EXHIBIT 10.61
FIRST EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered into by and between
SCPIE HOLDINGS, INC., and/or
S.C.P.I.E. INDEMNITY COMPANY and/or
AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or
AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or
S.C.P.I.E. INSURANCE SERVICES, INC., and/or
S.C.P.I.E. MANAGEMENT SERVICES, INC.
Beverly Hills, California
and/or FREMONT INDEMNITY COMPANY
(hereinafter collectively referred to as the "Company")
and
The Subscribing Reinsurer(s) executing the
Interests and Liabilities Contract(s)
attached to and forming a part
of this Agreement
(hereinafter referred to as the "Reinsurer")
WITNESSETH:
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The Reinsurer hereby reinsures the Company to the extent and the terms and
conditions subject to the exceptions, exclusions and limitations hereinafter set
forth and nothing hereinafter shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any third parties or any
persons not parties to this Agreement.
ARTICLE I
BUSINESS COVERED
The Reinsurer agrees to reimburse the Company, on an excess of loss basis, for
the amount of ultimate net loss which the Company may pay as the result of
claims made during the term of this Agreement under the Company's Physicians and
Surgeons Comprehensive Professional and Business Liability policies, including
Clinics and Clinical Laboratories, Professional and Business Liability policies
for Hospitals, Errors and Omissions Liability policies for Managed Care
Organizations and Directors and Officers Liability policies which are in force
or may hereinafter come into force during
the term of this Agreement, except as excluded under the Exclusions Article
subject to the limitations set forth in the Limits of Cover Article.
ARTICLE II
EXCLUSIONS
This Agreement specifically excludes:
1. 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, 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
claim, debt, charge, fee or other obligation of an insurer, or its
successors or assigns, which has been declared by any competent authority
to be insolvent, or which is otherwise deemed unable to meet any claim,
debt, charge, fee or other obligation in whole or in part.
2. Loss or Liability excluded by the provisions of the attached "Nuclear
Incident Exclusion Clause - Liability - Reinsurance".
3. All Assumed Reinsurance.
ARTICLE III
TERM
A. Except as provided in paragraph C. below, this Agreement shall apply to
claims made during the twelve (12) month period beginning January 1, 1999.
In the event a loss, as defined in the Definitions Article, involves a loss
or losses covered under the current Agreement Year and a prior Agreement
Year(s) no recovery shall be made hereunder in respect of any loss which
occurred prior to:
1. January 1, 1979 as regards Extra Contractual Obligations (as provided
for in the Extra Contractual Obligations Clause Article)
2. January 1, 1976 as regards all other business.
B. It is understood however, that in respect of Personal Liability and
Discovery Period coverage for Deceased, Disabled, Retired and Withdrawing
Physicians and for Physicians ceasing Medical Practice within the State,
this Agreement covers claims made during the period of this Reinsurance
Agreement. In the event this Agreement is not renewed, all such liability
shall be assumed by the Company with effect from the date of cancellation.
C. The provisions of paragraphs A. and B. notwithstanding, the Company may, at
its option, elect to continue to cover the in force portfolio of liability
on the date of expiration for a further period of twelve (12) months.
Should the Company exercise this option, the Company shall give the
Reinsurer notice prior to expiration that they wish to exercise this
option. The Company shall pay to the Reinsurer an additional premium
thereon as set forth in the Premium Article.
D. If any law or regulation of the Federal, State or Local Government or any
jurisdiction in which the Company is doing business shall render illegal
the arrangements made herein, this Agreement can be terminated immediately
insofar as it applies to such jurisdiction by the Company giving notice to
the Reinsurer to such effect.
E. Notwithstanding the expiration of this Agreement as hereinabove provided,
the provisions of this Agreement shall continue to apply to all unfinished
business hereunder to the end that all obligations and liabilities incurred
by each party hereunder prior to such termination shall be fully performed
and discharged.
