EXHIBIT 10.4
CLAIMS SERVICE AND MANAGEMENT AGREEMENT
This Claims Service and Management Agreement ("Agreement") is made and
entered into as of July 1, 2000 by and between United States Fire Insurance
Company, ("Company") and RiverStone Claims Management LLC, a Delaware limited
liability company ("Manager").
WHEREAS, the Company and the Manager are each indirect subsidiaries of
Fairfax Financial Holdings Limited ("Fairfax"); and
WHEREAS, the Company is engaged in the business of insurance and has
underwritten or assumed certain policies of insurance; and
WHEREAS, the Manager is engaged in the business of providing claims
management and related administrative services to and on behalf of insurance
companies affiliated with Fairfax; and,
WHEREAS, the Company wishes to retain Manager to provide claims services
for certain identified types of claims, and Manager is willing to provide such
services on the terms and conditions set forth below; and,
WHEREAS, Manager possesses the personnel and facilities for the processing,
adjustment and settlement of claims;
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Definitions: As used herein, the following terms shall have the meaning set
forth below:
1.1 "Claims Handling Services" shall mean all claims and administrative
services provided by Manager under this Agreement.
1.2 "Claims" shall mean any demand by any Person against the Company for
coverage under policies underwritten or assumed by the Company that
are referred by the Company in its sole discretion to Manager for
servicing, including, but not necessarily limited to, latent claims
and construction defect claims.
1.3 "Operating Account" means the account designated by Manager for the
payment by Company of Service Fees.
1.4 "Records" means any and all documents, correspondence, and other
information including electronic data related to Claims, or
information of any kind, without limitation, relating to Claims
Handling Services.
1.5 "Transition Plan" means an orderly comprehensive plan to transfer
Company's pending latent and construction defect Claims to Manager.
1.6 "Service Fees" means the amount payable by Company to Manager for
Claims Handling Services.
1.7 "Account/Claim Type" means all demands for coverage by any Person
claiming status as an insured or additional insured under a policy
or group of policies issued to a policyholder, or its predecessor,
involving a designated type of claim, including, but not limited to,
one of the following types of claims:
Hazardous Waste
Asbestos
Chemical
Dust
Gas & Vapors
Herbicide
Latex
Lead
Metals
Hearing Loss
Paint
Pharmaceuticals
Radiation
Repetitive Stress
Silica
Sick Building
Implants
Tobacco
Welding Fumes
Firearms
Construction Defect
1.8 "Person" means an individual, corporation, partnership, association,
proprietorship, trust or any other entity or organization, any
federal, state or local government or quasi-governmental body or
political subdivision or any agency or instrumentality thereof.
1.9 "Delegated Authority" means full policy limits gross settlement and
reserve authority, without consideration of any reinsurance, and
separately full authority for related expenses.
1.10 "Expenses" means all necessary amounts incurred in the handling of
the Claims including legal fees and declaratory judgment fees, court
costs, claim related travel expenses, expert fees, court reporter
and transcript fees, witness fees and witness travel expense, and
such other reasonable fees and expenses necessary to properly handle
the Claims.
1.11 "Loss" means amounts reserved or paid for satisfaction of judgments,
or settlement of Claims under the Company's policies, and may
include expense in those instances where the policy provides that
expense is within limits.
2. AUTHORITY AND SERVICES
2.1 The Company hereby appoints Manager as a claims manager and grants
Manager authority to manage and service those Claims referred by
Company to Manager. It is understood and agreed Manager shall have
authority to investigate, compromise, manage and supervise the
denial of Claims, as well as the settlement and payment of Claims
within Manager's Delegated Authority. Manager shall have the
authority to retain counsel, experts, and other third party
providers on behalf of Company reasonably necessary for the handling
of Claims, and is further authorized to manage said providers on
behalf of Company.
2.2 Manager shall be responsible to:
2.2.1 Accept and review all Claim reports submitted by the Company;
2.2.2 Investigate all Claims, secure all necessary Claims-related
services, and adjust, settle, resist or otherwise handle all
such Claims within the Delegated Authority granted by the
Company, in
accordance with sound case management practices and industry
standards and in compliance with applicable regulatory
requirements;
2.2.3 Investigate all Claims, secure all necessary Claims-related
services, and adjust, settle, resist or otherwise handle all
such Claims in excess of the Delegated Authority with the prior
written approval of the Company, in accordance with sound case
management practices and industry standards and in compliance
with applicable regulatory requirements;
2.2.4 Establish files for all Claims, organized by Account/Claim Type,
which files shall contain all documentation received by Manager
relevant and material to the Claim, relating to the
investigation, evaluation, negotiation, settlement and
litigation of such Claims. The files shall be available for
review and copying at all reasonable times by Company or its
designated agent or any regulatory or taxing authority.
