EXHIBIT 10.82

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

issued to

 

SCPIE HOLDINGS, INC., and/or

SCPIE INDEMNITY COMPANY and/or

AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or

AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or

SCPIE INSURANCE SERVICES, INC., and/or

SCPIE MANAGEMENT SERVICES, INC.

Los Angeles, California

 

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INTERESTS AND LIABILITIES AGREEMENT

(the “Agreement”)

 

of

 

(the “Subscribing Reinsurer”)

 

as respects the

 

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

Effective: January 1, 2004

(the “Contract”)

 

issued to and executed by

 

SCPIE HOLDINGS, INC., and/or

SCPIE INDEMNITY COMPANY and/or

AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or

AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or

SCPIE INSURANCE SERVICES, INC., and/or

SCPIE MANAGEMENT SERVICES, INC.

Los Angeles, California

(collectively, the “Company”)

 

The Subscribing Reinsurer’s share in the interests and liabilities of the
Reinsurer as set forth in the Contract shall be:

 

First Layer:

   %

Second Layer:

   %

Third Layer:

   %

 

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurer in respect of the Contract shall be separate and apart from the shares
of other subscribing reinsurers, if any, on the Contract. The interests and
liabilities of the Subscribing Reinsurer shall not be joint with those of such
other subscribing reinsurers and in no event shall the Subscribing Reinsurer
participate in the interests and liabilities of such other subscribing
reinsurers.

 

This Agreement shall become effective on January 1, 2004 and shall be subject to
the provisions of the Term Article of the Contract.

 

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IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

 

on this                      day of                                 , in the
year                 .

 

 

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Market Reference Number for the First Layer:

 

Market Reference Number for the Second Layer:

 

Market Reference Number for the Third Layer:

 

SCPIE HOLDINGS, INC., and/or

SCPIE INDEMNITY COMPANY and/or

AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or

AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or

SCPIE INSURANCE SERVICES, INC., and/or

SCPIE MANAGEMENT SERVICES, INC.

 

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

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FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

TABLE OF CONTENTS

 

Article

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        Page

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Preamble

    

  1

  

Business Covered

   3

  2

  

Term

   4

  3

  

Attachment of Liability

   5

  4

  

Territory

   5

  5

  

Exclusions

   5

  6

  

Warranties

   7

  7

  

Reports and Remittances

   7

  8

  

Definitions

   8

  9

  

Excess of Original Policy Limits

   9

10

  

Extra Contractual Obligations

   10

11

  

Net Retained Lines

   10

12

  

Original Conditions

   10

13

  

No Third Party Rights

   11

14

  

Notice of Loss and Loss Settlements

   11

15

  

Alternate Payee

   12

16

  

Commutation

   12

17

  

Offset

   13

18

  

Currency

   13

19

  

Unauthorized Reinsurance

   13

20

  

Special Funding

   16

21

  

Taxes

   17

22

  

Access to Records

   17

23

  

Confidentiality

   17

24

  

Errors and Omissions

   18

25

  

Insolvency

   18

26

  

Arbitration

   19

27

  

Service of Suit

   20

28

  

Governing Law

   20

29

  

Agency

   21

30

  

Intermediary

   21

31

  

Mode of Execution

   21     

Company Signing Block

   22

Exhibits

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Exhibit A - First Layer

   23     

Exhibit B - Second Layer

   24     

Exhibit C - Third Layer

   25

 

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FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

TABLE OF CONTENTS

 

Attachments

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        Page

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Exhibit D - Loss Funding - Including IBNR

   26      Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide
Excluding U.S.A. and Canada)    27     

Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A.

   30     

Nuclear Incident Exclusion Clause - Liability - Reinsurance - Canada

   35

 

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FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

 

issued to

 

SCPIE HOLDINGS, INC., and/or

SCPIE INDEMNITY COMPANY and/or

AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or

AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or

SCPIE INSURANCE SERVICES, INC., and/or

SCPIE MANAGEMENT SERVICES, INC.

Los Angeles, California

(collectively, the “Company”)

 

by

 

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

 

ARTICLE 1

 

BUSINESS COVERED

 

The Reinsurer agrees to reimburse the Company, on an excess of loss basis, for
the amount of Ultimate Net Loss which the Company may pay as the result of
Claims Made during the term of this Contract under the Classes of Insurance set
forth below with respect to subject Policies which are in force or may
hereinafter come into force during the term of this Contract, except as excluded
under the Exclusions Article and subject to the limitations set forth in the
Retention and Limit Articles in the attached Exhibits A, B and C.

 

CLASSES OF INSURANCE:

 

1. Physicians and Surgeons Comprehensive Professional and Business Liability,
including clinics and clinical laboratories.

 

2. Professional and Business Liability Policies for hospitals and healthcare
facilities, including:

 

  a. Modified Claims Made Coverage hospitals and medical centers (primary and
excess);

 

  b. Claims Made Coverage hospitals and medical centers (primary and excess);

 

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  c. Excess Automobile Liability and excess Employers Liability associated with
the Policy forms outlined above.

 

3. Errors and Omissions Liability Policies for managed care organizations and
Directors and Officers Liability Policies.

 

4. Physicians and Surgeons Comprehensive Professional Liability and Personal
Umbrella business underwritten by Brown & Brown, Inc., Tampa, Florida.

 

ARTICLE 2

 

TERM

 

A. Except as provided in paragraph C below, this Contract shall apply to Claims
Made during the 12-month period beginning January 1, 2004 through December 31,
2004. In the event a loss, as defined in the Definitions Article, involves a
loss or losses covered under the current Contract term and a prior contract
term(s), no recovery shall be made hereunder in respect of any loss which
occurred prior to:

 

  1. January 1, 1979, as regards Extra Contractual Obligations (as provided for
in the Extra Contractual Obligations Article);

 

  2. January 1, 1976, as regards all other business.

 

B. It is understood however, that in respect of Personal Liability and discovery
period coverage for deceased, disabled, retired and withdrawing physicians and
for physicians ceasing medical practice within the state, this Contract covers
Claims Made during the term of this Contract. In the event this Contract is not
renewed, all such liability shall be assumed by the Company with effect from the
date of cancellation.

 

C. Notwithstanding the above and without prejudice to any rights or remedies the
Reinsurer may otherwise have, the Reinsurer may terminate this Contract upon 60
days’ prior written notice to the Company in the event that control of the
Company is transferred by change of ownership or otherwise.

 

D. The provisions of paragraphs A and B notwithstanding, the Reinsurer agrees,
at the Company’s option, to continue to cover the in force portfolio of
liability covered on the date of expiration or termination for a further period
of 12 months, at terms to be mutually agreed. Should the Company exercise this
option, the Company shall give the Reinsurer notice prior to expiration or
termination that it wishes to exercise this option.

 

E. If any provision of this Contract shall be rendered illegal or unenforceable
by the laws, regulations or public policy of any state, such provision shall be
considered void in such state, but this shall not affect the validity or
enforceability of any other provision of this Contract or the enforceability of
such provision in any other jurisdiction.

 

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F. Notwithstanding the expiration or termination of this Contract, as
hereinabove provided, the provisions of this Contract shall continue to apply to
all unfinished business hereunder to the end that all obligations and
liabilities incurred by each party hereunder prior to expiration or termination
shall be fully performed and discharged.

 

ARTICLE 3

 

ATTACHMENT OF LIABILITY

 

A. For purposes of determining the attachment of the Reinsurer’s liability
hereunder as respects any one loss, all losses (including discovery period
losses) involving one or more original insureds, arising from the same incident,
and in which first notice of claim or circumstance is notified to the Company
during the term of this Contract shall be covered hereunder.

 

B. The date of loss hereunder shall be the earliest date, within the term of
this Contract, that the Company has received first notice of claim or
circumstance.

 

ARTICLE 4

 

TERRITORY

 

This Contract shall apply to losses occurring within the territorial limits of
the Company’s original Policies.

