Exhibit 10
FORM OF REINSURANCE AGREEMENT
REINSURANCE AGREEMENT
between
COLONIAL LIFE INSURANCE COMPANY OP AMERICA
of Parsippany, New Jersey,
hereinafter referred to as the "Ceding Company," and
TABLE OF CONTENTS
ARTICLE TITLE PAGE
1 Effective Date 1.0
2 Automatic Reinsurance Coverage 2.0
3 Facultative Reinsurance Coverage 3.0
4 Procedure 4.0
5 Liability 5.0
6 Plans of Reinsurance 6.0
7 Premiums 7.0
8 Reinsurance Conditions 8.0
9 Premium Tax Reimbursement and DAC Tax 9.0
10 Adjustments 10.0
11 Reinstatement 11.0
12 Payments 12.0
13 Recapture 13.0
14 Administrative Oversights 14.0
15 Claims 15.0
16 Misstatement of Age or Sex 16.0
17 Insolvency 17.0
18 Inspection of Records 18.0
19 Arbitration 19.0
20 Parties to the Agreement 20.0
21 Duration of Agreement 21.0
22 Experience Refund 22.0
23 Reserves 23.0
24 Entire Agreement 24.0
25 Reports 25.0
26 Execution of the Agreement 26.0
ARTICLE 1: EFFECTIVE DATE
--------------------------
This Treaty is an Agreement, effective September 7, 1993, by and between the
Ceding Company and the Reinsurer. In consideration of the mutual promises
contained herein the parties hereto agree to act in accordance with the
provisions of this Agreement.
ARTICLE 2: AUTOMATIC REINSURANCE COVERAGE
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1. The Ceding Company agrees to submit for reinsurance with the Reinsurer arid
the Reinsurer agrees to accept for reinsurance 25% of the excess over the
Ceding Company's limits of retention, as shown in Exhibit A, attached hereto
and made a part hereof, of any arid all standard and substandard
individually underwritten ordinary life insurance, as set forth in
Exhibit B, attached hereto and made a part hereof, which is written by the
Ceding Company on any resident of the United States, in accordance with the
Ceding Company's normal individual ordinary underwriting rules and
practices. Minimum cessions will be $10,000, and maximum total amounts on
one life will be equal to 25% of the amounts as set forth in Exhibit A.
For the purposes of this Agreement and in accordance with the Ceding
Company's ordinary underwriting rules, "resident" shall be defined as a
person whose primary domicile is the United States for at least 9 months in
a 12 consecutive month period, and who is either a U.S. citizen or has been
lawfully admitted for permanent residence in the United States. The phrase
"lawfully admitted for permanent residence'' means the status of having
been lawfully accorded the privilege of residing permanently in the United
States and having been issued an alien registration receipt card by the
United States Immigration and Naturalization Service of the United States
Department of Justice.
Should the Ceding Company desire to change its issue limits or underwriting
guidelines, such changes shall be subject to approval by the Reinsurer.
Should the Ceding Company elect to participate in another arrangement or
other arrangements to secure additional automatic binding capacity, the
Reinsurer shall be notified thirty (30) days in advance of such action and
reserves the right to modify the binding limits currently set forth in this
Agreement.
It is further provided and agreed that life insurance amounts submitted in
accordance with this Article shall not include those constituting a "Jumbo
Risk". A "Jumbo Risk" for the purpose of this Agreement is defined as one
where the papers of the Ceding Company indicate that the proposed insured's
total life insurance inforce and applied for in all companies exceeds the
amounts shown in Exhibit A.
2. Automatic reinsurance coverage shall not apply to those situations where the
policy has been submitted on a facultative basis.
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3. Automatic reinsurance under this Agreement will include, if mutually agreed
upon in writing between the parties and referenced in Exhibit B or elsewhere
in this document, any supplementary benefits.
4. The Ceding Company shall at any time have the right to modify its retention
limits affecting reinsurance by advance notice in writing mailed to the
Reinsurer. The automatic binding limits specified in Exhibit A and referred
to in paragraph 1 of this Article shall be amended in writing by the Ceding
Company and the Reinsurer.
5. Automatic reinsurance shall not cover special programs, experimental or
limited retention programs, or replacement and conversion situations of the
Ceding Company unless prior approval has been received from the Reinsurer.
For the purposes of this Agreement, these situations are not intended to
mean contractual conversions or exchanges or continuations of the original
policy for reinsurance purposes.
