EXHIBIT 10.1
GAP
QUOTA SHARE CONTRACT
BETWEEN
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
("PIC")
AND
CUMIS INSURANCE SOCIETY, INC,
("Cumis")
EFFECTIVE: APRIL 1, 2004
IN CONSIDERATION OF THE MUTUAL PROMISES AND OTHER GOOD AND VALUABLE
CONSIDERATION, PIC and Cumis agree as follows:
ARTICLE I. DEFINITIONS
Unless the context clearly requires otherwise:
A. "Allocated Loss Expense" means costs and expenses incurred by PIC on its
Net Retained Line and allocable to a specific claim or loss that are
incurred by PIC in the investigation, appraisal, adjustment, settlement,
litigation, defense or appeal of a specific claim, including court costs
and costs of supersedeas and appeal bonds expense, including a pro rata
share of salaries and expenses of PIC employees and expenses of PIC
officers who have been temporarily diverted from their normal and
customary duties and assigned to the field adjustment of losses covered by
this Contract, interest accrued after award or judgment and pre-judgment
interest awarded against the insured, legal expenses and costs incurred by
PIC in connection with coverage questions and legal actions connected
therewith, and legal costs and expenses associated with Extra-contractual
Obligations and Loss in Excess of Certificate Limits.
B. "Certificate" or "Certificates" means either (i) a Deficiency Waiver
Contract issued by a lender with an effective date during the Term of this
Contract and insured under policies issued by PIC known either as
Guarantee Asset Protection ("GAP") or Members Choice GAP (both called "GAP
Policies") or (ii) a certificate of insurance issued by PIC with effective
date for insurance coverage commencing during the Term of this Contract
evidencing coverage under GAP Policies issued by PIC,
C. "Contract Year" means each separate twelve (12) month period from April 1,
2004 or any period of less than twelve (12) months subsequent thereto
resulting from termination of this Contract.
D. "Coverage territory" means all states of the United States of America.
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E. "Extra-contractual Obligations" means one hundred percent (100.00%) of any
punitive, exemplary, compensatory or consequential damages for which PIC
is liable, other than Loss in Excess of Certificate Limits as a result of
a demand, claim or action by its insured, its insured's assignee or a
third party claimant, which demand, claim or action alleges gross
negligence, negligence, fraud, bad faith or other tortious conduct on the
part of PIC in investigating, adjusting, defending, settling or otherwise
handling a claim under a Certificate. An Extra-contractual Obligation
shall be deemed to have occurred on the same date as the Loss covered or
alleged to be covered under a Certificate. Notwithstanding anything stated
herein, this Contract shall not apply to any Extra-contractual obligation
incurred by PIC as a result of any fraudulent and/or criminal act directed
against PIC by any officers or directors of PIC 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. PIC shall be indemnified in
accordance with this Article to the extent permitted by applicable law.
Indemnification by Cumis for Extra-contractual Obligations will be
considered primary and any Errors and Omissions policy purchased by PIC
will be considered excess and inure solely to the benefit of PIC.
F. "Gross Net Premium" means direct premium written less refunds and returns
(but not dividends) on Certificates less premiums paid or payable by PIC
for all other facultative reinsurance coverage applicable to Certificates.
G. "Loss" means the amount of Loss or liability paid by PIC to or on behalf
of its insured to a claimant(s) under a Certificate.
H. "Loss in Excess of Certificate Limits" means one hundred percent (100%) of
any amount for which PIC is liable in excess of its Certificate limits,
but otherwise within the terms of its Certificate as a result of a demand,
claim or action by its insured or its insured's assignee or other third
party to recover damages the insured is legally obligated to pay to a
third party claimant because of PIC's alleged or actual gross negligence,
negligence, fraud, bad faith or other tortious conduct on the part of PIC
in investigating, adjusting, defending, settling or otherwise handling a
claim including but not limited to rejecting a settlement within policy
limits, in discharging its duty to defend or prepare the defense in the
trial of an action against its insured, or in discharging its duty to
prepare or prosecute an appeal consequent upon such an action.
Indemnification by Cumis for Loss in Excess of Certificate Limits will be
considered primary and any Errors and Omissions policy purchased by PIC
will be considered excess and inure solely to the benefit of PIC.
I. "Net Loss" means that amount of Loss, Extra Contractual Obligations, and
Loss in Excess of Certificate Limits that PIC has paid or is obligated to
pay on its Net Retained Line.
J. "Net Retained Line" means that portion of any Net Loss and Allocated Loss
Expense that PIC has retained net for its own account after application of
all facultative reinsurance and after deduction of all net salvage and
other recoveries actually
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made. All subrogation, recoveries, or payments recovered or received
subsequent to a Loss settlement under this Contract shall be applied as if
recovered or received prior to payment or settlement, and all necessary
adjustments shall be made by the parties to this Contract. Nothing in this
definition, however, shall be construed to mean that Net Loss is not
recoverable from Cumis until the ultimate Net Loss of PIC has been
absolutely ascertained.
ARTICLE II. COVERAGE
A. Net Loss. Cumis shall be liable to and will indemnify PIC, for one hundred
percent (100%) of PIC's Net Loss on each loss, each coverage, each
Certificate, and
B. Allocated Loss Expense. Cumis shall also be liable to and will reimburse
PIC, in addition to Cumis's obligation to reimburse PIC for Net Loss as
set forth above, for one hundred percent (100%) of all Allocated Loss
Expense arising in connection with claims arising from Certificates.
