shall not be required to pay the same
tax twice.
ARTICLE 14 CURRENCY
All payments under this AGREEMENT shall be made in United States
currency.
ARTICLE 15 ERRORS AND OMISSIONS
A. Inadvertent delays, errors or omissions made in connection
with this AGREEMENT 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 the error or omission is rectified as soon as possible after
discovery.
B. The liability of the REINSURER under this AGREEMENT or any
exhibits or endorsements attached thereto shall in no event
exceed the limits specified therein, nor be extended to cover any
risks, perils, or classes of insurance generally or specifically
excluded therein.
ARTICLE 16 ACCESS TO RECORDS
The REINSURER or its designated representative shall have free
access at all reasonable times to all records of the COMPANY
which pertain to the reinsurance provided hereunder.
ARTICLE 17 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 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 conversation
or liquidation proceeding or in the receivership, 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 which 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
claims, the expense shall be apportioned in accordance with the
terms of the reinsurance contract as though such expense had been
incurred by the COMPANY.
C. As to all reinsurance made, ceded, renewed or otherwise
becoming effective under this Agreement, the reinsurance shall be
payable as set forth above by the REINSURER to the COMPANY or to
its liquidator, receiver, conservator or statutory successor
(except as provided by Sections 4118(a)(I)(A) and 1114-C- of the
New York Insurance Law or) except (I) where the AGREEMENT
specifically provides another payee in the event of the
insolvency of the COMPANY, and (ii) where the REINSURER, with the
consent of the direct insured or insureds, have 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. Then, and in
that event only, the COMPANY, with the prior approval of the
certificate of assumption on New York risks by the Superintendent
of Insurance of the State of New York, is entirely released from
its obligation and the REINSURER pays any loss directly to payees
under such policy.
ARTICLE 18 ARBITRATION
A. Any dispute or other matter in question between the COMPANY
and the REINSURER arising out of or relating to the formation,
interpretation, performance or breach of this Agreement, whether
such dispute arises before or after termination of this
Agreement, shall be settled by arbitration. Arbitration shall be
initiated by the delivery of a written notice of demand for
arbitration by one party to the other within a reasonable time
after the dispute has arisen.
B. Each party shall appoint an individual as arbitrator and
the two so appointed shall then appoint a third arbitrator. If
either party refuses or neglects to appoint an arbitrator within
sixty (60) days after receiving a written request to do so, the
other party may appoint the second arbitrator. If the two
arbitrators do not agree on a third arbitrator within sixty (60)
days of their appointment, each of the arbitrators shall nominate
three individuals. Each arbitrator shall then decline two of the
nominations presented by the other arbitrator. The third
arbitrator shall then be chosen from the remaining two
nominations by drawing lots. The arbitrators shall be active or
former officers of insurance or reinsurance companies or have
recognized expertise in insurance or reinsurance law or
regulation. The arbitrators shall not have a personal or
financial interest in the result of the arbitration.
C. The arbitration hearings shall be held in Omaha, Nebraska,
or such other place as may be mutually agreed. Each party shall
submit its case to the arbitrators within sixty (60) days of the
selection of the third arbitrator or within such longer period as
may be agreed upon by the arbitrators. The arbitrators shall not
be obliged to follow judicial formalities or the rules of
evidence except to the extent required by governing law, that is,
the state law of the situs of the arbitration as herein agreed;
they shall make their decisions according to the practice of the
reinsurance business. The decision rendered by a majority of the
arbitrators shall be final and binding on both parties. Such
decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute which either party
may have against the other. Judgement upon the award rendered
may be entered in any court having jurisdiction thereof.
D. Each party shall pay the fee and expenses of its own
arbitrator and one-half of the fee and expenses of the third
arbitrator. All other expenses of the arbitration shall be
equally divided between the parties. In certain circumstances,
the arbitrators may apportion to one of the parties with all of
the costs of the arbitration.
E. Except as provided above, arbitration shall be based,
insofar as applicable, upon the procedures of the American
Arbitration Association.
ARTICLE 19 OTHER REINSURANCE
It is understood that the COMPANY shall have the right to effect
facultative or treaty reinsurance on business covered by this
AGREEMENT.
The REINSURER'S pro rata share of the cost of such reinsurance
net of ceding commission shall be deducted from the REINSURER'S
premium prior to the pplication of any commission allowance.
ARTICLE 20 TERMINATION
A. This AGREEMENT may be terminated by either party, effective
at the end of any calendar year, upon giving to the other party
not less than 90 days prior to the notice of cancellation in
writing by certified mail.
Except as provided for in Paragraph B. of this article,
termination initiated by either party, (the COMPANY or the
REINSURER), shall give the other party its choice of cancellation
on either a runoff or cutoff basis as described below:
1. "Cutoff basis" - In the event of termination on a
cutoff basis the REINSURER shall have no liability with
respect to loss occurrences happening after the
effective time and date of cancellation.
2. "Runoff basis" - In the event of termination on a
runoff basis, the REINSURER shall remain liable for
occurrences arising out of covered policies in force at
the date of cancellation until expiration, cancellation
or next renewal of such policies, but in no case shall
this reinsurance be extended for a period longer than
one year after the date of cancellation of this
AGREEMENT.
B. Should at any time the REINSURER or the COMPANY:
1. Be 100% reinsured without the previous written consent
of the other party.
2. Default in payment due under the terms of this
AGREEMENT.
3. Amalgamate with or have its shares purchased by any
other company, corporation, individual or individuals
for the purpose of gaining control.
4. Agree to any arrangement which would end its separate
existence.
5. Have proceedings instituted or filed against them by
any insurance regulatory authority for bankruptcy,
rehabilitation, conservation, liquidation or
dissolution.
