EXHIBIT 99 (q)
EXECUTION COPY
ADMINISTRATIVE SERVICES AGREEMENT
by and among
POTOMAC INSURANCE COMPANY
CGU INSURANCE COMPANY
and
NATIONAL INDEMNITY COMPANY
Dated as of April 13, 2001
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ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement"), dated as of April 13,
2001, is entered into by and among National Indemnity Company, a Nebraska stock
insurance company ("Administrator") Potomac Insurance Company, a Pennsylvania
stock insurance company ("Potomac") and CGU Insurance Company, a Pennsylvania
stock insurance company ("CGU" and, together with Potomac, "Insurers").
RECITALS
WHEREAS, Potomac and CGU have entered into an Aggregate Loss Portfolio
Reinsurance Agreement dated as of the date hereof (the "CGU Reinsurance
Agreement") whereby CGU has agreed to cede, on its behalf and on behalf of
certain of its affiliates, and Potomac has agreed to reinsure, on the indemnity
basis, the Reinsured Risks (as defined in the CGU Reinsurance Agreement) of CGU
and such affiliates; and
WHEREAS, Potomac and Administrator have entered into an Aggregate Loss Portfolio
Reinsurance Agreement dated March 14, 2001 whereby Potomac has agreed to cede
and Administrator has agreed to reinsure, the Reinsured Risks (as defined in the
Aggregate Reinsurance Agreement), subject to the terms and conditions of the
Aggregate Reinsurance Agreement; and
WHEREAS, Insurers desire that Administrator perform administrative functions on
behalf of Insurers from and after the date hereof with respect to the Business
Covered under the Aggregate Reinsurance Agreement, and Administrator has agreed
to provide such services; and
WHEREAS, It is the intention of the parties that after the Effective Date, the
assistance of CGU, the Reinsureds and CGU Insurers will be required to allow
Administrator to provide Run-Off Functions and that assistance will be provided
by CGU through the provision of Run-Off Services and the use of certain premises
currently leased by CGU or one of its subsidiaries.
NOW, THEREFORE, in consideration of the foregoing promises, the mutual
agreements and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Insurers and Administrator hereby agree as follows:
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DEFINITIONS AND INTERPRETATION
In this Agreement, unless the context requires otherwise:
"AGGREGATE REINSURANCE AGREEMENT" means the reinsurance agreement entered into
between CGU, Potomac and the Administrator entitled "Aggregate Loss Portfolio
Reinsurance Agreement" having an Inception Date of January 1, 2000;
"RELEVANT BUSINESS RECORDS" means, in relation to each CGU Insurer, all such
information concerning the Business Covered written by such CGU Insurer and
assets held in respect thereof including (without prejudice to the generality of
the foregoing) policy slips, policy wording, underwriting cards, certificates of
insurance, policy renewal or cancellation documents, claims information,
reserving documentation, reinsurance information (including wordings) and all
correspondence relating thereto and all books of accounts, financial
information, investment records, accounting records, unallocated loss adjustment
expenses and other records (whether stored electronically or in hard format) and
which have been prepared or maintained by or on behalf of such CGU Insurer
together with all such information as is created or amended from time to time
after the date of this Agreement;
"RUN-OFF FUNCTIONS" means those functions relating to the administration and
run-off of the Business Covered, including those services set out in Article III
or as varied from time to time in accordance with this Agreement;
"RUN-OFF SERVICES" means those services set out in Article IV or as varied from
time to time in accordance with this Agreement.
In this Agreement, unless the context requires otherwise:
words and expressions used in the Aggregate Reinsurance Agreement shall
bear the same meaning when used in this Agreement. All capitalized
terms not otherwise defined in this Agreement shall have the meaning
given them under the Aggregate Reinsurance Agreement;
references to a clause are to a clause of, this Agreement;
words importing the singular include the plural and vice versa, words
importing a gender include every gender and references to persons
include corporations, partnerships and other unincorporated
associations or bodies of persons;
the headings to clauses, parts and paragraphs are inserted for
convenience only and shall be ignored in interpreting this Agreement;
the words and phrases "other", "including" and "in particular" shall
not limit the generality of any preceding words or be construed as
being limited to the same class as the preceding words where a wider
construction is possible.
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Nothing in this Agreement shall be construed to expand, modify or reduce the
obligations of the parties under the Aggregate Reinsurance Agreement. In the
event of any conflict between this Agreement and the Aggregate Reinsurance
Agreement the terms and conditions of the Aggregate Reinsurance Agreement shall
govern.
ARTICLE I
AUTHORITY
1.1 Insurers hereby appoint Administrator, and Administrator hereby accepts
appointment, to provide as an independent contractor of Insurers such
administrative and other services with respect to the Business Covered as set
forth in this Agreement (the "Administrative Services"), all on the terms, and
subject to the limitations and conditions, as set forth in this Agreement.
Notwithstanding any other provision of this Agreement to the contrary, Insurers
shall have the right to direct Administrator to perform any action necessary to
comply with applicable legal or regulatory requirements as set forth in an
"Agreed Opinion", final regulatory or court order, or to cease performing any
action that constitutes a violation of applicable law or regulatory requirements
as set forth in an "Agreed Opinion", a final regulatory or court order. The
Administrator may, on behalf of any CGU Insurer, negotiate with any applicable
Regulator or other party concerning such compliance. An "Agreed Opinion" shall
mean an opinion of a mutually agreed impartial attorney. Within the scope of the
authority granted by this Agreement, Administrator shall carry out its functions
as appropriate in its independent judgment.
ARTICLE II
STANDARD FOR SERVICES
2.1 All of the Administrative Services described in this Agreement shall be
performed by the Administrator in accordance with (i) applicable law, (ii) the
Reinsured Contracts and (iii)Administrator's own standards in providing services
with respect to similar insurance contracts issued by Administrator in its own
name. If such compliance is impossible for reasons beyond its control,
Administrator will notify CGU of that fact and the reasons for noncompliance.
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ARTICLE III
RUN-OFF FUNCTIONS FROM THE DATE OF THIS
AGREEMENT UNTIL EFFECTIVE DATE
3.1 From the date of this agreement until the Effective Date, CGU shall
provide the Run-Off Functions.
