EXHIBIT NO. 10(i)(a)
AGREEMENT CONCERNING
ASBESTOS-RELATED CLAIMS
June 19, 1985
AGREEMENT CONCERNING ASBESTOS-RELATED CLAIMS
TABLE OF CONTENTS
Page
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1. AGREEMENT CONCERNING ASBESTOS-RELATED CLAIMS
I. General Conditions . . . . . . . . . . . . . . . . . . . . . . 1
II. Establishment of Facility . . . . . . . . . . . . . . . . . . 2
III. Membership in Facility . . . . . . . . . . . . . . . . . . . . 2
IV. Submission and Withdrawal of Claims . . . . . . . . . . . . . 3
V. Cooperation with Facility . . . . . . . . . . . . . . . . . . 3
VI. Allocation of Liabilities and Expenses . . . . . . . . . . . . 3
VII. Facility Claims Handling . . . . . . . . . . . . . . . . . . . 4
VIII. Coverage Disputes and Waivers of Claims and Defenses . . . . . 5
IX. Coverage Block and Funding . . . . . . . . . . . . . . . . . . 5
X. Liability Payments . . . . . . . . . . . . . . . . . . . . . . 6
XI. Allocated Expenses . . . . . . . . . . . . . . . . . . . . . . 7
XII. Payment of Allocated and Unallocated Expenses Following
Exhaustion of Limits . . . . . . . . . . . . . . . . . . . . . 8
XIII. Start-Up Costs of Facility . . . . . . . . . . . . . . . . . . 8
XIV. Unallocated Expenses of Facility . . . . . . . . . . . . . . . 8
XV. Deductibles and Retrospective Rating Plans . . . . . . . . . . 9
XVI. Application of Insurance Policies Without Deductible
or Retention Limits . . . . . . . . . . . . . . . . . . . . . 9
XVII. Application of Insurance Policies Without Aggregate
Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XVIII. Policy Periods of Other Than 12 Month Multiples. . . . . . . . 11
XIX. Retrospective and Prospective Application . . . . . . . . . . 11
XX. Insurance Issued by Non-Signatories . . . . . . . . . . . . . 13
XXI. Additional Signatories . . . . . . . . . . . . . . . . . . . . 14
XXII. Modification, Term and Choice of Law . . . . . . . . . . . . . 15
XXIII. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 15
XXIV. Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2. APPENDIX A
A-1 Producer Allocation Formulae . . . . . . . . . . . . . . . . . 18
A-2 Insurer Allocation Formulae . . . . . . . . . . . . . . . . . 23
3. APPENDIX B
Conditions, Defenses and Exclusions Reserved by Subscribing
Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4. APPENDIX C
Alternative Dispute Resolution . . . . . . . . . . . . . . . . 28
5. APPENDIX D
Schedules of Insurance . . . . . . . . . . . . . . . . . . . . 38
6. APPENDIX E
Insurance Defense Program . . . . . . . . . . . . . . . . . . 45
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AGREEMENT CONCERNING ASBESTOS-RELATED CLAIMS
This Agreement to provide for the administration, defense, payment and
disposition of asbestos-related claims (hereinbelow referred to as the
"Agreement") is made between and among the Subscribing Producers, as defined
hereinbelow, and the Subscribing Insurers, as defined hereinbelow.
W I T N E S S E T H:
WHEREAS, Subscribing Producers and Subscribing Insurers have considered the
nature of asbestos-related claims, their number and widespread distribution
throughout the United States, the various rules of law governing their
resolution, the scope and complexity of the insurance arrangements related
thereto, and the burden that such claims have placed on the American civil
justice system; and
WHEREAS, Subscribing Producers and Subscribing Insurers recognize the
existence of numerous insurance coverage disputes between and among Insurers and
Producers, differing court decisions, and the existence of cross-actions among
Producers and among Insurers; and
WHEREAS, Subscribing Producers and Subscribing Insurers desire to simplify
the procedures for handling claims, reduce the costs of such procedures, apply
insurance arrangements in a consistent manner and take other steps reasonable
and practical to ensure the expenditure of funds for the reasonable payment of
meritorious claims at reasonable processing costs; and
WHEREAS, Subscribing Producers and Subscribing Insurers desire to resolve
and discontinue the various disputes concerning insurance coverage for asbestos-
related claims and to embark upon a method for resolution of asbestos-related
claims and the insurance arrangements pertaining thereto;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, the Subscribing Producers and
Subscribing Insurers hereby agree as follows:
I. GENERAL CONDITIONS
1. Any Producer or Insurer may become a signatory to the Agreement on or
before June 19, 1985, and in so doing shall agree to be bound by the terms and
conditions of the Agreement and the Appendices hereto, and prior to said date
shall offer participation in the Agreement to each and every of its Producers or
Insurers, as the case may be. If a Producer or Insurer does not become a
signatory hereto on or before June 19, 1985, but subsequently wants to become a
signatory as a result of changed circumstances, participation in the Agreement
by such Producer or Insurer may be in conflict with the fixed commitments and
compromises upon the basis of which other Producers and Insurers will have
entered into the Agreement on or before June 19, 1985. Participation in the
Agreement by additional proposed signatories therefore shall be considered only
in accordance with Section XXI hereinbelow.
2. The Agreement is intended to apply solely to asbestos-related claims,
as defined hereinbelow. It is the product of informed negotiations among the
signatories hereto, involving compromises of previously stated legal positions.
The Agreement does not necessarily reflect the views of
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Subscribing Producers and Subscribing Insurers as to their rights and
obligations with regard to matters or persons outside of the scope of the
Agreement, and with respect to all such matters or persons, all signatories
reserve all previously held positions and all other rights and privileges.
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3. The Agreement is intended to confer rights and benefits only upon
Subscribing Producers and Subscribing Insurers, and is not intended to confer
any rights or benefits upon persons not signatories to the Agreement. No person
other than a signatory hereto shall have any legally enforceable rights under
the Agreement. All rights of action for any breach of this Agreement by any
signatory hereto are hereby reserved to Subscribing Producers and Subscribing
Insurers.
4. All actions taken and statements made by persons or their
representatives relating to their participation in the Agreement, including its
development and implementation, shall be without prejudice or value as
precedents, and shall not be taken as a standard by which other matters may be
judged.
5. All persons subscribing to or otherwise associating themselves with
the Agreement request all Courts to take notice of its underlying purpose, and
to accord all persons subscribing to or otherwise associating themselves with
the Agreement and their representatives full privilege and protection with
respect to the disclosure of their actions, statements, documents, papers and
other materials relating to the Agreement, including its development and
implementation.
II. ESTABLISHMENT OF FACILITY
1. Subscribing Producers and Subscribing Insurers shall establish a non-
profit organization to be known as the Asbestos Claims Facility (hereinafter
referred to as the "Facility"). The Facility shall administer and arrange for
the evaluation, settlement, payment or defense of all asbestos-related claims
against Subscribing Producers and Subscribing Insurers in accordance with the
provisions of the Agreement and Appendix A hereto, and pursuant to the
provisions of law and professional standards applicable to Subscribing Insurers.
2. The Facility shall be governed by a Board of Directors whose members
shall number at least 12 and whose members shall contain an equal number of
representatives of Subscribing Producer members and of Subscribing Insurer
members. The Board of Directors shall have power to increase the number of
directors and to add public directors, to appoint such officers, employees and
committees of persons as the Board sees fit, to define their authorities and
responsibilities and to set the conditions of their appointments. The Board of
Directors shall have no power to modify any provisions of the Agreement or of
the Appendices hereto.
3. The Facility shall not sell, lease, exchange, mortgage, pledge, or
otherwise dispose of all or substantially all of its property or assets and
shall not dissolve or wind up its affairs except upon the affirmative vote of
two-thirds of Subscribing Producer members with two-thirds interest or two-
thirds of Subscribing Insurer members with two-thirds interest.
III. MEMBERSHIP IN FACILITY
1. Subject to the provisions of Section XXI hereinbelow, each Producer
and each Insurer shall become a member of the Facility upon becoming a signatory
to the Agreement and shall invite each of its Producers or
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Insurers, as the case may be, to become a signatory to the Agreement and thereby
to become a member of the Facility.
2. Voting rights of members and voting procedures shall be determined
respectively by Subscribing Producers and Subscribing Insurers.
3. Neither the Board of Directors nor any other persons shall have any
authority to terminate the membership of a member without the consent of such
member; provided, that membership in the Facility shall terminate at such time
as a member no longer has an obligation to make payments or to pay expenses
pursuant to the Agreement and the Appendices hereto. A member may terminate its
membership in the Facility at any time upon written notice to the Facility, but,
except as otherwise explicitly provided herein, termination of membership shall
not modify the rights and obligations of a Subscribing Producer, Subscribing
Insurer or the Facility under the Agreement and the Appendices hereto.
IV. SUBMISSION AND WITHDRAWAL OF CLAIMS
1. By becoming a signatory to the Agreement, each Subscribing Producer
and each Subscribing Insurer designates the Facility as its sole agent to
administer and arrange on its behalf for the evaluation, settlement, payment or
defense of all asbestos-related claims against such Subscribing Producer or
Subscribing Insurer. As sole agent, the Facility shall have exclusive authority
and discretion to administer, evaluate, settle, pay or defend all asbestos-
related claims. Except as otherwise provided in Paragraph 2 hereinbelow, the
Facility shall serve perpetually as the sole agent of each Subscribing Producer
and each Subscribing Insurer with respect to all asbestos-related claims.
2. Any Subscribing Producer or Subscribing Insurer may withdraw the
designation of the Facility as its sole agent made pursuant to Paragraph 2
hereinabove, and may terminate the Facility's right and authority to act on
behalf of such Subscribing Producer or Subscribing Insurer by providing written
notice to the Facility 60 days prior to the effective date of such withdrawal;
provided, that such withdrawal shall apply only to asbestos-related claims filed
or made against the withdrawing Subscribing Producer or Subscribing Insurer
subsequent to the effective date of withdrawal. The Facility shall continue to
serve as sole agent for such Subscribing Producer or Subscribing Insurer with
respect to all asbestos-related claims filed on or before the effective date of
withdrawal.
V. COOPERATION WITH FACILITY
Each Subscribing Producer and each Subscribing Insurer shall comply with
the terms and conditions of the Agreement and the Appendices hereto, and shall
cooperate with and assist the Facility in furtherance of such terms and
conditions. Each Subscribing Producer and each Subscribing Insurer shall respond
fully and in a timely manner to reasonable requests by the Facility for
information and shall assist in the securing and giving of evidence concerning
asbestos-related claims. To the extent practicable, the Facility shall maintain
the confidentiality of confidential or proprietary information submitted by
Subscribing Producers and Subscribing Insurers.
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VI. ALLOCATION OF LIABILITIES AND EXPENSES
1. Liability payments and allocated expenses shall be allocated to each
Subscribing Producer on the date such Producer becomes a signatory to the
Agreement. Such allocation shall establish the responsibility of each
Subscribing Producer for a percentage of liability payments and a percentage of
allocated expenses attributable to each claim handled by the Facility as sole
agent for such Subscribing Producer under Section IV hereinabove. Each
Subscribing Producer's percentages of liability payments and allocated expenses
shall be established as provided in Appendix A-1 hereto, and shall be subject to
modification only in the manner and to the extent set forth therein. To the
extent that a Subscribing Producer's percentages of liability payments and
allocated expenses attributable to a particular asbestos-related claim are not
payable by one or more Subscribing Insurers pursuant to the Agreement and the
Appendices hereto, such Subscribing Producer shall pay the percentages of
liability payments and allocated expenses in question.
2. Each Subscribing Insurer shall acquiesce in and abide by the
allocation of percentages of liability payments and allocated expenses to each
Subscribing Producer, as described in Paragraph 1 hereinabove, and shall
consider, recognize and hold each Subscribing Producer's shares of liability
payments and allocated expenses attributable to each asbestos-related claim to
be necessary, reasonable and proper and each Subscribing Producer to be properly
bound and obligated to pay such sums. Each Subscribing Insurer shall pay a share
of unallocated expenses and start-up costs as provided in Appendix A-2 hereto,
which shall be subject to modification only in the manner and to the extent set
forth therein.
VII. FACILITY CLAIMS HANDLING
1. Except as otherwise provided in Section IV hereinabove, the Facility
shall administer, evaluate, settle, pay or defend all asbestos-related claims
against Subscribing Producers and Subscribing Insurers, either within the
Facility's procedures or through standard judicial means. The Facility shall
handle each asbestos-related claim on behalf of all Subscribing Producers and
Subscribing Insurers, and shall not settle an asbestos-related claim on behalf
of fewer than all Subscribing Producers and Subscribing Insurers. The Facility
shall settle each asbestos-related claim so as to extinguish claims for all
damages, including punitive damages, and, in the settlement of asbestos-related
claims, the Facility shall not pay punitive damages to claimants.