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ARTICLE 3: FACULTATIVE REINSURANCE COVERAGE
--------------------------------------------
1. whenever the Ceding Company desires reinsurance on a standard or substandard
risk not covered by the automatic provisions of this Agreement as specified
in Article 2, or on any application on which the Ceding Company wishes the
advice of the Reinsurer, it must submit, and the Reinsurer agrees to
consider, such reinsurance on a facultative basis.
2. Facultative reinsurance under this Agreement may include supplementary
benefits as mutually agreed upon in writing by the Ceding Company and the
Reinsurer.
3. Any and all offers made by the Reinsurer to accept a risk as submitted or to
accept a risk under terms and conditions other than as submitted shall,
unless otherwise terminated by the Reinsurer, terminate automatically on the
earliest of:
a. The date the Reinsurer receives notice from the Ceding Company of its
withdrawal of its application, or
b. Ninety (90) days from the date the Reinsurer communicates its offer to
the Ceding Company.
The Reinsurer's offer may remain open beyond the ninety day period provided
the Ceding Company submits a written
request to the Reinsurer for an extension of the offer and the Reinsurer
approves such request. If an extension is granted, the Reinsurer's offer
shall terminate automatically on the date the extension expires.
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ARTICLE 4: PROCEDURE
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1. Automatic Reinsurance
The plans covered under this Agreement shall be Self-Administered. Each
month, the Ceding Company shall submit to the Reinsurer a statement
containing the following information for each policy for which premium
payments or adjustments are due, along with the applicable premium payment
or adjustment:
1. Policy number
2. Issue Date
3. Insured's Name
4. Age and date of birth
5. Sex
6. Underwriting classification, smoking code, and table rating
7. Amount of risk for following year, less retention
8. Premiums due the Reinsurer
9. Policy Exhibit
10. Treaty code
11. Life or health indicator
12. Coinsurance or YRT indicator
13. Reinsurer's cession number
14. Valuation code
15. Premium duration
16. Automatic or facultative indicator
17. State code
18. Reinsurance premium paid-to date
19. Face amount of policy
20. Original amount of reinsurance
21. Commissions due Chubb
2. Facultative Reinsurance
When the Ceding Company desires to apply for facultative reinsurance, the
Ceding Company shall send to the Reinsurer copies of the original
application, medical examiners' reports, inspection reports, and all other
information bearing on the insurability of the risk. Upon receipt of such
application, the Reinsurer shall examine the papers and promptly notify the
Ceding Company of its decision to either make an offer or reject the risk as
submitted, or advise the Ceding Company of additional evidence necessary to
underwrite the risk.
When a policy has been issued and paid for on which reinsurance has been
obtained from the Reinsurer, the Ceding Company shall promptly pay
reinsurance premiums on such policy on the next monthly statement. Payment
of said premium shall constitute acceptance of the Reinsurer's
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facultative offer.
If the reinsurance application on which the Reinsurer has made an offer is not
to be placed with the Reinsurer because the original policy has not been paid
for or because of some other reason, such offer shall expire in accordance with
the terms and conditions specified under Article 3, paragraph 3.
The reporting of facultative business shall be made in the same accord as
automatic reinsurance.
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ARTICLE 5: LIABILITY
---------------------
1. The liability of the Reinsurer on any reinsurance under this Agreement
shall commence simultaneously with the liability of the Ceding Company,
except that no liability shall attach to the Reinsurer hereunder with
respect to facultative reinsurance prior to acceptance during the
lifetime of the insured by the Ceding Company of the Reinsurer's offer.
In no event shall the liability of the Reinsurer commence prior to the
liability of the Ceding Company. The Reinsurer's liability thereunder
shall continue as long as the Ceding Company is liable under the policy,
subject to all provisions contained in this agreement, and shall cease
when the liability of the Ceding Company ceases.
2. Whenever the Ceding Company becomes liable for a loss under the
terms of a Conditional Receipt or Temporary Insurance Receipt, the
Reinsurer shall be liable to the Ceding Company for the amount over the
Ceding Company's standard retention as specified in the retention
schedule in Exhibit A, but not in excess of the automatic reinsurance
limits hereunder, and only if the policy would have qualified for
automatic reinsurance hereunder. In order for the Reinsurer to be
liable in accordance with the preceding qualifications on any
Conditional Receipt or Temporary Insurance Receipt, the Ceding Company
must have submitted to the Reinsurer a copy of the application and
receipt it intends to use with regard to risks reinsured hereunder and
must have received written acknowledgment from the Reinsurer that it
intends to be bound on such receipt as herein stated. The Ceding
Company shall notify the Reinsurer of proposed changes to its
Conditional Receipt or Temporary Insurance Receipt or in its practices
in issuing Conditional Receipts or Temporary Insurance Receipts. The
Reinsurer shall not be liable for such revised Conditional Receipt,
Temporary Insurance Receipt or practices unless the Ceding Company has
received written acknowledgment from the Reinsurer that it intends to be
bound on such revision.