3.2 CGU undertakes to the Administrator that in providing the Run-off
Functions from the date of this Agreement until the Effective Date it
shall:
3.2.1 comply with any directions and/or guidelines in relation to the
provision of the Run-off Functions which may be issued by the
Administrator to CGU from time to time;
3.2.2 not commute any reinsurance contract providing reinsurance coverage for
Business Covered without the prior consent of the Administrator;
3.2.3 not commute any reinsurance contract included within Business Covered
under which a CGU Insurer assumed the liabilities of another insurer
for a sum in excess of $2 million; Excluded are the CUREPOOL
reinsurance agreement (10/1/98 to 12/31/01) which is being commuted and
settled at closing, and the $2.0 million uncollectable reinsurance
agreement with CGNU London;
3.2.4 not settle any claim on Business Covered for an amount in excess of $2
million without the prior consent of the Administrator.
3.2.5 not compromise any claim for an amount in excess of $2 million on any
reinsurance or other recoverable inuring to the benefit of
Administrator without the prior consent of the Administrator.
3.3 If a claim is made against the Administrator as a result of, or in
connection with, liability to, or a dispute with, any third party, CGU
shall provide the Administrator all reasonable facilities and
co-operation to investigate the same and shall provide the
Administrator with such information and assistance as the Administrator
may reasonably require in connection with the claim, liability or
dispute.
3.4 CGU shall notify the Administrator as soon as practicable upon it
becoming aware of:
3.4.1 any proceedings (of whatsoever nature relating to the Business Covered)
in relation to which the Administrator or any Insurer (and whether or
not specifically named as a defendant or respondent in such
proceedings), will be or will be likely to be or become involved as a
defendant, respondent or as a contributory or by virtue of any
indemnity given; or
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3.4.2 the existence of any circumstances that would, or would be likely to,
entitle a CGU Insurer to take proceedings against or make any recovery
from any third party.
3.5 If CGU notifies the Administrator pursuant to Section 3.4, CGU shall
provide all reasonable facilities, co-operation, information and
assistance in the investigation, instigation or defense (as the case
may be) of such proceedings and CGU:
3.5.1 shall not make any admission of liability, agreement or compromise with
any person, body or authority in relation to any such proceedings
without prior consultation and the prior written agreement of the
Administrator;
3.5.2 shall take such action as the Administrator may reasonably request to
make, avoid, dispute, resist, appeal, compromise or defend such
proceedings or any adjudication in respect thereof; and
3.5.3 if so required by the Administrator in writing, shall ensure that the
Administrator is placed in a position to take on or take over the
conduct of all proceedings and/or negotiations of whatsoever nature and
provide such information and assistance as the Administrator may
reasonably require in connection with the preparation for and conduct
of such proceedings and/or negotiations.
3.6 Administrator shall pay to Potomac for the Run-Off Functions provided
by Insurer, the Unallocated Loss Adjustment Expense sum agreed to by
the Administrator and Potomac pursuant to Schedule 2 of the Aggregate
Reinsurance Agreement. No additional amount shall be due CGU or Potomac
under this Agreement for the provision of the Run-Off Functions
performed until the Effective Date which amounts are separately
addressed in the Aggregate Reinsurance Agreement.
ARTICLE IV
RUN-OFF FUNCTIONS COMMENCING ON EFFECTIVE DATE
4.1 In order to give full effect to its rights and to fulfil its
obligations under the Reinsurance Agreement, the Administrator shall
provide and perform the Run-off Functions as follows:
4.1.1 to adjust, handle, agree, settle, pay, compromise or repudiate any
claims, return premiums, reinsurance premiums or any other liability,
outgoing or expense;
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4.1.2 to agree to any variation or extension of any contract of insurance or
reinsurance and to agree to any additional premiums in relation
thereto;
4.1.3 to commence, conduct, pursue, settle, appeal or compromise any legal
arbitration or other proceedings wheresoever;
4.1.4 to agree to and collect premiums, claim refunds, salvages and
reinsurance recoveries;
4.1.5 to agree to, or exercise any right to, set-off any claims against
reinsurance recoveries or vice versa or to settle any balance of
account owing to or from the Reinsured or any CGU Insurer in relation
to any amounts whatsoever;
4.1.6 to agree, on behalf of the Reinsured or any CGU Insurer, to fund the
obligations of any third party in connection with any claim or any
other matter;
4.1.7 to agree to any ex gratia or without prejudice payment or any other
extra-contractual obligation of or on behalf of Reinsured or any CGU
Insurer;
4.1.8 to enter into any arrangements which the Administrator considers will
or may avoid or reduce any liability;
4.1.9 to use the name of the Reinsured or any CGU Insurer in connection with
the exercise of any or all of the powers conferred by this Agreement;
4.1.10 to exercise any rights of subrogation or other rights of recovery;
4.1.11 to enter into discussions or negotiations with any insured or reinsured
person or their representatives in connection with Business Covered;
4.1.12 to enter into, amend or cancel any arrangements or agreements with
third parties, including in relation to the handling or collection of
claims, premiums, debts or reinsurance recoveries. Provided CGU is not
held liable for any damages arising from such amendments or
cancellations;
4.1.13 to instruct lawyers, claims adjusters or other consultants or experts;
4.1.14 to enter into any arrangement or agreement involving other underwriters
or insurers in connection with either a particular claim or category of
claim where the Administrator may agree on behalf of CGU to be bound by
a policy determined for the purposes of settling such claims, and, in
connection therewith, to agree to indemnify (either jointly or
severally) any third party who acts as agent in relation to such
arrangement, agreement or policy;
4.1.15 to share information received from CGU, including any information in
its files
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and records, with other insurers, reinsurers, claimants and other
persons as may be necessary in the judgement of the Administrator
to carry out the Run-Off Functions;
4.1.16 to draw down upon any letter of credit, trust, funds withheld, offset
or take action in CGU's name in relation to any other security
maintained in the name, or on behalf, of CGU, the Reinsured or any CGU
Insurer in connection with Business Covered.