ARTICLE III. EXCLUSIONS
A. The exclusions of this Contract shall be identical with those of PIC's
Certificates and the master policies under which the Certificates are
issued
B. Any Net Loss and Allocated Loss Expense arising from Certificates issued
with a coverage period effective inception date not during the Term of
this Contract is not covered by this Contract.
C. Notwithstanding any other provision of this Contract, Cumis shall have no
obligation or liability for any loss, expense, damage, fees, fine, penalty
or other amount that arises from (i) the acts, errors, omissions, or
conduct of PIC that arises or results from the general conduct or
procedures ("procedures") of PIC that are as issued by PIC contrary to or
inconsistent with applicable statutes, regulations, insurance department
bulletins and attorney general opinions applicable to the claims function
and claims practices ("claims practices rules") applied in general or as
those procedures are or were applied to a specific claim or claims or (ii)
the failure of PIC to follow the advice and counsel of Cumis provided
under Article X.
ARTICLE IV. PREMIUM
A. Premium. PIC shall cede to Cumis one hundred percent (100%) of the Gross
Net Premium arising from the Certificates including that developed by
endorsement or audit on each Certificate less any premiums paid or payable
for facultative reinsurance that inures to the benefit of this Contract.
B. Premium Adjustment. If any alteration is made in the terms of any
Certificate whereby the amount of the premium payable in respect thereof
is affected, the premium shall be adjusted and any difference credited to
or charged against the Cumis as the case may warrant. Upon cancellation of
any Certificate, PIC shall be entitled to the proportionate return of
premium.
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C. Cancellation Fees. PIC and CUMIS will share equally in all cancellation
fees when permitted by law.
ARTICLE V. CEDING COMMISSION
A. Ceding Commission. Cumis shall allow PIC in the monthly accounts a ceding
commission of Nineteen and six-tenths percent (19.6%) percent of Gross Net
Premium ceded to Cumis on the Certificates. On return and refund premiums,
PIC shall return and refund commission at the rate originally allowed
thereon.
ARTICLE VI. TERM AND TERMINATION
A. Commencement. This Contract incepts 12:01 A.M. Standard Time, April 1,
2004 and is subject to termination at any month's end upon at least one
hundred twenty (120) days prior written notice by either party.
B. Termination. Upon termination of this Contract, coverage under this
Contract will remain in effect for all Certificates to which this Contract
attached including those which are in-force on the termination date until
their natural expiration. However, should any Certificate to which this
Contract applies be extended, continued or renewed due to regulatory, or
other legal restrictions, this Contract shall automatically provide
extended coverage until those Certificates expire or are actually
terminated by PIC.
C. Run-Off. If coverage under this Contract shall expire while a Loss covered
hereunder is in progress, subject to the other conditions of this
Contract, Cumis shall indemnify PIC as if the entire Loss had occurred
during the time this Contract is in force provided the Loss covered
hereunder started before the time of coverage expiration.
ARTICLE VII. ACCOUNTS AND REPORTS
A. Accounts. PIC shall throughout the term of this Contract and thereafter,
so long as either party hereto shall request until all liability on the
Certificates has expired, report monthly as of the end of each month and
in addition, as of the end of each calendar year the following as the same
pertain to activity on Certificates for and from inception through to the
end of each applicable month:
1. Gross Net Premium written
2. Gross Net Premium ceded;
3. Gross Net earned premium
4. Gross Net earned premium ceded
5. Gross Unearned premium reserve;
6. Gross Unearned premium ceded;
7. Gross Net Loss and Allocated Loss Expense paid less applicable
salvage, subrogation, and other recoveries made;
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8. Ceded Net Loss and Allocated Loss Expense paid less applicable
salvage, subrogation, and other recoveries made;
9. Gross reserves for Net Loss and Allocated Loss Expense outstanding;
10. Ceded reserves for Net Loss and Allocated Loss Expense outstanding;
11. Ceded Premium received by PIC payable to Cumis;
12. Ceding Commission due PIC;
13. Claims Fund balance after settlements made in accordance with
Article XIII (D);
14. Net cash balance due PIC/Cumis (11-12)
B. Monthly Reports. Reports shall be submitted by PIC to Cumis within
forty-five (45) days of the end of each month for which the activity
report is rendered with exception to the report as submitted in accordance
with Article XII (H). The net balance due as reflected by each report
shall be payable by the debtor party to the creditor party, without demand
or presentation, within sixty (60) days of the end of the month for which
the report is submitted. A positive amount is a balance due Cumis; a
negative balance is an amount due PIC.
C. Set-Off. All amounts due either PIC or Cumis, whether by reason of
premium, commission, Net Loss, or Allocated Loss Expense, or otherwise,
under this Contract shall be subject to the right of recoupment and offset
and upon the exercise of the same, only the net balance shall be due. All
claims for such amounts whether or not fixed in amount at the time of the
insolvency of any party to this Contract, arising from coverage placed in
effect under this Contract prior to the insolvency of any party to this
Contract shall be deemed pre-liquidation debts and subject to this
Article.
D. Reports. PIC shall timely provide Cumis with reports and statistics with
respect to the Certificates as reasonably requested by Cumis including,
without limitation, within forty-five (45) days of the end of each
quarter, full, separate, and complete detailed Certificate and claims
bordereau and reports on formats acceptable to PIC and Cumis and such
other information as may be required by Cumis for completion of their NAIC
annual statements.
ARTICLE VIII. CURRENCY AND TAXES
A. Currency. Whenever the word "Dollars" or the "$" sign appears in this
Contract, they shall be construed to mean United States Dollars and all
transactions under this Contract shall be in United States Dollars.