 

ARTICLE 5

 

EXCLUSIONS

 

This Contract specifically excludes:

 

1. All liability of the Company arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. “Insolvency Fund” includes any guaranty
fund, plan, pool, association, fund or other arrangement, howsoever denominated,
established or governed which provides for any assessment of or payment or
assumption by the Company of part or all of any claim, debt, charge, fee or
other obligation of an insurer, or its successors or assigns, which has been
declared by any competent authority to be insolvent, or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.

 

2. Losses excluded by the attached Nuclear Energy Risk Exclusion Clause
(Reinsurance) (1994) (Worldwide Excluding U.S.A. and Canada), the attached
Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A. and the
attached Nuclear Incident Exclusion Clause - Liability - Reinsurance - Canada.

 

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3. Assumed reinsurance other than for licensing, financial rating purposes or
acquisition purposes.

 

4.

a.      All actual or alleged losses, liabilities, damages, injuries, defense
costs, costs or expense(s) directly or indirectly arising out of, contributed
by, caused by, resulting from or in connection with any of the following
regardless of any other cause or event contributing concurrently or in any other
sequence of the loss:

 

  i. war, invasion, acts of foreign enemies, hostilities or warlike operations
(whether war be declared or not), civil war, mutiny, revolution, rebellion,
insurrection, uprising, military or usurped power, confiscation by order of any
public authority or government de jure or de facto or martial law;

 

  ii. riots, strikes or civil commotion; or

 

  iii. any Act of Terrorism.

 

  b. For purposes of this exclusion, an “Act of Terrorism” means an activity
that (1) involves a violent act or the unlawful use of force or an unlawful act
dangerous to human life, tangible or intangible property or infrastructure or a
threat thereof; and (2) appears to be intended to (a) intimidate or coerce a
civilian population, or (b) disrupt any segment of the economy of a government
de jure or de facto, state or country; or (c) overthrow, influence or affect the
conduct or policy of any government de jure or de facto by intimidation or
coercion; or (d) affect the conduct of a government de jure or de facto by mass
destruction, assassination, kidnapping or hostage-taking.

 

  c. This exclusion also applies to all actual or alleged losses, liabilities,
damages, injuries, defense costs, costs or expenses directly or indirectly
arising out of, contributed by, caused by, resulting from or in connection with
any action taken in controlling, preventing, suppressing, retaliating against or
responding to 4a(i), 4a(ii) and/or 4a(iii) above.

 

  d. If the Reinsurer alleges that by reason of this exclusion any actual or
alleged losses, liabilities, damages, injuries, defense costs, costs or expenses
is not covered by this Contract the burden of proving the contrary shall be upon
the Company.

 

  e. In the event any portion of this exclusion is found to be invalid or
unenforceable, the remainder shall remain in full force and effect.

 

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ARTICLE 6

 

WARRANTIES

 

The Company warrants the following in respect of the business covered hereunder:

 

  1. In respect of Physicians and Surgeons Comprehensive Professional and
Business Liability Policies, including Clinics and Clinical Laboratories, the
maximum Policy limit is $10,000,000 subject to inuring protection of $8,000,000
in excess of $2,000,000, with a maximum aggregate of $8,000,000 during each
12-month period, or so deemed.

 

  2. Coverage for Professional and Business Liability Policies for Hospitals is
restricted to Policies incepting prior to January 1, 2002, and the maximum
Policy limit is $50,000,000, or so deemed.

 

  3. In respect of Professional and Business Liability Policies for Healthcare
Facilities, the maximum Policy limit is $10,000,000 for Policies incepting prior
to January 1, 2002, and $5,000,000 for Policies incepting on or after January 1,
2002, or so deemed.

 

  4. In respect of Errors and Omissions Liability Policies for Managed Care
Organizations, Directors and Officers Liability Policies and Employment
Practices Liability Insurance, the maximum Policy limit is $5,000,000 for
Policies incepting prior to January 1, 2002, and $1,000,000 for Policies
incepting on or after January 1, 2002, or so deemed.

 

  5. In respect of Professional and Business Liability Policies for Dentists,
excluding coverages for Oral and Maxillofacial Surgeons, the maximum Policy
limit is $10,000,000 for Policies incepting prior to January 1, 2002, and
$2,000,000 for Policies incepting on or after January 1, 2002, or so deemed.

 

ARTICLE 7

 

REPORTS AND REMITTANCES

 

A. The Company shall provide the Reinsurer, within 45 days at the end of each
quarter, all necessary data respecting premiums and losses, including reserves
thereon as at dates and on forms mutually acceptable to the Company and the
Reinsurer.

 

B. Payments of the minimum, deposit and adjusted premium shall be made in
accordance with the provisions of the Premium Articles in the attached Exhibits
A, B and C. Payments of the reinstatement premium, if any, shall be made in
accordance with the provisions of the Reinstatement Articles in the attached
Exhibits B and C.

 

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C. Payment by the Reinsurer of its portion of loss and Loss Adjustment Expenses
paid by the Company shall be made by the Reinsurer to the Company as soon as
possible, but not later than 60 days after proof of payment by the Company is
received by the Reinsurer.

 

ARTICLE 8

 

DEFINITIONS

 

A.

1.      “Ultimate Net Loss” means the sum actually paid by the Company in
settlement of losses for which it is held liable, including Loss Adjustment
Expense, 80% of any Extra Contractual Obligation and 100% of any Loss in Excess
of the Original Policy Limit, as defined in the respectively captioned Articles,
after making proper deductions for all recoveries, salvages, and claims upon
other reinsurances and insurances which inure to the benefit of the Reinsurer
under this Contract, whether collectible or not; provided, however, that in the
event of the insolvency of the Company, “Ultimate Net Loss” shall mean the
amount of loss which the Company has incurred or for which it is liable, and
payment by the Reinsurer shall be made to the liquidator, receiver or statutory
successor of the Company in accordance with the provisions of the Insolvency
Article in this Contract. Nothing in this clause, however, shall be construed to
mean that losses under this Contract are not recoverable until the Ultimate Net
Loss of the Company has been ascertained.

 

  2. In the event a verdict or judgment is reduced by an appeal or a settlement,
subsequent to the entry of a judgment, resulting in an ultimate saving on such
verdict or judgment, or a judgment is reversed outright, the Loss Adjustment
Expense incurred in securing such final reduction or reversal shall (a) be
prorated between the Reinsurer and the Company in proportion that each benefits
from such reduction or reversal; or (b) when the terms and conditions of the
Company’s original Policies reinsured hereunder include Loss Adjustment Expense
as part of the Policy limit, be added to the Company’s Ultimate Net Loss.

 

B. “Loss Adjustment Expense” means all costs and expenses allocable to a
specific claim that are incurred by the Company in the investigation, appraisal,
adjustment, settlement, litigation, defense or appeal of a specific claim,
including court costs and costs of supersedeas and appeal bonds and including
(a) pre-judgment interest, unless included as part of the award or judgment; (b)
post-judgment interest; and (c) legal expenses and costs incurred in connection
with coverage questions and legal actions connected thereto. Office expenses and
salaries of officials and employees not classified as loss adjusters are not
chargeable as expenses for the purpose of this paragraph.

 

C. “Each and Every Loss” means the happening of one or a series of related acts,
errors, or omissions to act, accidents or occurrences arising out of one event.

 

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D. “Claims Made” means (1) In respect of Claims Made Policies, claims first
notified to the Company during the term of this Contract on any in force Policy
or reporting endorsement arising out of incidents subsequent to the retroactive
date of said Policy as the result of the rendering of or failure to render a
professional service or the reporting of losses which arise from the insured
premises and operations incidental to the practice of a physician, hospital or
managed care organization and/or (2) in respect of Occurrence or Modified Claims
Made Policies, claims or losses first notified to the Company during the term of
this Contract.