4.2 CGU (for itself and as agent for each of the CGU Insurers) hereby
grants to the Administrator all such powers as are necessary, desirable
or expedient in order for the Administrator to provide the Run-off
Functions including the powers set out in Section 4.1. The Run-off
Functions which will be undertaken by the Administrator will include
all matters relating to the administration, settlement and payment of
claims arising under the Business Covered, together with all other
matters required to give full effect to the terms of the Aggregate
Reinsurance Agreement and the run-off of the Business Covered,
including the matters set out in Article IV and extending to claims
arising under inwards insurance and reinsurance business, to claims
recoveries under outwards reinsurance policies protecting the Business
Covered and to the pursuit and recovery of salvage and/or subrogated
claims.
4.3 CGU shall (and shall procure that the CGU Insurers shall) enter into
such powers of attorney or other forms of authority as the
Administrator may from time to time reasonably require to enable the
Administrator to exercise on behalf of each CGU Insurer such powers as
are necessary, desirable or expedient for the provision of and
performance by the Administrator of the Run-off Functions.
4.4 The Administrator shall be entitled, for its own account and in its own
responsibility to employ and pay sub-agents or contractors in any part
of the world to perform or co-operate in performing any of the Run-off
Functions (or performing any of the Administrator's other obligations
under this Agreement) as the Administrator may in its discretion
determine, provided such delegation shall not be made to subagents or
others with potential conflicts of interest, without first disclosing
such potential conflicts and seeking the written permission of
Reinsured, which will not be unreasonably withheld. Nothing in the
foregoing provision shall apply to the Administrator's right to employ
corporations directly or indirectly owned by Berkshire Hathaway Inc. as
sub-agents or contractors. The Administrator may delegate any of its
duties to be performed or powers to be exercised, including this power
of delegation, under this Agreement, provided that the Administrator
shall be and remain responsible at all times for the acts and omissions
of any such sub-agent or contractor or any person to whom they may
delegate any such duties or powers. Any damages resulting from such
acts or omissions (other than damages of whatsoever nature included in
the definition of Ultimate Net Loss) shall not impair the Aggregate.
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4.5 Where the Administrator provides run-off services for a claim or
related claims which are partially or in whole not Business Covered
either due to lack of information or indivisibility of the claim or
related claims, CGU shall reimburse Administrator for the direct and
shared costs of providing such services with allocation of the direct
costs between Administrator and CGU to be on the basis of exposure each
had on the claim in accordance with Section 5.1. If Administrator has
reason to believe that a claim it is handling is partially not business
covered and the Administrator has reason to believe that CGU's exposure
on the claim or related claims is in excess of $100,000, Administrator
shall promptly notify the Senior Vice President of CGU's claims
department or his designee and the parties shall reach a good faith
agreement on the handling of the claim or related claims. Direct and
shared costs as referenced herein refers to the salary, benefits and
allocated shared costs of the claims handler.
4.6 All extra contractual damages that result from claims handling
performed after the Effective Date shall be the responsibility of the
Administrator and shall not impair the Aggregate to the extent such
damages are not Ultimate Net Loss under the Aggregate Reinsurance
Agreement.
4.7 Whenever there are claims that involve the Reinsured and also involve
insurers, reinsurers or companies that are owned, administered or one
hundred percent reinsured by a direct or indirect subsidiary of
Berkshire Hathaway Inc., the Administrator agrees that it will handle
claims under this Agreement in good faith and with due regard for the
singular interests of the Reinsured and CGU.
4.8 Document retention policies of Reinsured and Administrator, concerning
all documents relating to Business Covered, will not be changed without
the prior consent of both parties.
ARTICLE V
RUN-OFF SERVICES FROM THE EFFECTIVE DATE
From the Effective Date and through the remainder of the term of this Agreement
and subject to its terms and conditions, CGU shall provide to Administrator
Run-Off Services.
BASIS FOR DEVELOPING COST OF SERVICES
5.1 Direct costs will be aggregated discretely where possible. Shared costs
will be split based on allocation methodology agreed between the
parties. Where feasible, expense allocation will be done by actual
allocated costs by specific study and/or
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direct allocations. If the expense required to derive allocated costs
by specific study and/or direct allocation is more than the value
derived by using these methods, then appropriate agreed indirect
methods will be used. CGU shall not charge for any service that is not
included within Administrator's obligations under this Agreement.
CGU shall at the request of the Administrator provide services to the
Administrator up to the date indicated below:
INFORMATION TECHNOLOGY SERVICES
5.2 CGU agrees to maintain current support levels for the Information
Technology Systems, services and applications currently used in
connection with the Run-Off Function for the period from the Effective
Date to December 31, 2002 at Administrator's request.
The charge for Information Technology Services will be in three
components. The first component is the network service charge, referred
to by CGU Information Technology Department as data-mega chargeback
which is the monthly connectivity fee. The charge will be at the same
rate as for CGU users. The second component is a pro rata share of
claims systems support costs based on transaction volume. The third
component will be for additional services or development work which, if
requested by the Administrator, will be costed separately in accordance
with Section 5.1.
ACCOUNTING SERVICES
5.3 CGU agrees to maintain at Administrator's request current support
levels for the accounting services for the period from the Effective
Date to December 31, 2001, based on a cost analysis by each supporting
area in accordance with Section 5.1, including, but not limited to,
Reinsurance Accounting, Payroll, Cash Accounting, Fixed Assets, Travel
and Accounts Payable.
These costs do not include any additional services or development work which, if
requested by the Administrator, will be costed separately provided such costs
are not otherwise included within this Agreement or the Aggregate Reinsurance
Agreement.
CORPORATE SERVICES
5.4 CGU agrees to provide the following services at cost in accordance with
Section 5.1 on a continuing basis as requested by the Administrator:
Human Resources
Employee Benefit Programs Administration
Recruiting
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Facilities Planning
During the period of time Administrator occupies the premises pursuant
to Article XVIII, CGU agrees to provide the following services at cost
in accordance with Section 5.1
Mail
Cafeteria
Purchasing
Storage
5.5 Filing Room Services. During the period of time Administrator occupies
the Premises pursuant to Article XVII, CGU agrees to provide the
services of maintaining the filing room and related services currently
provided in connection with the file room with costs of the file room
and delivery service to be allocated in accordance with Section 5.1.