Amounts paid or received by PIC in any other currency shall be converted
to United States Dollars at the rate of exchange at the date such
transaction is entered on the books of PIC.
B. Apportionment. In the event of PIC being involved in a Loss requiring
payment in two currencies, the amount recoverable under this Contract
shall be apportioned to the two currencies in the same proportion as the
amount of Loss in each currency bears to the total amount of Loss paid by
PIC. For the purposes of this Contract, where PIC should receive premium
or pay Loss in currencies other than United States currency, those
premiums and Loss shall be converted into United States
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Dollars at the actual rates of exchange at which these premiums and Losses
are entered on PIC's books.
C. Federal Excise Tax (Applicable to any reinsurer, excepting Underwriters at
Lloyd's London and other Reinsurers exempt from Federal Excise Tax, who
are domiciled outside the United States of America.) Cumis 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 Code) to the extent such premium is subject to the
Federal Excise Tax. In the event of any return of premium becoming due
hereunder, Cumis shall deduct the applicable percentage from the return
premium payable hereon and PIC or its agent should take steps to recover
the tax from the United States Government.
D. Taxes. In consideration of the terms under which this Contract is issued,
PIC undertakes not to claim any deduction of the premium hereon when
making Canadian Tax returns or when making tax returns, other than Income
or Profits Tax returns, to any State or Territory of the United States of
America or to the District of Columbia.
ARTICLE IX. OTHER COVERAGE.
A. Inuring Coverage. In calculating the amount of liability under this
Contract, only Net Loss and Allocated Loss Expense in respect of that
portion of any risk in excess of collectible inuring other insurance or
facultative reinsurance shall be included.
B. Collectibility. The amount of Cumis's liability under this Contract in
respect of any Net Loss and Allocated Loss Expense shall include losses
incurred by PIC by reason of the inability of PIC to apply or collect any
other coverage from any insurer or reinsurer, whether specific or general,
that may have become due from them, whether that inability arises from
insolvency or otherwise.
ARTICLE X. LOSS NOTICE AND SETTLEMENT
A. Loss Notice. PIC shall report all Losses to Cumis by monthly bordereau.
B. Loss Settlement. All claims and Loss shall be investigated, adjusted, and
settled by PIC or its designee which settlements, judgments or compromises
of claims or Loss will be finally binding upon Cumis without undue
interference of Cumis provided that in the event of a possible claim
denial for a reason outside of mutually agreed parameters reduced to
writing by PIC and Cumis, PIC shall first seek the advice and counsel of
Cumis before denying a claim in whole or in part.
C. Original Conditions. Cumis' liability to PIC, subject to the exclusions
and the terms and conditions of this Contract, shall attach simultaneously
with that of PIC and shall be subject in all respects to the same risks,
terms, conditions, interpretations, waivers and to the same modifications,
alterations and cancellations as the respective insurances (or
reinsurances) of PIC, the true intent of this Contract being
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that Cumis shall, in every case to which this Contract applies, follow the
settlements and the fortunes of PIC with respect to the Certificates.
D. Right To Associate. When so requested in writing, PIC shall afford Cumis
or its representatives an opportunity to be associated with PIC, at the
expense of Cumis, in the defense of any claim, suit or proceeding
involving this reinsurance, and PIC and Cumis shall cooperate in every
respect in the defense of such claim, suit or proceeding.
E. Errors and Omissions. Inadvertent delays, errors or omissions made by PIC
in connection with this Contract shall not relieve Cumis from any
liability which would have attached had such delay, error or omission not
occurred, provided always that such delay, error or omission shall be
rectified as soon as possible after discovery by PIC's Home Office.
F. Subrogation and Recoveries. All salvages, recoveries, payments and
reversals or reductions of verdicts or judgments (net of the cost of
obtaining such salvage, recovery, payment or reversal or reduction of a
verdict or judgment) whether recovered, received or obtained prior or
subsequent to a loss settlement under this Contract, including amounts
recoverable under other reinsurance, shall be applied as if recovered,
received or obtained prior to the aforesaid settlement and shall be
deducted from the actual losses sustained to arrive at the amount of the
Net Loss. Nothing in this Article shall be construed to mean losses are
not recoverable until the Net Loss to the PIC finally has been
ascertained.
Cumis shall be subrogated, as respects any loss for which Cumis shall
actually pay or become liable, but only to the extent of the amount of
payment by or the amount of liability to Cumis, to all the rights of PIC
against any person or other entity who may be legally responsible for
damages as a result of said loss. Should PIC elect not to enforce such
rights, Cumis is hereby authorized and empowered to bring any appropriate
action in the name of PIC or its policyholders, or otherwise to enforce
such rights. Cumis shall promptly remit to PIC the amount of any judgment
awarded in such an action in excess of the amount of payment by, or the
amount of liability to, Cumis hereunder.
ARTICLE XI. ACCESS TO RECORDS AND THIRD PARTY BENEFICIARY
A. Access To Records. Cumis, so long as liability under the Certificates has
not expired and for five years thereafter, and as frequently as Cumis
deems reasonably necessary, upon reasonable notice may visit, inspect,
examine, audit, and verify, at the offices of PIC, any of the policies,
Certificates, claim files, accounts, files, documents, books, reports,
work papers, and other records belonging to or in the possession or
control of PIC relating to the Certificates and to make copies thereof and
extracts therefrom.
B. Third Party Beneficiary. Except as expressly provided for in the Article
entitled Insolvency, the provisions of this Contract are intended solely
for the benefit of PIC and Cumis. Nothing in this Contract shall in any
manner create or be construed to
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create any obligations to or establish any rights against any party to
this Contract in favor of any other persons not party to this Contract.