 

E. “Gross Net Earned Premium Income” means the gross earned premium on business
the subject matter hereof, less cancellations and return premiums and less
premiums paid for reinsurance recoveries under which would inure to the benefit
of the Reinsurer. Such premium income shall be understood to include:

 

  1. That content of pre-paid premiums under Policies in respect of Deceased,
Disabled and Retired Insureds, the coverage for which becomes effective during
the term of this Contract;

 

  2. The premium transferred internally by the Company from a prior contract, in
respect of Deceased, Disabled and Retired Insureds and in respect of other
withdrawing insureds who have purchased extended coverage under reporting
endorsements.

 

F. “Policy” means any binder, policy, or contract of insurance or reinsurance
issued, accepted or held covered provisionally or otherwise, by or on behalf of
the Company.

 

ARTICLE 9

 

EXCESS OF ORIGINAL POLICY LIMITS

 

A. This Contract shall protect the Company, within the limits hereof, in
connection with any loss in excess of the limit of its original Policy, such
Loss in Excess of the Original Policy Limit having been incurred because of
failure by it 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 in
the preparation of the defense or in the trial of any action against its insured
or in the preparation or prosecution of an appeal consequent upon such action.

 

B. However, this Article shall not apply where the loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.

 

C. For the purposes of this Article, the word “Loss” shall mean any amounts for
which the Company would have been contractually liable to pay had it not been
for the limit of the original Policy.

 

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ARTICLE 10

 

EXTRA CONTRACTUAL OBLIGATIONS

 

A. This Contract shall protect the Company within the limits hereof, where the
Ultimate Net Loss includes Extra Contractual Obligations. “Extra Contractual
Obligations” are defined as those liabilities not covered under any other
provision of this Contract and which arise from handling of any claim on
business covered hereunder, such liabilities arising because of, but not limited
to the following: failure by the Company 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 in the preparation of the defense or in the trial of any
action against its insured or reinsured or in the preparation or prosecution of
an appeal consequent upon such action.

 

B. The date on which an Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original accident,
casualty, disaster or loss and furthermore, for the purposes hereof be deemed to
follow the Claims Made provisions of this Contract, subject always to the
provisions of the Term Article.

 

C. However, this Article shall not apply where the loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.

 

ARTICLE 11

 

NET RETAINED LINES

 

A. This Contract applies to only that portion of any insurance which the Company
retains net for its own account; and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of which this
Contract attaches, only loss or losses in respect of that portion of any
insurance which the Company retains net for its own account shall be included.

 

B. The amount of the Reinsurer’s liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Company to
collect from any other underwriters, whether specific or general, any amount
which may become due from them, whether such inability arises from the
insolvency of such other underwriters or otherwise.

 

ARTICLE 12

 

ORIGINAL CONDITIONS

 

All reinsurance under this Contract shall be subject to the same rates, terms,
conditions, waivers and interpretations, and to the same modifications and
alterations as the respective Policies of the Company. However, in no event
shall this be construed in any way to provide coverage outside the terms and
conditions set forth in this Contract.

 

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ARTICLE 13

 

NO THIRD PARTY RIGHTS

 

Except as provided in the Alternate Payee Article, nothing hereinafter shall in
any manner create any obligations or establish any rights against the Reinsurer
in favor of any third parties or any persons not parties to this Contract.

 

ARTICLE 14

 

NOTICE OF LOSS AND LOSS SETTLEMENTS

 

A. In the event of a claim arising hereunder which either results in or appears
to be of serious enough nature as probably to result in a loss involving this
Contract, the Company shall give notice as soon as reasonably practicable to the
Reinsurer and the Company shall keep the Reinsurer advised of all subsequent
developments in connection therewith.

 

B. The Company shall also promptly notify the Reinsurer of all incidents
involving the following injuries for which the Company has established an
indemnity reserve of $550,000 or greater and with Policy limits to affect the
Reinsurer:

 

  1. Death of high wage earner with two or more dependents;

 

  2. Brain injury;

 

  3. Nerve injury;

 

  4. Paralysis or cord injury;

 

  5. Amputations;

 

  6. Internal injuries which require continuous treatment (e.g., dialysis,
hyperalimentation, failure to diagnose);

 

  7. Blindness.

 

C. All loss settlements made by the Company, provided they are within the terms
of the Company’s original Policies and of this Contract, shall be
unconditionally binding upon Reinsurer and amounts falling to the share of the
Reinsurer shall be payable to the Company in accordance with the provisions set
forth in paragraph C of the Reports and Remittances Article.

 

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ARTICLE 15

 

ALTERNATE PAYEE

 

A. This Article applies only as respects the Scripps Clinic Policy covered
hereunder.

 

B. In the event the Company has a conservator, liquidator or receiver appointed,
or becomes the subject of any conservation, liquidation or insolvency
proceeding, any insurance or reinsurance company from which the Company has
assumed business subject hereto (the “Underlying Carrier”) shall be substituted
for the Company as payee of the reinsurance provided hereunder, as respects any
claim or claims arising from such assumed business. The Reinsurer, upon notice
from the Underlying Carrier, shall make payment of any such reinsurance
recoverables directly to the Underlying Carrier.

 

C. In the event the foregoing provisions apply, all the other provisions of this
Contract shall apply to Underlying Carrier in the same manner as if the
Underlying Carrier were substituted for the Company as the reinsured party
hereunder, and to the extent this Contract reinsures the Underlying Carrier,
coverage hereunder shall be excluded as respects the Company. In no event shall
the provisions of this Article subject the Reinsurer to any duplicate liability
to or on behalf of the Company or its liquidator, receiver, conservator or
statutory successor.

 

ARTICLE 16

 

COMMUTATION

 

A. The Company or the Reinsurer may at any time express its desire to the other
party to commute all losses which are applicable to the term of this Contract
and which are still unsettled. In such event the Company and the Reinsurer shall
mutually determine and evaluate such losses and the payment by the Reinsurer of
its proportion of the amount so ascertained and mutually agreed to be the value
of such losses shall relieve the Reinsurer of all further liability hereunder,
both in respect of known or unknown losses.

 

B. In the event that the Company transfers control or institutes changes in its
claims handling procedures or loss reserving process in a manner which
materially affects the parties hereunder, the Reinsurer may express its desire
to the Company to commute all losses which are applicable to the term of this
Contract and which are still unsettled upon 60 days prior written notice. Upon
such event the Company and the Reinsurer shall mutually determine and evaluate
such losses and the payment by the Reinsurer of its proportion of the amount so
ascertained and mutually agreed to be the value of such losses shall relieve the
Reinsurer of all further liability, both in respect of known or unknown losses.

 

C. If agreement cannot be reached, the Company and the Reinsurer may mutually
appoint an actuary or appraiser to investigate, determine and capitalize such
claim or claims. If both parties then agree, the Reinsurer shall pay its
proportion of the amount so determined to be the capitalized value of such claim
or claims.

 

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D. If the parties, as outlined in paragraph C above, fail to agree, they may
agree to settle any difference using a panel of three actuaries, one to be
chosen by each party and the third by the two so chosen. If either party refuses
or neglects to appoint an actuary within 30 days, the other party may appoint
two actuaries. If the two actuaries fail to agree on the selection of a third
actuary within 30 days of their appointment, each of them shall name two, of
whom the other shall decline one, and the decision shall be made by drawing
lots. All the actuaries shall be regularly engaged in the valuation of medical
malpractice claims and shall be Fellows of the Casualty Actuarial Society or of
the American Academy of Actuaries. None of the actuaries shall be under the
control of either party to this Contract. Each party shall submit its case to
its actuary within 30 days of the appointment of the third actuary. The decision
in writing of any two actuaries, when filed with the parties hereto, shall be
final and binding on both parties. The expense of the actuaries and of the
commutation shall be equally divided between the two parties. Said commutation
shall take place at the Company’s head office, unless some other place is
mutually agreed upon by the Company and the Reinsurer.