ARTICLE IV
ATTACHMENT OF LIABILITY
A. For purposes of determining the attachment of the Reinsurer's liability
hereunder as respects any one loss, all losses (including Discovery Period
Losses) involving one or more Original Insureds, arising from the same
incident, and in which First Notice of Claim or Circumstance is notified to
the Company during the term of this Agreement shall be covered hereunder.
Where First Notice falls in Agreement Years prior to January 1, 1992
paragraph D. (Interlocking Clause) of the Limits of Cover Article below,
shall apply hereon for Physicians and Surgeons Comprehensive Professional
Liability policies only.
B. The date of loss hereunder shall be the earliest date, within the term of
this Agreement, that the Company has received First Notice of Claim or
Circumstance.
ARTICLE V
LIMITS OF COVER
A. 1. The Company shall retain for its own account and pay under one or more
of the Company's policies the first $1,000,000 ultimate net loss, each
and every loss and the Reinsurer agrees to reimburse the Company for
the amount of ultimate net loss paid in excess of $1,000,000, each and
every loss, but the Reinsurer's maximum liability shall not exceed
$1,000,000 resulting from each and every loss as respects Physicians
and Surgeons Comprehensive Professional and Business Liability
policies, including Clinics and Clinical Laboratories, Errors and
Omissions Liability policies for Managed Care Organizations and/or
Directors and Officers Liability arising from any one
incident. It is further understood and agreed that this Section shall
cover $1,800,000 each and every loss in excess of $200,000 each and
every loss as respects Extra Contractual Obligation losses and losses
in Excess of Original Policy Limits only, resulting from the Company's
net retained liability from the Texas Physicians and Surgeons
Professional Liability Program underwritten by Xxx & Xxxxx, Inc.,
arising from any one event.
2. The Company shall retain for its own account and pay under one or more
of the Company's policies the first $1,500,000 ultimate net loss, each
and every loss and the Reinsurer agrees to reimburse the Company for
the amount of ultimate net loss paid in excess of $1,500,000, each and
every loss, but the Reinsurer's maximum liability shall not exceed
$500,000 resulting from each and every loss as respects Physicians and
Surgeons Comprehensive Professional and Business Liability policies,
including Clinics and Clinical Laboratories and/or Errors and
Omissions Liability policies for Managed Care Organizations and/or
Directors and Officers Liability and/or Professional and Business
Liability policies for Hospitals arising from any one incident.
It is understood and agreed that Section A.1. would respond to
individual Physician losses under Physicians and Surgeons
Comprehensive Professional and Business Liability policies and/or
Multiple Physicians losses under Physicians and Surgeons Comprehensive
Professional and Business Liability policies and/or losses under
Errors and Omissions Liability policies for Managed Care Organizations
and/or Directors and Officers Liability and/or any combination
thereof. It is further agreed that Section A.2. would respond in the
same fashion as Section A.1. when any one incident includes any losses
under Professional and Business Liability policies for Hospitals.
3. The Company shall retain for its own account and pay under one or more
of the Company's policies the first $500,000 ultimate net loss, each
and every loss and the Reinsurer agrees to reimburse the Company for
the amount of ultimate net loss paid in excess of $500,000, each and
every loss, but the Reinsurer's maximum liability shall not exceed
$2,000,000 resulting from each and every loss as respects Directors
and Officers Liability and/or Errors and Omissions Liability policies
for Managed Care Organizations arising from any one incident.
B. Notwithstanding the foregoing, it is a condition hereto that an Annual
Aggregate Deductible of losses otherwise recoverable hereunder equal to
.80% of GNEPI shall first be deducted before any liability attaches to the
Reinsurer hereon.
C. The Reinsurer's maximum liability from all losses during the term of this
Agreement shall not exceed $8,500,000 or 182.5% of the Company's
Reinsurance Premiums Earned during the period, whichever is greater. It is
further agreed that the Reinsurer's maximum liability, as respects any
elected run off period, shall be limited to $8,500,000 or 182.5% of the
Company's Reinsurance Premiums Earned, whichever is greater, for said run-
off period.
D. (This paragraph shall apply only to those claims where first notice of
claim or circumstance falls in Agreement Years prior to January 1, 1992.)