2.2.5 Recommend the amount of Loss reserves to be established for each
Claim. Manager shall maintain reserve analysis information for
all Claims, and shall promptly complete and forward to Company a
Large Claim Report in a manner that is consistent with the
approach that is mutually agreed by Company and Manager. Company
retains the right to make the final determination regarding
reserve amounts to be established for any and all Claims.
2.2.6 Provide staff and materials to handle all Claims in a
professional and orderly manner in accordance with sound case
management practices and industry standards, and in compliance
with applicable regulatory requirements. Manager shall have the
sole discretion, subject only to the requirements of this
paragraph 2.2.6, in its selection and utilization of staff,
facilities and materials in connection with the handling of
Claims by Manager.
2.2.7 Retain stored files following closure in compliance with
Company's record retention policy and at Company's expense
2.2.8 Exercise control of litigated cases including requiring detailed
legal bills, and in accordance with Manager's litigation
management guidelines, industry standards and in compliance with
regulatory requirements.
2.2.9 Promptly notify Company of all extra-contractual matters.
2.2.10 Document the file with, where appropriate, releases on Claims
settled or disposed of by Manager.
2.2.11 Process checks on behalf of Company in payment of Loss and
Expense within Manager's Delegated Authority, and in excess of
the Delegated Authority with the prior written approval of the
Company all in accordance with the payment code conventions
provided by the Company.
2.2.12 Notify the Company as soon as practical, but not later than the
issuance of the monthly Fairfax report which Manager will
prepare as a matter of course, of any individual Claims Loss or
Expense payment in excess of $500,000.
2.2.13 Assume full and complete responsibility for preparing
reinsurance xxxxxxxx and reports associated with all Claims, and
provide said xxxxxxxx and reports to Company for distribution as
required.
2.2.14 Assume full and complete responsibility for the recovery of
deductibles in the context of settlements and provide for
payment to the Company or any sums collected. Manager will
advise Company of deductibles not resolved in the settlement
process.
2.2.15 Provide reasonable access to Manager's Claim Management System
("CMS") to view Company's Claims and relevant data tables for
Claims to Company's actuarial, financial and claims designees,
its agents and regulatory authorities to the extent necessary
for Company
reserving, reporting and planning purposes, regulatory
compliance, claims monitoring and other business purposes.
2.2.16 Collect financial data items and transmit same to Company's
designated TPA Interface on a monthly basis, and to verify the
accuracy of the data transmitted.
2.2.17 Collect and provide on a quarterly basis, actuarial data items
including, but not limited to, claims trends data, policy data,
site information, in SQL table format, an example of which shall
be furnished by Company to Manager. Company may request
additional data items on thirty (30) days notice. Any such
additional data items shall be furnished to Company with the
following quarter's data.
2.2.18 Provide monthly and quarterly reports to Company, detailing
number of new Claims received, closed Claims, and pending
Claims, and monthly and quarterly data for paid loss, expense,
reserve changes and current reserves.
2.2.19 At Company's sole discretion, allow Company to conduct Claims
Audits, provided Company gives Manager at least fifteen (15)
days prior notice.
2.3 The appointment of the Manager by the Company to this Agreement is
not exclusive.
2.4 Manager is designated the "Authorized Representative" for Company
for all Claims.
2.5 The services provided by Manager hereunder are not of a legal
nature, and the Manager shall in no event give, or be required to
give, any legal opinion or provide any legal representation to the
Company nor may any communication prepared by the Manager be relied
upon by the Company as a legal opinion or interpretation. The
Manager is not and shall not be considered as engaged in the
practice of law.
2.6 Notwithstanding the authority delegated to Manager under this
section, the Company has the right to take over the handling and
control of any specific Claim at any time for any reason or no
reason. In the event Company elects to take over the handling of any
specific Claim, Company shall bear the costs associated with
transferring the administration of the Claim, unless the transfer
was occasioned by deficient Claims handling, under which
circumstances Manager shall bear said costs.
