================================================================================
REINSURANCE AGREEMENT
EFFECTIVE
JANUARY 1, 2002
BETWEEN
AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY,
REINSURER
AND
FIDELITY EXCESS AND SURPLUS INSURANCE COMPANY,
REASSURED
================================================================================
TABLE OF CONTENTS
ARTICLE 1 Business Covered.............................................Page 1
ARTICLE 2 Reinsuring Clause............................................Page 1
ARTICLE 3 Definitions..................................................Page 1
ARTICLE 4 Consideration................................................Page 2
ARTICLE 5 Administration...............................................Page 3
ARTICLE 6 Term.........................................................Page 4
ARTICLE 7 Reinsurance Follows Original Policies........................Page 4
ARTICLE 8 Reports......................................................Page 4
ARTICLE 9 Assistance and Cooperation...................................Page 4
ARTICLE 10 Indemnification..............................................Page 5
ARTICLE 11 Termination..................................................Page 5
ARTICLE 12 Access to Records............................................Page 5
ARTICLE 13 Errors and Omissions.........................................Page 5
ARTICLE 14 Notice Provision.............................................Page 5
ARTICLE 15 Insolvency...................................................Page 6
ARTICLE 16 Non-Assignability............................................Page 6
ARTICLE 17 Unauthorized Reinsurance.....................................Page 7
Signatures...................................................Page 9
ii
REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
THIS AGREEMENT, entered into as of the 1st day of January, 2002, by and between
Fidelity Excess and Surplus Insurance Company (hereinafter "Reassured") and
American Empire Surplus Lines Insurance Company (hereinafter "Reinsurer").
ARTICLE 1
BUSINESS COVERED
Reassured hereby cedes to Reinsurer all of its liability with respect to all of
the insurance business retroceded to Reassured under that certain Pooling
Agreement dated January 1, 1992, as amended to date (the "Reassured's Business")
and Reinsurer agrees to accept the Reassured's Business and to indemnify
Reassured in accordance with the following terms and conditions.
ARTICLE 2
REINSURING CLAUSE
Reinsurer shall be liable to pay 100% of the Ultimate Net Aggregate Losses
together with all other obligations which arise out of Reassured's Business.
ARTICLE 3
DEFINITIONS
A. "Ultimate Net Aggregate Losses" shall mean the sum of:
1) Actual loss payments paid in settlement of claims or suits or in
satisfaction of judgments on Reassured's Business;
2) Loss Expense paid in connection with Reassured's Business;
3) Extracontractual Obligations arising from conduct of Reinsurer and
paid in connection with the handling or resolution of any losses
reinsured hereunder; and
4) Less collectible reinsurance on Reassured's Business.
B. "Loss Expense" shall mean all expenses incurred in the investigation,
adjustment, and defense of all claims under the Reassured's Business,
including, without limitation, loss expenses, court costs, and pre-judgment
and post-judgment interest, as well as unallocated expenses for employees
and ordinary overhead expenses such as salaries, annual retainers, office
expenses, and other fixed expenses of Reassured.
C. "Salvages" shall mean any recovery made in connection with a claim or loss,
less expenses paid in making such recovery. All salvages, recoveries, and
payments recovered or received subsequent to a loss payment under this
Agreement shall be applied as if recovered and received prior to the loss
payment and all necessary adjustments shall be made by the parties.
D. "Extracontractual Obligations" shall mean those liabilities not covered
under any other provision of this Agreement and which arise from or in
connection with the operation, administration, underwriting or claim
handling on the Reassured's Business, such liabilities arising because of,
but not limited to, the following: failure to settle within the policy
limit, or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement, or denying coverage, or in the
preparation or prosecution of an appeal consequent upon such action.
The date on which an Extracontractual Obligation is incurred by Reassured
shall be deemed, in all circumstances, to be the date of the action taken
or not taken giving rise to the extracontractual action.