As respects each and every loss where this Agreement responds on a claims
made basis, and more than one insured or policy is covered under this
Agreement period with claims made dates falling in more than one
reinsurance agreement period, the limit and retention as respects claims
covered under this Agreement shall be the percentage of the Limit and
Retention under this Agreement that the amount of covered claim or claims
hereunder bears to the total of all covered claims from the same loss.
ARTICLE VI
WARRANTIES
The Company warrants the following in respect of the business covered hereunder:
1. In respect of Professional and Business Liability policies for Hospitals
written prior to January 1, 1996, policy limits greater than $5,000,000
shall be reinsured elsewhere on an Excess of Loss basis or so deemed.
2. In respect of Professional and Business Liability policies for Hospitals
written on or after January 1, 1996 and prior to October 1, 1997, policy
limits greater than $500,000 shall be reinsured elsewhere on an Excess of
Loss basis or so deemed.
3. In respect of Professional and Business Liability policies for Hospitals
written on or after October 1, 1997, policy limits greater than $1,000,000
shall be reinsured elsewhere on an Excess of Loss basis or so deemed.
4. It is understood and agreed that the Company shall maintain a 50% Quota
Share Treaty (being 50% of $5,000,000 maximum cession) covering Directors
and Officers Liability and Errors and Omissions Liability Policies for
Managed Care Organizations, recoveries under which shall inure to the
benefit of this Agreement.
5. It is understood and agreed that the Company shall maintain an 85%
placement of an 80% Quota Share Treaty (being a maximum cession of 80% of
$1,000,000/ $3,000,000 limit per physician) covering business classified by
the Company as Texas Physicians and Surgeons Professional Liability
underwritten by Xxx & Xxxxx, Inc.
ARTICLE VII
DEFINITIONS
A. The term "each and every loss" shall mean the happening of one or a series
of related acts, errors, or omissions to act, accidents or occurrences
arising out of one event.
B. The term "Gross Net Earned Premium Income" shall mean the gross earned
premium on business the subject matter hereof less cancellations and return
premiums and less premiums paid for reinsurance recoveries under which
would inure to the benefit of the Reinsurer. Such Premium Income shall be
understood to include:
1. that content of pre-paid premiums under policies in respect of
Deceased, Disabled and Retired Insureds, the coverage for which
becomes effective during the Agreement period.
2. the premium transferred internally by the Company from a prior
Agreement year or years, in respect of Deceased, Disabled and Retired
Insureds and in respect of other withdrawing Insureds who have
purchased extended coverage under Reporting Endorsements.
C. The term "claims made" as used herein shall mean (A) In respect of Claims
Made Policies, claims first notified to the Company during the term of this
Agreement on any in force policy or reporting endorsement arising out of
incidents subsequent to the retroactive date of said policy as the result
of the rendering of or failure to render a professional service or the
reporting of losses which arise from the insured premises and operations
incidental to the practice of a physician, hospital or managed care
organization and/or (B) In respect of Occurrence Policies, claims or losses
first notified to the Company during the term of this Agreement.
ARTICLE VIII
NET RETAINED LINES
A. This Agreement applies to only that portion of any insurance which the
Company retains net for its own account; and in calculating the amount of
any loss hereunder and also in computing the amount or amounts in excess of
which this Agreement attaches, only loss or losses in respect of that
portion of any insurance which the Company retains net for its own account
shall be included.
B. The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Company to
collect from any other underwriters, whether specific or general, any
amount which may become due from them, whether such inability arises from
the insolvency of such other underwriters or otherwise.