3. COMPANY'S OBLIGATIONS
3.1 To remit service fees in accordance with Section 5 of this
Agreement.
3.2 To fund all Loss and Expense payments that are the responsibility of
Company under this Agreement.
3.3 Company retains full responsibility for filing and/or completing any
reports for any insurance rating bureaus, and required statutory
financial reports, or any other similar reports or statistics
required of Company. Manager shall supply Company with the necessary
information and in the appropriate medium and format as reasonably
determined by the Company.
3.4 Company shall designate one or more Company employees to provide
Manager with information concerning the Company necessary to service
the Claims, and provide to Manager Loss or Expense authority in
excess of the Delegated Authority.
3.5 Company shall respond promptly to Manager for requests for authority
in excess of Manager's Delegated Authority. All authority granted in
excess of Manager's Delegated Authority shall be confirmed in
writing, which writing may include facsimile transmission and/or
electronic mail.
3.6 Company shall forward to Manager notices of new Claims.
3.7 Company shall cooperate with Manager to develop an orderly plan of
transition for existing Claims.
3.8 Company agrees to provide Manager with any and all documentation
necessary to evidence Manager's authority pursuant to this
Agreement.
4. CLAIMS FUNDING ARRANGEMENT
4.1 Manager shall establish an interest-bearing fiduciary account
designated as the Company's individual Claims Funding Account. The
account shall be established in the name of United States Fire
Insurance Company.
4.2 The Claims Funding Account shall be used for the sole purpose of
funding Claims Loss and Expense payments for Claims serviced by
Manager under the terms of this Agreement.
4.3 No other funds shall be commingled with Company's funds in the
Claims Funding Account.
4.4 Interest earned on the Claims Funding Account shall be separately
reported and separately distributed net of bank fees to Company
quarterly.
4.5 Company agrees to fund all Loss and expense payments through the
Claims Funding Account.
4.6 Manager will notify Company as necessary of the appropriate funding
amounts due for Claims Loss and Expense payments at least one
business day prior to the day said payments must be funded.
4.7 Company will wire transfer said funds to the Company's Claims
Funding Account no later than one (1) business day following receipt
of the funding notification.
4.8 In the event circumstances arise which necessitate an acceleration
of the funding arrangements set forth in this Section, Manager and
Company agree to use best efforts to make a funding arrangement
which achieves the optimal result for the Claim.
5. SERVICE FEES
5.1 Company shall pay the Manager fees for the Claims Handling Services.
Service fees shall be in the amount of two million one hundred
thousand dollars ($2,100,000) per annum and shall be payable monthly
in arrears into the Manager's Operating Account on the last day of
each calendar month. Each such monthly payment shall be in an amount
equal to one-twelfth of the annual fee.
5.2 Service fees shall be reviewed and, as mutually agreed, adjusted
beginning January 1, 2002 during the term of this Agreement.
Commencing January 1, 2002, consideration of the need for an
adjustment, if any, shall be based on the number of Claims pending
and other cost considerations, but in no event shall such fees ever
exceed the Manager's actual annual cost of providing the Claims
Handling Services.
5.3 Expenses incurred by Manager and payable under this Agreement shall
be allocated in accordance with the provisions of New York Insurance
Department Regulation 30.
6. AUDIT RIGHTS
6.1 Company shall have the right, upon reasonable notice to Manager, to
conduct audits of all Records other than Claims files. The time of
the audits of Claim files shall be subject to mutual agreement of
Manager and Company..
6.2 Company shall have the right, upon reasonable notice to Manager, to
audit Manager's draft and check security procedures.
6.3 Company shall have the right, upon reasonable notice to Manager, to
inspect and audit the statements it receives from Manager.
6.4 Manager shall make its books and records relating to the services
provided hereunder available to Company for reasonable inspection
and to cooperate with Company in audits conducted under this
section.
6.5 Company shall have the right, upon reasonable notice, to audit
actuarial data items. Manager shall maintain current actuarial data
items
7. TERMINATION
7.1 Either party may terminate this Agreement, with or without cause, by
providing not less than sixty (60) days written notice to the other
party.