2. The Facility shall hire competent and experienced legal counsel to
defend asbestos-related claims and shall retain such counsel as are necessary
and appropriate to defend the interests of Subscribing Producers. The Facility
may use its employees and independent persons to provide professional medical
and other assistance and advice.
3. Actions against nonsubscribing persons may be undertaken by the
Facility on behalf of Subscribing Producers and Subscribing Insurers, but the
Agreement shall neither require nor preclude such actions.
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4. The Facility shall require valid evidence to support each claim
against Subscribing Producers and Subscribing Insurers, and shall require
credible medical evidence in each case prior to making payment to a claimant.
Facility personnel shall be responsible for obtaining such evidence from each
claimant and verifying it.
5. A claimant shall be paid solely for asbestos-related physical
impairment and dysfunction. If such claimant subsequently develops an asbestos-
related malignancy, the claimant may submit a subsequent claim. In addition, the
Facility may provide certain claimants whose claims have not matured with an
opportunity to resubmit a claim to the Facility should additional medical
evidence become available. The Facility may enter into agreements to suspend the
running of statutes of limitations with respect to claims timely presented and
shall adopt uniform, streamlined, expeditious procedures, including voluntary
nonjudicial means of resolving disputed claims.
6. Each asbestos-related claim shall be evaluated on its individual
merits, but this shall not preclude two or more asbestos-related claims from
being settled simultaneously.
7. The Facility shall not make payments pursuant to a pre-determined
schedule of benefits, but detailed claims guidelines shall be used to evaluate
and settle asbestos-related claims. The Facility shall make payments and settle
claims only on behalf of Subscribing Producers and Subscribing Insurers and
shall be entitled to credit for settlements made and judgments paid by
Subscribing Producers and Subscribing Insurers prior to subscription in the
Facility.
8. The Facility shall operate according to annual liability, defense and
operational programs to be established by the Board of Directors. The Facility
shall be subject to annual financial and quality control audits by persons
selected by the Board of Directors and consisting of an equal number of
representatives of Subscribing Producers and of Subscribing Insurers.
VIII. COVERAGE DISPUTES AND WAIVERS OF CLAIMS AND DEFENSES
1. Each Subscribing Producer and each Subscribing Insurer shall forgo
all claims for declaratory relief or damages, as to other Subscribing Producers
and Subscribing Insurers, relating to the application of insurance to the
investigation, settlement, defense or indemnification of asbestos-related claims
within the scope of the Agreement. Upon becoming a signatory to the Agreement,
all such claims shall be withdrawn and dismissed from pending actions, as to
Subscribing Producers and Subscribing Insurers, with prejudice and without
delay.
2. Each Subscribing Producer and each Subscribing Insurer shall forgo
all claims for contribution or indemnity (other than for contribution or
indemnity assumed under written agreement) against other Subscribing Producers
and Subscribing Insurers with respect to all asbestos-related claims except
those claims with respect to which a Subscribing Producer or Subscribing Insurer
has withdrawn pursuant to Section IV hereinabove.
3. Each Subscribing Producer and each Subscribing Insurer shall waive
claims for bad faith or punitive damages, as to other Subscribing Producers
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and Subscribing Insurers, with respect to all matters within the scope of the
Agreement; provided, that this waiver shall not apply to claims, including
punitive damages, for breach of or bad faith with respect to the Agreement.
4. This Section VIII shall not preclude a Subscribing Producer or
Subscribing Insurer from seeking reimbursement under other provisions of the
Agreement. In addition, there are a limited number of issues with respect to
which the possibility of litigation is specifically provided for herein, but,
except as otherwise provided in Paragraph 3 hereinabove, all claims for bad
faith or punitive damages, as to other Subscribing Producers and Subscribing
Insurers, shall be waived in such litigation.
5. Except as otherwise provided in Appendix B hereto, each Subscribing
Insurer shall waive and permanently abandon and shall not assert or apply any
conditions or defenses based upon, or exclusionary provisions contained in,
insurance policies, which defenses or provisions have the effect of reducing or
denying insurance coverage available under any of the insurance policies issued
by Subscribing Insurers to Subscribing Producers. This waiver includes clauses
in multiple insurance policies issued by the same insurer that seek to shift the
entire loss arising out of one occurrence to one of the insurance policies or to
reduce the amounts payable under one insurance policy with respect to the entire
loss by amounts paid under any one of the other insurance policies.
6. Subscribing Producers and Subscribing Insurers shall resolve through
alternative dispute resolution, in the manner set forth in Appendix C hereto,
any disputed issues within the scope of the Agreement and the Appendices hereto.
IX. COVERAGE BLOCK AND FUNDING
1. The "coverage block," with respect to each Subscribing Producer,
consists of all insurance policies issued to such Subscribing Producer by its
Subscribing Insurers to become effective prior to the date (within the period
January 1, 1973 through December 31, 1979) selected by the Producer and set
forth in its Schedules of Insurance and, except as set forth hereinbelow, shall
not include any periods subsequent to said date; provided, that the coverage
block shall not begin prior to the date of said Producer's first involvement
with asbestos or asbestos-containing products. Insurance policies written to
become effective prior to June 19, 1985, and subsequent to the ending date of a
Subscribing Producer's initial coverage block may be added consecutively (by
year with respect to annual limits) to such coverage block by payment, as due,
of any applicable deductibles, retrospective rating premiums or self-insured
retentions in accordance with the provisions of Sections XV and XVI hereinbelow
and subject to appropriate credit for amounts previously paid by the Producer on
account of such deductibles, retrospective rating premiums or self-insured
retentions. Such insurance policies, when added, become part of the Producer's
coverage block. Uninsured periods likewise may be consecutively added, and must
be added if they fall between consecutively added insured periods; provided,
that if a Producer adds a period for which it did not purchase insurance
subsequent to the initial coverage block, such Producer shall make liability
payments and pay allocated expenses for that period.
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2. The "exposure period," with respect to each asbestos-related claim
for a particular injury, is the period from a person's first exposure to any
asbestos or asbestos-containing products until first diagnosis of such injury or
death resulting from such injury, whichever occurs first.
3. Any insurance policies covering a part of the exposure period for a
particular claim may be used to make liability payments and to pay allocated
expenses for such claim in accordance with the provisions of this Section IX, in
the manner set forth in Sections X and XI hereinbelow.
4. An insurance policy of an insolvent Subscribing Insurer shall be
treated as would any uninsured period in the initial coverage block; provided,
that with respect to an insolvent London Company (exclusive of Lloyds syndicate
members) that has underwritten a share within a particular insurance policy, the
Subscribing Producer in question shall pay such insolvent Company's share of
payments required under the insurance policy pursuant to the Agreement.
5. Insurance policies that expressly provide coverage on a specific
manifestation or claims-made basis or first discovery trigger shall be included
within the coverage block in a manner consistent with their terms.
6. Neither the insurance policies comprising a Subscribing Producer's
coverage block nor any other insurance policies set forth in the Producer's
Schedules of Insurance are dedicated solely to asbestos-related claims, and they
may be used for the administration, handling or disposition of any other claims
covered thereunder and, subject to the terms and conditions of the insurance
policy in question, payments shall apply toward the exhaustion of any applicable
insurance policy limits.
7. With respect to each Subscribing Producer, all liability payments
and allocated expenses arising out of the products hazard or completed
operations hazard, as defined in the insurance policy in question, shall be
covered exclusively by products coverage (subject to applicable aggregate limits
if any), notwithstanding the presence of allegations such as, but not limited
to, strict liability, failure to warn, negligence, breach of warranty, fraud,
misrepresentation, concealment or conspiracy.
X. LIABILITY PAYMENTS
With respect to a particular asbestos-related claim, liability payments
attributable to such claim for each Subscribing Producer shall be made as
provided hereinbelow:
1. Subject to the provisions of Section XX hereinbelow, each
primary insurance policy in the coverage block that covers any part of the
exposure period shall make liability payments; and each excess insurance
policy in the coverage block that covers any part of the exposure period
not then covered by underlying primary or excess insurance in the coverage
block also shall make liability payments; provided, that no insurance
policy shall make liability payments after its limits of liability have
been exhausted. Except as otherwise provided herein, whenever a Subscribing
Producer has no insurance for a particular period within the coverage
block, liability payments
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otherwise allocable to that period shall be allocated pursuant to Paragraph
2 hereinbelow to the periods within the coverage block for which the
Subscribing Producer has insurance and to periods added to the coverage
block for which the Subscribing Producer did not purchase insurance.
2. The amount of liability payments to be made by each insurance
policy described in Paragraph 1 hereinabove shall bear the same relation to
the aggregate liability payments incurred as the part of the exposure
period then covered by such insurance policy bears to the total parts of
the exposure period then covered by insurance policies in the coverage
block and by periods added to the coverage block for which the Subscribing
Producer did not purchase insurance; provided, that a Subscribing Producer
shall make liability payments only if no part of the exposure period is
then covered by insurance policies in the coverage block, except as
otherwise provided herein.
XI. ALLOCATED EXPENSES
With respect to a particular asbestos-related claim, allocated expenses
attributable to such claim for each Subscribing Producer shall be paid as
provided hereinbelow:
1. Subject to the provisions of Section XX hereinbelow, unless it
expressly provides otherwise, each primary insurance policy in the coverage
block that covers any part of the exposure period shall pay allocated
expenses; and, unless it expressly provides otherwise, each excess
insurance policy in the coverage block that covers any part of the exposure
period not then covered by underlying primary or excess insurance in the
coverage block also shall pay allocated expenses; provided, that such
excess insurance policy shall only pay allocated expenses where: A) payment
of allocated expenses would not apply against the aggregate limits of such
excess insurance policy; or B) no primary insurance policies in the
coverage block cover a part of the exposure period; or C) remaining primary
insurance policies cover 10 percent or less of the period comprising the
coverage block initially selected by the Subscribing Producer; or D) the
initial coverage block is less than ten years and only one primary policy
year remains within the coverage block. Except as otherwise provided
herein, whenever a Subscribing Producer has no insurance paying allocated
expenses for a particular period within the coverage block, allocated
expenses otherwise allocable to that period shall be allocated to the
periods within the coverage block for which the Subscribing Producer has
insurance paying allocated expenses and to periods added to the coverage
block for which the Subscribing Producer did not purchase insurance.
2. The amount of allocated expenses to be paid by each insurance
policy paying allocated expenses pursuant to Paragraph 1 hereinabove shall
bear the same relation to the aggregate allocated expenses incurred as the
part of the exposure period then covered by such insurance policy bears to
the total parts of the exposure period then covered by insurance policies
in the coverage block paying allocated expenses and by periods added to the
coverage block for which the Subscribing Producer did not purchase
insurance; provided, that a Subscribing Producer shall pay allocated
expenses only if no part of the
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exposure period is covered by insurance policies in the coverage block
paying allocated expenses, except as otherwise provided herein.
3. The payment of allocated expenses shall not apply against the
aggregate limits of primary insurance policies unless the insurance
policies in question expressly provide otherwise. The payment of allocated
expenses shall apply against the aggregate limits of excess insurance
policies unless the insurance policies in question expressly provide
otherwise; provided, that with respect to excess insurance policies that
expressly follow the provisions of underlying insurance policies for the
payment of allocated expenses, such underlying language shall apply except
where it is inconsistent with the terms and conditions of the excess
insurance policy.
XII. PAYMENT OF ALLOCATED AND UNALLOCATED EXPENSES
FOLLOWING EXHAUSTION OF LIMITS
1. Each Subscribing Insurer, with respect both to policies of insurance
that expressly provide that the duty to defend ceases upon exhaustion of
aggregate limits (generally, post-1966 standard form insurance policies) and to
pre-1966 standard form insurance policies, shall pay allocated and unallocated
expenses until its limits of liability are exhausted but not thereafter.
2. As to Subscribing Producers whose asbestos-related claims are being
administered by the Facility, Subscribing Insurers that have issued pre-1966
standard form insurance policies shall establish, administer and fund an
Insurance Defense Program, as set forth in Appendix E hereto, to cover the
allocated and unallocated expenses of all claims that under the Agreement would
have triggered a pre-1966 standard form insurance policy. The Insurance Defense
Program, on behalf of Subscribing Insurers that have issued pre-1966 standard
form insurance policies, shall respond, as would any insurance policy paying
allocated expenses under the Agreement, to pay allocated and unallocated
expenses for any claim triggering a pre-1966 standard form insurance policy year
where: A) there is no obligation in such policy year to pay allocated expenses
for such claim; and B) no other insurance policies are paying allocated expenses
for such claim or the payment of allocated expenses by any of the insurance
policies paying allocated expenses for such claim applies against aggregate
limits pursuant to Section XI hereinabove or the Subscribing Producer is paying
allocated expenses for such claim. The Insurance Defense Program shall not be
taken into account in determining whether an excess insurance policy pays
allocated expenses pursuant to Paragraph 1 of Section XI hereinabove.