5.6 At the request of Administrator and upon consent of CGU, CGU may
provide additional services to Administrator, provided the parties
mutually agree upon the scope of such additional services to be
provided and the compensation to be paid. Therefore Administrator will
compensate CGU for the direct costs, and support costs of providing any
service under this Agreement, including a pro rata portion of the
direct salaries and benefits of persons whose services are used in
providing those services.
5.7 Administrator shall have no liability for any termination obligations
of CGU or its direct or indirect subsidiaries or affiliates to
employees of CGU who are terminated by CGU prior to the effective date,
nor shall Administrator have any liability for pension or other
obligations of CGU to such employees of CGU who may be terminated by
CGU as a result of this Agreement or the Aggregate Reinsurance
Agreement.
5.8 For purposes of pension expense calculation the Reinsured will,
annually, engage the services of Xxxxxx Xxxxx or other qualified
pension actuaries to determine the appropriate pension and post
retirement expense amounts. Administrator will reimbursement Reinsured
for such pension expenses as part of ULAE.
5.9 CGU shall provide billing statements to Administrator monthly of
compensation due during the period reflected. The monthly xxxxxxxx
shall be payable within thirty (30) days of Administrator's receipt of
each such billing.
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5.10 The Services provided by CGU shall (i) comply with applicable laws and
governmental regulations and (ii) be of the same standards of diligence
and business conduct as CGU follows in its own business operations. If
such compliance is impossible for reasons beyond its control, CGU will
notify Administrator of that fact and the reasons for noncompliance.
ARTICLE VI
CLAIMS HANDLING
The Administrative Services with respect to claims shall include the following:
CLAIM ADMINISTRATION SERVICES.
6.1 Administrator shall acknowledge, consider, review, investigate, deny,
settle, pay or otherwise dispose of each claim that constitutes
Business Covered (each a "Claim" and collectively the "Claims").
Administrator shall pay Claims and associated expenses as Ultimate Net
Loss under the Aggregate Reinsurance Agreement and subject to the terms
of the Aggregate Reinsurance Agreement.
6.2 Description of Claim Administration Services. Without limiting the
foregoing, Administrator shall:
6.2.1 establish, maintain and organize Claim files and maintain and organize
other Claims-related records;
6.2.2 review all Claims and determine whether the Claimant is eligible for
payment and if so, the nature and extent of such payment;
6.2.3 maintain trained claims personnel;
6.2.4 prepare and distribute to the appropriate recipients any reports
required by applicable law;
6.2.5 respond to any complaints made by any insurance regulatory authority,
court or government agency, whether federal, state or other (a
"Regulator") relating to actions or omissions within the scope of the
Administrator's authority, within the earlier of (i) the Regulator's
requested time frame for response, or (ii) the time frame as allowed by
applicable law; a copy of such response shall be promptly provided to
the Senior Vice President Claims of CGU or his designee;
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6.2.6 promptly notify the Senior Vice President Claims of CGU or his designee
of any complaints initiated by a Regulator and not within the scope of
the foregoing paragraph 6.2.5. The Insurer shall respond to such
complaints, with a copy to Administrator. Insurer shall provide any
response to Administrator for its prior approval (which shall not be
unreasonably withheld) as soon as reasonably practicable, (provided
that any approval of Administrator shall be deemed given if no
objection is received within five days following delivery to the
Administrator of the definitive response and any additional information
requested by Administrator);
6.2.7 respond promptly to all written or oral Claims-related communications
that Administrator reasonably believes to require a response;
6.2.8 maintain a complaint log with respect to the Reinsured Contracts in
accordance with applicable requirements of Regulators and provide a
copy of such log upon Insurer's request;
ARTICLE VII
REGULATORY COMPLIANCE AND REPORTING
7.1 Commencing on the Inception Date, Administrator shall take all
necessary action within its control so that the Insurers, solely with
respect to the Business Covered, satisfy all current and future
informational reporting and any other requirements imposed by any
Regulator. Without limiting the foregoing, Administrator shall timely
prepare such reports and summaries, including statistical summaries, as
are necessary to satisfy any requirements imposed by a Regulator upon
Insurers with respect to the Business Covered. In addition,
Administrator, upon the reasonable request of Insurers, shall promptly
provide to Insurers copies of all existing records relating to the
Reinsured Contracts (including, with respect to records maintained in
machine readable form, hard copies) that are necessary to satisfy such
requirements.
7.2 Administrator shall reasonably assist Insurers and cooperate with
Insurers in doing all things necessary, proper or advisable, in the
most expeditious manner practicable in connection with any and all
market conduct or other Regulator examinations relating to the Business
Covered.
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ARTICLE VIII
OTHER REPORTING AND ACCOUNTING
Commencing on January 1, 2002, Administrator shall assume the reporting and
accounting obligations set forth in this Article VIII. Administrator will
reimburse CGU for the costs of providing such reporting and accounting
obligation services from the Inception Date to January 1, 2002. From January 1,
2002, Administrator shall provide the following:
8.1 Administrator shall timely provide to Insurers and Insurers' designated
independent auditors such reports and summaries (and, upon request of
Insurers, detailed supporting records) related to the Business Covered
as may be reasonably required for use in connection with the
preparation of Insurer's statutory financial statements to be filed
with the appropriate Regulators, including, without limitation, (i)
line of business data for inclusion in Insurers' annual statements, and
(ii) statistics relating to complaints, in the form of a log suitable
for inclusion in Insurers' annual statements.
8.2 Administrator shall timely provide to Insurers or Insurers' designated
independent auditors such reports or summaries (and, upon the request
of Insurers, detailed supporting records therefor) related to the
Business Covered as may be reasonably required in connection with the
preparation in accordance with generally accepted accounting principles
of Insurer's balance sheets and related statements of income,
stockholders' equity and cash flows or changes in financial position,
including, without limitation, the related notes and auditors' report
thereon and any associated management letter.