 

ARTICLE 17

 

OFFSET

 

The Company and the Reinsurer may offset any balance or amount due from one
party to the other under this Contract or any other agreement heretofore or
hereafter entered into between the Company and the Reinsurer, whether acting as
assuming reinsurer or ceding company. This provision shall not be affected by
the insolvency of either party to this Contract.

 

ARTICLE 18

 

CURRENCY

 

Premiums shall be payable by the Company and losses shall be paid to the Company
in United States currency.

 

ARTICLE 19

 

UNAUTHORIZED REINSURANCE

 

A. This Article applies only to a Subscribing Reinsurer who does not qualify for
full credit with any insurance regulatory authority having jurisdiction over the
Company’s reserves.

 

B. The Company agrees, in respect of its Policies or bonds falling within the
scope of this Contract, that when it files with its insurance regulatory
authority, or sets up on its books liabilities as required by law, it will
forward to the Reinsurer a statement showing the proportion of such liabilities
applicable to the Reinsurer. The “Reinsurer’s Obligations” shall be defined as
follows:

 

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  1. unearned premium (if applicable);

 

  2. known outstanding losses that have been reported to the Reinsurer and Loss
Adjustment Expense relating thereto;

 

  3. losses and Loss Adjustment Expense paid by the Company but not recovered
from the Reinsurer;

 

  4. losses incurred but not reported and Loss Adjustment Expense relating
thereto, as shown in the statement prepared by the Company (see the attached
Exhibit D).

 

C. The Reinsurer’s Obligations shall be funded by funds withheld, cash advances,
trust agreement or a Letter of Credit (LO.C). The Reinsurer shall have the
option of determining the method of funding provided it is acceptable to the
insurance regulatory authorities having jurisdiction over the Company’s
reserves.

 

D. When funding by an LOC, the Reinsurer agrees to apply for and secure timely
delivery to the Company of a clean, irrevocable and unconditional LOC issued by
a bank and containing provisions acceptable to the insurance regulatory
authorities having jurisdiction over the Company’s reserves in an amount equal
to the Reinsurer’s Obligations. Such LOC 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 30 days (or such other
time period as may be required by insurance regulatory authorities), prior to
any expiration date the issuing bank shall notify the Company by certified or
registered mail that the issuing bank elects not to consider the LOC extended
for any additional period.

 

E. The Reinsurer and Company agree that any funding provided by the Reinsurer
pursuant to the provisions of this Contract may be drawn upon at any time,
notwithstanding any other provision of this Contract, and be utilized by the
Company or any successor, by operation of law, of the Company including, without
limitation, any liquidator, rehabilitator, receiver or conservator of the
Company, for the following purposes, unless otherwise provided for in a separate
trust agreement:

 

  1. to reimburse the Company for the Reinsurer’s Obligations, the payment of
which is due under the terms of this Contract and that has not been otherwise
paid;

 

  2. to make refund of any sum that is in excess of the actual amount required
to pay the Reinsurer’s Obligations under this Contract (or in excess of 102% of
Reinsurer’s Obligations, if funding is provided by a trust agreement);

 

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  3. to fund an account with the Company for the Reinsurer’s Obligations. Such
cash deposit shall be held in an interest bearing account separate from the
Company’s other assets, and interest thereon not in excess of the prime rate
shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued
interest shall be paid out of the assets in the account that are in excess of
the Reinsurer’s Obligations (o~ in excess of 102% of Reinsurer’s Obligations, if
funding is provided by a trust agreement). If the assets are inadequate to pay
taxes, any taxes due sl~’all be paid by the Reinsurer;

 

  4. to pay the Reinsurer’s share of any other amounts the Company claims are
due under this Contract.

 

F. If the amount drawn by the Company is in excess of the actual amount required
for E(1) or E(3), or in the case of E(4), the actual amount determined to be
due, the Company shall promptly return to the Reinsurer the excess amount so
drawn. All of the foregoing shall be applied without diminution because of
insolvency on the part of the Company or the Reinsurer.

 

G. The issuing bank shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to ensure that withdrawals are made only upon the order of
properly authorized representatives of the Company.

 

H. At annual intervals, or more frequently as agreed but never more frequently
than quarterly, the Company shall prepare a specific statement of the
Reinsurer’s Obligations for the sole purpose of amending the LOC or other method
of funding, in the following manner:

 

  1. If the statement shows that the Reinsurer’s Obligations exceed the balance
of the LOC as of the statement date, the Reinsurer shall, within 30 days after
receipt of the statement, secure delivery to the Company of an amendment to the
LOC increasing the amount of credit by the amount of such difference. Should
another method of funding be used, the Reinsurer shall, within the time period
outlined above, increase such funding by the amount of such difference.

 

  2. If, however, the statement shows that the Reinsurer’s Obligations are less
than the balance of the LOC (or less than 102% of the trust account balance if
funding is provided by a trust agreement), as of the statement date, the Company
shall, within 30 days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the LOC
reducing the amount of credit available by the amount of such excess credit.
Should another method of funding be used, the Company shall, within the time
period outlined above, decrease such funding by the amount of such excess.

 

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ARTICLE 20

 

SPECIAL FUNDING

 

A. If, during the period of this Contract and thereafter, as respects any
outstanding liabilities hereunder, the Reinsurer shall fail to pay any loss
payable hereunder within the time prescribed, the Reinsurer agrees that it shall
fund uncollected paid losses and Loss Adjustment Expenses within 30 days from
the date of written demand by the Company to so fund. Such demand shall not be
made unless balances are 60 days or more past the due date of payment specified
in this Contract.

 

B. The Reinsurer shall have the sole option of determining the method of funding
referred to above, provided it is acceptable to the insurance regulatory
authorities involved. If the Reinsurer elects to fund the aforesaid loss by a
Letter of Credit, the procedures set forth in the Unauthorized Reinsurance
Article in respect of Letters of Credit shall apply. If the Reinsurer has
already funded obligations hereunder in accordance with the Unauthorized
Reinsurance Article in this Contract, it agrees that such funds as are required
to pay overdue losses may immediately be drawn down by the Company.

 

C. The phrase “any loss payable” as used in paragraph A above shall mean any
Ultimate Net Loss subject to recovery under this Contract wherein the Reinsurer
has not disputed said loss in writing within the due date for payment.

 

D. The Company shall provide the Reinsurer with a reinsurance proof of loss and
such other substantive loss material reflecting the nature of the settlement
(i.e., applicable proofs of loss, releases, adjuster’s reports, etc.). If,
subsequent to receipt of this material, the information supplied is insufficient
or not in accordance with the contractual conditions, then the payment due date
as defined in the Reports and Remittances Article, shall be deemed to be the
date upon which the Reinsurer received such additional substantive material
necessary to approve payment of the claim, or the date the claim is presented in
a manner acceptable to the Reinsurer.

 

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ARTICLE 21

 

TAXES

 

A. In consideration of the terms under which this Contract is issued, the
Company undertakes not to claim any deduction of the premium hereon when making
tax returns, other than Income or Profits Tax returns, to any state or territory
of the United States of America or to the District of Columbia.

 

B.

1.      This paragraph applies only to those Subscribing Reinsurers who are
subject to Federal Excise Tax, as respects transactions which are subject to
Federal Excise Tax.

 

  2. The Reinsurer has agreed to allow, for the purpose of paying the Federal
Excise Tax, the percentage specified by United States law of the premium payable
hereon to the extent such premium is subject to Federal Excise Tax.

 

  3. In the event of any return of premium becoming due hereunder, the Reinsurer
shall deduct the percentage specified by United States law of the premium
payable hereon to the extent such premium is subject to Federal Excise Tax, from
the amount of the return, and the Company or its agent should take steps to
recover the Tax from the U.S. Government

 

ARTICLE 22

 

ACCESS TO RECORDS

 

A. The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect, through its authorized
representatives, all books, records and papers of the Company in connection with
this reinsurance hereunder or the subject matter thereof.