ARTICLE IX
ULTIMATE NET LOSS
A. The term "ultimate net loss" as used herein shall be understood to mean the
sum actually paid by the Company in settlement of losses for which it is
held liable, including declaratory judgement expenses incurred in
connection with coverage
questions and legal actions related to a specific claim, pre judgment
interest when made part of the award or judgment, 80% of Extra Contractual
Obligations and 100% of loss in Excess of Original Policy Limits as
provided in the respectively captioned Articles, after making proper
deductions for all recoveries, salvages, and claims upon other reinsurances
and insurances which inure to the benefit of the Reinsurer under this
Agreement, whether collectible or not, and shall exclude all loss
adjustment expenses (which shall be separately allocated and paid as
provided in paragraph B. below); provided, however, that in the event of
the insolvency of the Company, "ultimate net loss" shall mean the amount of
loss which the Company has incurred or for which it is liable, 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
Insolvency Article in this Agreement. Nothing in this clause, however,
shall be construed to mean that losses under this Agreement are not
recoverable until the ultimate net loss of the Company has been
ascertained.
B. All loss adjustment expenses incurred in investigation, adjustment and
litigation, defense and settlement of claims made against the Company under
its original policies reinsured hereunder, including pre judgment interest
when not part of an award or judgment and post judgment interest, shall be
apportioned in proportion to the respective interests of the parties hereto
in the ultimate net loss. Office expenses and salaries of officials and
employees not classified as loss adjusters are not chargeable as expenses
for the purpose of this paragraph.
C. In the event a verdict or judgment is reduced by an appeal or a settlement,
subsequent to the entry of a judgment, resulting in an ultimate saving on
such verdict or judgment, or a judgment is reversed outright, the expense
incurred in securing such final reduction or reversal shall (1) be prorated
between the Reinsurer and the Company in proportion that each benefits from
such reduction or reversal and the expense incurred up to the time of the
original verdict or judgment shall be prorated in proportion to each
party's interest in such verdict or judgment; or (2) when the terms and
conditions of the Company's original policies reinsured hereunder include
expenses as part of the policy limit, be added to the Company's ultimate
net loss.
ARTICLE X
PROFIT COMMISSION
A. The Reinsurer shall make a Profit Commission allowance of 90% to the
Company on the net profits accruing to the Reinsurer under this Agreement
period (January 1, 1999 through December 31, 1999), computed as follows:
INCOME
1. Premiums earned by the Reinsurer during the Agreement period.
OUTGO
1. Losses and loss adjustment expenses incurred by the Reinsurer during
the Agreement period.
2. Allowance for Reinsurer's management expenses during the Agreement
period of 25% on the reinsurance premiums earned during the Agreement
period.
3. Deficit or underwriting loss, if any, brought forward from the
preceding Agreement period.
The amount by which INCOME exceeds OUTGO is profit.
The amount by which OUTGO exceeds INCOME is deficit.
B. The first calculation of Profit Commission shall be computed as of December
31, 1999, and annually thereafter, and the first and final payment of any
Profit Commission shall be made by the Reinsurers to the Company as of
December 31, 2003. The Company agrees that Payment of any Profit Commission
shall be subject to complete commutation as respects all losses known and
unknown within the Profit Commission period. Payment of any Profit
Commission by the Reinsurers shall constitute full and final release from
all further loss development and Reinsurers hereby agree to pay to the
Company an amount equal to 100% of any outstanding loss and loss adjustment
expense reserves recoverable hereunder at the time of the commutation
calculation.
C. For the purposes of this Article the phrase "losses incurred" means losses
paid plus loss adjustment expenses paid less salvages recovered in respect
of claims made during the period for which computation is being made, plus
the reserve for unpaid outstanding losses and loss adjustment expenses at
the close of the period, in respect of claims made during the period.
ARTICLE XI
EXCESS OF ORIGINAL POLICY LIMITS
A. This Agreement shall protect the Company, within the limits hereof, in
connection with any loss in excess of the limit of its original policy,
such loss in excess of the limit having been incurred because of failure by
it to settle within the policy limit, or by reason of alleged or actual
negligence, fraud or bad faith in rejecting an offer of settlement or in
the preparation of the defense or in the trial of any action against its
insured or in the preparation or prosecution of an appeal consequent upon
such action.