ARTICLE XII. Insolvency
A. Reinsurance Payable. In the event of the declared insolvency of PIC and
the appointment of a liquidator, receiver, conservator or statutory
successor, this reinsurance shall be payable immediately upon demand, with
reasonable provision for verification, directly to PIC or to its
liquidator, receiver, conservator or statutory successor on the basis of
the liability of PIC as a result of claims allowed against PIC by any
court of competent jurisdiction or any liquidator, receiver, conservator,
or statutory successor having authority to allow such claims without
diminution because of the insolvency of PIC or because the liquidator,
receiver, conservator or statutory successor of PIC has failed to pay all
or a portion of any claim. Payments by Cumis as above set forth shall be
made directly to PIC or to its conservator, liquidator, or statutory
successor, except where the contract of insurance or reinsurance
specifically provides another payee of such reinsurance or except as
provided by applicable law and regulation (such as subsection (a) of
section 4118 of the New York Insurance laws) in the event of the
insolvency of PIC.
B. Notice of Claim. Every liquidator, receiver, conservator, statutory
successor of PIC or guaranty fund or association shall give written notice
to Cumis of the pendency of a claim involving PIC indicating the
Certificate, which claim would involve a possible liability on the part of
Cumis to PIC or to its liquidator, receiver, conservator or statutory
successor, within a reasonable amount of time after the claim is filed in
the conservation, liquidation, receivership or other proceeding.
C. Investigation. During the pendency of any claim, Cumis may investigate the
same and interpose, at its own expense, in the proceeding where that claim
is to be adjudicated, any defense or defenses that it may deem available
to its Certificate holder, or to any liquidator, receiver, conservator,
statutory successor of PIC or guaranty fund or association.
D. Expenses. The expense thus incurred by Cumis shall be chargeable, subject
to the approval of the Court, against PIC as part of the expense of
conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to PIC as a result of the defense undertaken by
Cumis. Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to the claim, the expense
shall be apportioned in accordance with the terms of this Contract as
though such expense had been incurred by PIC.
ARTICLE XIII. CLAIMS FUND
A. Establishment. PIC and Cumis hereby establish a Claims Fund to facilitate
the administration of the payment of claims.
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B. Initial Funding. To initially fund the Claims Fund, Cumis shall deposit by
the first of the month following execution of this Contract with PIC an
amount equal to $250,000..
C. Minimum Amount. After the initial funding following execution of this
Contract, the Minimum Amount of the Claims Fund shall be the lesser of
$500,000 or an amount equal to three times the average claims payments on
the Certificates in the preceding two months provided that notwithstanding
the above, for the first twelve (12) months of the Term of this Contract,
the Minimum Amount shall be not less than $250,000.
D. Claims Fund Settlement. Within 7 business days of the end of each month,
PIC shall send a monthly report to Cumis listing all Losses paid and
amounts drawn out of the Claims Fund, for the benefit of Cumis net of any
Interest earned on the Claims Fund balance during the month. Within 15
days of the end of the month for which said report is submitted, Cumis
shall reimburse the Claims Fund in an amount equal to the net balance
submitted by PIC to reestablish the balance in the Claims Fund to be equal
to the Minimum Amount.
E. Interest. The Claims Fund shall be deposited in a bank account insured by
the Federal Deposit Insurance Corporation. The money in the Claims Fund
shall be swept into an overnight money market fund consistent with the
other operating funds of PIC. The interest earned on the Claims Fund will
accrue to the benefit of the Claims Fund.
F. Termination. The Claims Fund shall be terminated and the balance thereof
remitted to Cumis after the termination of this Contract once the ceded
outstanding reserves, including Incurred But Not Reported loss and loss
adjustment expense attributable thereto, as reasonably determined by PIC,
for Net Loss and Allocated Loss Expense are less than $75,000.
G. Funds Withheld. To the extent required, the amount of the Claims Fund
shall be deemed as "funds drawn" under Article XIII (C) of this Contract.
The Assets in the Claims Fund shall at all times be considered having been
paid to Cumis and having been returned by Cumis to the Claims Fund
ARTICLE XIV. SECURITY AND UNAUTHORIZED REINSURANCE
A. Security. For reasons of PIC's financial security and condition, if Cumis
is not licensed or otherwise qualified as an insurer or reinsurer in
PIC's' state of domicile, or if Cumis's A.M Best rating is downgraded
below "A -(Stable)", Cumis will secure, at the inception hereof and within
thirty (30) days after the end of each calendar quarter (but no later than
December 31 of each year as respects the fourth quarter), its share of
"Obligations" under this Contract in a manner, form and amount acceptable
to PIC and to applicable regulatory authorities by a letter of credit or
trust fund meeting at least the standards for credit for reinsurance of
Pennsylvania.
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B. Obligations. The "Obligations" referred to herein shall mean the then
current (as of the end of each calendar quarter) sum of:
1. The amount of ceded unearned premium for which Cumis is responsible;
2. The amount of paid Net Losses and Allocated Loss Expenses paid by
PIC but not yet recovered from Cumis;
3. The amount of ceded reserves for Net Losses reported and
outstanding, as well as for reserves for Allocated Loss Expenses and
Incurred But Not Reported loss and loss adjustment expense
attributable thereto, for which Cumis is responsible; and
4. The amount of return and refund premiums for which Cumis is
responsible.
C. Right To Draw. Subject to paragraph E below, PIC or its successors in
interest may draw, at any time and from time to time, without diminution
or restriction because of the insolvency of either PIC or Cumis, upon the
established letter of credit, trust fund or subsequent cash deposit.
