EXHIBIT 10.40
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement ("Agreement") is effective the 1st
day of January, 2006, by and between SAVERS PROPERTY AND CASUALTY INSURANCE
COMPANY (hereinafter referred to as the "Company"), a Missouri corporation with
its principal offices in Overland Park, Kansas, and MEADOWBROOK, INC., a
Michigan corporation, with its principal office in Southfield, Michigan
(hereinafter referred to as "Manager").
RECITALS:
A. MEADOWBROOK INSURANCE GROUP, INC., (hereinafter referred to as "MIG"),
owns several insurance-related subsidiary companies as part of the
insurance holding company system pursuant to the insurance laws and
regulations in the various jurisdictions where such subsidiaries are
licensed;
B. This Agreement shall be subject to and interpreted in accordance with
the laws, rules and insurance regulations in the jurisdictions wherein
the subsidiaries are licensed;
Therefore, in consideration of the mutual agreements described in this
Agreement, the Company and the Manager agree as follows:
AGREEMENT:
ARTICLE 1 - APPOINTMENT OF MANAGER
The Company and the Manager agree the Manager will perform services for the
Company as described in this Agreement and in the manner provided in this
Agreement. All underwriting, claims, loss control and investment services
provided to the Company by the Manager are to be based upon the written
criteria, standards and guidelines of the Company. The Company shall have the
ultimate and final authority over decisions and policies, including but not
limited to the acceptance, rejection or canceling of risks, the payment or
non-payment of claims and the purchase of securities.
Notwithstanding any other provision of this Agreement, it is understood the
business affairs of the Company shall ultimately be controlled and managed by
its Board of Directors and its officers, in accordance with relevant law. Also,
to the extent required under law, the Board of Directors shall present to the
Company's Shareholders issues for vote. The Manager shall not have any
management prerogatives with respect to the business affairs and operations of
the Company.
ARTICLE 2 - DUTIES
2.01 MANAGEMENT SERVICES
A. ACCOUNTING SERVICES, FINANCIAL STATEMENTS AND TAX RETURNS
The Manager will perform services appropriate to the Company's
operations and provide all accounting services required for
purposes of accounting for the results of its business
operations. The Manager will prepare all of the Company's
financial statements required for filing with regulatory
authorities, including statutory financial statements as
required under the applicable insurance code or by an
applicable insurance bureau. The Manager will perform these
services in a manner and at a time which complies with the
requirements of the insurance bureau, of taxing authorities,
and as otherwise reasonably required by the Company.
Accounting services shall include the maintenance of proper
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premium accounts, including provision for unearned premiums,
loss provision and experience statistics as required for
management and for filing with any regulatory authority. The
Manager will prepare the Company's financial statements on a
quarterly and annual basis. Prior to their due dates, the
Manager will prepare and deliver to the Company all tax
returns to be filed with any taxing authority of the Company.
Also, the Manager shall provide actuarial services to the
Company; however, the Company's annual actuarial review shall
be conducted by a third-party.
B. ACCOUNTS RECEIVABLE
The Manager will collect all funds due the Company. Manager
shall use due diligence and utilize all reasonable efforts for
the collection of amounts due the Company, but shall be
responsible to the Company only for premiums which are
actually collected. The Manager shall regularly account to the
Company on monies received by the Manager on behalf of the
Company. Due diligence in the collection of accounts
receivable shall mean regular contact of persons owing money
to the Company with the demand for payment and maintenance of
records adequate to legally enforce any debts owed. Due
diligence shall include any legal enforcement of the debts
owed.
C. DEPOSITS OF MONIES RECEIVED
The Manager shall deposit daily into accounts of the Company
maintained for that purpose all monies received by the Manager
for the Company. When a Manager is the agent for the risk, all
premium will be deposited, in accordance with the terms of any
relevant Agency Agreement. All premiums collected by the
Manager shall be held in trust segregated by the Company and
held in a fiduciary capacity.
