This Management Services Agreement
(the Agreement) is made and entered into this 1st day of
January 2009, by and between Liberty Mutual Insurance Company (Liberty Mutual), a Massachusetts
stock insurance company and Safeco Surplus Lines Insurance Company (SSLIC), a Washington stock
I. Performance of Services. Liberty Mutual agrees, to the extent requested by SSLIC, to perform
such services (collectively, services) for SSLIC as SSLIC determines to be reasonably necessary
or desirable in the conduct of its operations; provided, however, that Liberty Mutual may, in its
sole discretion, decline to provide any of the services contemplated in this Agreement if providing
the requested services would interfere with Liberty Mutuals ability to meet its obligations to its
policyholders or would otherwise adversely affect Liberty Mutual. All services provided under this
Agreement shall comply with all applicable state laws and regulations governing SSLIC, including
all laws and regulations relating to review of SSLICs books and records. As may be necessary for
the performance of Liberty Mutuals services under this Agreement, Liberty Mutual shall have the
authority to negotiate or conclude contracts on behalf of SSLIC or bind SSLIC to any such
The listing of the following services to be performed under this Agreement is not intended to limit
the performance of other services that may be provided by Liberty Mutual to or on behalf of SSLIC,
as may be agreed to by the parties from time to time:
A. Accounting, financial, tax and auditing. Subject to the direction and control of SSLICs Board
of Directors and responsible officers, Liberty Mutual shall provide SSLIC with such financial and
accounting services as may be desirable, including:
1. Preparation and maintenance of annual and quarterly financial statements and other reports
providing information required by the state of domicile and other states in which SSLIC is
transacting business, the maintenance of necessary and proper records and books of account with
respect to the business of SSLIC, and the maintenance and compilation of all data required for the
preparation of tax returns.
2. Assistance to SSLIC in connection with the examination or audit of the books, records,
affairs and activities of SSLIC by governmental, insurance or taxing authorities having regulatory
or taxing authority with respect to the operations of SSLIC, or by any firm of certified public
accounts appointed by SSLIC to audit its books, records and accounts.
3. Assistance to SSLIC with treasury and accounts payable functions as may be determined
between the parties. SSLIC shall certify to Liberty Mutual the names and specimen signatures of all
officers or employees of SSLIC who are authorized to sign instructions on its behalf. Liberty
Mutual shall have the right to require that all instructions made in connection with this Agreement
meet its satisfaction as to content, form and authenticity.
Nothing in this Agreement shall be construed to alter the fact that SSLICs books records and
accounts are owned by SSLIC; and SSLIC shall have the right to inspect, or authorize others to
inspect, its books, records and accounts.
B. Purchasing, payroll and employee benefits. Subject to the direction and control of SSLICs Board
of Directors and responsible officers, Liberty Mutual shall provide SSLIC with such services
involving purchasing (including access to group purchasing contracts and fleet management
services), payroll processing, and employee relations and/or benefits as may be permissible and
C. Information Technology and Support. Subject to the direction and control of SSLICs Board of
Directors and responsible officers, Liberty Mutual shall provide the technology infrastructure,
information technology systems, software, data center management, network management services,
monitoring, management/oversight, and support services to SSLIC and shall provide trouble shooting
functions on behalf of SSLIC.
D. Policy Administration and Production. Subject to the direction and control of SSLICs Board of
Directors and responsible officers, Liberty Mutual may perform all policy production, print and
mail activities on SSLICs behalf for all the states in which SSLIC currently operates and in which
it may operate in the future.
E. Real Estate Management. Subject to the direction and control of SSLICs Board of Directors and
responsible officers, Liberty Mutual may handle all matters and issues relating to SSLICs real
estate purchases, sales, leases and lease-backs.
F. Legal. Subject to the direction and control of SSLICs Board of Directors and responsible
officers, Liberty Mutual may provide legal services, including litigation management services, to
or on behalf of SSLIC.