XIII. START-UP COSTS OF FACILITY
1. All start-up costs shall be paid by Subscribing Primary Insurers in
accordance with Appendix A-2 hereto.
2. Charter subscribers may mitigate the start-up expense burden through
entrance fees that shall be charged to new subscribers in accordance with
Appendix A-2 hereto; provided, that new subscribers do not include Subscribing
Producers, except in the case of a new Producer with no Subscribing Insurers.
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XIV. UNALLOCATED EXPENSES OF FACILITY
1. All unallocated expenses of the Facility shall be paid by Subscribing
Primary Insurers and Subscribing Excess Insurers as they are called upon to make
payments within the terms of the Agreement, as described more fully in Appendix
A-2 hereto.
2. A Subscribing Insurer shall be relieved of the obligation to pay
unallocated expenses upon the exhaustion of all of its obligations to make
liability payments and to pay allocated expenses.
3. A Subscribing Producer shall be obligated to pay a share of Facility
unallocated expenses only after all applicable insurance within the coverage
block is exhausted.
XV. DEDUCTIBLES AND RETROSPECTIVE RATING PLANS
1. When a Subscribing Producer includes within its coverage block a
particular period of insurance subject to a deductible, self-insured retention
or retrospective rating plan under which payment would be due from such
Subscribing Producer, that Subscribing Producer shall pay the deductible,
self-insured retention or retrospective rating premium as due, except as
otherwise provided herein.
2. A "date" shall be mutually agreed upon by each Subscribing Producer
and its Subscribing Insurers for purposes of this Section XV and Sections XVI
and XVII hereinbelow. The agreed-upon date may be the same as or different from
the date unilaterally selected by the Subscribing Producer for the purpose of
defining its coverage block pursuant to Section IX hereinabove. All insurance
policies issued to a Subscribing Producer prior to the mutually agreed-upon date
are "predate" insurance policies. All insurance policies issued to a Subscribing
Producer subsequent to the mutually agreed-upon date are "post-date" insurance
policies.
3. All deductibles and retentions, whether in pre-date or post-date
insurance policies, shall be applied in a pro-rata manner in the same proportion
as the policy year is called upon to make liability payments.
4. Once retrospective rating plans have been closed, whether prior to
or following the date a person becomes a signatory to this Agreement, they shall
not require any additional payments by a Subscribing Producer.
5. Unless otherwise explicitly provided in the insurance policy in
question, payment by a Subscribing Producer of a deductible shall not reduce the
aggregate limits of such insurance policy.
6. With respect to a primary insurance policy containing a clause or
endorsement providing substantially that payments made which include a
deductible amount shall not increase the Insurer's liability with respect to
each occurrence and aggregate, once the Subscribing Producer or the Subscribing
Primary Insurer has paid an amount equal to the aggregate limits, the
Subscribing Producer shall pay no more on account of such deductible and
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the Subscribing Primary. Insurer and Subscribing Excess Insurer shall resolve
between themselves the responsibility for payments for such year.
XVI. APPLICATION OF INSURANCE POLICIES WITHOUT DEDUCTIBLE
OR RETENTION LIMITS
A. PRE-DATE INSURANCE POLICIES
1. Where deductibles and retentions are not limited explicitly by the
insurance policy language, the following schedule of multipliers shall apply to
limit per policy year such deductibles and retentions:
Policy
Year
Face Amount of Cumulative
Deductible or Retention Multiplier Maximum
----------------------- ---------- -------
Up to $5,000 ........................... 10 $ 50,000
Next $20,000 ........................... 7.5 $200,000
2. With respect to per claim deductibles in excess of $25,000, the
maximum to be paid for each policy year by a Subscribing Producer is the
aggregate limit of the deductible-containing insurance policy. With respect to
per occurrence deductibles in excess of $25,000, the affected parties shall
resolve disagreements by negotiation, followed by non-binding alternative
dispute resolution, followed, if necessary, by litigation. Any such resolution
shall apply, in all respects, to the affected parties notwithstanding any other
provisions of the Agreement.
3. Where an insurance policy containing a deductible explicitly provides
that payment of deductibles reduces aggregate limits, then payment of
deductibles shall apply against aggregate limits, following the exhaustion of
which, excess insurance policies shall become available. In all other cases
involving deductibles, payment of deductibles shall not apply against aggregate
limits, and excess insurance shall become available after the underlying
insurance policy has paid its remaining limits.
B. POST-DATE INSURANCE POLICIES
1. Deductibles and retentions shall apply as written. Affected parties
shall resolve any disagreements by negotiation, followed by non-binding
alternative dispute resolution, followed, if necessary, by litigation. Any such
resolution shall apply, in all respects, to the affected parties notwithstanding
any other provisions of the Agreement.
2. With respect to deductibles or retentions in an insurance policy
underlying an excess insurance policy that contains standard excess ultimate net
loss and/or loss payable clauses, such excess insurance policy shall respond
when liability payments equivalent to the amount of the aggregate limits of the
underlying insurance policy in question have been made by the Subscribing
Producer or the Subscribing Insurer or both, unless:
- 14 -
(A) There is evidence that the Subscribing Excess Insurer was aware
of the uncapped deductible or retention when writing its insurance
policy, such evidence to be in: (1) the schedule of insurance in the
excess insurance policy; (2) the underwriting file of the Subscribing
Excess Insurer; (3) the underwriter's placing slip; or (4) the
underwriting file of the London broker (not any American broker); and
(B) Such evidence is provided to the Producer by the Excess Insurer
within 60 days of March 29, 1985, or of the date that the excess
insurance policy in question is listed in the Producer's Schedules of
Insurance provided to such Excess Insurer, whichever occurs later.
XVII. APPLICATION OF INSURANCE POLICIES WITHOUT AGGREGATE LIMITS
A. PRE-DATE INSURANCE POLICIES
1. With respect to (A) primary products liability coverage written
without aggregate limits either inadvertently or before the aggregate concept
was developed, (B) primary non-products liability coverage written without
aggregate limits at any time, and (C) in the coverage for any particular year
the first excess occurrence policy without aggregate limits written directly
above an insurance policy with aggregate limits, the following schedule of
multipliers shall apply per policy year to provide aggregate limits for such
policies:
Policy
Year
Face Amount of Per Cumulative
Occurrence/Accident Limits Multiplier Maximum
Up to $100,000.......................... 10 $1,000,000
Next $200,000........................... 5 $2,000,000
Next $200,000........................... 3 $2,600,000
Next $500,000........................... 1.5 $3,350,000
Above $1,000,000........................ 1 N/A
In addition, upon exhaustion of all applicable insurance policies for the year
in question, the no-aggregate primary insurance policy shall respond with
coverage equal to ten times the per occurrence/accident limits up to the first
$1 million of the per occurrence/accident limits, minus amounts previously
applied to the maximum limit of such insurance policy.
2. All other primary products liability coverage written without aggregate
limits shall apply as written. In the event of a dispute, affected parties shall
engage in negotiation, followed by non-binding alternative dispute resolution,
followed, if necessary, by litigation. Any such resolution shall apply, in all
respects, to the affected parties notwithstanding any other provisions of the
Agreement.
- 15 -
3. All other excess occurrence policies without aggregate limits shall
apply to the extent of one per occurrence/accident limit.
B. POST-DATE INSURANCE POLICIES
Post-date insurance policies without aggregate limits shall apply as
written. In the event of a dispute, affected parties shall engage in
negotiation, followed by non-binding alternative dispute resolution, followed,
if necessary, by litigation. Any such resolution shall apply, in all respects,
to the affected parties notwithstanding any other provisions of the Agreement.
XVIII. POLICY PERIODS OF OTHER THAN 12 MONTH MULTIPLES
1. Unless it expressly provides otherwise, an insurance policy of less
than 12 months shall carry full aggregate limits for the term of such policy.
2. Absent agreement among the affected parties, unless the insurance
policy or other documentary evidence explicitly provides that another result was
intended:
(A) Where an insurance policy was extended prior to the expiration date
for a period other than a multiple of 12 months: (1) if the extension was
at the request of the Subscribing Producer, the period of less than 12
months shall carry pro-rata limits; and (2) if the extension was at the
request of the Subscribing Insurer, the period of less than 12 months
shall carry full aggregate limits;
(B) Where an insurance policy was initially written for more than one
year but not for a multiple of 12 months, then the period of less than 12
months also shall carry full aggregate limits; and
(C) Where an insurance policy was canceled prior to the expiration date
by either the Subscribing Producer or Subscribing Insurer, then the period
of less than 12 months shall carry full aggregate limits, except where a
Subscribing Excess Insurer canceled its insurance policy specifically to
make its insurance policies concurrent with underlying insurance policies
and the Subscribing Producer agreed, in which case the period of less than
12 months shall carry pro rata limits.
3. Deductibles and retentions in insurance policies described in this
Section XVIII shall apply in a manner consistent with the application of limits
hereunder.
XIX. RETROSPECTIVE AND PROSPECTIVE APPLICATION
1. Except as otherwise provided in Section XXI hereinbelow, any and all
provisions of the Agreement shall apply, as between a Subscribing Producer and
Subscribing Insurer, to all liability payments and expenses incurred subsequent
to the date on which both the Subscribing Producer and Subscribing Insurer
became signatories to the Agreement, and with respect thereto and to the extent
inconsistent herewith, shall nullify, repudiate, replace and supplant, as
between such Subscribing Producer and Subscribing Insurer, any prior agreements
or judicial determinations whether or not final; provided,
- 16 -
that this Paragraph shall not apply to the extent that a Subscribing Insurer, by
written agreement executed prior to March 29, 1985, extinguished or exhausted an
insurance coverage obligation by payment of monies to a Subscribing Producer or
affiliated company. With respect to such extinguishment of an insurance coverage
obligation, the Subscribing Producer in question shall make liability payments
and pay expenses (including payments due under Appendix E) as would the
Subscribing Insurer in question under the Agreement in the absence of such
extinguishment, and the Subscribing Producer shall make such payments and pay
such expenses until the Subscribing Producer has paid hereunder an amount equal
to the monies received from such Subscribing Insurer with respect to such
extinguishment., plus investment income, if any, on such monies, and less any
payments made and expenses paid directly by such Subscribing Producer for
asbestos-related claims.
2. Subject to the provisions of this Section XIX, and except as otherwise
provided hereinbelow in this Paragraph 2, each Subscribing Producer and each
Subscribing Insurer shall be reimbursed for liability payments and allocated and
unallocated expenses, including deductibles, retrospective premiums and loss
conversion factors, incurred prior to the date on which the Subscribing Producer
or Subscribing Insurer became a signatory to the Agreement, such reimbursement
to be made in accordance with the Agreement and as if the Agreement (but not
Section VI or Appendix A-1) were in effect at the time such payments and
expenses initially were incurred; provided, that payments and expenses incurred
pursuant to an agreement explicitly providing that such payments are final or to
a final settlement agreement or final judicial determination that became
effective prior to the date on which the Subscribing Producer or Subscribing
Insurer became a signatory to the Agreement shall not be subject to
reimbursement or reallocation. Notwithstanding the provisions of Section XX
hereinbelow, neither a Subscribing Producer nor a Subscribing Insurer shall make
reimbursements for amounts that otherwise would have been reimbursed hereunder
by an Insurer not a signatory hereto if said Insurer had become a signatory
hereto.
3. Reimbursement of payments and expenses due hereunder shall be made
within 90 days of the date the Subscribing Producer or Subscribing Insurer
became a signatory to the Agreement. At the option of such Producer or Insurer,
reimbursement of payments and expenses may be made quarterly in not more than
twelve equal consecutive installments from the date payable under the Agreement,
with interest upon any unpaid principal balances compounded daily and payable on
a quarterly basis at the rate of interest announced publicly by Citibank, N.A.,
in New York, New York, from time to time as Citibank, N.A.'s Base Rate.
4. Reimbursement of payments and expenses pursuant to Paragraph 2
hereinabove shall be made by and reallocated among primary and excess insurance
policies in a reasonable manner, and shall not require reallocation on an
individual case basis.
5. With respect to fees and expenses incurred in asbestos insurance
coverage litigation, each Subscribing Producer and each Subscribing Insurer, in
the absence of agreement, may submit claims for such fees and expenses to
alternative dispute resolution.
6. A Subscribing Producer shall not be reimbursed for allocated or
unallocated expenses incurred in fulfilling its duty of assistance and
cooperation under its insurance policies:
- 17 -
(A) In-house costs claimed by a Subscribing Producer to be in excess of
those incurred in fulfilling its duty of assistance and cooperation under
its insurance policies, in the absence of agreement with its Subscribing
Insurers, may be submitted to alternative dispute resolution; and
(B) Claims by a Subscribing Producer for fees and expenses incurred for
coordinating counsel, in the absence of agreement with its Subscribing
Insurers, may be submitted to alternative dispute resolution.