D. ACCOUNTS PAYABLE
The Manager will make payments of the accounts payable of the
Company which are incurred by the Company in the ordinary
course of business; and which represent expenses of the
Company in areas for which the Manager is responsible under
this Agreement.
For that purpose, the Manager may be designated as the
signatory on certain depository and checking accounts of the
Company. The Manager shall provide regular accounting to the
Company of the payments which the Manager has paid.
E. REPORTS AND RECORDS
At least annually, and more often as may reasonably be
requested by the Company, the Manager will provide information
on the Company's overall financial conditions, results of
business operations and future capital requirements. The
Manager will maintain the coverage documents or policies
offered through the Company and any amendments, and will be
responsible for developing and furnishing all necessary forms
for the coverage of policyholders of the Company. These forms
shall include applications, claims reports, premium collection
or invoice forms, loss control, coverage documents, rating
forms, and related reports or explanatory forms required for
operations of the Company. The printing of such forms and
policies shall be the responsibility of the Company. All
reports and records as described above will be provided as
mutually agreed with the Manager and the Company.
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F. ADVICE AND OTHER SERVICES
The Manager will have no responsibility as to other matters
pertaining to the Company and its business operations. The
Manager will perform such other related services as may be
reasonably necessary for the proper conduct of the Company's
business operations and which are within the scope of this
Agreement.
G. UNDERWRITING
The Company shall retain the ultimate right and responsibility
to refuse any risk and/or cancel any policy. The Manager shall
perform such underwriting services as the Company shall from
time to time request. Underwriting services shall include the
review of applications for policies of insurance, making
decisions on coverage, follow up with applicants for
additional information, and working with reinsurers of the
Company as requested. Certain underwriting services to be
performed by the Manager may be delegated to a third-party
upon approval of such third parties and the terms of the
delegation by the Company. The Manager will comply with all
written guidelines set forth by the Company with respect to
underwriting, the acceptance or rejection of certain classes
of business, the scope of coverage and the provisions of the
coverage document or related to the issuance of policies.
H. REINSURANCE
The Manager shall seek to arrange for appropriate reinsurance,
including the preparation of all necessary documents with
respect to such reinsurance. The Manager shall act as the
liaison with the reinsurers with respect to both the
acceptance of applications, the payment and remittance of
premiums, the reporting of claims and collection of
reinsurance payments due the Company. Also, the Manager shall
negotiate the terms, conditions and premiums for such
reinsurance.
I. INVESTMENTS
The Company shall have custody of, responsibility for and
control all investments of the Company. The Manager will
comply with the Investment Policy Guidelines set forth by the
Company with respect to investments and the acceptance or
rejection of certain investments. However, the Company shall
have the ultimate and final authority over decisions regarding
the purchase and sale of securities.
J. EXPENSES ARISING IN MANAGEMENT SERVICES
During the term of this Agreement, the Company will incur
expenses for various types of services. Joint expenses
incurred by the Company, and the other insurance companies
within the MIG Holding System, will be allocated to the
Company as follows:
Expense Cost Allocation Method
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1. Information Services Premium Volume
2. Claim Administration Costs Claim Cost/Reported
3. Actuarial Services Premium Volume
4. Audit Premium Volume
5. Legal Time Study
6. Tax Advice/Preparation Time Study
7. Equipment Lease/Costs Premium Volume
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8. Printing/Marketing Materials Premium Volume
9. Leases Time Study
10. Other Administrative Costs Time Study
The Manager will periodically renew the allocation method to
assure the expenses are fairly apportioned to the Company and
consistent with relevant state insurance regulations.