B. However, this Article shall not apply where the loss has been incurred due
to the fraud of a member of the Board of Directors or a corporate officer
of the Company acting individually or collectively or in collusion with any
individual or corporation or any other organization or party involved in
the presentation, defense or settlement of any claim covered hereunder.
C. For the purposes of this Article, the word "loss" shall mean any amounts
for which the Company would have been contractually liable to pay had it
not been for the limit of the original policy.
ARTICLE XII
EXTRA CONTRACTUAL OBLIGATIONS CLAUSE
A. This Agreement shall protect the Company within the limits hereof, where
the ultimate net loss includes Extra Contractual Obligations. "Extra
Contractual Obligations" are defined as those liabilities not covered under
any other provision of this Agreement and which arise from handling of any
claim on business covered hereunder, such liabilities arising because of,
but not limited to the following: failure by the Company to settle within
the policy limit, or by reason of alleged or actual negligence, fraud or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
B. The date on which an Extra Contractual Obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the
original accident, casualty, disaster or loss and furthermore, for the
purposes hereof be deemed to follow the claims made provisions of this
Agreement, subject always to the provisions of the Term Article.
C. However, this Article shall not apply where the loss has been incurred due
to the fraud of a member of the Board of Directors or a corporate officer
of the Company acting individually or collectively or in collusion with any
individual or corporation or any other organization or party involved in
the presentation, defense or settlement of any claim covered hereunder.
ARTICLE XIII
CLAIMS
A. In the event of a claim arising hereunder which either results in or
appears to be of serious enough nature as probably to result in a loss
involving this Agreement, the Company shall give notice as soon as
reasonably practicable to Reinsurers and the Company shall keep the
Reinsurer advised of all subsequent developments in connection therewith.
B. The Company shall also promptly notify the Reinsurers of all incidents
involving the following injuries for which the Company has established an
indemnity reserve of $550,000 or greater and with policy limits to affect
Reinsurers:-
1. Death of high wage earner with two or more dependents.
2. Brain Injury.
3. Nerve Injury.
4. Paralysis - cord injury.
5. Amputations.
6. Internal injuries which require continuous treatment (e.g. Dialysis,
Hyperalimentation, failure to diagnose).
7. Blindness.
C. All loss settlements made by the Company provided they are within the terms
of the Company's original policies and of this Agreement, shall be
unconditionally binding upon Reinsurer and amounts falling to the share of
the Reinsurer shall be payable to the Company in accordance with the
provisions set forth in paragraph C. of the Reports and Remittances
Article.
ARTICLE XIV
COMMUTATION CLAUSE
The Company or the Reinsurer may, at any time express their desire to the other
party to commute all losses which are applicable to any Agreement year and which
are still unsettled. In such event the Company and the Reinsurer shall mutually
determine and evaluate such losses and the payment by the Reinsurer of their
proportion of the amount so ascertained and mutually agreed to be the value of
such losses shall relieve them of all further liability, in respect of that
Agreement year both in respect of known or unknown losses.
ARTICLE XV
PREMIUM
A. The Company shall pay to the Reinsurer a deposit premium of $3,600,000
payable in equal quarterly installments of $900,000 on January 1st, April
1st, July 1st and October 1st, 1999. In the event the Company elects to run
off its policies in force until natural expiration, not to exceed twelve
(12) months from the expiration date hereon, the Company shall pay to the
Reinsurer a run-off premium equal to 50% of the Actual Earned Reinsurance
Premium, as set forth in paragraph B. The run-off premium shall be paid in
equal quarterly installments on January 1st, April 1st, July 1st and
October 1st, 2000.
B. As soon as practicable after expiration of this Agreement, the Company
shall calculate the premium due the Reinsurer based on a rate of 2.88% of
the Gross Net Earned Premium Income accounted for by the Company during the
term of this
Agreement on all business subject matter of the Agreement, subject to a
minimum premium of $2,800,000. In the event the premium due hereunder is
greater than the deposit premium paid, the difference shall be paid to the
Reinsurer forthwith. If the actual premium is less then the deposit premium
paid, the difference shall be refunded to the Company, subject to the
minimum premium.