8.3 Nothing in this Article 8 shall obligate Administrator to provide
greater quality or scope of data than is currently being prepared by
each Insurer, except for such changes as may be mandated by future
changes in law or regulation.
ARTICLE IX
MAINTENANCE OF NON-CLAIM RECORDS
Commencing on the Effective Date, Administrator shall assume responsibility for
maintaining records with respect to the Business Covered accounting, and
reporting and any other category of non-Claim Administrative Services.
9.1 The Administrator shall be entitled to have transferred to it (or as to
such person as it may direct) on or after the Effective Date the
Relevant Business Records. If such Records are in the possession of
another party CGU shall instruct that party to release such Records as
soon as possible so that the Administrator may be in a
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position to provide the Run-off Functions under this Agreement. All
Records made available to the Administrator either by CGU or any third
party shall remain the property of CGU (or such third party) at all
times. The Administrator (or such person as it may direct) shall hold
the Relevant Business Records as agent on behalf of the relevant
Insurer. Such records shall be maintained at a location within the
United States selected by Administrator for this purpose and made known
to Insurers. Upon expiration of this Agreement, Administrator shall
transfer the Relevant Business Records to CGU or such person within the
United States as CGU may direct. Administrator shall be allowed to
access CGU records in storage to locate relevant insurance and
reinsurance records and shall reimburse CGU for expenses paid to third
parties for such access.
ARTICLE X
ACCESS TO RECORDS
10.1 The Administrator shall make such Relevant Business Records as are in
its possession or under its control available to CGU at any time during
normal office hours for such auditing or any other purposes related to
the Reinsurance Agreement or this Agreement as CGU may require. CGU
shall, at its own expense, be entitled to make copies of the Relevant
Business Records for these purposes. Administrator will provide the
needed information, including access to claim files and personnel, for
the purpose of periodically updating actuarial studies of gross
liabilities.
10.2 The Relevant Business Records shall at all times be open for inspection
by the Administrator (where such Records are being kept by CGU) and by
CGU (where such Records are being kept by the Administrator) and (in
each case) their respective representatives during normal business
hours and on reasonable notice, for such auditing or other purposes as
the Administrator or CGU may require. The Administrator shall permit
CGU and its representatives and CGU shall permit the Administrator and
its representatives to make copies of such Records. This obligation
shall survive the expiration of this Agreement and continue for so long
as the Administrator may have any liability arising under this
Agreement or the Aggregate Reinsurance Agreement. Administrator shall
take reasonable steps to maintain the confidentiality of such records.
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ARTICLE XI
COOPERATION BY INSURERS
11.1 Insurers shall cooperate to the extent reasonably possible with
Administrator and execute and provide such additional documentation as
may become necessary or appropriate to enable Administrator to fully
carry out its responsibilities under this Agreement and to effectuate
the intention of the parties under the Aggregate Reinsurance Agreement,
the Potomac Reinsurance Agreement and this Agreement.
ARTICLE XII
POWERS
12.1 Each of the parties warrants to the other that:
12.1.1 it has power (whether for itself or (in the case of CGU) as agent for
any CGU Insurer) to enter into and has duly authorized the execution
and delivery of this Agreement; and
12.1.2 it has, if and to the extent required or appropriate, obtained all
requisite regulatory and supervisory consents, and shall maintain all
requisite regulatory and supervisory consents for the term of this
Agreement.
ARTICLE XIII
INDEMNIFICATION
13.1 Administrator agrees to indemnify and hold harmless Insurers and each
of their directors, officers, employees, agents or affiliates (and the
directors, officers, employees and agents of such affiliates) from any
and all losses, liabilities, costs, claims, demands, compensatory,
extra contractual and/or punitive damages, fines, penalties and
expenses (including reasonable attorneys' fees and expenses)
(collectively, "Insurer's Losses") resulting in damages not included
within the definition of Ultimate Net Loss arising out of or caused by:
(i) any actual or alleged fraud, theft or embezzlement by officers,
employees or agents of Administrator during the term of this Agreement;
(ii) the failure, either intentional or unintentional, of Administrator
to properly perform the services or take the actions required by this
Agreement, including, without limitation, the failure to properly
process, evaluate and pay disbursement requests in accordance with the
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terms of this Agreement; (iii) any other act of negligence or willful
misconduct committed by officers, agents or employees of Administrator
during the term of this Agreement; (iv) any liability of CGU to any
employee of a subsidiary of CGU operating under the control of the
Administrator and arising due to any act or omission by the management
or other employee after the effective date; or (v) any failure of
Administrator to comply with applicable laws, rules and regulations
during the term of this Agreement. Nothing herein shall be construed to
require Administrator to indemnify any Insurer under this Article for
compensatory, extra contractual and/or punitive damages, fines,
penalties or expenses arising out of a settlement or judgment of a
claim of bad faith or failure to exercise good faith in the handling of
a claim if the claim at issue was handled properly as measured from the
perspective of a risk neutral professional claims examiner. In the
event of a dispute between the parties as to the application of the
foregoing sentence no verdict or court decision concerning the actions
of the Administrator shall be considered or given any weight whatsoever
nor, in the event of a claim of bad faith failure to accept a
settlement offer, shall the ultimate result of the claim be considered,
it being the intention of the parties that the arbitration panel
consider this issue de novo from the perspective of a professional
claims examiner making a decision with the facts and law available at
the time the decision was made. In the event that the arbitration panel
shall find that the act or omission of the Administrator was in bad
faith from the perspective of the professional claims examiner then the
indemnification under this Article shall not be included in Ultimate
Net Loss. Nothing herein shall be construed to require Administrator to
indemnify any Insurer with respect to any act or omission where the
decision to take or omit such action was with the agreement of CGU.