3. The Reinsurer shall not be liable for a loss incurred by the Ceding
Company under the terms of a Conditional Receipt or Temporary Insurance
Receipt where the Ceding Company has submitted the policy facultatively
to any reinsurer.
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ARTICLE 6: PLANS OF REINSURANCE
--------------------------------
1. Life Reinsurance
Life Reinsurance under this Agreement shall be on the Yearly Renewable Term
plan for the amount at risk on the proportion of the original policy
reinsured in the Reinsurer. For the purpose of this Agreement the
reinsured net amount at risk will be calculated as (a) the number of $1000
units of reinsurance, less (b) the reserve per unit, if any, times (c) the
number of units reinsured.
For purposes of the preceeding paragraph, reserve will mean accumulated fund
value for interest sensitive or universal life type products, and will mean
statutory reserves (excluding deficiency reserves) for all other products.
2. Supplemental Benefits
All Supplemental Benefits reinsurance shall be on the Coinsurance plan.
3. Any Supplemental Benefits reinsured hereunder shall be independent of the
life reinsurance amount at risk.
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ARTICLE 7: PREMIUMS
--------------------
1. Premiums for Life Reinsurance
The annual premiums for standard and substandard life reinsurance shall be
computed on the basis of the amount at risk at the rates shown in Exhibit C
attached hereto and made a part hereof. These rates are guaranteed for one
year. The Reinsurer guarantees that premium rates shall not exceed the
rate determined using the applicable 1980 CSO table at the maximum statutory
valuation rate approved in the Reinsurer's state of domicile.
2. Flat Extra Premiums
For reinsurance of substandard risks for which a flat extra premium is
charged, the Ceding Company shall pay to the Reinsurer the sum of:
a. The premiums for the amount at risk as determined in item 1. above, and
b. The flat extra premium collected by the Ceding Company on the portion of
the face amount reinsured in the Reinsurer, less allowances as described
in Exhibit C.
3. Supplemental Benefits
Premiums for reinsurance of Supplemental Benefits shall be paid during the
period that such coverage is inforce at the annual rates as are charged by
the Ceding Company under the policy or policies on which reinsurance in the
Reinsurer is based, less allowances as described in, Exhibit D. If the
Ceding Company decreases the Supplemental Benefits rates subsequent to the
effective date of this Agreement, the Reinsurer reserves the right to review
the allowances.
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ARTICLE 8: REINSURANCE CONDITIONS
----------------------------------
1. Upon request, the Ceding Company shall furnish the Reinsurer with any and
all specimen copies of its applications, rate books, underwriting
requirements, policy and rider forms and any tables of rates and values
which may be required for the proper administration of the business
reinsured under this Agreement.
2. Each reinsurance cession shall be subject to all applicable general
conditions, limitations, exceptions or restrictions contained in the
respective policies of the Ceding Company, except, however, that the
reinsurance shall provide no loan or cash surrender values.
3. The Ceding Company shall bear the expense of all medical examinations,
inspection fees and other charges incurred in connection with the policy,
including but not limited to issue, reinstatement, or reentry.
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ARTICLE 9: PREMIUM TAX REIMBURSEMENT AND DAC TAX
-------------------------------------------------
1. Premium Taxes
The Reinsurer is not required to reimburse the Ceding Company for premium
taxes the latter may be required to pay with respect to that part of the
premiums received under the Ceding Company's policies which is remitted to
the Reinsurer as reinsurance premiums.
2. DAC Tax
The Ceding Company and the Reinsurer hereby enter into an election under
Treasury Regulations Section 1.848-2(g) (8) whereby:
a. For each taxable year under this Agreement, the party with net positive
consideration, as defined in the regulations promulgated under Treasury
Code Section 848, will capitalize specified policy acquisition expenses
with respect to this Agreement without regard to the general deductions
limitation of Section 848(c) (1);
b. The Ceding Company and the Reinsurer agree to exchange information
pertaining to the amount of net consideration under this Agreement each
year to ensure consistency or as otherwise required by the Internal
Revenue Service;
c. The Ceding Company will submit a schedule to the Reinsurer by May 1 of
each year of its calculation of the net consideration for the preceding
calendar year. This schedule of calculations will be accompanied by a
statement signed by an officer of the Ceding Company stating that the
Ceding Company will report such net consideration in its tax return for
the preceding calendar year;
d. The Reinsurer may contest such calculation by providing an alternative
calculation to the Ceding Company in writing by June 1st of the same
year. If the Reinsurer does not so notify the Ceding Company, the
Reinsurer will report the net consideration as determined by the Ceding
Company in the Reinsurer's tax return for the previous calendar year;
e. If the Reinsurer contests the Ceding Company's calculation of the net
consideration, the parties will act in good faith to reach an agreement
as to the correct amount by July 1st of the same year. If the
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Ceding Company and the Reinsurer reach agreement on an amount of net
consideration, each party shall report such amount in their
respective tax returns for the previous calendar year.