D. Purpose of Draw. Any draw under paragraph C shall be for one or more of
the following purposes where Cumis's entire Obligations or part thereof,
under this Contract remain unliquidated and undischarged at least thirty
(30) days prior to the stated expiration date or at the time PIC learns of
the possible jeopardy to the security represented by the letter of credit
or trust fund:
1. To make payment to and reimburse PIC for Cumis's share of paid Net
Loss and Allocated Loss Expense paid by PIC under its Certificates
covered under this Contract due to PIC but unpaid by Cumis;
2. To make payments to Cumis of any amounts held thereby that exceed
the amount required to fund Cumis' Obligations under this Contract
provided that if a trust fund is applicable, only the excess of one
hundred two (102%) percent of the amount required to fund Cumis'
Obligations may be released.
3. To make payments to PIC of any other amounts PIC claims are due
under this Contract from Cumis including but not limited to Cumis'
share of premium refunds and returns; and
4. To obtain a cash deposit of the entire amount of the remaining
balance under the established letter of credit or established trust
fund in the event that PIC:
a) has received notice of non-renewal or expiration of the letter
of credit of trust fund;
b) has not received assurances satisfactory to PIC of any
required increase in the amount of the letter of credit or
trust fund or its replacement at least thirty (30) days before
any termination date;
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c) has been made aware that others may attempt to attach or
otherwise place in jeopardy the security represented by the
letter of credit or trust fund; or
d) has concluded that the trustee is such that the security
represented by the letter of credit or trust fund may be in
jeopardy.
E. Use of Funds Drawn. If PIC draws on the letter of credit or trust fund to
obtain a cash deposit, PIC shall hold the amount of the cash deposit so
obtained in the name of PIC in any solvent United States Bank or Trust
Company that is a member of the Federal Reserve System and insured by the
Federal Deposit Insurance Corporation in trust solely to secure the
Obligations referred to above and for the use and purposes enumerated
above and to return any balance thereof to Cumis:
1. upon the complete and final liquidation and discharge of all of
Cumis' Obligations to PIC under this Contract; or
2. in the event Cumis subsequently provides alternate or replacement
security consistent with the terms hereof and acceptable to PIC.
F. Quarterly Statement. PIC will prepare and forward at least quarterly to
Cumis a statement for the purposes of this Article, showing Cumis' share
of Obligations as set forth above. If Cumis' share thereof exceeds the
then existing balance of the security provided, Cumis shall, within
fifteen (15) days of receipt of PIC's statement, but never later than
December 31 of any year, increase the amount of the letter of credit or
trust fund or the cash deposit to the required amount of Cumis's
Obligations set forth in PIC's statement.
G. Trust Fund Excess. Subject to applicable legal restraints with respect to
trust funds, if Cumis' share thereof is less than the then existing
balance of the trust account or cash deposit as provided for above, PIC
will release the excess thereof to Cumis upon Cumis' written request.
H. Trust Fund Assets. The assets deposited in any trust fund shall be valued
according to their current fair market value and shall consist only of
cash (US legal tender), certificates of deposit issued by a United States
Bank and payable in cash, and investments of the types permitted as
admitted assets under the applicable law of Pennsylvania and approved by
PIC. Investments issued by the parent, subsidiary, or affiliate of either
PIC or Cumis shall not be eligible investments. All assets so deposited
shall be accompanied by all necessary assignments, endorsements in blank,
or transfer of legal title to the trustee in order PIC may negotiate any
such assets without the requirement of consent or signature from reinsurer
or any other entity.
I. Cash Settlements. All settlements of account between PIC and Cumis shall
be made in cash or its equivalent.
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J. Successors In Interest. PIC's "successors in interest" shall include those
by operation of law, including without limitation, any liquidator,
rehabilitator, receiver, or conservator.
K. Other Actions. Cumis will take any other reasonable steps that may be
required for PIC to take credit on its statutory financial statements for
the reinsurance provided by this Contract.
ARTICLE XV. SERVICE OF SUIT
(This Article only applies to a reinsurer who is domiciled outside of the United
States and/or unauthorized in any state, territory or district of the United
States having jurisdiction over PIC and its reserves. Furthermore, this Service
of Suit Article will not be read to conflict with or override the obligations of
the parties to arbitrate their disputes as provided for in the Arbitration
Article. This Article is intended as an aid to compelling arbitration or
enforcing such arbitration or arbitral award, not as an alternative to the
Arbitration Article for resolving disputes arising out of this Contract.)
A. Submission To Jurisdiction. In support of the Arbitration Article, in the
event of a dispute arising out of or in connection with this Contract, or
if Cumis fails to pay any amount claimed to be due under this Contract, at
the request of PIC, Cumis will submit to the jurisdiction of any court of
competent jurisdiction within the Commonwealth of Pennsylvania or the
State of New York, comply with all requirements necessary to that court's
jurisdiction, and all matters arising under this Contract shall be
determined in accordance with the law and practice of that court and
jurisdiction.
B. Service of Process. Service of process of suit in any suit may be made
upon the firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, Philadelphia, Pennsylvania,
("Firm"), and in any suit instituted, Cumis will abide by the final
decision of that court or any appellate court in the event of an appeal.
C. Acceptance. The Firm named above is hereby expressly authorized and
directed by Cumis as its true and lawful attorney to accept service of
process of suit on behalf of Cumis in any suit by PIC and, upon the
request of PIC, to give a written undertaking to PIC to enter into and to
enter a general appearance upon behalf of Cumis in the event a suit shall
be instituted.
