EXHIBIT 10.1

 

CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS
BOTH NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF
PUBLICLY DISCLOSED.

[***] INDICATES THAT INFORMATION HAS BEEN REDACTED.

 

 

 

 

 

 

QUOTA SHARE REINSURANCE AGREEMENT

 

AMONG

 

UNITED SPECIALTY INSURANCE COMPANY

 

AND

 

CRUSADER INSURANCE COMPANY

 

AND

 

UNIFAX INSURANCE SYSTEMS, INC.

 

 

EFFECTIVE APRIL 1, 2020

 

 

 

 

Table of Contents

 

Article Page

 

Preamble 1

 

1 Business Reinsured 1

 

2 Original Conditions 1

 

3 Exclusions 2

 

4 Commencement, Termination, Terms & Conditions 3

 

5 Loss and Loss Adjustment Expense 5

 

6 Reports and Remittances 6

 

7 Errors and Omissions 8

 

8 Premium and Commission 8

 

9 Access to Records 11

 

10 Arbitration 11

 

11 Assessments, Assignments, Fines and Penalties 12

 

12 Premium Financing 13

 

13 Insolvency 13

 

14 Alternate Payee 14

 

15 Hold Harmless Provisions 14

 

16 Loss in Excess of Policy Limits/ECO 16

 

17 Regulatory Matters 16

 

18 The General Agent 17

 

19 Reinsurer or General Agent or Transfer 18

 

20 Miscellaneous 18

 

21 Loss and Unearned Premium Reserve Funding 20

 

22 Savings Clause 21

 

 

 

 

 

QUOTA SHARE REINSURANCE AGREEMENT

 

 

THIS QUOTA SHARE REINSURANCE AGREEMENT (this "Agreement") is effective April 1,
2020, by and among CRUSADER INSURANCE COMPANY ("Reinsurer"), UNITED SPECIALTY
INSURANCE COMPANY ("Company"), and UNIFAX INSURANCE SYSTEMS, INC. ("General
Agent");

 

W I T N E S S E T H:

 

In consideration of the mutual covenants contained in this Agreement and upon
the terms and conditions set forth below, the Parties hereto agree as follows:

 

PREAMBLE

 

It is understood that the Company, the Reinsurer and the General Agent
(hereinafter identified collectively as the "Parties" and each individually a
“Party”) hereto wish to enter into a reinsurance arrangement through which the
Company is to bear no business, credit or insurance risk whatsoever (save the
risk of the Reinsurer's insolvency). The Reinsurer shall hold the Company
harmless and indemnify it for these and all risks. The Reinsurer further agrees
that it shall make directly to the applicable parties any payments, arising out
of or relating in any way to its obligations and liabilities arising from this
Agreement and/or the subject insurance business produced hereunder, so that the
Company shall not be required to make any such payments and then seek
reimbursement from the Reinsurer. The sole consideration provided by the
Company, in exchange for the fees as agreed to, is to permit the Policies (as
hereinafter defined), which are reinsured 100% under this Agreement to be issued
in the name of the Company. All provisions of this Agreement shall be
interpreted so as to be in accord with this Preamble.

 

ARTICLE I

BUSINESS REINSURED

 

1.01       Effective as of the effective date of this Agreement, the Company
obligates itself to cede to the Reinsurer, and the Reinsurer obligates itself to
accept, 100% of the Company's gross liability under all policies, certificates,
contracts, binders, agreements or other proposals or evidences of insurance, new
and renewal policies, binders, and contracts of insurance (hereinafter called
"Policies") issued by and on behalf of the Company, in its sole discretion, as
Property, General Liability, CMP Property (burglary and theft; inland marine),
and CMP Liability (burglary and theft, garage, fidelity) and miscellaneous
coverages as endorsed during the term of this Agreement, by or through the
General Agent appointed by the Company at the request of the Reinsurer.

 

1.02Subject to Section 15.05 hereof, the maximum policy limits for Policies are
as follows:

 

Lines of Business Maximum Policy Limits 1.0 Property

$[***] total insurable value (greater than $[***] shall be facultative)

 

17.0 General Liability

$[***] per occurrence

$[***] in the aggregate

 

 

 

 

5.1 CMP Property – burglary and theft; inland marine

$[***] total insurable value (greater than $[***] shall be facultative)

 

5.2 CMP Liability – burglary and theft, garage, fidelity

$[***] per occurrence

$[***] in the aggregate

 

 

It is understood that the General Agent shall not bind the Company to amounts in
excess of those stated above.

 

ARTICLE II

ORIGINAL CONDITIONS

 

2.01       Effective as of the effective date of this Agreement, the Company
obligates itself to cede to the Reinsurer, and the Reinsurer obligates itself to
accept, all of the Company's gross liability under all Policies issued by and on
behalf of the Company by the General Agent.

 

2.02       Business ceded hereunder shall include every original policy,
rewrite, renewal or extension (whether before or after the termination of this
Agreement) required by applicable statute, or by rule or regulation of any
policy of insurance ceded hereunder by the Company to the Reinsurer.

 

2.03       The liability of the Reinsurer shall commence obligatorily and
simultaneously with that of the Company as soon as the Company becomes liable,
and the premium on account of such liability shall be credited to the Reinsurer
from the original date of the Company's liability.

 

2.04       All reinsurance for which the Reinsurer shall be liable, by virtue of
this Agreement, shall be subject, in all respects, to the same rates, terms,
conditions, interpretations, waivers, the exact proportion of premiums paid to
the Company without any deduction for brokerage, and to the same modifications,
alterations and cancellations, as the respective insurance of the Company to
which such reinsurance relates, the true intent of this Agreement being that the
Reinsurer shall, in every case to which this Agreement applies and in the
proportion specified herein, follow the fortunes of the Company.