G. General Administration. Providing all personnel, equipment, data processing programs, materials
and supplies necessary or desirable for the performance of the services contemplated in this
H. Miscellaneous. Subject to the direction and control of SSLICs Board of Directors and
responsible officers, Liberty Mutual may perform such other services on behalf of SSLIC as it may
desire, and as may be mutually agreed to between Liberty Mutual and SSLIC.
I. Reinsurance. Reinsurance services including, but not limited to (i) agreement to reinsurance
policy and/or contract wordings and endorsements to existing policies; (ii) processing of
reinsurance policy cancellations, nonrenewals and endorsements and other amendatory addenda; (iii)
collection of premiums due under reinsurance policies or contracts, audits and remittances; (iv)
negotiation and purchase of reinsurance coverage; (v) administration of letters of credit and other
arrangements for the provision of security; and (vi) administration of reinsurance contracts.
II. Charges. SSLIC shall reimburse Liberty Mutual for the reasonable cost of performing any of the
services provided pursuant to this Agreement. Charges for such services shall include direct
expenses and directly allocable expenses allocated to SSLIC by Liberty Mutual in conformity with
customary insurance accounting practices consistently applied. The method of expense allocations
under this Agreement shall be consistent with the principles stated in the Statement of Statutory
Accounting Principles No. 70, Allocation of Expenses.
III. Accounts and Disbursements. Amounts owing between the parties shall be settled between the
parties on a quarterly basis and payments of amounts owing shall be made within 45 days after the
end of the calendar quarter.
IV. Confidentiality. Liberty Mutual and SSLIC are prohibited from disclosing or communicating to
any other person, not a party to this Agreement, any confidential or proprietary information or
trade secrets relating to the parties respective business or relating to any affiliate or agency
of any party to this Agreement, including business methods and techniques, research data, marketing
and sales information, customer lists, know-how and any other information concerning the business
operations of any party of this Agreement, or any such partys affiliates and subsidiaries, unless
the disclosure of communication of such information has been consented to in writing by the party
whose confidential and propriety information or trade secrets is to be released. Confidential and
proprietary information shall not include (a) information generally known to the public, (b)
information known to Liberty Mutual or SSLIC to be non-confidential from other, third party,
sources prior to the execution of this Agreement, and (c) information required to be disclosed by
law or a state or federal governmental agency having authority over the business of Liberty Mutual
or SSLIC, but only for the limited purpose of such disclosure.
V. Standards for Performance of Delegated Administrative and Management Functions.
A. At all times during the term of this Agreement. Liberty Mutual shall perform all delegated
administrative and management functions at a level that is at least equal to its standards, for
performing such functions on behalf of its own insurance operations. In additions, all delegated
administrative and management functions shall be performed in accordance with, and subject to, at
all times, the relevant and applicable state (or federal) insurance laws and regulations to which
SSLICs insurance operations are, or may be, subject.
B. In the event that Liberty Mutual receives a notice from any governmental agency, board, bureau,
commission or public authority of any type, of any alleged violation of any state or federal
insurance law, such notice shall immediately be forwarded to SSLIC. Liberty Mutual shall cooperate
in responding to any such governmental notice as such notice relates to its rendering of services
under this Agreement.
VI. Term and Termination.
A. Term. This Agreement shall be effective as of the 1st day of January 2009 and shall continue in
full force and effect until terminated in accordance with subsection B, below. In the event that
this Agreement is required to be approved by any state Department of
Insurance, any request for such approval shall seek an effective date that mirrors the date
1. Termination without Cause. This Agreement may be terminated, in whole or in relevant part,
as appropriate, by SSLIC or Liberty Mutual, without case, upon ninety (90) days prior written
notice. The terminating party shall provide the applicable state Department(s) of Insurance with
written notification of any whole or partial termination of this Agreement, as may be appropriate,
in accordance with state law requirements.