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ARTICLE 10: ADJUSTMENTS
------------------------
1. Changes
If any change is made in the plan of the original policy reinsured in the
Reinsurer, including but not limited to any change in status caused by the
application of a nonforfeiture provision, a corresponding change shall be
made in the reinsurance. The Ceding Company shall promptly notify the
Reinsurer of any such change with the next monthly statement that is
completed. Increases in the face amount of the original policy reinsured
hereunder and changes in the underwriting classification of substandard
policies for facultative policies shall be subject to prior approval of the
Reinsurer.
2. Reductions and Terminations
If all or any part of any insurance coverage under any policy upon which
reinsurance is based shall be reduced or terminated, the amount of
reinsurance carried by the Reinsurer with respect to that coverage, shall
be:
a. in the case of a policy terminating, the reinsurance related to that
policy shall be terminated.
b. in the case of a policy reduction, the ceding company will maintain the
retention it possessed prior to the reduction and reduce or terminate
the reinsurance depending on the amount of the policy remaining after
the reduction.
3. Conversions or Continuations
Conversions or continuations will be reinsured by the Reinsurer only if the
original policy was reinsured by the Reinsurer. The amount of reinsurance
will not exceed the amount of the reinsurance on the original policy with
the Reinsurer immediately prior to the conversion or continuation. Premiums
and allowances will be determined at the rates covering the new plan at
point in scale based on the original policy that is being converted or
continued.
A continuation is defined as a policy not meeting all of the following
conditions:
1) complete new underwriting
2) new suicide clause and incontestible period
3) full first year commissions paid.
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ARTICLE 11: REINSTATEMENT
--------------------------
1. If a policy reinsured automatically under the provisions of Article 2
hereunder lapses and is later approved for reinstatement by the Ceding
Company in accordance with its usual and ordinary underwriting standards,
reinsurance for the amount reinsured with the Reinsurer at the time of lapse
shall be reinstated automatically. The notice of reinstatement shall appear
on the monthly statement. Reinsurance shall be effective as of the date of
reinstatement.
2. If a policy reinsured facultatively under the provisions of Article 3 lapses,
reinstatement of the amount reinsured with the Reinsurer at the time of the
lapse shall require prior approval by the Reinsurer. Notice in writing of
such reinstatement shall be given promptly to the Reinsurer together with
copies of the reinstatement papers that are required. Such reinsurance shall
become effective as of the date of reinstatement.
3. In the event of a reinstatement in accordance with this Article, the Ceding
Company shall pay to the Reinsurer all reinsurance premiums and policy fees
in arrears from the reinstatement date. Thereafter, reinsurance premiums
shall be payable in accordance with Article 7 and 12.
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ARTICLE 12: PAYMENTS
---------------------
1. Reinsurance premiums shall be paid on an annual basis. Within thirty days
after the close of each calendar month, the Ceding Company shall forward to
the Reinsurer its statement of account along with its remittance for the new
amount due as shown therein. If the statement shows a balance due the Ceding
Company, the Reinsurer shall remit that amount to the Ceding Company within
30 days of receipt of the statement of account.
2. For the purposes of this Agreement, the due date for the Reinsurer's receipt
of the statement of account and premiums due is the thirty-first day
following the close of any calendar month. The payment of reinsurance
premiums in accordance with the provisions herein shall be a condition
precedent to the liability of the Reinsurer for reinsurance covered by this
Agreement. In the event that reinsurance premiums are not paid as of the
thirty-first day following the close of the calendar month in which they fall
due, the Reinsurer shall have the right to give the Ceding Company thirty
days notice of the Reinsurer' 5 intention to terminate reinsurance on those
policies for which reinsurance premiums have not been paid. At the
expiration of this thirty-day period the reinsurance shall terminate
automatically. Whether or not the Reinsurer exercises its right to terminate
the reinsurance as specified in the preceding paragraph, all such outstanding
premiums shall be subject to an annual interest charge on the unpaid balance
from the due date as specified in this Article to the date of payment, at a
rate coincident with the current rate of interest charged by the Reinsurer
for delinquent premiums in connection with its individual life insurance
policies.