6. Reach mutual agreement to do so.
This AGREEMENT may be terminated by either the REINSURER or the
COMPANY upon giving 30 days notice of cancellation in writing by
certified mail to the other party. In the event of termination
under the provisions of this paragraph the REINSURER shall remain
liable for loss arising from occurrences happening prior to the
effective time and date of cancellation, but shall have no
liability with respect to loss occurrences happening after that
time.
C. When all reinsurance is expired or terminated, but in case
for more than one year after the date of such expiration or
termination, the REINSURER shall return to the COMPANY the
reinsurance premium unearned, if any, calculated on the monthly
pro rata basis, less the commission previously allowed thereon.
ARTICLE 21 FUNDING OF RESERVES; UNEARNED PREMIUM OUTSTANDING LOSSES AND IBNR
If a jurisdiction of the United States will not permit the
COMPANY, in the statements required to be filed with its
regulatory authority(ies), to receive full credit as admitted
reinsurance for any of the REINSURER'S share of obligations, the
COMPANY will forward to the REINSURER a statement showing the
proportion of such reserves which is applicable to the REINSURER.
Upon receipt of such statement, the REINSURER hereby agrees to
fund such reserves in respect of unearned premium, know
outstanding losses that have been reported to the REINSURER and
allocated loss adjustment expense relating thereto, losses and
allocated loss adjustment expense paid by the COMPANY but not
recovered from the REINSURER, plus reserves for losses incurred
but not reported, as shown in the statement prepared by the
COMPANY (hereinafter referred to as "Reinsurer's Obligations") by
funds withheld, a trust fund, or a Letter of Credit. The
REINSURER shall have the option of determining the method of
funding, provided it is acceptable to the insurance regulatory
authorities having jurisdiction over the COMPANY's reserves, and
provided REINSURER give COMPANY and the regulatory authorities
sufficient notice to obtain regulatory approval of the funding
mechanism in a timely manner.
When funding by a Letter of Credit, the REINSURER agrees to apply
for and secure timely delivery to the COMPANY of a clean,
irrevocable and unconditional Letter of Credit issued by a bank
and containing provisions acceptable to the insurance regulatory
authorities having jurisdiction over the COMPANY's reserves in an
amount equal to the REINSURER's proportion of said reserves.
Such Letter of Credit shall be issued for a period of not less
than one (1) year, and shall be automatically extended for one
year from its date of expiration or any future expiration date,
unless sixty (60) days prior to any expiration date, the issuing
bank shall notify the COMPANY by certified or registered mail
that the issuing bank elects not to consider the Letter of Credit
extended for any additional period.
The REINSURER and COMPANY agree that the Letters of Credit, trust
funds or funds withheld provided by the REINSURER pursuant to the
provisions of this Agreement may be drawn upon at any time,
notwithstanding any other provision of this Agreement, and be
used by the COMPANY or any successor, by operation of law, of the
COMPANY including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the COMPANY for the
following purposes, unless otherwise provided for in a separate
trust agreement:
1. To reimburse the COMPANY for the REINSURER's Obligations,
the payment of which is due under the terms of this
Agreement and which has not been otherwise paid;
2. To make refund of any sum which is in excess of the actual
amount required to pay the REINSURER's Obligations under
this Agreement;
3. To fund an account with the COMPANY for the REINSURER's
Obligations. Such cash deposit shall be held in an
interest bearing account separate form the COMPANY's other
assets, and interest thereon not in excess of the prime
rate shall accrue to the benefit of the REINSURER.
4. To pay the REINSURER's share of any other amounts the
COMPANY claims are due under this Agreement.
In the event the amount drawn by the COMPANY on any Letter of
Credit is in excess of the actual amount required for (1) or (3),
or in the case of (4), the actual amount determined to be due,
the COMPANY shall promptly return to the REINSURER the excess
amount so drawn. All of the foregoing shall be applied without
diminution because of insolvency on the part of the COMPANY or
the REINSURER.
The issuing bank shall have no responsibility whatsoever in
connection with the propriety of withdrawals made by the COMPANY
or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized
representatives of the COMPANY.
At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the COMPANY shall prepare a specific
statement of the REINSURER's Obligations, for the sole purpose of
amending the Letter of Credit, the funds withheld or the trust
fund, in the following manner.
1. If the statement shows that the REINSURER's Obligations
exceed the balance of credit as of the statement date, the
REINSURER shall, within thirty (30) days after receipt of
notice of such excess, secure delivery to the COMPANY of an
amendment to the Letter of Credit, increasing the amount of
credit by the amount of such difference.
2. If, however, the statement shows that the REINSURER's
Obligations are less than the balance of credit as of the
statement date, the COMPANY shall, within thirty (30) days
after receipt of written request from the REINSURER,
release such excess credit by agreeing to secure an
amendment to the Letter of Credit, reducing the amount of
credit available by the amount of such excess credit.
IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to be executed
in duplicate by their duly authorized representatives.
In New York, New York this first day of February, 1997.
FIRST MERCURY INSURANCE COMPANY
\s\ XXXXXXX X. XXXXX
President
\s\ XXXXXX X. XXXXXX
Secretary
And in Omaha, Nebraska this first day of February, 1997.
EMPIRE FIRE AND MARINE INSURANCE
COMPANY/EMPIRE INDEMNITY COMPANY
\s\ XXX X. BONES
Senior Vice President
\s\ XXXXXXX X. XXXXX
Vice President
INSOLVENCY FUNDS EXCLUSION CLAUSE
This AGREEMENT excludes 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, howsoever denominated, established or governed, which provides for
any assessment of or payment or assumption by the COMPANY of part or all of any
claims, 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 claim, debt, charge, fee or
other obligation in whole or in part.