D. Statutory Agent. Pursuant to any statute of any state, territory or
district of the United States of America which makes provision therefore,
Cumis hereby designate 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 any action, suit or
proceeding instituted by or on behalf of PIC or any beneficiary hereunder
arising out of this Contract and hereby designate the agent for service of
process as the firm to whom the said officer is authorized to mail such
process or a true copy thereof.
ARTICLE XVI. ARBITRATION
A. Condition Precedent. As a condition precedent to any cause of action, any
and all disputes between PIC and Cumis arising out of, relating to, or
concerning this
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Contract, whether sounding in contract or tort and whether arising during
or after termination of this Contract, shall be submitted to the decision
of a board of arbitration composed of two arbitrators and an umpire
("Board") meeting at a site in Philadelphia, Pennsylvania. The arbitration
shall be conducted under the Pennsylvania Arbitration Act or Federal
Arbitration Act, as applicable, and shall proceed as set forth in the
following paragraphs:
B. Submission to Arbitration. A notice requesting arbitration, or any other
notice made in connection therewith, shall be in writing and shall be sent
certified or registered mail, return receipt requested to the affected
parties. The notice requesting arbitration shall state in particulars all
issues to be resolved in the view of the claimant, shall appoint the
arbitrator selected by the claimant and shall set a tentative date for the
hearing, which date shall be no sooner than ninety (90) days and no later
than one hundred fifty (150) days from the date that the notice requesting
arbitration is mailed. Within thirty (30) days of receipt of claimant's
notice, the respondent shall notify claimant of any additional issues to
be resolved in the arbitration and of the name of its appointed
arbitrator.
C. Arbitration Board Membership. Unless otherwise mutually agreed, the
members of the Board shall be impartial and disinterested and shall be
active or retired lawyers with at least ten years of experience in
insurance and reinsurance, or active or retired officers of
property-casualty insurance companies, reinsurance companies, or Lloyds
Underwriters. PIC and Cumis as aforesaid shall each appoint an arbitrator
and the two (2) arbitrators shall choose an umpire before instituting the
hearing. If the respondent fails to appoint its arbitrator within thirty
(30) days after having received claimant's written request for
arbitration, the claimant is authorized to and shall appoint the second
arbitrator. If the two arbitrators fail to agree upon the appointment of
an umpire within thirty (30) days after notification of the appointment of
the second arbitrator, within ten (10) days thereof, the two (2)
arbitrators shall request ▇▇▇▇▇ U.S. to assist in the appointment of an
umpire for the arbitration with the qualifications set forth above in this
Article. If enlisting the aid of ▇▇▇▇▇ U. S. fails to result in the naming
of an umpire, either party may apply to the court named below to appoint
an umpire with the above required qualifications. The umpire shall
promptly notify in writing all parties to the arbitration of his selection
and of the scheduled date for the hearing. Upon resignation or death of
any member of the Board, a replacement shall be appointed in the same
fashion as the resigning or deceased member was appointed.
D. Submission of Briefs. The claimant and respondent shall each submit
initial briefs to the Board outlining the issues in dispute and the basis,
authority and reasons for their respective positions within thirty (30)
days of the date of notice of appointment of the umpire. The claimant and
the respondent may submit reply briefs to the Board within ten (10) days
after filing of the initial brief(s). Initial and reply briefs may be
amended by the submitting party at any time, but not later than ten (10)
days prior to the date of commencement of the arbitration hearing.
Reasonable responses shall be allowed at the arbitration hearing to new
material contained in any amendments filed to the briefs but not
previously responded to.
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E. Arbitration Hearing and Award. The Board shall make a decision and award
with regard to this Contract, the original intentions of the parties to
the extent reasonably ascertainable, and the custom and usage of the
property and casualty insurance and reinsurance business which decision
and award shall be in writing and shall state the factual and legal basis
for the decision and award. The decision and award shall be based upon a
hearing in which evidence shall be allowed and which the formal rules of
evidence shall not strictly apply but in which cross examination and
rebuttal shall be allowed. At its own election or at the request of the
Board, either party may submit a post-hearing brief for consideration of
the Board within twenty (20) days of the close of the hearing. The Board
shall make its decision and award within thirty (30) days following the
close of the hearing or the submission of post-hearing briefs, whichever
is later, unless the parties consent to an extension. Every decision by
the Board shall be by a majority of the members of the Board and each
decision and award by the majority of the members of the Board shall be
final and binding upon all parties to the proceeding. Either party may
apply to the United States District Court for the Eastern District of
Pennsylvania for an order confirming any decision and the award; a
judgment of that Court shall thereupon be entered on any decision or
award. If such an order is issued, the attorneys' fees of the party so
applying and court costs will be paid by the party against whom
confirmation is sought. The Board may award interest at a rate of ten
(10%) percent simple interest per annum calculated from the date the Board
determines that any amounts due the prevailing party should have been paid
to the prevailing party.
F. Arbitration Expense. Each party shall bear the expense of the one
arbitrator appointed by it and shall jointly and equally bear with the
other party the expense of any stenographer requested, and of the umpire.
The remaining costs of the arbitration proceedings shall be finally
allocated by the Board.
G. Evidence. Subject to customary and recognized legal rules of privilege,
each party participating in the arbitration shall have the obligation to
produce those documents and as witnesses to the arbitration those of its
employees as any participating party reasonably requests providing always
that the same witnesses and documents be obtainable and relevant to the
issues before the arbitration and not be unduly burdensome or excessive.