ARTICLE XVI
REPORTS AND REMITTANCES
A. The Company will provide the Reinsurer within forty-five (45) days at the
end of each quarter, all necessary data respecting premiums and losses,
including reserves thereon, as at dates and on forms mutually acceptable to
the Company and the Reinsurer.
B. Payments of deposit premium, provisional premium and adjusted premium shall
be made in accordance with the provisions of the Premium Article.
C. Payment by the Reinsurer of its portion of loss and loss expenses paid by
the Company will be made by the Reinsurer to the Company as soon as
possible, but not later than sixty (60) days after proof of payment by the
Company is received by the Reinsurer.
ARTICLE XVII
OFFSET
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Agreement. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XVIII
CONFIDENTIALITY CLAUSE
A. This Agreement and the pre Agreement documentation may contain confidential
or proprietary information of either party to this Agreement. All parties
shall maintain the confidentiality of this information and shall not
disclose these to any third party without both parties approval.
B. Notwithstanding the above, any party may disclose such information without
further approval from the other party in answer to interrogations,
subpoenas or other legal/arbitration process as well as to the Company's
reinsurance intermediary hereon, the Reinsurer's retrocessionaires or in
response to requests by governmental
and regulatory agencies. In addition the parties may disclose such
information to their accountants and outside legal counsel as may be
necessary.
ARTICLE XIX
CURRENCY
Premiums shall be payable by the Company and losses shall be paid to the Company
in United States currency.
ARTICLE XX
FEDERAL EXCISE TAX
(Applicable to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)
A. The Reinsurer has agreed to allow, for the purpose of paying the Federal
Excise Tax, the applicable percentage of the premium payable hereon (as
imposed under Section 4371 of the Internal Revenue Service Code) to the
extent such premium is subject to the Federal Excise Tax.
B. In the event of any return of premium becoming due hereunder the Reinsurer
will deduct the aforesaid percentage from the return premium payable hereon
and the Company or its agent should take steps to recover the tax from the
United States government.
ARTICLE XXI
ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such delay, omission or
error is rectified immediately upon discovery; provided, however, this Article
is not to override retroactive dates specified in the Term Article.
ARTICLE XXII
ACCESS TO RECORDS
A. The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect, through its
authorized representatives, all books, records and papers of the Company in
connection with this reinsurance hereunder or the subject matter thereof.
B. The Reinsurer shall be afforded the opportunity, at its own expense to
appoint an attorney of its own choice to assess the Company's claims
procedures who shall report to the Reinsurer the results of such.
ARTICLE XXIII
FUNDING
(This clause is only applicable to those Reinsurer(s) who cannot qualify for
credit by the State having jurisdiction over the Company's loss reserves.)
A. As regards policies or bonds issued by the Company coming within the scope
of this Agreement, the Company agrees that, when it shall file with the
Insurance Department or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to
the Reinsurer a statement showing the proportion of such loss reserves
which is applicable to the Reinsurer. The Reinsurer hereby agrees that it
will apply for and secure delivery to the Company of a clean, irrevocable
and unconditional Letter of Credit, issued by a bank which is acceptable to
the regulatory authority(ies) having jurisdiction over the Company's loss
reserves in an amount equal to the Reinsurer's proportion of reserves in
respect of known outstanding losses that have been reported to the
Reinsurer and allocated loss expenses relating thereto, plus reserves for
losses incurred but not reported, as shown in the statement prepared by the
Company.
B. The Letter of Credit shall be issued for a period of not less than one (1)
year, and shall be automatically extended for one (1) year from its date of
expiration or any future expiration date unless thirty (30) days prior to
any expiration date the issuing bank shall notify the Company by registered
mail that the bank elects not to consider the Letter of Credit extended for
any additional period. An issuing bank, not a member of the Federal Reserve
System or not chartered in New York State shall provide sixty (60) days
notice to the Company prior to any expiration in the event of non-
extension.