 

B. The Reinsurer shall be afforded the opportunity, at its own expense to
appoint an agent of its own choice to assess the Company’s claims procedures who
shall report to the Reinsurer the results of such.

 

ARTICLE 23

 

CONFIDENTIALITY

 

A. This Contract and the pre-agreement documentation may contain confidential or
proprietary information of either party to this Contract. All parties shall
maintain the confidentiality of this information and shall not disclose these to
any third party without the other party’s approval.

 

B. Notwithstanding the above, any party may disclose such information without
further approval from the other party in answer to interrogations, subpoenas or
other legal/arbitration process as well as to the Company’s reinsurance
intermediary hereon, the Reinsurer’s retrocessionaires or in response to
requests by governmental and regulatory agencies. In addition the parties may
disclose such information to their accountants and outside legal counsel as may
be necessary.

 

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ARTICLE 24

 

ERRORS AND OMISSIONS

 

Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such delay, omission or
error is rectified immediately upon discovery; provided, however, this Article
is not to override retroactive dates specified in the Term Article.

 

ARTICLE 25

 

INSOLVENCY

 

A. The portion of any risk or obligation assumed by the Reinsurer, when such
portion is ascertained, shall be payable on demand of the Company at the same
time as the Company shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the Reinsurer, on the basis of the liability of
the Company under the Policy or Policies reinsured without diminution because of
the insolvency of the Company.

 

B. In the event of the insolvency of one or more than one of the companies,
reinsurance under this Contract shall be payable immediately on demand, with
reasonable provision for verification, on the basis of claims allowed against
the insolvent company(ies) by any court of competent jurisdiction or by any
liquidator, receiver, or statutory successor of the Company(ies) having
authority to allow such claims, without diminution because of such insolvency or
because such liquidator, receiver, or statutory successor has failed to pay all
or a portion of any claims. Such payments by the Reinsurer shall be made
directly to the Company or its liquidator, receiver or statutory successor,
except where the contract of insurance or reinsurance provides another payee of
such reinsurance in the event of the insolvency of the Company(ies).

 

C. It is agreed, however, that the liquidator or receiver or statutory successor
of the insolvent Company(ies) shall give written notice to the Reinsurer of the
pendency of a claim against the insolvent Company(ies) on the Policy or Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and that during the pendency of such claim the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses which it may deem
available to the Company(ies) or its liquidator or receiver or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable,
subject to court approval, against the insolvent Company(ies) as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company(ies) solely as a result of the defense
undertaken by the Reinsurer.

 

D. Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such expense
had been incurred by the insolvent Company(ies).

 

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ARTICLE 26

 

ARBITRATION

 

A. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Contract,
including the formation or validity thereof, shall be submitted for decision to
a panel of three arbitrators. Notice requesting arbitration shall be in writing
and sent certified or registered mail, return receipt requested.

 

B. One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator who shall
preside at the hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the latter, after 10
days’ notice by certified or registered mail of its intention to do so, may
appoint the second arbitrator.

 

C. If the two arbitrators are unable to agree upon the third arbitrator within
30 days of their appointment, the deficiency shall be supplied on the
application of the party requesting arbitration by an appointment made by the
American Arbitration Association. Notwithstanding the appointment of any third
arbitrator by the American Arbitration Association, the arbitration proceedings
shall not be governed by the American Arbitration Association’s commercial
arbitration rules.

 

D. All arbitrators shall be disinterested active or former executive officers of
insurance or reinsurance companies or Underwriters at Lloyd’s, London.

 

E. Within 30 days after notice of appointment of all arbitrators, the panel
shall meet and determine timely periods for briefs, discovery procedures and
schedules for hearings.

 

F. The panel shall be relieved of all judicial formality and shall not be bound
by the strict rules of procedure and evidence Unless the panel agrees otherwise,
arbitration shall take place in Los Angeles, California, but the venue may be
changed when deemed by the panel to be in the best interest of the arbitration
proceeding. Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of California. The decision of any two arbitrators
when rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.

 

G. The panel shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business within 60 days following the
termination of the hearings. Judgment upon the award may be entered in a court
having jurisdiction thereof.

 

H. Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorneys fees, to the extent
permitted by law.

 

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ARTICLE 27

 

SERVICE OF SUIT

 

A. This Article applies only to those reinsurers not domiciled in the United
States of America, and/or not authorized in any state, territory and/or district
of the United States of America where authorization is required by insurance
regulatory authorities.

 

B. It is agreed that in the event of the failure of the Reinsurer hereon to pay
any amount claimed to be due hereunder, the Reinsurer hereon, at the request of
the Company, shall submit to the jurisdiction of a court of competent
jurisdiction within the United States of America. Nothing in this Article
constitutes or should be understood to constitute a waiver of the Reinsurer’s
rights to commence an action in any court of competent jurisdiction in the
United States of America, to remove an action to a United States District Court,
or to seek a transfer of a case to another court as permitted by the laws of the
United States of America or of any state in the United States of America. It is
further agreed that service of process in such suit may be made upon Messrs.
Mendes & Mount, 725 South Figueroa, Suite 1990, Los Angeles, CA 90017, and that
in any suit instituted, the Reinsurer shall abide by the final decision of such
court or of any appellate court in the event of an appeal.

 

C. The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the Company
to give written undertaking to the Company that they shall enter a general
appearance upon the Reinsurer’s behalf in the event such a suit shall be
instituted.

 

D. Further, pursuant to any statute of any state, territory or district of the
United States of America which makes provision therefor, the Reinsurer hereon
hereby designates the Superintendent, Commissioner or Director of Insurance or
other officer specified for that purpose in the statute, or its successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this Contract, and
hereby designate the above-named as the firm to whom the said officer is
authorized to mail such process or a true copy thereof.

 

ARTICLE 28

 

GOVERNING LAW

 

This Contract shall be governed by and interpreted in accordance with the laws
of the State of California.

 

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ARTICLE 29

 

AGENCY

 

For purposes of sending and receiving notices and payments required by this
Contract, the first named Company shall be deemed the agent of all other
reinsured Companies referenced in this Contract. In no event, however, shall any
reinsured Company be deemed the agent of another with respect to the terms of
the Insolvency Article.

 

ARTICLE 30

 

INTERMEDIARY

 

Guy Carpenter & Company, Inc. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications
(including but not limited to notices, statements, premium, return premium,
commissions, taxes, losses, Loss Adjustment Expense, salvages and loss
settlements) relating thereto shall be transmitted to the Company or the
Reinsurer through Guy Carpenter & Company, Inc., 3600 Minnesota Drive, Suite
400, Edina, MN 55435. Payments by the Company to the Intermediary shall be
deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed to constitute payment to the Company only to the
extent that such payments are actually received by the Company.

 

ARTICLE 31

 

MODE OF EXECUTION

 

1. This Contract may be executed by:

 

  a. An original written ink signature of paper documents.

 

  b. An exchange of facsimile copies showing the original written ink signature
of paper documents.

 

  c. Electronic signature technology employing computer software and a digital
signature or digitizer pen pad to capture a person’s handwritten signature in
such a manner that the signature is unique to the person signing, is under the
sole control of the person signing, is capable of verification to authenticate
the signature and is linked to the document signed in such a manner that if the
data is changed, such signature is invalidated.

 

2. The use of any one or a combination of these methods of execution shall
constitute a legally binding and valid signing of this Contract. This Contract
may be executed in one or more counterparts, each of which, when duly executed,
shall be deemed an original.

 

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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its
duly authorized representative(s) this 17th day of September, in the year of
2004.

 

SCPIE HOLDINGS, INC., and/or

SCPIE INDEMNITY COMPANY and/or

AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or

AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or

SCPIE INSURANCE SERVICES, INC., and/or

SCPIE MANAGEMENT SERVICES, INC.