3. If reinsurance is terminated as provided in paragraph 2, and if all
reinsurance premiums in default and any additional charge due in accordance
with paragraph 2, including such premiums and charges which may become in
default during the thirty-day notice period are not paid before the
expiration of such period, the Reinsurer shall thereupon be relieved
automatically of future liability under all reinsurance on those policies for
which premiums and other charges remain unpaid. Reinsurance under cessions
for which premiums subsequently fall due will terminate automatically if
reinsurance premiums are not paid when due as provided in paragraph 2 of this
Article. The reinsurance so terminated may be reinstated at any time within
sixty days of the date of termination upon payment of all reinsurance
premiums and other charges in arrears; but in the event of such
reinstatement, the Reinsurer shall have no liability in connection with any
claims incurred between the date of
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termination and the date of reinstatement of the reinsurance.
4. The Ceding Company shall continue to be liable to the Reinsurer for all
unpaid reinsurance premiums earned by the Reinsurer during the time period
reinsurance coverage remains in effect under this Agreement. Such premiums
are subject to an annual interest charge as specified in paragraph 2 above.
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ARTICLE 13: RECAPTURE
----------------------
1. The limits of retention of the Ceding Company are shown in Exhibit A,
attached hereto and made a part hereof. The Ceding Company shall at any time
have the right to increase its retention limits affecting new reinsurance by
advance notice in writing mailed to the Reinsurer. If the Ceding Company
reduces its retention limits, such reduction shall not take effect for
reinsurance purposes until written approval has been received from the
Reinsurer.
2. If the Ceding Company increases its limits of retention as specified in
Exhibit A, a corresponding reduction may be made at the option of the Ceding
Company in the reinsurance inforce under this Agreement on all lives on which
the Ceding Company has maintained its maximum limit of retention for age and
mortality rating in effect at the time of issue. A reduction shall not be
made in the reinsurance of any policy until such reinsurance has been inforce
hereunder at least ten (10) full years.
3. If such reduction in reinsurance is elected and written notice thereof is
given to the Reinsurer within ninety days from the effective date of such
increase in retention for new issues, then:
a. All policies or reinsurance issued hereunder and eligible for
recapture, as provided in this Article, shall be similarly reduced;
b. Such reinsurance shall be reduced by an amount in each case as will
increase the total insurance to be retained by the Ceding Company to its
maximum limit of retention for the age and mortality rating in effect at
the time the reinsurance was ceded to the Reinsurer;
c. If there is reinsurance in other companies on any such life, the
reduction of the reinsurance in the Reinsurer shall be that proportion
of the total indicated reduction which the reinsurance in the Reinsurer
bears to the total reinsurance on that life;
d. The reduction of reinsurance shall be effective upon the anniversary
date next following or the tenth (10th) policy anniversary for those
policies which have not been inforce at least ten (10) full years;
e. If, at the time of recapture, the reinsured is disabled and premiums are
being waived under a waiver of monthly deductions benefit, the life
reinsurance shall be considered eligible for recapture. However, the
waiver
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of monthly deductions benefit reinsurance shall remain inforce until
such time as the policy is returned to a premium paying status, at which
time the waiver of monthly deductions benefit reinsurance shall be
eligible for recapture.
4. In the event the Ceding Company overlooks any reduction in the amount of
reinsurance which should have been made because of an increase in the Ceding
Company's limits of retention, the acceptance by the Reinsurer of
reinsurance premiums under such circumstances after the effective date of
the reduction shall not constitute or determine a liability on the part
of the Reinsurer for such reinsurance. The Reinsurer shall be liable
only for a refund of premiums so received without interest.
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ARTICLE 14: ADMINISTRATIVE OVERSIGHTS
--------------------------------------
1. Should either party to this Agreement fail to comply with any of the terms
of this Agreement, and if said failure can be shown to be unintentional
and a result of an administrative oversight or misunderstanding on the
part of either party, then this Agreement shall not be deemed abrogated
thereby, but bath parties shall be restored to the position they would have
occupied had no such administrative oversight occurred.
2. If the Ceding Company does discover that it did not cede reinsurance on a
policy it should have reinsured automatically under this Agreement, the
Ceding Company is required to do an audit of its records sufficient to
determine if automatic reinsurance was unreported on any other policies.