C. Notwithstanding any other provision of this Agreement, the Company or its
successors in interest may draw upon such credit at any time without
diminution because of the insolvency of the Company or of the Reinsurer for
one or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Company for the
Reinsurer's share of any loss reinsured by this Agreement, the payment
of which has been agreed by the Reinsurer 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 share of any liability reinsured by
this Agreement.
3. In the event of expiration of the Letter of Credit as provided for
above, to establish deposit of the Reinsurer's share of known and
reported outstanding
losses and allocated expenses relating thereto under this Agreement.
Such cash deposit shall be held in an interest bearing account
separate from the Company's other assets, and interest thereon shall
accrue to the benefit of the Reinsurer.
D. 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.
E. At annual intervals, or more frequently as agreed but never more frequently
than quarterly, the Company shall prepare a specific statement, for the
sole purpose of amending the Letter of Credit, of the Reinsurer's share of
known and reported outstanding losses and allocated expenses relating
thereto, plus reserves for losses incurred but not reported. If the
statement shows that Reinsurer's share of such losses and allocated loss
expenses exceeds 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 of the Letter of
Credit increasing the amount of credit by the amount of such difference.
If, however, the statement shows that the Reinsurer's share of known and
reported outstanding losses plus allocated loss expenses relating thereto,
plus reserves for losses incurred but not reported is 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.
ARTICLE XXIV
SPECIAL FUNDING CLAUSE
A. If, during the period of this Agreement and thereafter, as respects any
outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it
will fund uncollected paid losses and loss adjustment expenses within
thirty (30) days from the date of written demand by the Company to so fund.
Such demand shall not be made unless balances are sixty (60) days or more
past the due date of payment specified in this Agreement.
B. The Reinsurer shall have the sole option of determining the method of
funding referred to above, provided it is acceptable to the insurance
regulatory authorities involved. If the Reinsurer elects to fund the
aforesaid loss by a Letter of Credit, the procedures set forth in the
Funding Article in respect of Letters of Credit shall apply. If the
Reinsurer has already funded obligations hereunder in accordance with the
Funding Article in this Agreement, it agrees that such funds as are
required to pay overdue losses may immediately be drawn
C. The phrase "any loss payable" as used in paragraph A. above shall mean any
ultimate net loss subject to recovery under this Agreement wherein the
Reinsurer has not disputed said loss in writing within the due date for
payment.
D. The Company will provide the Reinsurer with a reinsurance proof of loss and
such other substantive loss material reflecting the nature of the
settlement (i.e., applicable Proofs of Loss, Releases, adjuster's reports,
etc.). If, subsequent to receipt of this material, the information supplied
is insufficient or not in accordance with the contractual conditions, then
the payment due date as defined in the Reports and Remittances Article,
will be deemed to be the date upon which the Reinsurer received such
additional substantive material necessary to approve payment of the claim,
or the date the claim is presented in a manner acceptable to the Reinsurer.
ARTICLE XXV
ARBITRATION
A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration
will be in writing and sent certified or registered mail, return receipt
requested.
B. One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its
arbitrator within thirty (30) days after being requested to do so by the
other party, the latter, after ten (10) days notice by certified or
registered mail of its intention to do so, may appoint the second
arbitrator.
C. If the two arbitrators are unable to agree upon the third arbitrator within
thirty (30) days of their appointment, the deficiency shall be supplied on
the application of the party requesting arbitration by an appointment made
by the American Arbitration Association. Notwithstanding the appointment of
any third Arbitrator by the American Arbitration Association, the
arbitration proceedings shall not be governed by the American Arbitration
Association's commercial arbitration rules.
D. All arbitrators shall be disinterested active or former executive officers
of insurance or reinsurance companies or Underwriters at Lloyd's, London.
E. Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery
procedures and schedules for hearings.
F. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel
agrees otherwise, arbitration shall take place in Beverly Hills,
California, but the venue may be changed when deemed by the panel to be in
the best interest of the arbitration proceeding. Insofar
as the arbitration panel looks to substantive law, it shall consider the
law of the State of California. The decision of any two arbitrators when
rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.