13.2 Insurers agree to indemnify and hold harmless Administrator and any of
its directors, officers, employees, agents or affiliates (and the
directors, officers, employees and agents of such affiliates) from any
and all losses, liabilities, costs, claims, demands, compensatory,
extra contractual and/or punitive damages, fines, penalties and
expenses (including reasonable attorneys' fees and expenses)
(collectively, "Administrator Losses") arising out of or caused by: (i)
fraud, theft or embezzlement by officers, employees or agents of
Insurers during the term of this Agreement; (ii) any other act of
negligence or willful misconduct committed by officers, agents or
employees of Insurers during the term of this Agreement; or (iii) any
failure of Insurers to comply with applicable laws, rules and
regulations during the term of this Agreement other than any failure on
the part of Insurers or Administrator caused by the action or inaction
of Administrator, including when acting in the name or on behalf of
Insurers, whether or not in compliance with the terms of this
Agreement. Nothing herein shall be construed to require an Insurer to
indemnify the Administrator with respect to any act or omission where
the decision to take or omit such action was with the agreement of
Administrator.
13.3 In the event that either party hereto asserts a claim for
indemnification hereunder, such party seeking indemnification (the
"Indemnified Party") shall give written
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notice to the other party (the "Indemnifying Party") specifying the
facts constituting the basis for, and the amount (if known) of, the
claim asserted within one year of the date the claim is asserted
against or should be known by "Indemnified Party".
13.4 If an Indemnified Party asserts, or may in the future seek to assert, a
claim for indemnification hereunder because of a claim or demand made,
or an action, proceeding or investigation instituted, by any person not
a party to this Agreement (a "Third Party Claimant") that may result in
an Administrator Loss with respect to which Administrator is entitled
to indemnification pursuant to Section 13.2 hereof or an Insurers Loss
with respect to which Insurers is entitled to indemnification pursuant
to Section 13.1 hereof (an "Asserted Liability"), the Indemnified Party
shall so notify the Indemnifying Party as promptly as practicable, but
in no event later than 10 Business Days after such Asserted Liability
is actually known to the Indemnified Party. Failure to deliver notice
with respect to an Asserted Liability in a timely manner shall not be
deemed a waiver of the Indemnified Party's right to indemnification for
Losses in connection with such Asserted Liability but the amount of
reimbursement to which the Indemnified Party is entitled shall be
reduced by the amount, if any, by which the Indemnified Party's Losses
would have been less had such notice been timely delivered.
13.5 The Indemnifying Party shall have the right, upon written notice to the
Indemnified Party, to investigate, contest, defend or settle the
Asserted Liability; provided that the Indemnified Party may, at its
option and at its own expense, participate in the investigation,
contesting, defense or settlement of any such Asserted Liability
through representatives and counsel of its own choosing. The failure of
the Indemnifying Party to respond in writing to proper notice of an
Asserted Liability within 10 days after receipt thereof shall be deemed
an election not to defend the same. Unless and until the Indemnifying
Party elects to defend the Asserted Liability, the Indemnified Party
shall have the right, at its option and at the Indemnifying Party's
expense, to do so in such manner as it deems appropriate, including,
but not limited to, settling such Asserted Liability (after giving
notice of the settlement to the Indemnifying Party) on such terms as
the Indemnified Party deems appropriate.
13.6 Except as provided in the immediately preceding sentence, the
Indemnified Party shall not settle or compromise any Asserted Liability
for which it seeks indemnification hereunder without the prior written
consent of the Indemnifying Party (which shall not be unreasonably
withheld) during the 10 day period specified above.
13.7 The Indemnifying Party shall be entitled to participate in (but not to
control) the
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defense of any Asserted Liability which it has elected, or is deemed to
have elected, not to defend, with its own counsel and at its own
expense.
13.8 Except as provided in the first sentence of paragraph 13.5 of this
Section, the Indemnifying Party shall bear all reasonable costs of
defending any Asserted Liability and shall indemnify and hold the
Indemnified Party harmless against and from all costs, fees and
expenses incurred in connection with defending such Asserted Liability.
13.9 Administrator and Insurers shall make mutually available to each other
all relevant information in their possession relating to any Asserted
Liability (except to the extent that such action would result in a loss
of attorney-client privilege) and shall cooperate with each other in
the defense thereof.
13.10 The provisions of this Article XIII shall survive the termination of
the Agreement for a period of one year.
ARTICLE XIV
DURATION; EARLY TERMINATION
This Article shall have no application to expirations under Article XXI.
14.1 This Agreement shall commence on the date of its execution and continue
with respect to each Reinsured Contract until no further Run-Off
Services in respect of such Reinsured Contract is required, unless it
is earlier terminated as provided herein.
14.2 This Agreement is subject to immediate termination at the option of
Insurers, upon written notice to Administrator, on the occurrence of
any of the following events:
14.2.1 A voluntary or involuntary proceeding is commenced in any state by or
against the Administrator for the purpose of conserving, rehabilitating
or liquidating Administrator, or Administrator shall lose its authority
to perform services hereunder;
14.2.2 There is a material breach by Administrator of any term or condition of
this Agreement, that is not cured by Administrator within 90 days of
receipt of written notice from Insurers of such breach or act provided
that in the event of a dispute between the parties as to whether there
is a material breach, said 90 days shall be tolled from the time of a
demand for arbitration until issuance of a final judgment of an
arbitration panel; or
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14.2.3 Administrator is unable to perform the services (other than the breach
of this Agreement or the Aggregate Reinsurance Agreement by any CGU
Insurer) required under this Agreement for a period of 90 consecutive
days for any reason provided that in the event of a dispute between the
parties as to whether Administrator is unable to perform the services,
said 90 days shall be tolled from the time of a demand for arbitration
until issuance of a final judgment of an arbitration panel.
14.3 This Agreement may be terminated at any time upon the mutual written
consent of the parties hereto, which writing shall state the effective
date of termination.
14.4 In the event that this Agreement is terminated under Section 14.2,
Administrator shall select a third-party administrator to perform the
services required by this Agreement. Insurers shall have the right to
approve any such administrator selected by Administrator, but such
approval will not unreasonably be withheld. If Administrator fails to
select an administrator pursuant to this Section, Insurers shall select
such an administrator. In either case, Administrator shall pay all fees
and charges imposed by the selected administrator and the reasonable
costs of Insurers in the transition of the performance of the services
required under this Agreement to such administrator.