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ARTICLE 15: CLAIMS
-------------------
1. Notice of Claim.
Immediate notice of any claim submitted on a policy reinsured hereunder
shall be given to the Reinsurer after receipt of first information by the
Ceding Company. Copies of documents bearing on such claim and coverage shall
be furnished to the Reinsurer as requested. In addition, on any claim
occurring during the contestable period, the Ceding Company shall furnish
copies of the application and underwriting papers. Whenever the amount
reinsured by the Reinsurer exceeds the amount retained by the Ceding
Company, the Ceding Company shall consult with the Reinsurer prior to
conceding any liability or making any settlement with the claimant.
2. Settlement of Claims.
Except as otherwise hereinafter provided, the Reinsurer shall accept the
good faith decision of the Ceding Company in settling any claim. Upon
receipt of the proper proofs and, if requested by the Reinsurer, evidence of
the Ceding Company having settled with the claimant, the Reinsurer shall
make one lump sum payment of its net reinsurance liability regardless of the
method of settlement used by the Ceding Company under its policy or
policies. In settlement of reinsurance liability for waiver of monthly
deductions benefits, the Reinsurer shall pay the Ceding Company its
proportionate share of the gross premium waived annually.
3. Contested Claims.
The Ceding Company shall immediately notify the Reinsurer of its intention
to contest, compromise or litigate a claim involving the insurance. The
Reinsurer shall notify the Ceding Company of its decision to decline to be a
party to such contest within fifteen (15) days of the Reinsurer's receipt of
all documents requested by the Reinsurer in accordance with this Article.
In such case, the Reinsurer shall pay the full amount of the reinsurance due
the Ceding Company and shall not be liable for future costs of legal and/or
investigative expenses incurred subsequent to the date of the Reinsurer's
notice of declination.
When the Reinsurer agrees to participate in a contest, compromise or
litigation involving the insurance, the Ceding Company shall give
prompt notice of the commencement, or proposed commencement, of any
legal proceedings in connection therewith. Copies of all documents in
connection with a lawsuit or notice of intent
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to file a lawsuit shall be furnished promptly to the Reinsurer. The
Reinsurer shall accept the Ceding Company's good faith decisions in
litigation, compromises, or contests.
The Reinsurer shall share in legal or investigative expenses related to such
proceedings in the same proportion as its reinsurance liability bears to the
Ceding Company's liability.
If the Ceding Company's contest, compromise or litigation results in a
reduction of its liability, the Reinsurer shall share in the reduction in
the proportion that the liability of the Reinsurer bore to the amount
payable under the terms of the policy on the date of death of the insured.
4. Claim Expense.
The Reinsurer shall pay its proportionate share of the following expenses
connected with the litigation or settlement of a claim, provided that such
expenses are reasonable:
a. Investigative expenses such as investigatory reports, attending
physician's statements, police reports;
b. Attorney's fees;
c. Penalties and interest imposed automatically by statute against the
Ceding Company and rising solely out of a judgement rendered against the
Ceding Company in a suit for policy benefits reinsured hereunder;
d. Interest paid to the claimant on death benefit proceeds in accordance
with the Ceding Company's practices. Reimbursement of interest in excess
of 9%, unless otherwise dictated by local legislation, shall require
approval by the Reinsurer.
The Reinsurer's share of such expenses shall be determined in accordance
with the same proportions described in paragraph 3 of this Article.
The following claim expenses shall not be considered items
of "net reinsurance liability", as referenced in paragraph
2 of this Article, and such expenses shall be paid by the
Ceding Company:
a. Routine administrative expenses, home office or elsewhere,
including salaries of employees of the Company.
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b. Expenses incurred in connection with any dispute or contest arising
out of conflict in claims of entitlement to policy proceeds or
benefits which the Ceding Company admits are payable.
5. Extra Contractual Damages.
The Reinsurer shall not be liable, nor shall any amounts be paid under
this Agreement or otherwise, for any extra-contractual damages,
including but not limited to consequential, compensatory, exemplary or
punitive damages awarded against the Ceding Company or the Ceding Company
voluntarily pays in settlement of a dispute or claim, where the damages
actually awarded are the direct or indirect result of any act, omission or
course of conduct undertaken by the Ceding Company, its agents or
representatives in connection with any aspect of the insurance reinsured
under the Agreement. The Reinsurer recognizes that special circumstances
may arise under which the Reinsurer, in equity, should participate to the
extent permitted by law in certain assessed damages. These circumstances
are difficult to define in advance but could include those situations in
which the Reinsurer was an active party in the act, omission or course of
conduct which directly results in the assessment of such damages. The
extent of such participation is dependent upon a good-faith assessment
of the relative culpability in each case; but all factors being equal,
the division of any such assessment would generally be in the proportion of
the net liability accepted by each party.