The parties may mutually agree as to pre-hearing discovery prior to the
arbitration hearing and in the absence of agreement, upon the request of
any party, pre-hearing discovery may be conducted as the umpire shall
determine in his/her sole discretion to be in the interest of fairness,
full disclosure, and a prompt hearing, decision and award by the Board.
The umpire shall be the final judge of the procedures of the Board, the
conduct of the arbitration, of the rules of evidence, the rules of
privilege and production and of excessiveness and relevancy of any
witnesses and documents upon the petition of any participating party. To
the extent permitted by law, the Board and the umpire shall have the
authority to issue subpoenas and other orders to enforce their decisions.
H. Equitable Relief. Nothing herein shall be construed to prevent any
participating party from applying to a federal district court of competent
jurisdiction to issue a restraining order or other equitable relief to
maintain the "status quo" of the parties participating in the arbitration
pending the decision and award by the Board or to prevent any
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party from incurring irreparable harm or damage at any time prior to the
decision and award of the Board. The Board shall also have the authority
to issue interim decisions or awards in the interest of fairness, full
disclosure, and a prompt and orderly hearing and decision and award by the
Board.
ARTICLE XVII. INTERMEDIARY
A. Towers ▇▇▇▇▇▇ Reinsurance is hereby recognized as the Intermediary
negotiating this Contract 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 PIC or Cumis
through Towers ▇▇▇▇▇▇ Reinsurance, One Stamford Plaza, ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇.
B. Payments by PIC to the Intermediary shall be deemed to constitute payment
to Cumis. Payments by Cumis to the Intermediary shall be deemed to
constitute payment to PIC only to the extent that such payments are
actually received by PIC.
ARTICLE XVIII. ADMINISTRATION PROCEDURES
A. Inasmuch as insurance premiums ceded to Cumis under this Contract shall be
collected directly by an affiliate of Cumis ("CMIA") pursuant to the
Agency and Marketing Agreement dated March 5, 2001, it shall be the
obligation of Cumis to cause CMIA to provide all necessary premium
information to PIC in order that PIC can make the reports required by
Article VII of this Contract.
B. To the extent that Cumis should receive any premium directly from CMIA,
Cumis shall remit the ceding commission allowed and due to PIC thereon in
the time required under this Contract.
ARTICLE XIX. OTHER TERMS AND CONDITIONS
A. Utmost Good Faith. This Contract is entered into with the expectation that
it correctly, adequately and appropriately describes the intent and
agreement of the parties. The principles of honorable engagement and
utmost good faith, traditional to reinsurance, will be adhered to in the
performance of this Contract, will govern the parties' rights and
obligations under the Contract, and will be the fundamental basis for
resolving any dispute that may arise between the parties.
B. Waiver. The failure of PIC or Cumis to insist on strict compliance with
this Contract or to exercise any right or remedy shall not constitute a
waiver of any rights contained in this Contract nor estop the parties from
thereafter demanding full and complete compliance nor prevent the parties
from exercising any remedy.
C. Severability. If any provisions of this Contract should be invalid under
applicable laws, the latter shall control but only to the extent of the
conflict without affecting the remaining provisions of this Contract.
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D. Headings. The headings preceding the text of the Articles and paragraphs
of this Contract are intended and inserted solely for the convenience of
reference and shall not affect the meaning, interpretation, construction
or effect of this Contract.
E. Assignment. This Contract shall be binding upon and inure to the benefit
of PIC and Cumis and their respective successors and assigns provided,
however, that this Contract may not be assigned by either party without
the prior written consent of the other party which consent may be withheld
by either party in its sole unfettered discretion.
F. Governing Law. This Contract shall be governed as to performance,
administration, and interpretation by the laws of the Wisconsin, exclusive
of its rules with respect to conflicts of law.
G. Negotiated Contract. This Contract has been negotiated by the parties and
the fact that the initial and other drafts shall have been prepared by
either party or an intermediary shall not give rise to any presumption for
or against any party to this Contract or be used in any form in the
construction or interpretation of this Contract or any of its provisions.
H. Entire Contract. This written Contract and any agreed amendments made
thereto, and the underwriting information provided for the formation of
the Contract and in connection with the acceptance of risk, including
letters of intent and /or other such clarification, if any, shall
constitute the entire agreement between the parties with respect to the
Certificates covered hereunder. Any change or modification of this
Contract shall be null and void unless made by amendment to the Contract
and signed by both parties.
I. Agency. As PIC consists of two insurers, the first named insurer shall be
the agent of the other companies as to all matters pertaining to this
Contract. Performance of the respective obligations of each party under
this Contract shall be rendered solely to the other party; however, in the
instance of insolvency of the PIC, the liability of the Reinsurers shall
be modified to the extent set forth in the article entitled INSOLVENCY.
J. Territory. The territorial limits of this Contract shall be identical with
those of PIC's Certificates.
K. Notices. Wherever written notice is required under this Contract, it shall
be in writing and either delivered personally or, sent through the
Intermediary by certified mail, return receipt requested to the addresses
indicated below:
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1. To PIC:
PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ATTN: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
FAX: ▇▇▇-▇▇▇-▇▇▇▇
2. To Cumis:
CUMIS INSURANCE SOCIETY, INC.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ATTN: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
FAX: ▇▇▇-▇▇▇-▇▇▇▇
L. Privacy Awareness. PIC and Cumis are aware of and in compliance with their
responsibilities and obligations under:
1. The ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of 1999 (the "Act") and applicable
Federal and state laws and regulations implementing the Act. PIC and
Cumis will only use non-public personal information as permitted by
law; and
2. The applicable provisions of the Health Insurance Portability and
Accountability Act ("HIPAA") and the related requirements of any
regulations promulgated thereunder including without limitation the
federal privacy regulations as contained in 45 CFR Part 160 and 164
(the "Federal Privacy Regulations"). PIC and Cumis will only use
protected health information as permitted by law.