G. The panel shall interpret this Agreement as if it were an honorable
engagement rather than as merely a legal obligation and shall make its
decision considering the custom and practice of the applicable insurance
and reinsurance business within sixty (60) days following the termination
of the hearings. Judgment upon the award may be entered in any court having
jurisdiction thereof.
H. Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The
panel may, at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to attorneys fees, to the
extent permitted by law.
ARTICLE XXVI
SERVICE OF SUIT CLAUSE (U.S.A.)
A. It is agreed that in the event of the failure of the Reinsurer hereon to
pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a Court of
competent jurisdiction within the United States. Nothing in this Clause
constitutes or should be understood to constitute a waiver of the
Reinsurer's rights to commence an action in any Court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another Court as
permitted by the laws of the United States or of any State in the United
States. It is further agreed that service of process in such suit may be
made upon Messrs. Mendes & Mount, 000 Xxxxx Xxxxxxxx, Xxxxx 0000, Xxx
Xxxxxxx, XX 00000, and that in any suit instituted, the Reinsurer will
abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
B. The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Company to give written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit
shall be instituted.
C. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or
other officer specified for that purpose in the statute, or his successor
or successors in office, as their true and lawful attorney upon whom may be
served any lawful process in action, suit or proceeding instituted by or on
behalf of the Company or any beneficiary hereunder arising out of this
Agreement, and hereby designate the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.
ARTICLE XXVII
INSOLVENCY
A. The portion of any risk or obligation assumed by the Reinsurer, when such
portion is ascertained, shall be payable on demand of the Company at the
same time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and
the reinsurance shall be payable by the Reinsurer, on the basis of the
liability of the Company under the policy or policies reinsured without
diminution because of the insolvency of the Company.
B. In the event of the insolvency of one or more than one of the Companies,
reinsurance under this Agreement shall be payable immediately on demand,
with reasonable provision for verification, on the basis of claims allowed
against the insolvent Company(ies) by any court of competent jurisdiction
or by any liquidator, receiver, or statutory successor of the Company(ies)
having authority to allow such claims, without diminution because of such
insolvency or because such liquidator, receiver, or statutory successor has
failed to pay all or a portion of any claims. Such payments by the
Reinsurer shall be made directly to the Company or its liquidator, receiver
or statutory successor, except where the contract of insurance or
reinsurance provides another payee of such reinsurance in the event of the
insolvency of the Company(ies).
C. It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Company(ies) will give written notice to the
Reinsurer of the pendency of a claim against the insolvent Company(ies) on
the policy or policies reinsured within a reasonable time after such claim
is filed in the insolvency proceeding 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(ies) or its
liquidator or receiver or statutory successor. The expense thus incurred by
the Reinsurer will be chargeable, subject to court approval, against the
insolvent Company(ies) as part of the expense of liquidation to the extent
of a proportionate share of the benefit which may accrue to the
Company(ies) solely as a result of the defense undertaken by the Reinsurer.
D. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense will be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Company(ies).
ARTICLE XXVIII
INTERMEDIARY
Xxx Xxxxxxxxx & Company, Inc. is hereby recognized as the Intermediary
negotiating this Agreement for all business hereunder. All communications
(including but not limited to notices, statements, premium, return premium,
commissions, taxes, losses, loss adjustment expense, salvages and loss
settlements) relating thereto shall be transmitted to the Company or the
Reinsurer through Xxx Xxxxxxxxx & Company, Inc., 0 Xxxxx Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000. Payments by the Company to the Intermediary shall be deemed to
constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed to constitute payment to the Company only to the
extent that such payments are actually received by the Company.
ARTICLE XXIX
GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the laws
of the State of California, U.S.A.
ARTICLE XXX
SEVERAL LIABILITY NOTICE
The subscribing reinsurers' obligations under contracts of reinsurance to which
they subscribe are several and not joint and are limited solely to the extent of
their individual subscriptions. The subscribing reinsurers are not responsible
for the subscription of any co-subscribing reinsurer who for any reason does not
satisfy all or part of its obligations.