 

By:   /s/    EDWARD G. MARLEY     Vice President and Chief Accounting Officer

 

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

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EXHIBIT A - FIRST LAYER

 

attaching to and forming a part of the

 

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

RETENTION AND LIMIT

 

A. The Company shall retain for its own account and pay under one or more of the
Company’s Policies the first $2,000,000 Ultimate Net Loss, Each and Every Loss
and the Reinsurer agrees to reimburse the Company for the amount of Ultimate Net
Loss paid in excess of $2,000,000, Each and Every Loss, but the Reinsurer’s
liability under this Exhibit A shall not exceed $3,000,000 resulting from Each
and Every Loss.

 

B. The Reinsurer’s aggregate liability from all losses under this Exhibit A
during the term of this Contract shall not exceed $18,000,000.

 

C. Notwithstanding the foregoing, it is a condition hereto that an annual
aggregate deductible of $3,000,000, otherwise recoverable under this Exhibit A,
shall first be deducted before any liability attaches hereon.

 

PREMIUM

 

A. The Company shall pay to the Reinsurer a deposit premium of $6,200,000
payable in equal installments of $3,100,000 within 60 days of January 1 and July
1 of 2004.

 

B. As soon as practicable after the expiration or termination of this Contract,
the Company shall calculate the premium due the Reinsurer based on a rate of
4.43% of the Gross Net Earned Premium Income accounted for by the Company during
the term of this Contract on all business subject matter of the Contract,
subject to a minimum premium of $4,960,000. In the event the premium due
hereunder is greater than the deposit premium paid, the difference shall be paid
to the Reinsurer forthwith. If the actual premium is less than the deposit
premium paid, the difference shall be refunded to the Company, subject to the
minimum premium.

 

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EXHIBIT B - SECOND LAYER

 

attaching to and forming a part of the

 

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

RETENTION AND LIMIT

 

The Company shall retain for its own account and pay under one or more of the
Company’s Policies the first $5,000,000 Ultimate Net Loss, Each and Every Loss
and the Reinsurer agrees to reimburse the Company for the amount of Ultimate Net
Loss paid in excess of $5,000,000, Each and Every Loss, but the Reinsurer’s
liability under this Exhibit B shall not exceed $5,000,000 resulting from Each
and Every Loss.

 

PREMIUM

 

A. The Company shall pay to the Reinsurer a deposit premium of $3,458,000
payable in equal installments of $1,729,000 within 60 days of January 1 and July
1 of 2004.

 

B. As soon as practicable after expiration of this Contract, the Company shall
calculate the premium due the Reinsurer based on a rate of 2.47% of the Gross
Net Earned Premium Income accounted for by the Company during the term of this
Contract on all business subject matter of the Contract, subject to a minimum
premium of $2,766,000. In the event the premium due hereunder is greater than
the deposit premium paid, the difference shall be paid to the Reinsurer
forthwith. If the actual premium is less than the deposit premium paid, the
difference shall be refunded to the Company, subject to the minimum premium.

 

REINSTATEMENT

 

A. In the event of any portion of the coverage under this Exhibit B being
depleted or exhausted by loss, the amount so depleted or exhausted shall be
reinstated from the time claim is first made and the Company shall pay the
Reinsurer for such reinstatement an additional premium calculated as follows:

 

  1. For the first $5,000,000 so reinstated, 60% of the annual reinsurance
premium pro rated as to the amount so reinstated;

 

  2. For the second $5,000,000 so reinstated, 100% of the annual reinsurance
premium pro rated as to the amount so reinstated.

 

All calculations of reinstatement premiums shall be based on paid losses only.

 

B. Nevertheless, the Reinsurer’s liability shall never be more than $5,000,000
in respect of any claim made, nor more than the maximum annual aggregate amount
recoverable under this Exhibit B of $15,000,000 in all during the term of the
Contract.

 

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EXHIBIT C - THIRD LAYER

 

attaching to and forming a part of the

 

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

RETENTION AND LIMIT

 

The Company shall retain for its own account and pay under one or more of the
Company’s Policies the first $10,000,000 Ultimate Net Loss, Each and Every Loss
and the Reinsurer agrees to reimburse the Company for the amount of Ultimate Net
Loss paid in excess of $10,000,000, Each and Every Loss, but the Reinsurer’s
maximum liability shall not exceed $10,000,000 resulting from Each and Every
Loss.

 

PREMIUM

 

A. The Company shall pay to the Reinsurer a deposit premium of $2,030,000
payable in equal installments of $1,015,000 within 60 days of January 1 and July
1 of 2004.

 

B. As soon as practicable after expiration of this Contract, the Company shall
calculate the premium due the Reinsurer based on a rate of 1.45% of the Gross
Net Earned Premium Income accounted for by the Company during the term of this
Contract on all business subject matter of the Contract, subject to a minimum
premium of $1,624,000. In the event the premium due hereunder is greater than
the deposit premium paid, the difference shall be paid to the Reinsurer
forthwith. If the actual premium is less than the deposit premium paid, the
difference shall be refunded to the Company, subject to the minimum premium.

 

REINSTATEMENT

 

A. In the event of any portion of the coverage under this Exhibit C being
depleted or exhausted by loss, the amount so depleted or exhausted shall be
reinstated from the time claim is first made and the Company shall pay the
Reinsurer for such reinstatement an additional premium calculated as 100% of the
annual reinsurance premium pro rated as to the amount so reinstated. All
calculations of reinstatement premiums shall be based on paid losses only.

 

B. Nevertheless, the Reinsurer’s liability shall never be more than $10,000,000
in respect of any claim made, nor more than the maximum annual aggregate amount
recoverable under this Exhibit C of $20,000,000 in all during the term of the
Contract.

 

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EXHIBIT D - LOSS FUNDING - INCLUDING IBNR

 

attaching to and forming a part of the

 

FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT

 

THIS IS APPLICABLE TO NON-ADMITTED REINSURERS ONLY

 

After consultation with its outside actuaries, Tillinghast, Towers Perrin, the
Company intends to use the following IBNR factors applied to gross reinsurance
premiums for 2004 Letter of Credit funding purposes applicable to non-admitted
Reinsurers only:

 

Period

--------------------------------------------------------------------------------

  

IBNR

Factor

--------------------------------------------------------------------------------

 

Current Year

   97.00 %

First Development Year

   40.00 %

Second Development Year

   17.00 %

Third Development Year

   7.00 %

Fourth Development Year & Subsequent

   2.00 %

 

The Letter of Credit Funding requirement for IBNR shall be net of any specific
case base loss reserves. Therefore, the factors outlined above represent the
ceiling for the sum of specific case base loss reserves and IBNR. Further, a cap
of five times the gross reinsurance premium shall apply as the lifetime IBNR
maximum for each treaty year.

 

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NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994)

(WORLDWIDE EXCLUDING U.S.A. AND CANADA)

 

This Agreement shall exclude Nuclear Energy Risks whether such risks are written
directly and/or by way of reinsurance and/or via Pools and/or Associations.

 

For all purposes of this Contract Nuclear Energy Risks shall mean all first
party and/or third party insurances or reinsurances (other than Workers’
Compensation and Employers’ Liability) in respect of:

 

  (I) All Property on the site of a nuclear power station.

 

Nuclear Reactors, reactor buildings and plant and equipment therein on any site
other than a nuclear power station.

 

  (II) All Property, on any site (including but not limited to the sites
referred to in (I) above) used or having been used for:

 

  (a) the generation of nuclear energy; or

 

  (b) the Production, Use or Storage of Nuclear Material.

 

  (III) Any other Property eligible for insurance by the relevant local Nuclear
Insurance Pool and/or Association but only to the extent of the requirements of
that local Pool and/or Association.

 

  (IV) The supply of goods and services to any of the sites, described in (I) to
(III) above, unless such insurances or reinsurances shall exclude the perils of
irradiation and contamination by Nuclear Material.