M. Non-Disclosure. To the extent required or prohibited by applicable law or
regulation, Cumis shall not disclose any (a) non-public personal
information or (b) protected health information (as defined in 45 CFR
164.501) it receives from PIC to anyone other than:
1. Cumis, Cumis' affiliates, legal counsel, auditors, consultants,
regulators, rating agencies and any other persons or entities to
whom such disclosure is required to effect, administer, or enforce a
reinsurance contract; or any retrocessional reinsurance contract
applicable to the losses that are the subject of this Contract, or
2. Persons or entities to whom disclosure is required by applicable law
or regulation.
N. Confidentiality. The information, data statements, representations and
other materials provided by either party to this Contract (hereinafter
"Disclosing Party") to the other party (the "Receiving Party") arising
from consideration and participation in
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this Contract whether contained in the reinsurance submission, this
Contract, or in materials or discussions arising from or related to this
Contract, may contain confidential or proprietary information as expressly
indicated by the Disclosing Party in writing from time to time
("Confidential Information") to the Receiving Party")
1. This Confidential Information is intended for the sole use of the
parties to this Contract (and their retrocessionaires, respective
auditors and legal counsel) as may be necessary in analyzing and/or
accepting a participation in and/or executing their respective
responsibilities under or related to this Contract.
2. Disclosing or using Confidential Information disclosed under this
Contract for any purpose beyond (i) the scope of this Contract, (ii)
the reasonable extent necessary to perform rights and
responsibilities expressly provided for under this Contract, (iii)
the reasonable extent necessary to administer, report to and effect
recoveries from a retrocessional reinsurer or (iv) persons with a
need to know the information and who are obligated to maintain the
confidentiality of the Confidential Information or who have agreed
in writing to maintain the confidentiality of the Confidential
Information is expressly forbidden without the prior written consent
of the Disclosing Party.
3. Copying, duplicating, disclosing, or using Confidential Information
for any purpose beyond this expressed purpose is forbidden without
the prior written consent of the Disclosing Party.
O. Third Party Demand. Should either party receive a third party demand
pursuant to subpoena, summons, or court or governmental order, to disclose
Confidential Information that has been provided by the other party the
Receiving Party shall make commercially reasonable efforts to notify the
other party promptly upon receipt of the demand and prior to disclosure of
the Confidential Information and provide the Disclosing Party a reasonable
opportunity to object to the disclosure. If such notice is provided, the
Receiving Party may after the passage of five (5) business days after
providing notice, proceed to disclose the Confidential Information as
necessary to satisfy such a demand without violating this Contract. If the
Disclosing Party objects to the release of the Confidential Information,
the Receiving Party will comply with the reasonable requests of the
Receiving Party in connection with the Disclosing Party's efforts to
resist release of the Confidential Information. The Disclosing Party shall
bear the cost of resisting the release of the Confidential Information.
P. Non-Public Personal Information. "Non-Public Personal Information" shall
for the purpose of this Contract mean financial or health information that
personally identifies an individual, including claimants under
Certificates reinsured under this Contract, and which information is not
otherwise available to the public.
ARTICLE XX. TERRORISM RECOVERY - TERRORISM RISK INSURANCE ACT OF 2002
A. As respects the Insured Losses of the PIC for each Program Year, to the
extent PIC's total reinsurance recoverables for Insured Losses, when
combined with the
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compensation the PIC receives under the Act exceeds the aggregate amount
of Insured Losses paid by PIC, less any other recoveries or
reimbursements, (the "Excess Recovery"), a share of the Excess Recovery
shall be allocated to PIC and Cumis. PIC's share of the Excess Recovery
shall be deemed to be an amount equal to the proportion that PIC's Insured
Losses bear to the Insurer's total Insured Losses for each Program Year.
Cumis' share of the Excess Recovery shall be deemed to be an amount equal
to the proportion that Cumis' payment of Insured Losses under this
Contract bears to PIC's total collected reinsurance recoverables for
Insured Losses. PIC shall provide Cumis with all necessary data respecting
the transactions covered under this Article.
B. The method set forth herein for determining an Excess Recovery is intended
to be consistent with the United States Treasury Department's construction
and application of Section 103 (g)(2) of the Act. To the extent it is
inconsistent, it shall be amended to conform with such construction and
application, nevertheless PIC shall be the sole judge as to the allocation
of TRIA Recoveries to this or to other reinsurance Contracts.
C. "Act" as used herein shall mean the Terrorism Risk Insurance Act of 2002
and any subsequent amendment thereof or any regulations promulgated
thereunder. "PIC" shall have the same meaning as "Insurer" under the Act
and "Insured Losses", and "Program Year" shall follow the definitions as
provided in the Act.
IN WITNESS WHEREOF, PIC and Cumis have executed this Contract, by their
duly-authorized representatives on the date indicated below.
PHILADELPHIA INSURANCE COMPANY
By: ____James J. Maguire___
Title: President and CEO Date: __9/9/2004
PHILADELPHIA INDEMNITY INSURANCE COMPANY
By: __James J. Maguire__
Title: _President and CEO Date: ___9/9/2004_
CUMIS INSURANCE SOCIETY, INC
By: __Roger Yard___
Title: _Vice President and Chief Actuary Date: ______9/15/2004
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