"Extracontractual Obligations" shall also include losses in excess of
policy limits of Reassured's original policy, such loss in excess of limit
having been incurred because of failure by Reassured to settle within the
policy limit or by reason of alleged or actual negligence, fraud, or bad
faith in rejecting coverage or an offer of settlement or in the preparation
of the defense or in the trial of any action against an insured or
reinsured or in the preparation of prosecution of an appeal consequent upon
such action. For purposes of this definition, the word "loss" shall mean
any amounts for which Reassured would have been contractually liable to pay
had it not been for the limit of the original policy.
ARTICLE 4
CONSIDERATION
Reassured shall have no obligation to Reinsurer for any uncollected or
uncollectible premiums, whether uncollected from the original policyholder or
any other party. Further, if Reassured is bound on any policy for which all or
any premium is uncollected, Reinsurer shall be liable for losses arising
thereunder in accordance with all other terms of this Agreement. Reinsurer shall
be responsible for all premium and other taxes applicable or which may become
applicable to Reassured's Business after the effective date hereof.
2
ARTICLE 5
ADMINISTRATION
A. Reinsurer shall be entitled to receive and retain for its own account all
incoming sums of money on or in connection with Reassured's Business due or
becoming due to Reassured on or after the effective date hereof.
B. The parties agree that Reinsurer shall have the right and obligation, at
its expense, to exercise and perform all of Reassured's rights and
obligations in connection with Reassured's Business and Reassured hereby
assigns, transfers, and grants to Reinsurer the rights, powers, and
privileges of Reassured to exercise and perform the same. Without limiting
the foregoing, it is agreed that Reinsurer shall have the right and/or
obligation to:
1) give, receive, execute, issue, and deliver all notices, endorsements,
waivers, demands, proofs, and agreements of every kind and nature
which may be necessary or desirable in connection with the policies or
any reinsurance in connection with the policies covered by this
Agreement;
2) ask, demand, attach, xxx for, recover, receive, and receipt for all
premiums, debts, and sums of money due or becoming due on under or in
connection with Reassured's Business;
3) to adjust, settle, pay, defend, arbitrate, and/or compromise any and
all claims under or in connection with Reassured's Business; and
4) prosecute or defend any action which Reinsurer deems necessary or
desirable in order to exercise the rights, powers, and privileges
granted to Reinsurer hereunder.
C. Recoveries from any form of insurance or reinsurance which protects
Reassured against claims which are related to the Reassured's Business
shall inure to the benefit of Reinsurer.
D. The parties agree that in fulfilling Reinsurer's obligations under Section
B(3) above, the Reinsurer or its designated representative shall adjust,
settle, or compromise all losses in connection with policies reinsured
under this Agreement. All such adjustments, settlements, and compromises
shall be paid by Reinsurer from its own funds. The Reinsurer shall have
vested rights in salvage, subrogation, and recoveries under any claims made
against policies covered by this Agreement. The Reinsurer also shall pay
all loss expense in the investigation, adjustment, appraisal, or defense of
all claims under policies reinsured under this Agreement and Reinsurer
shall have the right to receive any recoveries of such expense. The
obligations and duties of Reinsurer under this provision shall continue
after the termination of this Agreement as to all policies reinsured
hereunder until any and all claims under policies reinsured under this
Agreement no longer exist or are resolved.
3
ARTICLE 6
TERM
This Agreement shall be effective as of the 1st day of January, 2002 at 12:01
A.M. and shall continue in force unless and until cancelled in accordance with
the termination provisions of Article 11 of this Agreement.
ARTICLE 7
REINSURANCE FOLLOWS ORIGINAL POLICIES
Reinsurance ceded under this Agreement is subject to the terms and conditions of
the original policy or policies comprising Reassured's Business and
automatically follows all changes in coverages and all endorsements made a part
of such original policy or policies.