XX. INSURANCE ISSUED BY NON-SIGNATORIES
1. Whenever a Subscribing Producer has an insurance policy issued to it
for a particular period within the coverage block by an Insurer that is not a
signatory hereto, such Producer shall use its reasonable best efforts,
including, if necessary, the timely pursuit of litigation, to obtain a final and
reasonable settlement agreement or final judicial determination concerning the
application of such insurance policy to asbestos-related claims. With respect
thereto, each Subscribing Producer and each Subscribing Insurer, to the extent
practicable, shall cooperate with and assist the Subscribing Producer in
question.
2. Whenever, with respect to an insurance policy described in Paragraph 1
hereinabove, the Subscribing Producer, pursuant to a final settlement agreement
or final judicial determination, has received from the Insurer in question
monies to administer, handle or dispose of asbestos-related claims, such
Subscribing Producer shall make payments and pay expenses (including payments
due under Appendix E) as would the Insurer in question with respect to such
Producer if said Insurer had become a signatory hereto, and the Subscribing
Producer shall make such payments and pay such expenses until the Subscribing
Producer has paid an amount equal to the monies received from such Insurer to
administer, handle or dispose of asbestos-related claims plus investment income,
if any, on such monies and less proration of any payments made and unreimbursed
expenses paid directly by such Subscribing Producer for asbestos-related claims
or incurred in obtaining such judicial determination or settlement agreement.
3. Whenever an insurance policy described in Paragraph 1 hereinabove would
have had to make payments or to pay expenses on a particular claim under the
Agreement had the Insurer in question become a signatory hereto, and the
Subscribing Producer has not received monies from such non-signatory Insurer
pursuant to Paragraphs 1 and 2 hereinabove, each insurance policy in the
coverage block covering a part of the exposure period for such claim shall make
payments and pay expenses, subject to applicable limits of liability, on a pro-
rata basis in lieu of the non-signatory insurance policy and to the extent that
such insurance policy would have had to make payments under the Agreement, up to
the applicable limits of such insurance policy; provided, that the directly
overlying excess insurance policy shall make such payments and pay such expenses
in lieu of the non-signatory insurance policy only if no other insurance
policies in the coverage block cover a part of the exposure period for such
claim. Thereafter, upon a final settlement or final judicial determination
described in Paragraphs 1 and 2 hereinabove, each Subscribing Insurer
contributing hereunder shall, at its option, be reimbursed by the Subscribing
Producer; provided, that total reimbursement of all such
- 18 -
contributing Insurers shall not exceed the monies received by the Producer from
the non-signatory Insurer to administer, handle or dispose of asbestos-related
claims plus investment income, if any, on such monies and less payments made and
expenses paid directly by such Subscribing Producer for asbestos-related claims
or incurred in obtaining such judicial determination or settlement agreement.
4. Whenever, with respect to an insurance policy described in Paragraph 1
hereinabove, the Subscribing Producer in question does not obtain a final
settlement agreement or final judicial determination pursuant to Paragraphs 1
and 2 hereinabove within two years of the date upon which a Subscribing Insurer
first has actually made liability payments and actually paid allocated expenses
on a pro-rata basis in lieu of such non-signatory insurance policy pursuant to
Paragraph 3 hereinabove, interest shall begin to accrue at the conclusion of
such two year period on all liability payments actually made and allocated
expenses actually paid by such Subscribing Insurer in lieu of the non-signatory
insurance policy, and shall continue until the earlier of the date that the
Subscribing Producer obtains such a final settlement agreement or final judicial
determination or the date that the Subscribing Insurer in question would have
exhausted its obligations to make payments or to pay expenses under the
Agreement if the non-signatory Insurer in question had become a signatory
hereto. Such interest shall be payable on a quarterly basis from the date of
first accrual at the rate of interest announced publicly by Citibank, N.A., in
New York, New York, from time to time as Citibank, N.A.'s Base Rate. When the
Subscribing Producer in question obtains a final settlement agreement or final
judicial determination, pursuant to Paragraphs 1 and 2 hereinabove, such
Producer shall be reimbursed by the Subscribing Insurer in question for interest
paid on any amounts that exceed the monies to which the Subscribing Insurer is
entitled under the reimbursement provisions of Paragraph 3 hereinabove.
XXI. ADDITIONAL SIGNATORIES
1. Except as otherwise provided in Paragraph 2 hereinbelow, a Producer or
Insurer may become a signatory to the Agreement subsequent to June 19, 1985,
only upon application to and approval by the Board of Directors of the Facility.
In determining whether such a Producer or Insurer may become a signatory hereto,
the Board of Directors shall determine whether the best interests of the
Facility and of the other signatories would be served thereby, in order to
assure that the compromises herein and commitments of resources hereunder are
duly respected, that such Producer or Insurer derives no unfair advantage with
respect to the other signatories and that none of the other signatories suffers
any unfair disadvantage by reason of said Producer's or Insurer's failure to
become a signatory to the Agreement on June 19, 1985.
2. Notwithstanding the provisions of Paragraph 1 hereinabove, a Producer
or Insurer that has pending on June 19, 1985, a petition for reorganization
under Chapter 11, Title 11, of the United States Code, may become a signatory to
the Agreement on or before December 31, 1986; provided that:
(A) Such Producer or Insurer conditionally subscribed to the Agreement
prior to June 19, 1985;
(B) Such Producer or Insurer covenants and agrees to be bound by all of
the provisions contained herein and in the Appendices hereto,
- 19 -
including the respective allocations of liabilities, costs and expenses
pursuant to Appendices A-1 and A-2; and
(C) The court of competent jurisdiction in such Chapter 11 proceeding
shall have confirmed, by December 31, 1986, a plan of reorganization
authorizing and directing such Producer or Insurer to become a signatory
to the Agreement or ratifying said action.
3. With respect to any Producer or Insurer that becomes a signatory hereto
pursuant to Paragraph 1 or Paragraph 2 hereinabove, Sections VIII through and
including XIX of the Agreement shall not apply between such Producer and each of
its Subscribing Insurers or between such Insurer and each of its Subscribing
Producers, as the case may be, absent the express written consent of the
Subscribing Insurer or Subscribing Producer in question. In the absence of such
consent, the insurance policies in question shall be treated under Section XX as
if issued by an Insurer that is not a signatory hereto.
4. Each person that subsequent to June 19, 1985, pursues litigation, other
than as provided for under the Agreement, against a Subscribing Producer or
Subscribing Insurer concerning matters within the scope of the Agreement shall,
upon becoming a signatory hereto:
(A) Reimburse each Subscribing Producer or Subscribing Insurer for all
attorneys' fees and costs incurred in such litigation after June 19, 1985,
and prior to the date such Producer or Insurer becomes a signatory hereto;
(B) Forgo any claims for attorneys' fees and costs incurred in such
litigation after June 19, 1985, and prior to the date such Producer or
Insurer becomes a signatory hereto; and,
(C) Reimburse each such Subscribing Producer or Subscribing Insurer for
all damages (including punitive damages) paid by such Subscribing Producer
or Subscribing Insurer as a result of such litigation.
5. The application of the Agreement provided for herein is reasonable and
necessary to obtain sufficient participation in the Agreement by Producers and
Insurers on or before June 19, 1985, to ensure the continued viability of the
Facility and to further and protect the interests of the signatories hereto.
XXII. MODIFICATION, TERM AND CHOICE OF LAW
1. The Agreement, including Appendices A through E hereto, is the entire
agreement between and among Subscribing Producers and Subscribing Insurers for
the administration, defense, payment and disposition of asbestos-related claims.
All antecedent or contemporaneous extrinsic representations, warranties or
collateral provisions concerning the negotiation and preparation of the
Agreement and the Appendices hereto are intended to be discharged and nullified.
In any dispute involving the Agreement or the Appendices hereto, no signatory
shall introduce evidence of or seek to compel testimony concerning any oral or
written communication made prior to June 19, 1985, with respect to the
negotiation and preparation of the Agreement. Any modifications to the Agreement
and Appendix B hereto may be made only by mutual
- 20 -
agreement of all Subscribing Producers and Subscribing Insurers and in writing.
Modifications to Appendices A, C, D and E may be made as provided therein.
2. All disputes concerning the validity, interpretation and application of
the Agreement or the Appendices hereto, or any provision thereof, and all
disputes concerning issues within the scope of the Agreement shall be determined
in accordance with applicable common law of the states of the United States.
3. The Agreement shall have perpetual existence, notwithstanding the
failure or invalidation of any particular provision in the Agreement or the
Appendices hereto. Except as otherwise provided in the Agreement, neither
termination of the Facility, termination of Facility membership nor withdrawal
pursuant to Section IV hereinabove shall relieve a signatory to the Agreement of
its rights and obligations hereunder, and each such signatory shall continue to
abide and be bound by all of the terms and conditions of the Agreement and the
Appendices hereto.
XXIII. DEFINITIONS
As used in this Agreement and the Appendices hereto, the following terms
shall have the following meanings:
1. Allocated Expenses--means all fees and expenses incurred for
services performed outside the Facility that can be directly attributed to
the defense and disposition of a particular asbestos-related claim.
2. Asbestos-Related Claims--means any claims or lawsuits against any
Subscribing Producers, Subscribing Insurers or the Facility, by whomever
brought and in whatever procedural posture such claims or lawsuits may
arise, seeking monetary relief (whether or not such relief is the only
relief sought) for bodily injury, sickness, disease or death, alleged to
have been caused in whole or in part by any asbestos or asbestos-
containing product; provided, that asbestos-related claims shall not
include claims for damage to or destruction of property or statutory
claims for compensation by an employee against an employer.
3. Deductibles--means, with respect to any insurance policy, that part
of liability payments or, if the insurance policy so provides, that part
of allocated expenses to be paid directly by the policyholder or
reimbursed by the policyholder to the Insurer issuing such insurance
policy.
4. Insurers--means persons that are or were engaged in the business of
providing liability insurance to Producers. "Primary Insurers" means
Insurers that have issued primary insurance policies to Producers. "Excess
Insurers" means Insurers that have issued excess insurance policies to
Producers.
5. Liability Payments--means the sums paid in settlement of, or in
satisfaction of a judgment on, any asbestos-related claims, exclusive of
allocated and unallocated expenses for such claims.
6. Persons--means natural persons and organizations of any kind.
- 21 -
7. Pre-1966 Standard Form Insurance Policy--means an insurance policy
containing substantially the same defense-of-suits-clause as the pre-
10/1/66 National Bureau of Casualty Underwriters editions of the standard
general liability insurance policy.
8. Producers--means persons that are or were engaged in the mining,
manufacturing, production, processing, fabrication, distribution,
installation, sale or use of asbestos or asbestos-containing products or
that may have a liability with respect to asbestos-related claims.
9. Retrospective Rating Plans--means rating plans that establish
premiums based in whole or in part upon the policyholder's actual loss
experience under the insurance policy.
10. Self-Insured Retention--means the amount that is to be paid or
assumed by the policyholder and which amount must be exceeded before
overlying insurance will respond for coverage.
11. Start-Up Costs--means those costs incurred by Insurers to establish
the Facility, including funds used to purchase or lease Facility assets
and to hire Facility personnel.
12. Subscribing Insurers--means Insurers that have become signatories
to the Agreement.
13. Subscribing Producers--means Producers that have become signatories
to the Agreement.
14. Unallocated Expenses--means the overhead, operating and
administrative expenses (other than allocated expenses) incurred in
administering, defending and disposing of asbestos-related claims.
XXIV. SIGNATURE
The Agreement may be executed in any number of counterparts and by
different signatories hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Each Subscribing Producer and each
Subscribing Insurer shall send one executed counterpart of the Agreement to a
depository to be established and maintained by the Facility.
IN WITNESS WHEREOF, the person named below has caused this Agreement to be
signed by its authorized representative on this 19 day of June , 1985.
-- ---- --
Name: ▇▇▇▇▇▇▇▇▇ World Industries, Inc.
--------------------------------
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
Title: President
---------
- 22 -
Signed, sealed and delivered this 19 day of
--
June , 1985 , in the presence of
----- --
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------
Witness to the signature of the above-named
person.
- 23 -
APPENDIX A-1
PRODUCER ALLOCATION FORMULAE
In accordance with Section VI of the Agreement, the liability payments
(exclusive of punitive damage judgments) and allocated expenses incurred by the
Facility on each asbestos-related claim shall be allocated among all Subscribing
Producers pursuant to the formulae set forth below. Each Subscribing Producer's
percentages determined in accordance with such formulae or Section H below shall
be its "Allocation Percentages." The formulae apply only to Subscribing
Producers who had active claims pending in the tort system as of September 30,
1983. The initial allocation percentages of "new entrants" shall be determined
in accordance with Section H below.
A. LIABILITY PAYMENTS
For open claims as of September 30, 1983, plus new claims reported to
Subscribing Producers or the Facility for the period October 1, 1983, to one
year after the opening date of the Facility, the allocation formula is as
follows:
1. For each major state: Pennsylvania, California, Texas, Washington,
Massachusetts, Maryland, Virginia, New Jersey, Mississippi and
Connecticut.