14.5 In the event that this Agreement is terminated under Sections 14.2,
Administrator shall cooperate fully in the transfer of services and the
books and records maintained by Administrator pursuant to this
Agreement.
ARTICLE XV
RESTRICTIONS ON CGU
15.1 With effect from the Inception Date and in relation to the Business
Covered, during the term of this Agreement CGU and Reinsured undertake
to the Administrator that they shall not:
15.1.1 grant to any person any security interest in or over reinsurance
receivables, salvage or subrogation;
15.1.2 delegate or sub-contract any functions or services relating to the
Business Covered, except with the prior consent of the Administrator,
or enter into any agreement with any person which would create
contractual obligations of CGU, Reinsured or any CGU Insurer for which
Administrator would be liable under this Agreement.
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ARTICLE XVI
ARRANGEMENTS FOR TRANSFERS OF ASSETS
16.1 The Administrator may, upon giving not less than 90 day's notice to
CGU, such notice to have effect not earlier than the Effective Date,
acquire all, or any part of, the moveable assets used by the
Environmental Claims and One Washington Mall File Facility of CGU's
Claims Department at the market price of such assets as at the
Effective Date.
16.2 CGU shall, or shall procure that each CGU Insurer shall, so far as it
is legally able to do so, license without charge (but not otherwise
support) to the Administrator the right to use all software owned by
any CGU Insurer and currently used in relation to the Business Covered
for so long as the Administrator is obliged to carry out the Run-off
Functions.
16.3 CGU shall use all reasonable endeavors, upon being requested to do so
by the Administrator and at the cost of the Administrator, to obtain an
assignment / or licence of such software used in relation to the
Business Covered from any third party, where the consent of such third
party is required or desirable.
ARTICLE XVII
PREMISES AND ASSOCIATED FACILITIES
17.1 The Parties will endeavour to reach mutual agreement on lease
obligation for the 17th floor of 000 Xxxxxx Xxxxxx and on the lower
level at Xxx Xxxxxxxxxx Xxxx, Xxxxxx XX.
17.2 The Administrator shall be charged rent based on its pro rata share of
occupied space, and pro rata share of common space to include
conference rooms. Services to be provided Administrator shall include
basic building services provided to CGU under the leases for the
respective Premises (e.g. janitorial, building maintenance, utilities,
etc.
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ARTICLE XVIII
BANK ACCOUNTS
18.1 As soon as reasonably practical after the Effective Date Administrator
shall:
18.1.2 open and maintain accounts into and out of which all payments due from
Administrator under the Aggregate Reinsurance Agreement shall be paid
and all recoverables due Administrator under the Aggregate Reinsurance
Agreement shall be received (the "RUN-OFF ACCOUNTS").
18.2 The Administrator may open and maintain such bank accounts in its own
name as it may require in relation to the provision of the Run-off
Functions, and Reinsured hereby authorizes all payments to be made from
and all recoveries paid to such accounts in connection with the
provision of the Run-off Functions.
18.3 CGU and the Administrator shall co-operate in procuring that, as soon
as reasonably practicable, following the Effective Date, changes to the
instruction and finance systems are made so as to enable payments and
recoveries to be paid into and from the Run-off Accounts. All costs of
changes will be paid by Administrator. To the extent that payments and
recoveries are made after the Effective Date from accounts held by CGU,
CGU and the Administrator shall co-operate in setting up reimbursement
procedures for payment of amounts due between the Administrator and the
Reinsured.
ARTICLE XIX
RATIFICATION
19.1 CGU shall, if called upon to do so, ratify and confirm any act or thing
lawfully done or caused to be done by the Administrator in the proper
performance of the Run-off Functions.
19.2 The Administrator shall, if called upon to do so, ratify and confirm
any act or thing lawfully done or caused to be done by CGU in the
proper performance of the Run-off Services.
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ARTICLE XX
CONSULTATION
20.1 Administrator shall consult with the Reinsured on any claim,
commutation or other financial transaction where the Administrator has
a reasonable belief that the value of the claim, commutation or other
financial transaction will exceed a net value of $5 million or a gross
value of $10 million. The Administrator shall be entitled to make
decisions in relation to any such claim or other financial transaction
but shall take into account the reasonable views of the Reinsured
provided that the same are provided within a reasonable time.
ARTICLE XXI
NORMAL EXPIRATION
21.1 This Agreement shall terminate upon termination of the Administrator's
liability under the Reinsurance Agreement. Under all circumstances
Administrator's liability under this Agreement shall cease at the close
of the Business Day on which Administrator has paid an Ultimate Net
Loss equal to the Aggregate Limit (the "Limit Date"). The Administrator
shall have no further liability hereunder and the run-off of the
Business Covered and associated matters shall be returned to the
Reinsured at the close of the Limit Date.
21.2 The parties shall co-operate fully in effecting an orderly and timely
return of the run-off to the Reinsured. With effect from the Limit
Date, the rights and obligations under this Agreement from that date to
perform the run-off of the Business Covered shall become the
obligations and rights of the Reinsured insofar as they remain relevant
to the operation of the Aggregate Reinsurance Agreement.
ARTICLE XXII
OTHER PROVISIONS
22.1 The headings used herein are not a part of this Agreement and shall not
affect the terms hereof.
22.2 All notices and communications hereunder shall be in writing and shall
become effective when received. Any written notice shall be by either
certified or registered mail, return receipt requested, or overnight
delivery service (providing for delivery receipt) or delivered by hand.
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22.3 All notices or communications under this Agreement shall be addressed
as follows:
If to the Reinsured:
c/o CGU Insurance Company
Xxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: General Counsel
If to the Administrator:
x/x Xxxxxxxxx Xxxxxxxx Group
Reinsurance Division
000 Xxxxx Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: General Counsel
or in each case at such other address as either party shall provide to
the other as provided in this Section 22.3.
22.4 This Agreement may be executed by the parties hereto in any number of
counterparts, and by each of the parties hereto in separate
counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
22.5 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and legal
representatives. Neither this Agreement, nor any right hereunder, may
be assigned by either party without the prior written consent of the
other party hereto.