ARTICLE 8
REPORTS
Within thirty (30) days after the close of each calendar month during the term
of this Agreement Reinsurer shall furnish to Reassured reports of transactions
relating to Reassured's Business, including (a) all premiums written and earned;
(b) a summary of losses and loss expenses split between paid, less salvage
received, and outstanding, both reported and unreported, for the current
calendar year and inception to date; and (c) such other information which
Reassured may reasonably request or which may be required to complete
Reassured's annual statement or other reports required by any governmental
authority with jurisdiction over Reassured.
ARTICLE 9
ASSISTANCE AND COOPERATION
Reassured agrees to cooperate fully with Reinsurer with respect to claims or
other disputes arising out of or in connection with Reassured's Business.
Reassured shall give prompt notice to Reinsurer of any claims or lawsuits made
or brought against Reassured arising out of or in connection with Reassured's
Business.
4
ARTICLE 10
INDEMNIFICATION
Reinsurer shall defend and indemnify Reassured against and hold Reassured
harmless from any costs, expenses, and fees of any type incurred in connection
with the defense of any action in connection with business covered by this
Agreement, including, without limitation, damages or penalties of any kind that
may result from Reinsurer's performance or failure to perform any or all
obligations under this Agreement.
ARTICLE 11
TERMINATION
The obligations under this Agreement may be terminated at any time upon terms
mutually acceptable to the parties, including adequate security for outstanding
obligations at the time of termination.
ARTICLE 12
ACCESS TO RECORDS
Reinsurer shall allow Reassured to inspect at all reasonable times all records
of Reinsurer with respect to Reassured's Business and with respect to claims,
losses, or legal proceedings which involve or are likely to involve Reassured's
Business.
ARTICLE 13
ERRORS AND OMISSIONS
Inadvertent delays, errors, or omissions made in connection with the business
under this Agreement shall not relieve either party from any liability which
would have attached to it had such delay, error, or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.
ARTICLE 14
NOTICE PROVISION
Notices, requests, demands, or other communications given pursuant to or in
connection with this Agreement, shall be in writing and shall be personally
delivered or sent by first class mail, postage prepaid to the addresses as
follows:
5
REINSURER:
American Empire Surplus Lines Insurance Company
000 Xxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000
Attention: General Counsel
REASSURED:
c/o Administrators For the Professions, Inc.
000 Xxxx Xxxxx Xxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx Pores
with a copy to:
Xxxx X. Tract, Esq.
Rosenman & Colin, L.L.P.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
ARTICLE 15
INSOLVENCY
Notwithstanding any other provision to the contrary, in the event of the
insolvency of Reassured, the reinsurance provided by this Agreement shall be
payable by Reinsurer on the basis of the liability of Reassured for the business
reinsured hereunder, without diminution because of such insolvency, directly to
Reassured or its liquidator, receiver or statutory successor.
Reinsurer shall be given written notice of the pendency of each claim or loss
which may involve the reinsurance provided by this Agreement within a reasonable
time after such claim or loss is filed in the insolvency proceedings. Reinsurer
shall have the right to investigate each such claim or loss and interpose, at
its own expense, in the proceeding where the claim or loss is to be adjudicated,
any defense available to Reassured, its liquidator, receiver, or statutory
successor. The expense thus incurred by Reinsurer shall be chargeable, subject
to court approval, against the insolvent Reassured as part of the expense of
liquidation to the extent of the proportionate share of the benefit which may
accrue to Reassured solely as a result of the defense undertaken by Reinsurer.
Nothing contained in this Article is intended to change the relationship of the
parties to this Agreement or to enlarge upon the rights or obligations of either
party hereunder except as provided herein. Its intent is to pay the statutory
successor of Reassured on the basis of the amount of liability determined in the
liquidation or receivership proceeding rather than on the basis of the actual
amount of loss paid by the liquidator, receiver, or statutory successor to
allowed claimants.