2. Termination with Cause. This Agreement may be terminated immediately, in relevant part, as
appropriate, by SSLIC or Liberty Mutual, for the following reasons:
(a) Material failure by Liberty Mutual to perform the services delegated in accordance
with the standards set forth in this Agreement; provided, however, that upon notification by
SSLIC that the services so delegated are not being performed in an appropriate or satisfactory
manner, Liberty Mutual shall have thirty (30) days in which to cure the deficiency. In the
event the deficiency is not cured to the satisfaction of SSLIC, SSLIC may immediately terminate
(b) nonpayment of costs by a delegating party to the party performing the services so
(c) The suspension, revocation or other restriction on the insurance license of either
SSLIC or Liberty Mutual.
(d) The insolvency, voluntary or involuntary bankruptcy, reorganization or liquidation of
either SSLIC or Liberty Mutual.
(e) In the event of (i) the acquisition of SSLIC by a third party from Liberty Mutual; or
(ii) any other change in control with causes Liberty Mutual to no longer maintain a majority on
the Board of Directors of SSLIC, then this Agreement shall terminate with respect to SSLIC as
of the effective date of the change of control.
C. Effect of Termination. In the event that this Agreement is terminated, with, or without, cause,
in whole or in part, as appropriate, the relevant services shall continue to be provided by Liberty
Mutual until alternate arrangements reasonably can be made by SSLIC (the Transition Services);
provided, however, that the Transition Services shall not be required to be provided for a period
of time extending beyond ninety (90) days from the effective date of termination, unless otherwise
agreed to by parties. In the event that this Agreement is terminated, in whole or in part, as
appropriate, for any reason other than those relating to change of control as described in Section
VI.B.2(e), above, all such Transition Services shall continue to be compensation for on a cost
basis. In the event that this Agreement is terminated for reasons specified in Section VI.B.2(e),
above, all such Transition Services shall be compensated for at the then-prevailing market rate for
the provision of such services.
A. Liberty Mutual Indemnification of SSLIC. Liberty Mutual, shall indemnify, defend and hold
harmless SSLIC from and against any expenses, damages, liability, actions, costs or other claims,
including but not limited to reasonable attorneys fees and associated costs, incurred by SSLIC
either (i) as a result of the failure of Liberty Mutual or any subcontractor appointed by Liberty
Mutual to comply with any law or administrative regulation, only if such failure is the result of
willful neglect or negligence, or (ii) as a result of, or in connection with, Liberty Mutuals
breach of any duty of obligation hereunder or the breach of any duty or obligation of any
subcontractor appointed by Liberty Mutual if such breach is the result of willful neglect or
negligence. SSLIC may set off against any amount due Liberty Mutual any amount due to SSLIC,
pursuant to this or any other agreement to which the parties to this indemnification are also
B. SSLICs Indemnification of Liberty Mutual. SSLIC shall indemnify Liberty Mutual and hold Liberty
Mutual harmless from all actions, liabilities, costs and expenses arising out of or in any way
related to Liberty Mutuals services under this Agreement, unless directly related to Liberty
Mutuals willful neglect or negligence.
VIII. No Waiver. The parties hereto agree that no indulgence or acceptance of any delinquent or
partial payment or ratification after the fact of any violation or breach of any provision of this
Agreement by any party hereto shall be construed as a waiver of any partys rights hereunder.
IX. Notices. Any notice required to be given pursuant to any provision of this Agreement shall be
in writing and shall be sent to the parties at their respective last known address by first class
mail postage prepaid, by overnight delivery service, or by confirmed facsimile transmission.
X. Severability. If any provision of this Agreement is held invalid of unenforceable, such
invalidity or unenforceability shall not affect any other provision, and the Agreement shall be
construed and enforced as if that provision had not been included.
XI. Amendment. This Agreement may only be amended upon the written agreement of both parties
XII. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be
considered an original but all of which together, shall be considered one and the same.
XIII. Governing Law. This Agreement shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts (without application of the conflict of laws principles
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement under seal
as of the day and year first above written.
Liberty Mutual Insurance Company
|/s/ James R. Pugh
|By: James R. Pugh
|Its: Assistant Secretary
Safeco Surplus Lines Insurance Company
|/s/ Michael J. Fallon
|By: Michael J. Fallon
|Its: Chief Financial Officer