 

Except as undernoted, Nuclear Energy Risks shall not include:

 

  (i) Any insurance or reinsurance in respect of the construction or erection or
installation or replacement or repair or maintenance or decommissioning of
Property as described in (I) to (III) above (including contractors’ plant and
equipment);

 

  (ii) Any Machinery Breakdown or other Engineering insurance or reinsurance not
coming within the scope of (i) above.

 

Provided always that such insurance or reinsurance shall exclude the perils of
irradiation and contamination by Nuclear Material.

 

However, the above exemption shall not extend to:

 

  (1) The provision of any insurance or reinsurance whatsoever in respect of:

 

  (a) Nuclear Material;

 

  (b) Any Property in the High Radioactivity Zone or Area of any Nuclear
Installation as from the introduction of Nuclear Material or - for reactor
installations - as from fuel loading or first criticality where so agreed with
the relevant local Nuclear Insurance Pool and/or Association.

 

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  (2) The provision of any insurance or reinsurance for the undernoted perils:

 

  •   fire, lightning, explosion;

 

  •   earthquake;

 

  •   aircraft and other aerial devices or

 

  •   articles dropped therefrom;

 

  •   irradiation and radioactive contamination;

 

  •   any other peril insured by the relevant local Nuclear Insurance Pool
and/or Association;

 

in respect of any other Property not specified in (1) above which directly
involves the Production, Use or Storage of Nuclear Material as from the
introduction of Nuclear Material into such Property.

 

Definitions

 

“Nuclear Material” means:

 

  (i) Nuclear fuel, other than natural uranium and depleted uranium, capable of
producing energy by a self-sustaining chain process of nuclear fission outside a
Nuclear Reactor, either alone or in combination with some other material; and

 

  (ii) Radioactive Products or Waste.

 

“Radioactive Products or Waste” means any radioactive material produced in, or
any material made radioactive by exposure to the radiation incidental to the
production or utilisation of nuclear fuel, but does not include radioisotopes
which have reached the final stage of fabrication so as to be usable for any
scientific, medical, agricultural, commercial or industrial purpose.

 

“Nuclear Installation” means:

 

  (i) Any Nuclear Reactor;

 

  (ii) Any factory using nuclear fuel for the production of Nuclear Material, or
any factory for the processing of Nuclear Material, including any factory for
the reprocessing of irradiated nuclear fuel; and

 

  (iii) Any facility where Nuclear Material is stored, other than storage
incidental to the carriage of such material.

 

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“Nuclear Reactor” means any structure containing nuclear fuel in such an
arrangement that a self-sustaining chain process of nuclear fission can occur
therein without an additional source of neutrons.

 

“Production, Use or Storage of Nuclear Material” means the production,
manufacture, enrichment, conditioning, processing, reprocessing, use, storage,
handling and disposal of Nuclear Material.

 

“Property” shall mean all land, buildings, structures, plant, equipment,
vehicles, contents (including but not limited to liquids and gases) and all
materials of whatever description whether fixed or not.

 

“High Radioactivity Zone or Area” means:

 

  (i) For nuclear power stations and Nuclear Reactors, the vessel or structure
which immediately contains the core (including its supports and shrouding) and
all the contents thereof, the fuel elements, the control rods and the irradiated
fuel store; and

 

  (ii) For non-reactor Nuclear Installations, any area where the level of
radioactivity requires the provision of a biological shield.

 

N.M.A. 1975(a)

April 1, 1994

 

NOTES: Wherever used herein the terms:

 

  “Reinsured” shall be understood to mean “Company”, “Reinsured”, “Reassured” or
whatever other term is used in the attached reinsurance document to designate
the reinsured company or companies.

 

  “Agreement” shall be understood to mean “Agreement”, “Contract”, “Policy” or
whatever other term is used to designate the attached reinsurance document.

 

  “Reinsurers” shall be understood to mean “Reinsurers”, “Underwriters” or
whatever other term is used in the attached reinsurance document to designate
the reinsurer or reinsurers.

 

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NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.

 

(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.

 

(2) Without in any way restricting the operation of paragraph (1) of this Clause
it is understood and agreed that for all purposes of this reinsurance all the
original Policies of the Reassured (new, renewal and replacement) of the classes
specified in Clause II of this paragraph (2) from the time specified in Clause
III in this paragraph (2) shall be deemed to include the following provision
(specified as the Limited Exclusion Provision):

 

Limited Exclusion Provision.*

 

  I. It is agreed that the policy does not apply under any liability coverage,
to

 

injury, sickness, disease, death or destruction

 

bodily injury or property damage

 

with respect to which an insured under the policy is also an insured under a
nuclear energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.

 

  II. Family Automobile Policies (liability only), Special Automobile Policies
(private passenger automobiles, liability only), Farmers Comprehensive Personal
Liability Policies (liability only), Comprehensive Personal Liability Policies
(liability only) or Policies of a similar nature; and the liability portion of
combination forms related to the four classes of Policies stated above, such as
the Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.

 

  III. The inception dates and thereafter of all original Policies as described
in II above, whether new, renewal or replacement, being Policies which either

 

  (a) become effective on or after 1st May, 1960, or

 

  (b) become effective before that date and contain the Limited Exclusion
Provision set out above;

 

provided this paragraph (2) shall not be applicable to Family Automobile
Policies, Special Automobile Policies, or Policies or combination Policies of a
similar nature, issued by the Reassured on New York risks, until 90 days
following approval of the Limited Exclusion Provision by the Governmental
Authority having jurisdiction thereof.

 

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(3) Except for those classes of Policies specified in Clause II of paragraph (2)
and without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that for all purposes of this reinsurance
the original liability Policies of the Reassured (new, renewal and replacement)
affording the following coverages:

 

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional and
Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile
Liability (including Massachusetts Motor Vehicle or Garage Liability)

 

shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):

 

Broad Exclusion Provision.*

 

It is agreed that the policy does not apply:

 

  I. Under any Liability Coverage, to

 

injury, sickness, disease, death or destruction

 

bodily injury or property damage

 

  (a) with respect to which an insured under the policy is also an insured under
a nuclear energy liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability; or

 

  (b) resulting from the hazardous properties of nuclear material and with
respect to which (1) any person or organization is required to maintain
financial protection pursuant to the Atomic Energy Act of 1954, or any law
amendatory thereof, or (2) the insured is, or had this policy not been issued
would be, entitled to indemnity from the United States of America, or any agency
thereof, under any agreement entered into by the United States of America, or
any agency thereof, with any person or organization.

 

  II. Under any Medical Payments Coverage, or under any Supplementary Payments
Provision relating to

 

immediate medical or surgical relief

 

first aid,

 

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to expenses incurred with respect to

 

bodily injury, sickness, disease or death

 

bodily injury

 

resulting from the hazardous properties of nuclear material and arising out of
the operation of a nuclear facility by any person or organization.

 

III. Under any Liability Coverage, to

 

injury, sickness, disease, death or destruction

 

bodily injury or property damage

 

resulting from the hazardous properties of nuclear material, if

 

  (a) the nuclear material (1) is at any nuclear facility owned by, or operated
by or on behalf of, an insured or (2) has been discharged or dispersed
therefrom;

 

  (b) the nuclear material is contained in spent fuel or waste at any time
possessed, handled, used, processed, stored, transported or disposed of by or on
behalf of an insured; or

 

  (c) the

 

injury, sickness, disease, death or destruction

 

bodily injury or property damage

 

arises out of the furnishing by an insured of services, materials, parts or
equipment in connection with the planning, construction, maintenance, operation
or use of any nuclear facility, but if such facility is located within the
United States of America, its territories or possessions or Canada, this
exclusion (c) applies only to

 

injury to or destruction of property at such nuclear facility.

 

property damage to such nuclear facility and any property thereat.