15.2
ARTICLE 16: MISSTATEMENT OF AGE OR SEX
---------------------------------------
In the event of an increase or reduction in the amount of original insurance
under any policy reinsured hereunder because of an overstatement or
understatement of age or misstatement of sex established after the death of the
insured, the Ceding Company and the Reinsurer shall share in such increase or
reduction in proportion to their respective liabilities under such policy.
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ARTICLE 17: INSOLVENCY
-----------------------
1. All reinsurance under this Agreement shall be payable by the Reinsurer
directly to the Ceding Company, its liquidator, receiver or statutory
successor on the basis of the liability of the Ceding Company under the
policy or policies reinsured without diminution because of the insolvency of
the Ceding Company. It is understood, however, that in the event of
such insolvency the liquidator or receiver or statutory successor of the
Ceding Company shall give written notice of the pendency of a claim against
the insolvent Ceding Company on the policy reinsured within a reasonable
time after such claim is filed in the insolvency proceeding. 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 which it may deem available to the Ceding Company or
its liquidator or receiver or statutory successor.
2. It is further understood that the expense thus incurred by the Reinsurer
shall be chargeable, subject to court approval, against the insolvent
Ceding Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Ceding Company
solely as a result of the defense undertaken by the Reinsurer. Where two
or more reinsurers are involved in the same claim and a majority in interest
elect to interpose defense to such claim, the expenses shall be apportioned
in accordance with the terms of the reinsurance agreement as though such
expense had been incurred by the Ceding Company.
3. Any debts or credits, matured or unmatured, liquidated or unliquidated, in
favor of or against either the Reinsurers or the Ceding Company with respect
to this agreement or with respect to any other claim of one party against
the other are deemed mutual debts or credits, as the case may be, and will
be offset, and only the balance will be allowed or paid.
17.0
ARTICLE 18: INSPECTION OF RECORDS
----------------------------------
The Reinsurer shall have the right at any reasonable time to inspect at the
office of the Ceding Company the original papers, records, books, files and
other documents relating directly or indirectly to the insurance coverage
reinsured under this Agreement.
18.0
ARTICLE 19: ARBITRATION
------------------------
It is understood by both parties hereunder that the wording and interpretation
of this Agreement is based on the usual customs and practices of the insurance
and reinsurance industry. While both parties agree to act in good faith in their
dealings with each other, it is understood and recognized that situations arise
in which an agreement cannot be reached.
In the event that any dispute cannot be resolved to the satisfaction of both
parties, such dispute shall first be subject to good-faith negotiation as
described below in an attempt to resolve such dispute without the need to
institute a formal arbitration proceeding.
1. Negotiation. Within ten days after the first written notification of the
specific dispute has been given to the other party, each party shall appoint
a designated officer to represent that party with the objective of resolving
the dispute. The parties shall meet at a mutually agreeable location as
early as practicable and as often as deemed necessary, in order to gather
and furnish to the other party all appropriate and relevant information with
respect to the matter at issue. The officers shall discuss the problem
and/or negotiate in good faith in an effort to resolve the dispute without
the necessity of any formal arbitration proceeding. During the course
of the negotiation, all reasonable requests made by one party to the other
for information shall be honored in order that each of the parties may be
fully advised. The specific format for such discussions shall be left to
the discretion of the designated officers.
The parties agree that they will submit the dispute to formal arbitration
in the event that such officers cannot resolve the dispute within thirty
days of their first meeting. The parties may agree in writing to extend
this period for an additional thirty days.
2. Arbitration. No later than fifteen days after the final meeting, in
accordance with the negotiation period above, the parties to the negotiation
process shall give written confirmation to the Ceding Company and the
Reinsurer of their inability to resolve the dispute and their
recommendation for establishment of formal arbitration.
An arbitration panel, consisting of three arbitrators, who must be past or
present officers of life insurance companies not affiliated in any way
with the Ceding Company or the Reinsurer, shall settle the dispute.
19.0
Selection of the panel shall be as follows: within thirty days of the written
recommendation of the establishment of formal arbitration procedures, the Ceding
Company and the Reinsurer shall each submit in writing to the other a list of
three candidates for the arbitration panel. The Ceding Company and the Reinsurer
shall each choose one candidate from the other party's list. Should any chosen
candidate decline to participate in the arbitration proceedings, the party which
had named such candidate shall add another name to the list, and the other party
shall again choose an arbitrator from the list. This procedure shall continue
until two arbitrators have been chosen and have agreed to serve.
The two chosen arbitrators shall choose a third from the remaining candidates
set forth on the lists described above. If the two arbitrators cannot agree on
the choice of a third, such choice shall be made by the Chairman of the American
Arbitration Association.