(a) Determine the number of closed claims for each Producer as of
September 30, 1983.
(b) Determine the amount of indemnity dollars, including punitive
damages, if any, paid or owing for each Producer as of September 30,
1983.
(c) Divide each Producer's number of closed claims into its amount
of indemnity paid or owing to arrive at an average cost per claim for
each Producer.
(d) Determine the number of open claims for each Producer as of
September 30, 1983.
(e) Multiply each Producer's number of open claims by each
Producer's average cost per claim. This calculates each Producer's
average cost times open claims.
2. For the remaining states the following procedure will be followed
for each Subscribing Producer.
(a) Add together the number of closed claims in all remaining states
as of September 30, 1983.
(b) Add together the amount of indemnity paid or owing, including
punitive damages, if any, in all remaining states as of September 30,
1983.
(c) Divide each Producer's total number of closed claims into each
Producer's total amount of indemnity paid or owing to
- 24 -
arrive at each Producer's average cost per claim for states other than
the major ones.
(d) Add together the number of open claims in the remaining states
as of September 30, 1983.
(e) Multiply each Producer's number of open claims by its average
cost per claim. This calculates each Producer's average cost times open
claims for the remaining states.
3. Combining the major states' and remaining states' information:
(a) Add together each Producer's average cost times open claims
(each Producer will have one amount for each major state and one amount
for all remaining states).
(b) To determine each Producer's allocation percentage, divide each
Producer's average cost times open claims by the aggregate of all
Subscribing Producers' average cost times open claims. An adjustment
will be made for each Producer that had 20 or fewer closed claims in a
state. For that Producer, its simple arithmetic nationwide average cost
per claim (total closed claim--all states--divided into the total
amount of indemnity--all states) is used as that state's average cost
per closed claim.
B. CREDIT
An additional adjustment shall be made for all claims settled between
September 30, 1983, and the opening of the Facility. For each Subscribing
Producer, the aggregated payments in this period will be compared to the amount
each Producer would have paid in the Facility.
If a Producer's aggregated payments are equal to what it would have paid
in the Facility, it will receive a full credit for such payments.
If a Producer's aggregated payments are less than what it would have paid
in the Facility, it will receive credit for the full amount paid, and pay an
additional amount, so that its total payments equal what it would have paid in
the Facility.
If a Producer's aggregated payments are greater than what it would have
paid in the Facility, it will receive a credit up to the amount it would have
paid. The excess amount will be considered a "benefit" to all Subscribing
Producers, and will be distributed to each (including the Producer making the
payments) according to its respective allocation percentage.
C. ALLOCATED EXPENSES
Each Subscribing Producer's allocated expense percentage shall be
calculated by dividing its number of open claims as of September 30, 1983, by
the aggregate of all open claims as of September 30, 1983, for all Subscribing
Producers.
- 25 -
D. PUNITIVE DAMAGES
Punitive damage judgments shall not be distributed among the Subscribing
Producers according to the allocation percentages of this ▇▇▇▇▇▇▇▇ ▇-▇, but
shall be borne by the Subscribing Producer against which the judgment was
rendered and its Insurers in accordance with the Agreement.
E. NO THIRD PARTY RIGHTS
Nothing in the Agreement or this Appendix A-1 shall obligate a non-
defaulting Subscribing Producer to make any payment on behalf of a Subscribing
Producer who is in default in its obligations to make payments to the Facility
under this Agreement or under the By-laws of the Facility, whether by virtue of
insolvency, bankruptcy or otherwise.
F. AUDIT
The data submitted by Producers shall be reviewed for accuracy,
consistency, reasonableness and completeness. A Producer shall no longer be
bound to its allocation percentage if any necessary audit adjustments adversely
affect the Producer's allocation percentage by more than 10 percent. If such a
shift results from the submission of incomplete or inaccurate data on the part
of a Producer, that Producer shall be bound to its adjusted percentage.
G. PROSPECTIVE ADJUSTMENT
1. Irrespective of what information is collected for other purposes,
the following types of information shall be obtained relating to
pending and new claims as they enter the Facility:
(a) Occupation of worker (see 3(a) below).
(b) Duties of the worker.
(c) Employment history (employers, dates, etc.).
(d) Percentage of time involved in removal, repair or maintenance
of asbestos-containing products.
(e) Dates of exposure to asbestos-containing products.
(f) States and/or cities where the claimant worked.
(g) Specific projects on which the claimant worked.
(h) Other as appropriate.
2. The following types of information shall be obtained from
Subscribing Producers:
(a) List of all types of asbestos-containing products.
- 26 -
(b) Date each Producer ceased placing such asbestos-containing
products in the stream of commerce.
3. Allocation percentages shall be adjusted prospectively one year
after the date of opening of the Facility, and at three-year intervals
thereafter, to reflect changes, if any, from the occupational mix of
claims included in the data base used to compute the then existing
allocation percentage. This adjustment shall be made as follows:
(a) The total number of pending claims as of September 30, 1983,
shall be divided into occupational categories. These categories
shall include plantworker, construction (excluding insulator),
shipyard (all trades involved in ship construction and repair),
insulator and such other comparable categories as are significantly
represented among the pending claims. Each occupational category
shall be stated as a percentage of the whole. These constitute the
"Facility Baseline Percentages."
(b) The calculation described in (a) above shall be performed for
claims pending against each Subscribing Producer to develop its
"Producer Baseline Percentages."
(c) Each Subscribing Producer's "Producer Baseline Percentages"
shall be multiplied times its allocation percentage to determine its
"Occupational Allocation Percentages."
(d) For claims filed after the data cutoff for the preceding
allocation percentage calculation, the calculation described in (a)
above shall be performed to determine changes, if any, in the
"Facility Baseline Percentages." The increase or decrease in the
percentage for each occupational category determined by subtracting
the "Facility Baseline Percentages" from the newly determined
percentages shall be referred to as the "Adjustment Factors."
(e) The percentages determined to be Adjustment Factors will be
applied to the corresponding Occupational Allocation Percentages for
each Producer to determine revised Occupational Allocation
Percentages.
(f) Each Producer's revised Occupational Allocation Percentages
shall be aggregated to determine each Producer's revised allocation
percentage. Any shortfall or overage in the sum of the revised
allocation percentages for all Subscribing Producers shall be
distributed among the Subscribing Producers on the basis of the then
applicable allocation percentages.
(g) In the event a new type of claim appears in significant
numbers for which no Producer Baseline Percentages are appropriate,
the Subscribing Producers shall determine appropriate sharing
percentages for such claims. In the absence of agreement, the matter
shall be decided pursuant to Paragraph 8 below.
(h) The data and percentages computed as a result of one
prospective adjustment shall be used as the bases for the next.
- 27 -
4. The procedure described above shall be modified as follows to
account for Subscribing Producers who have ceased placing asbestos-
containing products in the stream of commerce:
(a) Determine the dates on which a Subscribing Producer
ceased placing asbestos-containing products in the stream of
commerce.
(b) Determine the percentage of all post-September 30, 1983,
claims in which the claimant's first exposure to asbestos-containing
products occurred subsequent to the date determined in (a) above. In
determining this percentage, alleged post-date exposures resulting
from the removal, repair or maintenance of asbestos-containing
products shall be excluded from those claims with a first exposure
after the date determined in (a).
(c) The percentage determined in (b) above shall be used as a
component in calculating the Adjustment Factor for Producers impacted
by (a) and (b) above, so as to reduce such Producer's allocation
percentage.
5. No Subscribing Producer's allocation percentages shall change
by more than 15 percent of its initial allocation percentages as a result
of any one prospective adjustment, except as may be provided pursuant to
Section H below. Any amount eliminated from the adjustment by application
of this cap shall be distributed among other Subscribing Producers on the
basis of their then applicable allocation percentages.
6. The percentage change in any Subscribing Producer's allocation
percentage, including application of Paragraph 5 above, shall be applied to
its allocation percentage for Allocated Expenses as well as Liability
Payments.
7. All matters pertaining to the prospective adjustment shall be
decided solely by the Subscribing Producers.
8. Any Subscribing Producer that believes that application of any
prospective adjustment to its particular facts is inequitable, that any
determination required by Subparagraphs G.3(a) or 4(a) above is incorrect,
or that the calculation of any prospective adjustment has been performed
inaccurately may take the matter to alternative dispute resolution within
the Facility. Such Producer shall bear the burden of proof. If 51 percent
of the Subscribing Producers with 51 percent of the allocation percentages
(for liability or allocated expenses depending on the issue involved) so
agree, application of the prospective adjustment may be changed without an
alternative dispute resolution proceeding. This shall not preclude any
Subscribing Producer who does not agree from taking the matter to
alternative dispute resolution within the Facility. Such Subscribing
Producer shall bear the burden of proof. No determination through
alternative dispute resolution or by the Subscribing Producers may alter
the 15 percent limitation established in Paragraph 5 above.
H. NEW ENTRANTS
- 28 -
Those Subscribing Producers whose data were not part of the data base from
which the Producer allocation formulae were derived shall submit such data. In
the event the data that any such Producer submits are substantially the same in
qualitative and quantitative terms as the existing data base, the Producer shall
have its allocation percentages computed pursuant to these formulae. Producers
whose data are not substantially the same in qualitative and quantitative terms
shall be admitted on a mutually-agreeable basis.
- 29 -
APPENDIX A-2
INSURER ALLOCATION OF START-UP COSTS AND OPERATING EXPENSES
1. Primary Objective
Fairness in allocation method or formula decided upon.
2. Secondary Objective
A. Ease of administration.
B. Attractiveness to prospective members, i.e., sales appeal.
C. Long-term workability.
3. Types of Funding
Funding will be divided into three main areas:
A. Funds (seed money) required to be expended before the final
subscription period is concluded. These funds are reimbursable.
B. Funds provided by a single initial assessment of all Insurer
subscribers to be paid no later than thirty days after the final subscription
date. These funds are to be used for necessary expenses incurred before the
Facility becomes operational.
C. Funds required to ensure the ongoing operation of the Facility,
including the cost of the development of the data processing system and its
continued operation and maintenance, including the repayment of the initial seed
monies furnished by members of the Asbestos Claims Council prior to the final
subscription date.
4. Method of Funding
As regards each area of funding required, a separate method is provided
for:
A. First, as regards funds (seed money) required to be expended before
the final subscription date or at most before a period not to exceed thirty days
thereafter.
(1) It should be noted that members of the Asbestos Claims Council
have already incurred many thousands of dollars of expense, and this
expense is considered to be part of seed money required and will be
included as part of the pre-operation expenditures as being reimbursable.
It is expected that prior to the close of the final subscription period
such expenses will continue to be incurred (e.g., Center for Public
Resources charges, consultant fees and other similar expenses), that these
expenses will continue to be paid by Council members as heretofore and that
these additional expenses will likewise be reimbursable.
B. Second, as regards the single initial assessment for funds to be
used for expenses between the final subscription date and the date when the
Facility becomes operational:
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(1) Immediately after it is determined that the number of
subscriptions is sufficient so that the plan is a viable one, a
nonreimbursable initial assessment fee of $100,000 will be assessed against
each and every non-Lloyds and London Company subscriber. At this same time,
a nonreimbursable initial assessment fee in the amount of $250,000 will be
assessed as a total sum against all those subscribers represented by Lloyds
and London Companies. All the monies collected by reason of these initial
assessment fees are intended to cover expenses incurred between the end of
the subscription period and the establishment of an ongoing line of credit
to be established as soon as possible after the incorporation of the entity
is finalized.
(2) If there should be any monies remaining in this fund when the
Facility operations begin, those monies will pass into the general
operating fund designed to cover the expenses of the operation.
(3) Any Insurer that subscribes to the Facility after the close of
the initial subscription period will pay an initiation assessment of two
times the initial assessment fee of charter subscribers, and that money
will pass into the appropriate operating fund.
C. As regards funds to ensure the ongoing operation of the Facility, the
cost of development, continued operation and maintenance of the data processing
system and the repayment of the initial seed money to members of the Asbestos
Claims Council:
(1) A surcharge which will be established by the Comptroller will
be made against each Insurer (or Producer if its claims are handled by the
Facility after the exhaustion of available coverage) for each of its claims
as same is disposed of predicated upon (a) a percentage of indemnity paid
and (b) a percentage of the allocated expenses paid. In no way or manner
will the amounts of this surcharge in any way reduce or in any other manner
impact the amount of indemnity coverage available to any insured.
(2) For the purposes of this surcharge, a claim will be considered
to be a separate matter for each Insurer (Producer) for whom either an
indemnity payment is made or an allocated expense is incurred or where both
an indemnity payment is made and an allocated expense incurred for the same
matter. For these purposes, the definition of indemnity payment and
allocated expense is the common one used for insurance accounting purposes.