 

IV. As used in this endorsement:

 

“hazardous properties” include radioactive, toxic or explosive properties;
“nuclear material” means source material, special nuclear material or byproduct
material; “source material”, “special nuclear material”, and “byproduct
material” have the

 

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meanings given them in the Atomic Energy Act of 1954 or in any law amendatory
thereof; “spent fuel” means any fuel element or fuel component, solid or liquid,
which has been used or exposed to radiation in a nuclear reactor; “waste” means
any waste material (1) containing byproduct material other than the tailings or
wastes produced by the extraction or concentration of uranium or thorium from
any ore processed primarily for its source material content and (2) resulting
from the operation by any person or organization of any nuclear facility
included under the first two paragraphs of the definition of nuclear facility;
“nuclear facility” means

 

  (a) any nuclear reactor,

 

  (b) any equipment or device designed or used for (1) separating the isotopes
of uranium or plutonium, (2) processing or utilizing spent fuel, or (3)
handling, processing or packaging waste,

 

  (c) any equipment or device used for the processing, fabricating or alloying
of special nuclear material if at any time the total amount of such material in
the custody of the insured at the premises where such equipment or device is
located consists of or contains more than 25 grams of plutonium or uranium 233
or any combination thereof, or more than 250 grams of uranium 235,

 

  (d) any structure, basin, excavation, premises or place prepared or used for
the storage or disposal of waste,

 

and includes the site on which any of the foregoing is located, all operations
conducted on such site and all premises used for such operations; “nuclear
reactor” means any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of fissionable
material;

 

With respect to injury to or destruction of property, the word “injury” or
“destruction” includes all forms of radioactive contamination of property.
“property damage” includes all forms of radioactive contamination of property.

 

V. The inception dates and thereafter of all original Policies affording
coverages specified in this paragraph (3), whether new, renewal or replacement,
being Policies which become effective on or after 1st May, 1960, provided this
paragraph (3) shall not be applicable to

 

  (i) Garage and Automobile Policies issued by the Reassured on New York risks,
or

 

  (ii) statutory liability insurance required under Chapter 90, General Laws of
Massachusetts,

 

until 90 days following approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.

 

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(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability Policies of the Reassured in Canada and that
with respect to such Policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters’
Association or the Independent Insurance Conference of Canada.

 

--------------------------------------------------------------------------------

*NOTE. The words printed in italics in the Limited Exclusion Provision and in
the Broad Exclusion Provision shall apply only in relation to original liability
Policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.

--------------------------------------------------------------------------------

 

NOTES: Wherever used herein the terms:

 

  “Reassured” shall be understood to mean “Company”, “Reinsured”, “Reassured” or
whatever other term is used in the attached reinsurance document to designate
the reinsured company or companies.

 

  “Agreement” shall be understood to mean “Agreement”, “Contract”, “Policy” or
whatever other term is used to designate the attached reinsurance document.

 

  “Reinsurers” shall be understood to mean “Reinsurers”, “Underwriters” or
whatever other term is used in the attached reinsurance document to designate
the reinsurer or reinsurers.

 

21/9/67

NMA 1590 (amended)

 

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NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA

 

1. This Agreement does not cover any loss or liability accruing to the Reinsured
as a member of, or subscriber to, any association of insurers or reinsurers
formed for the purpose of covering nuclear energy risks or as a direct or
indirect reinsurer of any such member, subscriber or association.

 

2. Without in any way restricting the operation of paragraph 1 of this clause it
is agreed that for all purposes of this Agreement all the original liability
contracts of the Reinsured, whether new, renewal or replacement, of the
following classes, namely,

 

Personal Liability

Farmers’ Liability

Storekeepers’ Liability

 

which become effective on or after 31st December 1992, shall be deemed to
include, from their inception dates and thereafter, the following provision:

 

Limited Exclusion Provision

 

This Policy does not apply to bodily injury or property damage with respect to
which the Insured is also insured under a contract of nuclear energy liability
insurance (whether the Insured is unnamed in such contract and whether or not it
is legally enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other group or pool of insurers or would be an
Insured under any such policy but for its termination upon exhaustion of its
limit of liability.

 

With respect to property, loss of use of such property shall be deemed to be
property damage.

 

3. Without in any way restricting the operation of paragraph 1 of this clause it
is agreed that for all purposes of this Agreement all the original liability
contracts of the Reinsured, whether new, renewal or replacement of any class
whatsoever (other than Personal Liability, Farmers’ Liability, Storekeepers’
Liability or Automobile Liability contracts), which become effective on or after
31st December 1992, shall be deemed to include from their inception dates and
thereafter, the following provision:

 

Broad Exclusion Provision

 

It is agreed that this Policy does not apply:

 

  (a) To any liability imposed by or arising from any nuclear liability act, law
or statute or any law amendatory thereof; nor

 

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  (b) to bodily injury or property damage with respect to which an Insured under
this policy is also insured under a contract of nuclear energy liability
insurance (whether the Insured is unnamed in such contract and whether or not it
is legally enforceable by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of insurers or would
be an Insured under any such policy but for its termination upon exhaustion of
its limit of liability; nor

 

  (c) to bodily injury or property damage resulting directly or indirectly from
the nuclear energy hazard arising from:

 

  (i) the ownership, maintenance, operation or use of a nuclear facility by or
on behalf of an Insured;

 

  (ii) the furnishing by an Insured of services, materials, parts or equipment
in connection with the planning, construction, maintenance, operation or use of
any nuclear facility; and

 

  (iii) the possession, consumption, use, handling, disposal or transportation
of fissionable substances, or of other radioactive material (except radioactive
isotopes, away from a nuclear facility, which have reached the final stage of
fabrication so as to be useable for any scientific, medical, agricultural,
commercial or industrial purpose) used, distributed, handled or sold by an
Insured.

 

As used in this Policy:

 

1. The term “nuclear energy hazard” means the radioactive, toxic, explosive, or
other hazardous properties of radioactive material;

 

2. The term “radioactive material” means uranium, thorium, plutonium, neptunium,
their respective derivatives and compounds, radioactive isotopes of other
elements and any other substances which may be designated by or pursuant to any
law, act or statute, or law amendatory thereof as being prescribed substances
capable of releasing atomic energy, or as being requisite for the production,
use or application of atomic energy;

 

3. The term “nuclear facility” means:

 

  (a) any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of plutonium,
thorium and uranium or any one or more of them;

 

  (b) any equipment or device designed or used for (i) separating the isotopes
of plutonium, thorium and uranium or any one or more of them, (ii) processing or
utilizing spent fuel, or (iii) handling, processing or packaging waste;

 

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  (c) any equipment or device used for the processing, fabricating or alloying
of plutonium, thorium or uranium enriched in the isotope uranium 233 or in the
isotope uranium 235, or any one or more of them if at any time the total amount
of such material in the custody of the Insured at the premises where such
equipment or device is located consists of or contains more than 25 grams of
plutonium or uranium 233 or any combination thereof, or more than 250 grams of
uranium 235;

 

  (d) any structure, basin, excavation, premises or place prepared or used for
the storage or disposal of waste radioactive material;

 

and includes the site on which any of the foregoing is located, together with
all operations conducted thereon and all premises used for such operations.

 

4. The term “fissionable substance” means any prescribed substance that is, or
from which can be obtained, a substance capable of releasing atomic energy by
nuclear fission.

 

5. With respect to property, loss of use of such property shall be deemed to be
property damage.

 

NMA 1979a

(01.04.96) Form approved by Lloyd’s Underwriters’ Non-Marine Association
Limited.

 

NOTES: Wherever used herein the terms:

 

  “Reassured” shall be understood to mean “Company”, “Reinsured”, “Reassured” or
whatever other term is used in the attached reinsurance document to designate
the reinsured company or companies.

 

  “Agreement” shall be understood to mean “Agreement”, “Contract”, “Policy” or
whatever other term is used to designate the attached reinsurance document.

 

  “Reinsurers” shall be understood to mean “Reinsurers”, “Underwriters” or
whatever other term is used in the attached reinsurance document to designate
the reinsurer or reinsurers.

 

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