7.2 This agreement may be terminated by either party by written notice
served on the other party, which notice when served shall take
effect immediately if:
7.2.1 The other party shall at any time be in material breach of any
of its obligations hereunder and, in the case of a material
breach capable of remedy, fails to remedy the same within 30
days after receiving written notice from the aggrieved party
requiring it do so: or
7.2.2 The other party shall at any time become insolvent, suspend
payment of its debts, enter into any arrangement with its
creditors, convene a meeting of its creditors or cease or
threaten to cease to carry on its business or enter into
liquidation (voluntary or involuntary) or have a receiver
appointed over any of its assets.
7.3 Upon termination of this Agreement for any reason, each party will
deliver or cause to be delivered to the other party, or such other
person as the other party may direct, Records associated with the
business of the other party.
7.4 Company acknowledges that in the event it elects to terminate this
Agreement, Manager will not recapture or otherwise utilize the
resources and expenses allocated to Claims Handling Services
pursuant to this Agreement. Except in the case of termination by
Company due to a finally determined material breach by Manager,
Company agrees to pay or otherwise reimburse Manager for all
reasonable termination and severance expenses for Manager's
personnel and related overhead expenses associated with such
termination of this Agreement on an actual cost basis.
8. INDEMNIFICATION
8.1 Manager shall defend, indemnify and hold Company and its directors,
officers, employees or agents harmless from and against all extra
contractual liability and related expense, including attorney's
fees, arising out of any real or alleged acts or omissions which
constitute gross negligence or willful misconduct of Manager or its
agents which occur following the receipt by Manager of a Claim.
8.2 Company shall defend, indemnify and hold Manager and its directors,
officers, employees or agents harmless from and against all
liability and related expense, including attorney's fees, arising
out of the instructions or acts of Company or its employees or
agents, or where Manager has given Company prior written notice of
its intended course of action and Company has approved said course
of action or has not otherwise disapproved it within five (5)
business days of receipt of said written notice from Manager. If
Manager materially deviates from an approved course of action,
Company shall have no liability under this paragraph. Without
limiting the generality of the foregoing, Manager will not be liable
to Company for any action taken or omitted by Manager in good faith
and believed by Manager to be authorized or within the rights or
powers conferred upon it by this Agreement.
8.3 Paragraphs 8.1 and 8.2 shall survive termination of this Agreement.
9. ARBITRATION
9.1 Any dispute or difference arising with reference to this Agreement,
and the rights and obligations of Manager and Company hereunder
shall be referred to a Board of Arbitration ("Board") of two (2)
arbitrators and an umpire.
9.2 The members of said Board shall be United States citizens and shall
be active or retired disinterested officers of insurance or
reinsurance companies.
9.3 One arbitrator shall be chosen by the party initiating the
arbitration within 30 days of initiating the arbitration. The other
party shall respond within 30 days of receipt of the identity of the
initiating party's designation, and shall designate its arbitrator.
The umpire shall thereafter be chosen by the
two arbitrators within 30 days. If the arbitrators are unable to
agree on an umpire, an umpire meeting the qualifications set forth
above shall be chosen by the American Arbitration Association.
9.4 Each party shall submit its position to the Board within 30 days
from the date of appointment of the umpire, which time period may be
extended by agreement of the parties, or in the absence of such
agreement, the unanimous written consent of the Board.
9.5 The arbitration shall take place in New York, New York, unless
otherwise agreed in writing by the parties. The Board shall make its
decision considering the custom and usage of the insurance and
reinsurance business and any other relevant considerations including
regulations and legal precedents. The Board is released from all
judicial formalities and may abstain from the strict rules of law.
The written decision of the majority of the Board shall be rendered
within 60 days following the termination of the Board's hearings,
unless the parties consent to an extension. Such majority decision
of the Board shall be final and binding upon the parties both as to
law and fact, and may not be appealed to any court of any
jurisdiction. Judgment may be entered upon the final decision of the
Board in any court of proper jurisdiction.
9.6 Each party shall bear the fees and expenses of the arbitrator
selected by or on its behalf, and the parties shall bear the fees
and expenses of the umpire as determined by the Board.
10. CONFLICTS OF INTEREST
10.1 If Manager reasonably considers that the interests of Company in
relation to a particular transaction are materially different from
the interests of other Fairfax subsidiaries serviced by Manager and
involved in the same transaction, Manager shall notify Company of
the perceived conflict and Company shall be entitled to withdraw the
authority to act on its behalf in relation to that transaction
whereupon Manager shall have no further obligation to consider
Company's interest in relation to that transaction.