The date and location of the arbitration shall be set by the arbitration panel,
and shall be communicated in writing to the Ceding Company and to the Reinsurer.
In no event will the date of the arbitration occur later than six months after
the choice of the third arbitrator.
No later than thirty days before the date of the arbitration, the Ceding
Company and the Reinsurer shall supply the arbitration panel with a written
statement containing the facts of the dispute, along with any and all applicable
evidence pertaining to the case. The arbitrators shall consider all
evidence which they consider relevant and shall have the authority to request
additional evidence or statements from either party.
Within sixty days after the beginning of the arbitration proceedings, the
arbitrators shall issue a written decision regarding the dispute and a statement
of any award to be paid as a result of that decision. Their decision shall be
based on the terms and conditions of this Agreement as well as the usual customs
and practices of the insurance and reinsurance industry, rather than on strict
interpretation of the law. Their decision shall be final and binding on both
parties and there shall be no further appeal, except that either party may
petition any court having jurisdiction over the parties and the subject
matter as respects the award rendered by the arbitrators.
Unless otherwise decided by the arbitrators, all expenses resulting from the
arbitration, including the fees and expenses of the arbitrators, will be borne
jointly by
19.1
each respective party to this Agreement, except that each party will be
responsible for its own attorneys' fees.
19.2
ARTICLE 20: PARTIES TO THE AGREEMENT
-------------------------------------
This is an Agreement for indemnity reinsurance solely between the Ceding
Company and the Reinsurer. The acceptance of reinsurance hereunder shall not
create any right or legal relationship whatever between the Reinsurer and the
insured or any beneficiary under any policies of the Ceding Company which may be
reinsured hereunder.
20.0
ARTICLE 21: DURATION OF AGREEMENT
----------------------------------
The Agreement shall be unlimited in duration, but may be amended at any time by
the written agreement of the two (2) parties and may be terminated as to further
new reinsurance at any time by either party upon ninety (90) days notice in
writing. The Reinsurer shall continue to accept reinsurance during the ninety-
day period aforesaid subject to the payment of reinsurance premiums in
accordance with Article 12. Such termination as to new reinsurance shall not
affect existing reinsurance which shall remain inforce until the termination or
expiry of each reinsurance cession in accordance with the terms and conditions
of this Agreement. The Reinsurer shall not be liable under this Agreement for
any claims or premium refunds which are not reported to the Reinsurer within 180
days following the termination or expiry of all inforce individual cessions
reinsured hereunder.
21.0
ARTICLE 22: EXPERIENCE REFUND
------------------------------
Reinsurance ceded under this Agreement shall not be eligible for an Experience
Refund.
22.0
ARTICLE 23: RESERVES
---------------------
The Reinsurer shall maintain its proportionate share of reserves, excluding
deficiency reserves, if any, held by the Ceding Company which may be required by
state or other regulatory authority for the insurance reinsured under this
Agreement.
23.0
ARTICLE 24: ENTIRE AGREEMENT
-----------------------------
This Agreement represents the entire agreement between the Ceding Company and
the Reinsurer and supersedes, with respect to its subject matter, any prior oral
or written agreements between the parties.
No modification or waiver of any provision of this Agreement shall be effective
unless set forth in a written amendment to this Agreement which is executed by
both parties. A waiver shall constitute a waiver only with respect to the
particular circumstances for which it is given and not a waiver of any future
circumstance.
24.0
ARTICLE 25: REPORTS
--------------------
1. Quarterly Policy Reserve Report. The Ceding Company shall provide the
Reinsurer with a listing of the mean reserves attributable to the reinsured
portion of each policy reinsured.
2. Annual Tax Reserve Report. Shortly after the close of the year, the
Ceding Company shall report to the Reinsurer the amount by which the Ceding
Company will reduce its tax reserve because of the reinsurance ceded under
this Agreement. The details of the report should conform to the current
requirements of Internal Revenue Code Section 807.
3. Annual Inforce Listing. Shortly after the close of the year, the Ceding
Company shall furnish the Reinsurer with a listing of all inforce reinsured
policies, similar in form to the listing shown in Article 4.
25.0
ARTICLE 26: EXECUTION OF THE AGREEMENT
---------------------------------------
In witness whereof the Ceding Company and the Reinsurer have caused this
Agreement to be executed in duplicate by their respective officers duly
authorized to do so.
COLONIAL LIFE INSURANCE COMPANY OF AMERICA
_________________________________ ____________________________________
Officer Signature Witness
_________________________________ ____________________________________
Title Title
_________________________________ ____________________________________
Date Date
