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EXHIBIT 10.40

AMENDMENT NO. 3
TO
AGENCY AGREEMENT

    This Amendment No. 3 to Agency Agreement (this "Amendment") is entered into
as of the 30th day of November 2000 with reference to that certain Agency
Agreement between PAULA Insurance Company and Pan American Underwriters
Insurance Agents & Brokers, Inc. dated as of March 1, 1992, as amended (the
"Agreement"). All capitalized terms used herein without definition shall have
the meaning ascribed to them in the Agreement.

    In consideration of the manual covenants set forth herein and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Agent and the Company agree to amend the Agreement as follows:

1.The relevant provisions of Schedule C to the Agreement are hereby amended as
follows:

    "The Company agrees to pay to the Agent the following bonus commission
during the 2000 calendar year contingent upon the Agent meeting the following
quarterly premium volume thresholds:

Invoiced Quarterly 2000 Premium Volume

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  Bonus Commission

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$250,000   1% of Invoiced Premium $325,000   Additional 1% of Invoiced Premium
$500,000   Additional 1% of Invoiced Premium

    The foregoing bonus will be paid quarterly based on invoiced premium written
prior to the end of the applicable quarter. The bonus will apply to all premium
written, not merely the amount of premium over the premium threshold. The bonus
will be subject to offset to the same extent as commissions payable under this
Agreement."

2.In all other respects, the Agreement (including the unamended provisions of
Schedule C) shall continue in full force and effect.

    IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above:

PAULA INSURANCE COMPANY
 
PAN AMERICAN UNDERWRITERS
INSURANCE AGENTS & BROKERS, INC.
By:
 
/s/ JEFFREY A. SNIDER   

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By:
/s/ JAMES A. NICHOLSON   

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EXHIBIT 10.40
AMENDMENT NO. 3 TO AGENCY AGREEMENT