(3) The percentage of the surcharges may be different for indemnity
and for allocated expense. By assessing a surcharge against indemnity, the
problem which arises by reasons of Insurers (or Producers) making only
indemnity payments at any one time is addressed. By assessing surcharges
against allocated expense, the problem which arises by reason of the
Facility successfully defending claims so that no indemnity need be paid is
addressed in that these users also contribute. The underlying rationale is
to assure that all users contribute to the cost of operating the Facility
to the extent that the usage can be properly measured.
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(4) The amount of the surcharge will be determined after studies
are concluded as to the estimation of annual likely indemnity and allocated
payments.
(5) As soon as possible after the Facility becomes a corporate
entity, an initial line of credit will be obtained to ensure that
sufficient funds are available for all preliminary and initial stages of
the operation.
(6) During the initial months of operation, the Comptroller will
draw down from the line of credit that amount of money which is required as
a difference between operating expenses and surcharges received to meet the
obligations incurred by reason of organization and operating expenses.
(7) As the Facility operations mature, there will come a time when
the monthly surcharges collected will exceed the total monthly operating
expenses. Those excess funds will now be applied first toward reinstating
the full amount of the line of credit and thereafter toward reimbursing in
equal shares those carriers who advanced seed money during the
presubscription period and the time between the end of the subscription
period and the collection of the assessment fees referred to in Paragraph
4-B(1).
(8) At the time the line of credit becomes fully reimbursed, it
will be reduced to an amount felt to be necessary and proper by the
Comptroller to ensure against monthly shortfalls in surcharges collected.
(9) Surcharges will continue to be levied in the same manner until
the Comptroller has acquired a fund of money that will be sufficient to
ensure the continued operation of the Facility for a period of at least two
years forward.
(10) At that point in time, the Comptroller will reevaluate the
surcharge schedule and recommend to the Board of Directors a schedule that
will continue the level of available operating funds at a level which will
ensure two future years of operation.
(11) Thereafter for the purposes of timing, an evaluation of the
funding, etc. will be made twice each year e.g., as of June 30 and December
30. At that time, the Comptroller will report and make recommendations to
the Board of Directors. The Board will then direct the necessary action.
(12) The Comptroller may recommend the discontinuance of the line of
credit at any time when he deems he has accumulated sufficient operating
funds to ensure at least two years of future operation.
(13) As regards the cost of development, continued operation and
maintenance of the data processing system, this will be considered to be a
part of the annual operating expenses of the Facility and such expenses
will be covered by the surcharge in the same manner as are all other
expenses.
Further, as regards the data processing system, it is contemplated:
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(a) That the development costs of the system after the
completion of the user specification period will be in the area of
$5,500,000. This is the best available estimate as of October, 1984.
(b) That the Facility will enter into a likely seven year
contract with the vendor for the operation of the system and that the
monthly charges for paying for the cost of development plus operation
of the system will be in the area of $180,000 per month. These
charges will be included in the Facility operation budget.
(c) Because the payment of the development costs is spread
across a contract that contemplates at least seven years of
operation, it is agreed and understood by all Insurer subscribers
that if the Facility should cease to operate before the development
costs are fully paid, the remaining sum due will be divided among all
Insurer subscribers, with the exception of Lloyds and the London
companies, in equal shares in order to discharge this obligation.
APPENDIX B
CONDITIONS, DEFENSES AND EXCLUSIONS
RESERVED BY SUBSCRIBING INSURERS
Subscribing Insurers reserve the right to raise only the following
conditions, defenses or exclusions pursuant to Paragraph 5 of Section VIII of
the Agreement, and Subscribing Producers reserve the right to contest same;
disputes concerning such matters shall be resolved pursuant to Paragraph 6 of
Section VIII of the Agreement:
1. That particular insurance policies were never issued or were
canceled; provided, that a Subscribing Insurer that disputes the existence
of an applicable insurance policy or part thereof notifies the affected
Subscribing Producer of its intention to assert such a defense. The notice
required under this provision shall identify the policy or policies
involved and shall be given within 30 days of March 29, 1985, or of the
date that the insurance policy in question is listed in the Producer's
Schedules of Insurance provided to such Insurer, whichever occurs later.
2. That, with respect solely to matters occurring subsequent to
June 19, 1985:
(a) the Subscribing Producer misrepresented or failed to
disclose information material to an underwriter's issuance of an
insurance policy, including information on the declarations page; or
(b) the Subscribing Producer breached its duties under an
insurance policy, in the event of an occurrence, claim or suit, to
give notice and to assist and cooperate; provided, that notice to and
cooperation with the Facility shall be deemed to satisfy these
duties.
3. That, with respect solely to matters occurring subsequent to
June 19, 1985, or matters that were the subject of a dispute between an
- 33 -
Insurer and Producer prior to May 1, 1984, the Subscribing Producer failed
to pay insurance policy premiums.
4. That insurance coverage is not available due to or is affected
by multiple insurance policies issued solely to comply with state
requirements, the inapplicability of a pre-merger or pre-acquisition
insurance policy to after-acquired liabilities, exhaustion of applicable
limits of liability, or the existence or non-existence of a defense
obligation in an insurance policy or the obligation to provide
supplementary defense payments; provided, that nothing contained herein
shall be deemed to modify Sections XI, XII or XVII of the Agreement.
5. That the Subscribing Producer failed to permit inspection and
audit for retrospective premium purposes for a period of three (3) years
after the ending date of the insurance policy period.
6. That, subsequent to May 1, 1984, and other than by operation of
the Agreement, a Subscribing Producer prejudiced the subrogation rights of
a Subscribing Insurer or assigned an interest in an insurance policy
without the approval of the Insurer.
7. That coverage under an insurance policy is not available due to
express exclusions for claims otherwise recoverable under automobile
insurance, claims for statutory worker's compensation benefits or claims
otherwise recoverable under worker's compensation or employer's liability
insurance.
8. That coverage under an insurance policy is not available due to
express exclusions for claims involving particular territories, particular
operations of the insured, particular locations, particular products or
particular diseases.
9. That any changes in any insurance policies must have been made
in writing pursuant to policy terms in order to be effective.
10. That the insurance policy in question does not cover punitive
damage awards due to an express exclusion or because the law of the state
governing the insurability of punitive damages in the particular case holds
that punitive damage awards are not covered by insurance because of public
policy or contract interpretation; provided, that if such holding is by
other than the highest court of the state in question, the Subscribing
Producer and the Subscribing Insurer each shall pay 50 percent of the
punitive damage award. Any disagreement as to whether punitive damage
awards are covered by insurance shall be resolved by negotiation, followed
by non-binding alternative dispute resolution, followed, if necessary, by
litigation. Any such resolution shall apply, in all respects, to the
affected parties notwithstanding any other provision of the Agreement.
- 34 -
APPENDIX C
ALTERNATIVE DISPUTE RESOLUTION
INTRODUCTION
Alternative Dispute Resolution ("ADR") is the method for resolving disputed
issues as provided in the Agreement. ADR involves three basic stages: 1)
good-faith negotiation; 2) a proceeding concluding with a binding decision if
litigation is not allowed and a non-binding decision if litigation is allowed
(the "Proceeding"); and 3) an appellate process for the binding decision.
At the negotiation stage, a person (the "Neutral") will be selected who
will be empowered to employ a full range of informal, mediational techniques
with Principals present. After the Proceeding there will be a final settlement
conference with the Judge and/or the Neutral as a last attempt to reach a Party-
fashioned solution. This is to be followed by a binding decision or litigation
if litigation is allowed. The binding decision may be appealed to a panel of
three Judges.
Before and during formal initiation of the ADR Procedure, all Parties are
strongly encouraged to engage freely in any informal negotiation desired with
the express goal of reaching a negotiated solution.
OBJECTIVES
1. TO ENCOURAGE A NEGOTIATED RESULT RATHER THAN USE OF ADR.
2. TO MAXIMIZE OPTIONS FOR PRAGMATIC SOLUTIONS.
3. TO BE COST-EFFECTIVE.
4. TO BE SPEEDY.
5. TO BE EFFICIENT.
6. TO BE FAIR.
7. TO ENCOURAGE CONSISTENCY OF INTERPRETATION.
DEFINITIONS
1. Days--Business days.
2. Party--When there are more than two Parties involved in a dispute, the use
of the word Party in this document shall be interpreted to mean all Parties
on a side. Thus, for example, joint Parties must exercise strikes
collectively.
3. Principal--An individual with settling authority for a Subscriber.
4. Subscribers--Subscribing Producers and Subscribing Insurers.
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THE NEGOTIATION
Day
---
1.00 Negotiation Procedure
1 1.1 A Party or Parties notify the ADR branch of the
Asbestos Claims Facility* ("Facility") of the
dispute and request ADR.
2 1.2 Case is docketed by the Facility.
2.00 Aggregation of Issues Between Disputing Parties
2.1 Issues may be aggregated only by agreement of all
Parties.
3.00 Good Faith Negotiation
3.1 The Facility shall maintain a Panel of Neutrals who
have been approved by the Initial Subscribers.
These Neutrals will be qualified and prepared to
apply the full range of informal mediational
processes and techniques. Criteria for selecting a
Panel of Neutrals are set forth in Exhibit 1
hereto.
3 3.2 If the Parties can agree on one or more Neutrals
selected from the Panel, they will notify the
Facility of the name or names selected. If the
Parties cannot agree, the Facility will notify the
Parties of a list of seven available Neutrals.
5 3.3 The Parties will notify the Facility of three
mutually acceptable Neutrals. Each Party may strike
two names from the list provided by the Facility;
the initiating Party strikes first by telephone.
7 3.4 The Facility will notify the Parties of the name of
the Neutral and the time and the place of the first
meeting. There shall be no ex parte communications
with the Neutral.
9 to
completion 3.5 Good-faith negotiations shall be held with the
Principals and the Neutral present. Good-faith
negotiations require that the Parties make good-
faith offers and/or demands. The Parties and the
Neutral should undertake to develop all options for
resolution and prepare:
3.51 A statement of issues.
3.52 A statement of desired results.
3.53 An exchange of key documents, testimony, and
other relevant information.
- 36 -
3.54 A statement of offers.
3.6 If, in the judgment of the Neutral, good-faith
negotiations have taken place and the Parties
cannot achieve resolution, either Party may
initiate the Proceeding. If the Parties feel that
good-faith negotiations have taken place and the
Neutral does not agree, the Parties may initiate
the Proceeding. If one Party believes that good-
faith negotiations have taken place, but the other
Party and the Neutral disagree, the Parties shall
proceed as set forth in the Procedure Manual.
------------
* The Facility is more particularly described in Sections II through VII of the
Agreement. ADR can be modified by unanimous agreement of the Parties, the
Trial Judge and the Facility. The Parties may apply to the Trial Judge for
modification of the ADR Procedure on a showing of good cause.
- 37 -
THE PROCEEDING
Day
---
4.00 Initiation of the Proceeding
1 4.1 The Parties notify the Facility of the request for
the Proceeding.
2 4.2 The Facility notifies all Subscribers of the
request for the Proceeding.
3-10 4.3 New Parties may be joined at this point if all
existing Parties agree. A written consent by all
Parties to such joinder must be filed with the
Facility no later than seven days after
notification by the Facility of the Proceeding.
4.4 The Facility shall maintain a Panel of Trial Judges
who have been approved by the Initial Subscribers.
Criteria for selecting a Panel of Trial Judges are
set forth in Exhibit 2 hereto.
11 4.5 If the Parties can agree on one or more Trial
Judges from the Panel, they will notify the
Facility of the name or names selected. If the
Parties cannot agree, the Facility will notify the
Parties of a List of seven available Trial Judges.
The list of Trial Judges shall not include the
Neutral, and there shall be no communication
between the Trial Judge and the Neutral.
13 4.6 The Parties shall notify the Facility of three
mutually acceptable Trial Judges. Each Party may
strike two names from the list provided by the
Facility; the initiating Party strikes first by
telephone.
15 4.7 The Facility shall notify the parties of the name
of the Trial Judge and the time and place of the
first conference. There shall be no ex parte
communications with the Trial Judge.
16 4.8 The Parties shall forward to the Trial Judge a
joint statement of facts, issues, requested relief,
and requests for documents not previously produced
and other relevant information.
19 5.00 Initial Conference. Principals need not be present.
5.1 The Trial Judge shall review and clarify the
statement of dispute, issues, requested relief, and
status of settlement; confirm the trial date, place
and schedule; and rule on any disputes relating to
document production.
6.00 Discovery
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24 6.1 Production of Documents. Parties will produce all
requested documents not previously produced. The Trial
Judge will be present during the production.
29-38 6.2 Depositions.
6.21 No more than five days per side unless the Trial
Judge rules otherwise. The Trial Judge has the
discretion to rule otherwise in cases where
there is a multiplicity of Parties or issues, or
for good cause shown.
6.22 The Trial Judge will be present unless the
Parties agree otherwise.
40 7.00 Pre-Proceeding Conference. The Principals and the Trial
Judge must be present.