2.02 CLAIMS
A. CLAIMS ADMINISTRATION
The Company shall have ultimate responsibility for claims
adjustments and payments. The Manager will receive all claims
and notice of claims from policyholders of the Company. The
Manager will review, process, investigate, adjust, settle or
resist all claims received in accordance with the Company's
direction, the terms of Company coverage documents, and any
written guidelines or decision of the Company regarding
coverage, handling or payment of claims. The Manager will
establish loss reserves for each claim as deemed necessary in
accordance with the Company's direction. The Manager will make
subrogation investigations and consult with the Company or its
representatives for the proper adjusting of subrogation
matters. The Manager will engage attorneys as necessary, to
represent policyholders in any suit covered by the Company's
policy.
B. CLAIMS EXPENSES
The Company will pay allocated loss expenses, which include
reasonable expense items, such as attorney's fees, incidental
legal fees, experts' fees, witnesses' travel expense,
extraordinary travel expense incurred by the Manager at the
request of the Company, court reporter's fees, transcript
fees, and the cost of obtaining public records and witness
fees. The Company will pay expenses associated with the
investigation, negotiation, settlement or defense of any claim
hereunder or as required for the collection of subrogation
payments from third parties on behalf of the Company. All
claims expenses other than allocated loss adjustment expenses
shall be considered unallocated loss adjustment expenses and
shall be paid by the Manager.
C. CLAIMS REPORTS
The Manager will establish claim files for each reported claim
which will be subject to review by the Company or its
representatives at any reasonable time without prior notice.
Reports for the Company will be furnished, in formats and
frequencies approved by the Company, to show claims fund
activity and payments, losses paid, pending and reserved, by
participant coverage, type, cause function, size, and so on.
The Manager will assist as needed with all litigation and
defense activities related to claims pursuant to the Company
program within guidelines established by the Company. These
activities shall include recommendation of attorneys on a case
or retainer basis for approval by the Company, preparation of
all claim documentation, retention of witnesses and
performance of other steps as necessary to properly defend
against claims against insureds of the Company.
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2.03 LOSS PREVENTION
The Manager will arrange for and coordinate loss prevention services as
agreed with the Company, including furnishing assistance and
professional consultation to participating insureds, in developing loss
prevention systems, making inventories and surveys regarding exposures
and risks covered under the Company program, analyzing claim causes and
trends, including frequency and severity, developing and conducting
training programs, and other information for loss prevention. The type
of services which will be provided to individual insureds to help them
to develop loss prevention systems will include review and analysis of
past claims, management controls and development of recommendations to
improve risk management.
ARTICLE 3 - COMPENSATION
3.01 FEES
In consideration of the services provided by the Manager, the Company
shall pay the Manager a fee based upon the costs and expenses incurred
with regard to the individual programs administered by the Manager for
the Company; such fee shall be no greater than the actual costs the
Company would expend in providing the service for itself.
3.02 TIME OF PAYMENT
The amount agreed upon as described in paragraph 3.01 will be payable
monthly.
ARTICLE 4 -THIRD PARTIES
The Manager and the Company agree the Manager may engage, employ and delegate
certain functions under this Agreement to third parties, agents or subsidiaries
of the Manager. In addition, the Manager shall have the authority to terminate
such retention. The Company shall have the authority to approve or terminate a
third-party and agency, as well as, approve all commission rates. To the extent
the Manager has delegated such function to a third party, the fee for such
service shall be paid by the Manager.
.
ARTICLE 5 - TERM AND TERMINATION
5.01 TERM
The Term of this Agreement will be from January 1, 2006 through
December 31, 2008 ("Original Term"). The Term will automatically be
extended for three (3) year periods thereafter, unless either party
provides written notice ninety (90) days prior to the end of the Term
or any extended term, as applicable, that it does not wish to extend
the Term. If the services of Manager are unsatisfactory, the Company
shall provide written notification to the Manager of such
dissatisfaction. The Manager shall have 180 days to cure such problems
or, if such problem cannot be cured within such time, take reasonable
steps within 180 days to cure such problem. If the problem has not been
cured, the Agreement can be terminated ninety (90) days after
expiration of the 180 days or after the Manager was unable to cure the
problem.