22.6 Whenever the word "Dollars" or the "$" sign appears in this Agreement,
they shall be construed to mean United States Dollars, and all
transactions under this Agreement shall be in United States Dollars.
22.7 This Agreement may not be changed, altered or modified unless the same
shall be in writing executed by the Reinsured and the Administrator.
22.8 This Agreement shall be interpreted and governed by the laws of the
State of New York without regard to its rules with respect to conflicts
of law.
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22.9 This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
general or specific warranties, representations or other agreements by
or among the parties in connection with the entering into of this
Agreement or the subject matter hereof, except as specifically set
forth or contemplated herein.
22.10 No consent or waiver, express or implied, by any party or any breach or
default by any other party in the performance by such other party of
its obligations hereunder shall be deemed or construed to be a consent
or waiver of any other breach or default in the performance of
obligations hereunder by such other party hereunder. Failure on the
part of any party to complain of any act or failure to act of any other
party or to declare any other party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such
first party of any of its rights hereunder.
22.11 No purported alteration of this Agreement shall be effective unless it
is in writing, refers to this Agreement and is duly executed by each
party to this Agreement.
22.12 The parties intend that every such provision in this Agreement shall be
and remain valid and enforceable to the fullest extent permitted by
law. If any such provision is or at any time becomes to any extent
invalid, illegal or unenforceable under any enactment or rule of law,
the parties shall make such amendments as they may agree to give lawful
effect to the intentions of the parties immediately prior to the date
of this Agreement.
22.13 Each of the parties shall be responsible for its respective legal and
other costs incurred in relation to the negotiation, preparation and
completion of this Agreement and all ancillary documents.
22.14 No term of this Agreement is enforceable by a person who is not a party
to this Agreement nor shall any person not a party to this Agreement
have any rights hereunder or be a beneficiary of this Agreement, except
in each case for the CGU Insurers.
22.15 Whenever under the terms of this Agreement the consent, approval or
specification of a party is required, each party agrees that such
consent, approval or specification will not unreasonably be withheld or
delayed.
22.16 In the event of the insolvency of an CGU Insurer, nothing in this
Agreement shall increase or otherwise alter Administrator's obligations
under the Agreement.
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ARTICLE XXIII
ARBITRATION AGREEMENT
23.1 RESOLUTION OF DAMAGES. As a condition precedent to any right arising
under this Agreement, any dispute between the Reinsured and the
Administrator arising out of the provisions of this Agreement, or
concerning its interpretation or validity, whether arising before or
after termination of this Agreement, shall be submitted to arbitration
in the manner set forth in Article 23.The Reinsured or the
Administrator may initiate arbitration of any such dispute by giving
written notice to the other party by registered or certified mail,
return receipt requested, of its intention to arbitrate and of its
appointment of an arbitrator in accordance with Section 23.3.
23.2 COMPOSITION OF PANEL. Unless the parties agree upon a single arbitrator
within fifteen (15) days after the receipt of notice of intention to
arbitrate, all disputes shall be submitted to an arbitration panel
composed of two arbitrators and an umpire, chosen in accordance with
Sections 23.3 and 23.4.
23.3 APPOINTMENT OF ARBITRATORS. The members of the arbitration panel shall
be chosen from persons who are current or retired executive officers of
insurance or reinsurance companies. The party requesting arbitration
(hereinafter referred to as the "claimant") shall appoint an arbitrator
and give written notice thereof, by registered or certified mail,
return receipt requested, to the other party (hereinafter referred to
as the "respondent") together with its notice of intention to
arbitrate. Unless a single arbitrator is agreed upon within fifteen
(15) days after the receipt of the notice or intention to arbitrate,
the respondent shall, within thirty (30) days after receiving such
notice, also appoint an arbitrator and notify the claimant thereof in a
like manner. Before instituting a hearing, the two arbitrators so
appointed shall choose an umpire. If, within twenty (20) days after
they are both appointed, the arbitrators fail to agree upon the
appointment of an umpire, the umpire shall be appointed by the
President of the American Arbitration Association.
23.4 FAILURE OF A PARTY TO APPOINTMENT ARBITRATOR. If the respondent fails
to appoint an arbitrator within thirty (30) days after receiving notice
of intention to arbitrate, such arbitrator shall be appointed by the
President of the American Arbitration Association, and shall then,
together with the arbitrator appointed by the claimant, choose an
umpire as provided in Section 23.3.
23.5 CHOICE OF FORUM. Any arbitration instituted pursuant to this Article 23
shall be held in New York, New York.
23.6 SUBMISSION OF DISPUTE TO PANEL. Unless otherwise extended by the
arbitration panel, or agreed to by the parties, each party shall submit
its case to the panel within thirty (30) days after the selection of an
umpire.
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23.7 PROCEDURE GOVERNING ARBITRATION. All proceedings before the panel shall
be informal and the panel shall not be bound by the formal rules of
evidence. The panel shall have the power to fix all procedural rules
relating to the arbitration proceeding. In reaching any decision, the
panel shall give due consideration to the custom and usage of the
insurance and reinsurance business and the mutual intention of the
parties as reflected in this Agreement.
23.8 ARBITRATION AWARD. The arbitration panel shall render its decision
within sixty (60) days after termination of the proceeding, which
decision shall be in writing. The decision of the majority of the panel
shall be final and binding on the parties to the proceeding.
23.9 COST OF ARBITRATION. Unless otherwise allocated by the panel, each
party shall bear the expense of its own arbitrator and its own
witnesses and shall jointly and equally bear with the other party the
expense of the umpire and the arbitration.
23.10 LIMIT OF JURISDICTION. The arbitration panel shall not have
jurisdiction to authorize any punitive damage awards between the
parties.
IN WITNESS of which this Agreement has been entered into on the day first above
written.
SIGNED by
on behalf of CGU
INSURANCE COMPANY
--------------------------------------
Title
SIGNED by
on behalf of POTOMAC
INSURANCE COMPANY
--------------------------------------
Title
SIGNED by
on behalf of NATIONAL
INDEMNITY COMPANY
--------------------------------------
Title
27