7.1 The Parties shall exchange and provide the Trial Judge
(in writing) with:
a. Lists of witnesses and summaries of direct
testimony related to issues to be proven.
b. Exhibits related to issues to be proven.
C. Trial briefs.
7.2 The Trial Judge shall resolve issues such as
authenticity, admissibility, etc.
47-57 8.00 Proceeding. The case shall be presented to the Trial
Judge and the Principals, who are required to be
present.
8.1 The first Party may put on its direct case for up to two
days. The second Party may cross examine for up to one
day. The Trial Judge may summarize the state of
evidence.
8.2 The second Party may put on its direct case for up to
two days. The first Party may cross examine for up to
one day. The Trial Judge may summarize the state of
evidence.
8.3 Each side may have up to one-half day for rebuttal.
8.4 Argument. The First Party may present direct argument
for up to one hour. The Second Party may present
rebuttal for up to one-half hour. The Second Party may
present direct argument for up to one hour. The First
Party may present rebuttal argument for up to one-half
hour. Questioning by the Trial Judge is allowed.
8.5 A record of the Proceeding shall be kept.
- 39 -
8.6 The Trial Judge has the discretion to alter the length
of the Proceeding in cases where there is a multiplicity
of Parties or issues, or for good cause shown.
58 9.00 Final Settlement Conference
9.1 The Trial Judge shall meet with the Principals. If all
the Parties agree, the Trial Judge may:
a. Discuss the strengths and weaknesses of each
Party's case;
b. Question the Parties in an effort to conciliate;
and
c. Engage in mediation, as the Trial Judge sees fit.
60 10.A Non-Binding Decision, where the issue is one for which
litigation is allowed.
▇▇.▇▇ There will be no written opinion.
10.A2 An advisory opinion will be provided to any Party who
requests it. The advisory opinion shall not be provided
until two days after the Final Settlement Conference.
10.A3 Nothing from the ADR process is admissible in subsequent
litigation.
10.A4 There will be a cooling off period of up to two days if
the Trial Judge deems it advisable.
62 10.A5 A final negotiation session shall be held after
the non-binding decision, with the Trial Judge and/or
the original Neutral present, if all Parties agree.
10.A6 If settlement is not achieved at the final negotiation
session, the Parties proceed to litigation.
72-79 10.B Binding Decision, where the issue is one for which
litigation is not allowed. The Parties will have one
week to file additional briefs or comments, and then the
Trial Judge shall issue a written opinion and judgment
within two weeks of the close of the Proceeding or the
submission of additional papers, whichever is later. The
opinion and judgment shall contain:
10.Bl Statement of relief granted.
10.B2 Statement of costs, expenses and fees awarded to
the prevailing party. Prejudgment interest shall
be awarded as provided in the Agreement and the
Procedure Manual.
- 40 -
10.B3 Findings of Fact and Conclusions of Law shall be
issued.
10.B4 Petitions for rehearing may be filed but will not
affect the time for appeal
APPELLATE PROCESS
11.00 Appeal
1 11.1 No later than 10 days after the decision any Party
desiring to appeal shall notify the Facility. The
notice of appeal shall include a statement of the
dispute, the requested relief, and the decision
rendered below.
2 11.2 The Facility will docket the appeal and notify all
Subscribers.
11.3 The Facility shall maintain a Panel of Appellate
Judges who have been approved by the Initial
Subscribers. Criteria for selecting a Panel of
Appellate Judges are set forth in Exhibit 3
hereto.
3 11.4 If the Parties can agree on three or more
Appellate Judges from the Panel, they will notify
the Facility of the names selected. If the Parties
cannot agree, the Facility will notify the Parties
of a list of nine available Appellate Judges. The
list of Appellate Judges shall not include the
Neutral or the Trial Judge, and there shall be no
communications between the Appellate Judges and
either the Neutral or the Trial Judge.
4 11.5 The Parties shall notify the Facility of five
mutually acceptable Judges. Each Party may strike
two names from the list provided by the Facility;
the initiating Party strikes first by telephone.
6 11.6 The Facility shall notify the Parties of the three
Appellate Judge Panel and the date of the
appellate pre-argument conference which shall be
held three days later.
9 12.00 Appellate Pre-Argument Conference
12.1 The Court shall review the issues on appeal and
the relief requested.
12.2 The Court shall confirm that the appeal is in good
faith and, if all the Parties agree, shall conduct
settlement negotiations as to the issues on
appeal.
12.3 The Court shall confirm the appeal schedule.
- 41 -
13.00 Record On Appeal
11 13.1 The Appellant shall file the record with the
Facility.
13 13.2 The Appellee shall supplement the record if
necessary.
14.00 Briefs
21 14.1 The Appellant's brief is due 10 days after the
filing of the record.
41 14.2 The Appellee's brief is due 20 days after filing
of the Appellant's brief.
46 14.3 The Appellant's reply brief is due five days after
filing of the Appellee's brief.
51 15.00 Argument
15.1 Appellant--45 Minutes.
15.2 Appellee--One Hour.
15.3 Appellant--15 Minutes.
15.4 The Court may examine counsel either during the
argument or after the argument is closed.
65 16.00 Decision. The Court shall issue a written opinion within
two weeks of the close of the argument. The opinion
shall contain:
16.1 Statement of relief granted.
16.2 Statement of costs, expenses and fees awarded to
the prevailing Party. Prejudgment interest shall
be awarded as provided in the Agreement and the
Procedure Manual.
66 17.00 Rehearing. The procedure for Rehearing at the appellate
level (and at the Proceeding) shall be as provided in
the Procedure Manual.
100.00 Miscellaneous Provisions
100.1 Amicus Curiae Briefs
a. Any Subscriber may file an amicus curiae
brief as a matter of right at either the
Proceeding or Appellate stage.
b. The Court may accord the brief whatever
weight it deems appropriate.
100.2 The standard for reversal on appellate review is
whether the decision is clearly erroneous. If all
- 42 -
Parties request, the Trial Judge may help the
Parties resolve their differences, and efforts by
the Trial Judge in this regard are not subject to
appeal.
100.3 All questions of law, including conflicts of law
and burden of proof, shall be resolved by the
Trial Judge as provided in the Procedure Manual.
100.4 The Trial Judge and the Appellate Panel shall have
the power to impose sanctions for failure to
comply with any aspect of the ADR Procedure.
Sanctions also may be imposed for frivolous
appeals and frivolous petitions for rehearing. The
sanctions may include costs, fees, and expenses;
the relief requested by any Party; and any further
monetary or other sanctions that the Trial Judge
or the Appellate Panel deems appropriate. There
will be a right of appeal with regard to any award
of sanctions by the Trial Judge.
100.5 The Board of Directors of the Facility shall
provide guidance and instructions regarding the
ADR Procedure and all problems relating thereto,
with assistance from the General Counsel's office
as necessary.
100.6 There will be no precedential effect of any
decisions rendered in the ADR Procedure.
100.7 All decisions in the ADR Procedure shall be filed
with the Facility but will be maintained by the
Facility on a confidential basis and shall be
available only to Subscribers.
100.8 The Federal Rules of Evidence will be applied by
the Trial Judge unless modified by the Procedure
Manual. Depositions and trial transcripts in prior
actions automatically will be admissible, subject
to whatever weight the Trial Judge determines to
give such evidence.
100.9 The Facility will bear the costs of the ADR
Procedure and the costs of the Neutrals until
Initiation of the Proceeding (4.00). From then on,
all costs will be paid by the losing Party. The
procedure for payment of such costs is provided in
the Procedure Manual.
- 43 -
PANEL OF NEUTRALS
It is anticipated that the panel of Neutrals will be drawn primarily
from the CPR Judicial List. However, all Neutrals shall be approved by the
Initial Subscribers.
The criteria to be used to select a Neutral are as follows:
1. Neutral and unbiased toward any of the parties or the industries
involved.
2. Distinguished and respected in the business or legal
communities.
3. Available on a sustained basis and on reasonably short notice.
4. Experienced in the techniques of Alternative Dispute Resolution
or willing and able to learn quickly.
5. Unquestioned integrity.
6. Experienced.
7. Creative.
- 44 -
EXHIBIT I
PANEL OF TRIAL JUDGES
It is anticipated that the panel of Trial Judges will be drawn primarily
from the CPR Judicial List. However, all Trial Judges shall be approved by the
Initial Subscribers.
The criteria to be used to select a Trial Judge are as follows:
1. Neutral and unbiased toward any of the parties or the industries
involved.
2. Distinguished and respected in the business or legal communities.
3. Available on a sustained basis and on reasonably short notice.
4. Unquestioned integrity.
5. Creative.
6. Judicial experience at the trial court level.
7. Exhibits judicial temperament; that is, the judge is:
a. Impartial;
b. Patient;
c. Courteous;
d. Decisive;
e. Fair; and
f. Effective.
- 45 -
EXHIBIT 2
PANEL OF APPELLATE JUDGES
It is anticipated that the panel of Appellate Judges will be drawn
primarily from the CPR Judicial List. However, all Appellate Judges shall be
approved by the Initial Subscribers.
The criteria to be used to select an Appellate Judge are as follows:
1. Neutral and unbiased toward any of the parties or the industries
involved.
2. Distinguished and respected in the business or legal communities.
3. Available on a sustained basis and on reasonably short notice.
4. Unquestioned integrity.
5. Creative.
6. Judicial experience at the appellate court level.
7. Exhibits judicial temperament; that is, the judge is:
a. Impartial;
b. Patient;
c. Courteous;
d. Decisive;
e. Fair; and
f. Effective.
- 46 -
EXHIBIT 3
APPENDIX D
SCHEDULES OF INSURANCE
Following are: 1) guidelines to assist in the completion of the Schedules
of Insurance pursuant to the provisions of the Agreement; 2) the forms of
Schedules to be used; and 3) the form of Schedules Certification to be executed
by each Subscribing Producer and its Subscribing Insurers. All policies of
insurance affording general liability, products liability or premises coverage
should be scheduled hereunder. Each Subscribing Producer and each of its
Subscribing Insurers shall execute the Schedules Certification (in the form set
forth hereinbelow) within 20 days of the date that such Producer or Insurer
becomes a signatory to the Agreement, and shall note thereon any disputed issues
with respect thereto. The failure by a signatory to the Agreement so to execute
the Schedules Certification within such 20 day period shall be deemed an assent
to and valid execution of the Schedules in question by such signatory.
1. Initial Coverage Block: Set forth the closing date of the initial
coverage block. For the definition of
coverage block, see Section IX of the
Agreement. All insurance policies covering
the period prior to the closing date should
be listed on Section 1 of the form of
Schedules. All insurance policies covering
the period subsequent to the closing date
should be listed on Section 2 of the form
of Schedules.
2. Pre-Date Insurance Policies and
Post-Date Insurance Policies: Set forth the date mutually agreed upon in
accordance with Section XV of the
Agreement. All pre-date insurance policies
and all post-date insurance policies should
be listed on the appropriate Sections of
the form of Schedules.
- 47 -
3. Insurer: Specify exactly as named in the insurance
policy or other evidential document of
coverage.
4. Policy Period: Refer to the actual period for which the
insurance policy is in effect. For policy
periods of other than 12 month multiples,
see Section XVIII of the Agreement.
5. Policy Type: Specify whether primary, excess or
self-insured.
6. Policy Form: Enter the codes that describe the insurance
policy form:
A. Pre-1966 Standard Form Insurance Policy,
as defined in Section XXIII of the
Agreement.
B. The insurance policy does not pay
allocated expenses following exhaustion
of aggregate limits. See Section XII of
the Agreement.
C. The insurance policy does pay allocated
expenses following exhaustion of
aggregate limits. See Section XII of the
Agreement.
D. The insurance policy expressly provides
coverage on a specific manifestation
basis.
E. The insurance policy expressly provides
coverage on a claims-made basis.
F. The insurance policy expressly provides
coverage on a first discovery basis.
G. The insurance policy pays allocated
expenses and such expenses do not apply
against aggregate limits. See Section XI
of the Agreement.
H. The insurance policy pays allocated
expenses and such expenses apply against
aggregate limits. See Section XI of the
Agreement.
I. The insurance policy does not pay
allocated expenses. See Section XI of the
Agreement
7. Per Occurrence/Accident
- 48 -
Limits: Refer to the limit for any one occurrence
or any one accident
8. Products Aggregate: Refer to the aggregate limit applicable
to products bodily injury liability
coverage. Certain insurance policies may
contain a combined aggregate for bodily
injury, property damage and other covered
perils; if so, refer to the combined
limit.
With respect to insurance policies
without aggregate limits, see Section
XVII of the Agreement.
9. Products Aggregate
Consumption: The function of the Aggregate Consumption
Summary is to track the consumption of
total products liability aggregate limits
by asbestos products bodily injury
claims.
With respect to an insurance policy
containing a deductible that explicitly
provides that payment of deductibles
reduces aggregate limits, see Section XV
of the Agreement.