5.02 TERMINATION
This Agreement can be terminated by either party upon ninety (90) days
written notice to the other. Also, this Agreement may be terminated
immediately in the event of the insolvency, receivership, bankruptcy or
liquidation of either party or if either party has made an assignment
for the benefit of creditors.
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ARTICLE 6 - OWNERSHIP OF RECORDS
The Manager will maintain all appropriate records, files, ledgers, and reports
so as to accurately reflect at all times the financial transactions of the
Company. Upon reasonable notice, the Manager shall make all such records
available for inspection by the Company. All records of any kind relating to the
Company shall be the property of the Company and shall be in the Company's
custody and control or will be available for inspection.
ARTICLE 7 - GENERAL REQUIREMENTS OF THE MANAGER
7.01 MANAGER'S GENERAL DUTIES
The Manager is responsible to perform the duties assumed under this
Agreement in accordance with standard procedures for the performance of
such duties, which exist, in the insurance industry.
7.02 DEALING WITH THIRD PARTIES
The Manager is authorized and may act for, bind, make commitments, and
represent the Company to any third-party, in the ordinary course of
business and in fulfillment of its obligations under this Agreement.
ARTICLE 8 - MISCELLANEOUS
8.01 NOTICES
All notice requirements and other communications indicated shall be
deemed given when personally delivered or on the third succeeding
business day after being mailed by registered or certified mail, return
receipt requested, to the appropriate party at its address below or at
such other address as shall be specified by notice given hereunder.
THE COMPANY:
SAVERS PROPERTY AND
CASUALTY INSURANCE COMPANY
00000 Xxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000-0000
Attn: President
THE MANAGER: MEADOWBROOK, INC.
00000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Attn: President
8.02 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors.
8.03 AMENDMENT
This Agreement may not be amended, altered or modified except in
writing signed by the party against whom enforcement or any waiver,
change, discharge, alteration or modification is sought.
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8.04 INVALIDITY
The invalidity of any provision of this Agreement shall not affect the
validity of the remainder of any such provision or the remaining
provisions of this Agreement.
8.05 INTERPRETATION
The article, section and paragraph headings included in this Agreement
have been used solely for convenience and shall not be used in
conjunction with the interpretation of this Agreement. References to
articles, sections and paragraphs shall refer to such provisions in
this Agreement unless otherwise stated.
8.06 WAIVER
The failure of either party at any time to require performance by the
other party of any provision of this Agreement shall not be deemed a
continuing waiver of that provision or a waiver of any other provision
of this Agreement, and shall in no way affect the full right to require
such performance from the other party at any time thereafter.
8.07 SEVERABILITY
This Agreement and the transaction contemplated herein constitute one
transaction and shall not be divisible in any manner. A breach of any
portion of this Agreement shall be deemed a breach of the whole
Agreement.
8.08 COUNTERPARTS
If photocopies or duplicates of the original of this Agreement are
signed by the parties then each such originally signed document shall
be deemed to be an original of this Agreement.
8.09 CONFLICT OF INTEREST
The Manager shall not engage in conduct or activities that constitute
actual business competition with the Company.
8.10 INDEMNIFICATION
Both the Company and the Manager shall hold harmless, indemnify and
defend the other party against any expenses, damages, liability,
action, cost or other claims, including attorney fees arising out of
the other party's material breach of any duty or obligation hereunder.
8.11 ERRORS AND OMISSIONS INSURANCE COVERAGE
The Manager shall maintain an errors and omissions insurance policy in
an amount not less than $2,000,000 per claim and an employee dishonesty
bond of not less than $500,000 per claim.
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SAVERS PROPERTY AND
CASUALTY INSURANCE COMPANY
DATE: : /s/ Xxxxxxx X. Xxxxx
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BY: Xxxxxxx X. Xxxxx
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ITS: President
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MEADOWBROOK, INC.
DATE: /s/ Xxxxxx X. Xxxxxx
----------------------- -------------------------------------------
BY: Xxxxxx X. Xxxxxx
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ITS: President
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