6
ARTICLE 16
NON-ASSIGNABILITY
Neither Reassured nor Reinsurer may assign any of its rights or obligations
under this Agreement without the express written consent of the other, except
that the Reassured may assign its rights under this Agreement to any of its
affiliates in connection with a merger involving the Reassured or in connection
with the acquisition of substantially all the assets of the Reassured.
ARTICLE 17
UNAUTHORIZED REINSURANCE
A. As regards insurance or reinsurances issued by the Reassured coming within
the scope of this Agreement, the Reassured agrees that when it shall file
with the insurance regulatory authority or set up on its books reserves for
unearned premium and losses covered hereunder which it shall be required by
law to set up, it will forward to the Reinsurer a statement showing the
proportion of such reserves which is applicable to the Reinsurer. The
Reinsurer hereby agrees to fund such reserves in respect of unearned
premiums, known outstanding losses that have been reported to the Reinsurer
and allocated loss adjustment expense paid by the Reassured but not
recovered from the Reinsurer, plus reserves for losses incurred but not
reported, as shown in the statement prepared by the Reassured (hereinafter
referred to as "Reinsurer's Obligations") by funds withheld, cash advances,
Letter of Credit or Trust Agreement. The Reinsurer shall have the option of
determining the method of funding provided the Reassured receives full
credit for Reinsurer's Obligations from insurance regulatory authorities
having jurisdiction over Reasurred's reserves.
B. When funding by a Letter of Credit, the Reinsurer agrees to apply for and
secure timely delivery to the Reassured of a clean, irrevocable and
unconditional Letter of Credit issued by a bank and containing provisions
acceptable to the insurance regulatory authorities having jurisdiction over
the Reassured's reserves in an amount equal to the Reinsurer's proportion
of said reserves. Such Letter of Credit shall be issued for a period of not
less than one year, and shall be automatically extended for one year from
its date of expiration or any future expiration date unless thirty (30)
days (sixty (60) days where required by insurance regulatory authorities)
prior to any expiration date the issuing bank shall notify the Reassured by
certified or registered mail that the issuing bank elects not to consider
the Letter of Credit extended for any additional period.
C. The Reinsurer and Reassured agree that the Letters of Credit provided by
the Reinsurer pursuant to the provisions of this Agreement may be drawn
upon at any time, notwithstanding any other provision of this Agreement,
and be utilized by the Reassured or any successor, by operation of law, of
the Reassured including, without limitation, any liquidator, rehabilitator,
receiver or conservator of the Reassured for the following purposes, unless
otherwise provided for in a separate Trust Agreement:
7
1. to reimburse the Reassured for the Reinsurer's Obligations, the
payment of which is due under the terms of this Agreement and which
has not been otherwise paid;
2. to make refund of any sum which is in excess of the actual amount
required to pay the Reinsurer's Obligations under this Agreement.
D. In the event the amount drawn by the Reassured on any Letter of Credit is
in excess of the actual amount determined to be due, the Reassured shall
promptly return to the Reinsurer the excess amount so drawn.
E. The issuing bank shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Reassured or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the
order of properly authorized representatives of the Reassured.
F. At annual intervals, or more frequently as agreed but never more frequently
than quarterly, the Reassured shall prepare a specific statement of the
Reinsurer's Obligations, for the sole purpose of amending the Letter of
Credit, in the following manner:
1. If the statement shows that the Reinsurer's Obligations exceed the
balance of credit as of the statement date, the Reinsurer shall,
within thirty (30) days after receipt of notice of such excess,
secured delivery to the Reassured of an amendment to the Letter of
Credit increasing the amount of credit by the amount of such
difference.
2. If, however, the statement shows that the Reinsurer's Obligations are
less than the balance of credit as of the statement date, the
Reassured shall, within thirty (30) days after receipt of written
request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit.
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate effective as of January 1, 2002.
AMERICAN EMPIRE SURPLUS LINES
INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President
FIDELITY EXCESS AND SURPLUS
INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President
9