With respect to the payment of allocated
expenses applying against aggregate
limits, see Section XI of the Agreement.
10. Non-Products
Coverage: To impute aggregate limits for non-
products coverage, see Section XVII of
the Agreement.
11. Deductibles and Retentions: Enter the codes that describe the
deductible or retention:
J. Per occurrence deductible.
K. Per claim deductible.
L. Deductible reduces the aggregate
limits of the insurance policy.
M. Self-insured retention.
N. Loss limit.
Where deductibles and retentions are not
limited explicitly by the insurance
policy language, see Section XVI of the
Agreement.
Where an insurance policy containing a
deductible explicitly provides that
payment
- 49 -
of deductibles reduces aggregate limits,
see Section XV of the Agreement.
- 50 -
APPENDIX D--SCHEDULES OF INSURANCE
Attaching to and forming a part of the Agreement Concerning Asbestos-
Related Claims:
Subscribing Producer:*
-------------------------------------
Initial Coverage Block Ending: / /
----
(date)
SECTION 1 (COVERAGE BLOCK):
A. Pre-Date Insurance Policies (pre- / / )
Products Coverage
------------------------------------------------------------------------------
Per
Policy Policy Occurrence/Accident B.I. or Combined B.I. or Combined B.I. or Combined
Policy Period No. Insurer** Policy Type Form Limit Aggregate Aggregate Consumption Aggregate Balance
------------- ------- --------- ----------- ------ ------------------ ---------------- --------------------- -----------------
Non-Products Coverage Retention
------------------------------------------------ --------------------------------------
Per
Occurrence/ Aggregate Aggregate
Accident Limit Aggregate Consumption Balance Type Amount Stop Loss Retro Balance
-------------- --------- ----------- ------- ---- ------ --------- -------------
-----------
* This includes all affiliated persons (including related companies and
employees, officers and directors) covered by the insurance policies listed
herein.
**This includes all predecessor and successor persons of each Insurer listed
herein.
- 51 -
APPENDIX D--SCHEDULES OF INSURANCE
Attaching to and forming a part of the Agreement Concerning Asbestos-
Related Claims:
Subscribing Producer:*
-------------------------------------
Initial Coverage Block Ending: / /
------
(date)
SECTION 1 (COVERAGE BLOCK):
B. Post-Date Insurance Policies (post- / / )
Products Coverage
------------------------------------------------------------------------------
Per
Policy Policy Occurrence/Accident B.I. or Combined B.I. or Combined B.I. or Combined
Policy Period No. Insurer** Policy Type Form Limit Aggregate Aggregate Consumption Aggregate Balance
------------- ------- --------- ----------- ------ ------------------ ---------------- --------------------- -----------------
Non-Products Coverage Retention
------------------------------------------------- -------------------------------------
Per
Occurrence/ Aggregate Aggregate
Accident Limit Aggregate Consumption Balance Type Amount Stop Loss Retro Balance
-------------- --------- ----------- ------- ---- ------ --------- -------------
-----------
* This includes all affiliated persons (including related companies and
employees, officers and directors) covered by the insurance policies listed
herein.
**This includes all predecessor and successor persons of each Insurer listed
herein.
- 52 -
** This includes all predecessor and successor persons of each Insurer listed
herein.
APPENDIX D--SCHEDULES OF INSURANCE
Attaching to and forming a part of the Agreement Concerning Asbestos-
Related Claims:
Subscribing Producer:*
-------------------------------------
Initial Coverage Block Ending: / /
-------
(date)
SECTION 2 (NON COVERAGE BLOCK):
A. Pre-Date Insurance Policies (pre- / / )
Products Coverage
-----------------------------------------------------------------------------
Per
Policy Policy Occurrence/Accident B.I. or Combined B.I. or Combined B.I. or Combined
Policy Period No. Insurer** Policy Type Form Limit Aggregate Aggregate Consumption Aggregate Balance
------------- ------- --------- ----------- ------ ------------------ ---------------- --------------------- -----------------
Non-Products Coverage Retention
------------------------------------------------- -------------------------------------
Per
Occurrence/ Aggregate Aggregate
Accident Limit Aggregate Consumption Balance Type Amount Stop Loss Retro Balance
-------------- --------- ----------- ------- ---- ------ --------- -------------
-----------
* This includes all affiliated persons (including related companies and
employees, officers and
- 53 -
directors) covered by the insurance policies listed herein.
**This includes all predecessor and successor persons of each Insurer listed
herein.
APPENDIX D--SCHEDULES OF INSURANCE
Attaching to and forming a part of the Agreement Concerning Asbestos-
Related Claims:
Subscribing Producer:*
-------------------------------------
Initial Coverage Block Ending: / /
--------
(date)
SECTION 2 (NON COVERAGE BLOCK):
B. Post-Date Insurance Policies (post- / / )
Products Coverage
------------------------------------------------------------------------------
Per
Policy Policy Occurrence/Accident B.I. or Combined B.I. or Combined B.I. or Combined
Policy Period No. Insurer** Policy Type Form Limit Aggregate Aggregate Consumption Aggregate Balance
------------- ------- --------- ----------- ------ ------------------ ---------------- --------------------- -----------------
Non-Products Coverage Retention
------------------------------------------------ --------------------------------------
Per
Occurrence/ Aggregate Aggregate
Accident Limit Aggregate Consumption Balance Type Amount Stop Loss Retro Balance
-------------- --------- ----------- ------- ---- ------ --------- -------------
-----------
- 54 -
* This includes all affiliated persons (including related companies and
employees, officers and directors) covered by the insurance policies listed
herein.
**This includes all predecessor and successor persons of each Insurer listed
herein.
- 55 -
APPENDIX D--SCHEDULES OF INSURANCE
CERTIFICATION
The foregoing comprises the Schedules of all relevant policies of insurance
known to the Subscribing Producer and to any of its Subscribing Insurers as of
this date. Any insurance policy that subsequently becomes relevant (by discovery
or otherwise) will be added to these Schedules by amendment or addendum, and it
is agreed that all Subscribing Insurers are committed to cooperate with and
assist the Subscribing Producer in the continuing search for policies of
insurance.
These Schedules of Insurance are subject to the terms and conditions of the
Agreement to which they shall be attached and form a part thereof. The
undersigned acknowledge and agree that such Schedules of Insurance are in
compliance with the provisions of the Agreement.
Dated:
Subscribing Producer:
--------------------------------------
Subscribing Insurers:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
- 56 -
APPENDIX E
INSURANCE DEFENSE PROGRAM
1. Purpose:
The purpose of the Insurance Defense Program (herein called the "Defense
Program" or the "Program") shall be solely to implement the provisions of
Paragraph 2 of Section XII of the Agreement.
2. Definitions:
"Covered claims" means claims to which the Defense Program applies under
Section 3 below.
"Base standard charge" means the standard charge for a single pre-1966
standard form insurance policy issued to a Subscribing Producer in the lowest
risk category.
"Standard charge" for any calendar year means the amount designated as such
in the Subscribing Insurer's Standard Charge Notice for such calendar year.
"Base surcharge" means the surcharge for a single pre-1966 standard form
insurance policy issued to a Subscribing Producer in the lowest risk category.
"Surcharge" means the amount due as a surcharge under Section 7 below.
"Reserve Fund" means the amount, including all investment income thereon,
held by the Administrators for the payment of defense expenses expected under
the Defense Program.
"Administrators" means those holding office as such under the Defense
Program.
3. Application:
The Defense Program applies only to those asbestos-related claims against
Subscribing Producers that:
(a) are being administered by the Facility; and
(b) under the Agreement would have triggered an obligation to pay
allocated expenses and unallocated expenses under a pre-1966 standard form
insurance policy.
The Defense Program covers only the payment of allocated expenses and
unallocated expenses attributable to such claims. It does not provide coverage
for liability payments. The Defense Program shall not survive termination of the
Facility.
4. Participation:
Each Subscribing Insurer that has issued a pre-1966 standard form insurance
policy to a Subscribing Producer shall become a participant in the Defense
Program and shall be bound by all of the provisions of the Program.
- 57 -
Each participant shall pay promptly on notice from the Administrators all
standard charges and surcharges due under the Defense Program.
5. Administrators:
The Defense Program shall be administered by a Committee of Administrators,
with no less than six in number, all of which shall be participants. The
Committee shall include representatives of all three classes of participants,
those with relatively high, moderate or low exposure to charges under the
Defense Program.
The Committee will be appointed for a designated term of years by the
Insurer members of the Board of Directors of the Facility. The Board will
designate carriers to be members, and the carriers will designate the individual
representative who will represent them. Each Administrator shall have one vote.
The Committee of Administrators shall have the full power to administer the
Defense Program including power to deal with the Facility with respect to the
defense of claims subject to the Defense Program and the appropriate amounts to
be paid the Facility for conducting such defense and full power to determine the
financing of the Defense Program including the power to determine standard
charges and surcharges and to accumulate reserves.
The Committee will adopt schedules, charges and otherwise conduct their
business on the basis of majority vote. If for some reason a majority decision
cannot be reached, then the matter will be referred to the Insurer members of
the Board of Directors for resolution. If a majority vote is not possible at
that time, then the matter is referred to the Chief Financial Officer for an
absolute and binding decision.
6. Mutual Sharing or Insurance Nature of the Defense Program:
The defense expenses incurred under the Defense Program shall be shared
mutually by the participants in relation to:
(a) the number of pre-1966 standard form insurance policies issued by
each such participant to Subscribing Producers; and
(b) the degree of risk each such policy presents as estimated by the
Administrators.
For the purpose of implementing subdivision (b) above, the Administrators
shall classify Subscribing Producers into three risk categories with the
following risk relativity factors:
Risk Category Risk Relativity
------------- ---------------
A 3
B 2
C 1
The Administrators shall assign Producers to risk categories in accordance
with their respective shares of liability payments unless, by at
- 58 -
least a two-thirds majority, they shall determine that such a method is not
appropriate to reflect the relative risk and shall adopt another method.
7. Funding:
The Administrators shall direct the Chief Financial Officer to establish a
Common Reserve Fund to hold all payments made by the participants under the
Defense Program. There must be no co-mingling of monies received for this
purpose with any other funds, monies or assets of the Facility. The Chief
Financial Officer shall keep an account for each participant showing all amounts
paid by the participant, and in the event the Administrators should ever
determine that the defense fund appears to be greater than needed to meet the
cost of defending covered claims, then they shall direct the Chief Financial
Officer to refund the excess to the participants in the ratio that the total
amount paid by each bears to the total amount paid by all participants.
For each calendar year the Administrators shall estimate the amount of
defense expense expected to be incurred by the Facility in defending covered
claims during the calendar year plus an amount appropriate in their judgment as
a reserve against contingencies. The Administrators shall then determine the
base standard charge and send each participant written notice of the
participant's standard charge for such calendar year.
In the event the Administrators determine that the Reserve Fund is not
sufficient to meet the expected defense expenses to be incurred, the
Administrators shall estimate the amount required to meet the deficit. The
Administrators shall then determine the base surcharge and send each participant
written notice of the participant's portion of the total surcharge.
For the first calendar year of subscription the base standard charge for
each pre-1966 standard policy shall be $400 unless the Administrators shall
determine that such an amount is plainly not appropriate.
The following section gives a pro forma example that will enable each
participant to estimate its approximate standard charge for the first year as
soon as the number of its policies subject to the Defense Program and their Risk
Categories are known.
8. Pro Forma Examples of Standard Charges and Surcharges:
The first example uses a base standard charge of $400 and a participant
with 100 pre-1966 standard form insurance policies subject to the Program,
distributed as follows: 40 in Risk Category A; 35 in Risk Category B; and 25 in
Risk Category C. The participants' annual standard charge is computed as
follows:
Policies Risk Category Risk Factor Base Charge Standard Charge
-------- ------------- ----------- ----------- ---------------
40 A 3 $400 $48,000
35 B 2 $400 $28,000
25 C 1 $400 $10,000
-------
Total standard charge for the year: $86,000
- 59 -
If a surcharge were determined to be required during the course of the
year, it would be applied in a like manner as with the basic standard charge.
This second example demonstrates the application of a surcharge as regards a
participant with the same policy and risk distribution as above:
Policies Risk Category Risk Factor Base Charge Surcharge
-------- ------------- ----------- ----------- ---------
40 A 3 $200 $24,000
35 B 2 $200 $14,000
25 C 1 $200 $ 5,000
-------
Total surcharge for affected year: $43,000
9. Appeals and Dispute Resolution:
The Administrators shall have power to resolve all disputes among
participants relating to the Defense Program and, by at least a two-thirds
majority, to extend equitable relief to an individual participant if a strict
application of its rules or decisions would cause the participant undue and
unfair hardship.
Any participant who is aggrieved by a decision of the Board by less than a
two-thirds majority may submit the matter to binding nonjudicial dispute
resolution under Appendix C of the Agreement.
- 60 -