10.2 To the extent that, in respect of services provided pursuant to the
Agreement, any potential or perceived conflicts of interest arise by
virtue of the retention by either party of legal or other counsel or
representation which are also retained either at the date of this
Agreement or subsequently by the other party and/or Fairfax, each
party hereby waives such potential or perceived conflict and
acknowledges the common interest of Manager, the Company and
Fairfax.
11. MISCELLANEOUS
11.1 The opening statements to this Agreement are not mere recitals and
are incorporated by reference as material terms to this Agreement.
11.2 Manager and Company agree that the Claims files are the property of
Company.
11.3 No assignment of this Agreement, or any rights or interest arising
hereunder shall be valid unless in writing and mutually agreed upon
by the parties.
11.4 Company recognizes that a Claim may involve other indirect
subsidiaries of Fairfax. Company further recognizes that some Claims
may involve policies which are lost. Allocation of Loss and expense
incurred with respect to such claims shall be in compliance with the
applicable policy provisions, sound claims practices, and in
accordance with the provisions of with the provisions of New York
Insurance Department Regulation 30.
11.5 Company shall have the right to designate additional Account/Claim
Types to be referred to Manager for Claims Handling Services.
Manager is under no obligation to accept such additional Account/
Claim types.
11.6 Manager at all times hereunder, is acting as an independent
contractor. Personnel supplied by Manager shall be employees of
Manager and will not be for any purpose be employees of Company.
11.7 Manager shall hold in confidence any confidential information
obtained by it relating to the business of Company or its affiliated
corporations or the policyholders of Company and to the same degree
as
it protects its own confidential information. Disclosures made by a
party in the course of performing its obligations under this
Agreement are not intended, and should not be construed, as a waiver
of any privilege or confidentiality over such information and any
such privileges and confidentialities are expressly reserved.
11.8 This Agreement shall constitute the final, complete and entire
agreement between the parties as respects Claims Handling Services.
This Agreement may not be modified or amended except by written
instrument executed by each party.
11.9 This Agreement shall be governed and construed in accordance with
the laws of the State of New York without giving effect to the
principles of conflicts of laws.
11.10 Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Agreement or any portion of
any provision of this Agreement is declared null and void, invalid,
prohibited by or unenforceable under applicable law by any Court or
tribunal having jurisdiction, then such provision or such portion of
a provision shall be fully severable and ineffective only to the
minimum extent of such prohibition or invalidity, without
invalidating the remainder of the Agreement or provision of this
Agreement, shall be considered separate and apart from the remainder
of this Agreement which shall remain in full force and effect, and
said provision which was found to be prohibited or invalid shall
remain in full force and effect in all other jurisdictions.
11.11 This Agreement is subject to the non-disapproval or approval of the
New York Insurance Department, and such terms and conditions hereof
as may be required by such Insurance Department to be altered or
amended shall be deemed acceptable to the parties hereto, to the
extent same shall not change the substance and intent of this
Agreement.
11.12 The Commissioner of Insurance of the state of domicile of the Company
or that of its affiliated companies, or his representatives shall, at
all reasonable times, be permitted access to all relevant books and
records of the Company.
11.13 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, and all of which shall constitute
one and the same instrument. The Section headings are for convenience
and of reference only and shall not be construed as part of this
Agreement.
12. REPRESENTATIONS AND NOTICES
12.1 The signatories to this Agreement represent and warrant that they
are authorized to execute this Agreement on behalf of their
respective companies, that they have legal authority to bind their
respective companies, and all corporate formalities necessary to
said authorization have been completed.
12.2 Any written notices or communications to be given under or pursuant
to this Agreement may be given either by personal service, first
class post, or facsimile to the address of the other party set out
below or such other address as such party may have notified as being
its address for service for purpose of this Agreement.
Manager: RiverStone Claims Management LLC
000 X. Xxxxxxxxxx Xx. Xxxxx 0000
Xxxxxxxxxx, XX 00000
Attention: President
Fax: 000-000-0000
Company: Xxxx & Xxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: President
Fax: TBD
The parties have executed this Agreement as of the effective date set forth
above.
RIVERSTONE CLAIMS MANAGEMENT LLC UNITED STATES FIRE INSURANCE COMPANY
By: /s/ By: /s/ XXXX XXXX XXXXXXXXX
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Its; Senior Vice President and General Its; Executive Vice President and CFO
Counsel -----------------------------------------
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By: /s/ XXXXXXX X. XXXXXXXX
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Its; Vice President and Secretary
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