 

2.05       Nothing herein shall in any manner create any obligations, establish
any rights or create any direct right of action against the Reinsurer in favor
of any third party, or other person not party to this Agreement; or create any
privity of contract between the policyholders and the Reinsurer.

 

ARTICLE III

EXCLUSIONS

 

With respect to the classes of business which the General Agent may be
authorized to produce under this Agreement, the General Agent will not solicit
or accept proposals or bind the Company for insurance coverage on the following
risks:

 

(a) All business not specifically described as business covered under Article I
of this Agreement.

 

 

 

ARTICLE IV

COMMENCEMENT, TERMINATION, TERMS AND CONDITIONS

 

4.01       The effective date of this Agreement is at 12:01 a.m. Central Time,
on April 1, 2020. This Agreement shall remain continuously in force until
terminated according to the provisions set forth herein.

 

4.02       This Agreement may be terminated as follows:

 

(a)       By any Party hereto at any time, by providing at least ninety (90)
days written notice to the other Parties, such notice to be sent by certified
mail, return receipt requested, postage prepaid;

 

(b)       Immediately by mutual consent of the Company and Reinsurer;

 

(c)       Immediately upon written notice by the Reinsurer or the Company in the
event of the cancellation or non-renewal of the General Agent's license by the
California Department of Insurance;

 

(d)       By the Reinsurer after thirty (30) days written notice to the General
Agent and Company of the General Agent's failure to pay to the Reinsurer all
payments of premiums due hereunder, provided, however, that in the event such
payment is received by the Reinsurer prior to the date of cancellation stated in
the Reinsurer's written notice this Agreement shall not be so terminated and
said written notice shall be of no further force or effect. If the Reinsurer
receives such late premium within a ten (10) day period following receipt of
such notice, the Reinsurer shall inform the Company and the General Agent of
such receipt as soon as the premium is received and the termination of the
Agreement for reason of default shall be rescinded;

 

(e)       Immediately, upon written notice by the Company, if the Reinsurer or
General Agent is found to be insolvent by a State Insurance Department or court
of competent jurisdiction, or is placed in supervision, conservation,
rehabilitation, or liquidation, or has a receiver or supervisor appointed. By
the Reinsurer, upon thirty (30) days written notice, if the Company or General
Agent is found to be insolvent by a State Insurance Department or court of
competent jurisdiction, or is placed in supervision, conservation,
rehabilitation or liquidation, or has a receiver or supervisor appointed;

 

(f)       By the Company immediately and automatically without prior written
notice should the Texas Department of Insurance or other regulatory agency of
competent jurisdiction, require cancellation or disallow credit for this
reinsurance;

 

(g)       After thirty (30) days written notice by any party in the event that
the Company, the Reinsurer or the General Agent amalgamates with or passes under
the control of any other company or corporation or changes a majority of its
officers or board of directors during the term of this Agreement;

 

(h)       As provided in Section 22.02 of this Agreement;

 

(i)            Immediately by the Company if after the effective date of this
Agreement: (i) the Reinsurer is required to secure its obligations under this
Agreement and the General Agency Agreement pursuant to Article XXI of this
Agreement; or (ii) the Reinsurer is required to increase the amount of
collateral posted pursuant to Article XXI of this Agreement; or (iii) the
Reinsurer fails to secure its obligations as required under this Agreement; or

 

(j)       Automatically and immediately, without notice upon cancellation or
termination of the General Agency Agreement, as hereinafter defined.

 

4.03       When this Agreement terminates for any reason, reinsurance hereunder
shall continue to apply to the business in force at the time and date of
termination until expiration or cancellation of such business. It is understood
that any Policies with effective dates prior to the termination date but issued
after the termination date are covered under this Agreement. Additionally, the
reinsurance hereunder shall continue to apply as to Policies, which must be
issued or renewed, as a matter of state law or regulation or because a producing
agent has not been timely canceled, until the expiration dates on said Policies.
The General Agent agrees that, notwithstanding anything to the contrary, its
appointment by the Company to produce business terminates when this Agreement
terminates unless the General Agent's authority has been terminated earlier;
except that the Company shall provide the General Agent with the limited agency
authority needed to service the run-off of the business, e.g., issue, cancel,
offer renewal where required by law.

 

4.04       Upon termination of this Agreement, the Reinsurer and General Agent
shall not be relieved of or released from any obligation created by or under
this Agreement in relation to payment, expenses, reports, accounting or
handling, which relate to insurance business reinsured under this Agreement. The
Parties hereto expressly covenant and agree that they will cooperate with each
other in the handling of all such run-off insurance business until all Policies
have expired either by cancellation or by terms of such Policies and all
outstanding losses and loss adjustment expenses have been settled. While by law
and regulation, the Company recognizes its primary obligations to its
policyholders, the Reinsurer and General Agent recognize that to the extent
possible there shall be no cost to or involvement by the Company in servicing
this run-off. Upon termination of this Agreement, the General Agent shall
service the run-off of the business, and its duties for such run-off shall
include, but not be limited to, handling all claims, and handling and servicing
all policies through their natural expiration, together with any policy
renewals, required to be made by provisions of applicable law, whether or not
the effective date of such renewal is subsequent to the effective date of
cancellation of this Agreement. All costs and expenses associated with the
handling of such run-off business following the cancellation or termination of
this Agreement shall be borne solely by the General Agent; however, the
Reinsurer shall be ultimately responsible for the run-off and shall pay any such
costs and/or expenses if the General Agent does not for any reason pay or cause
to be paid such costs and expenses. If for any reason the General Agent fails or
is unable to service any such run-off business (or any business while the
Agreement is still in effect), including the payment of claims, then consistent
with this Agreement, the Reinsurer's obligation with respect to such run-off
business shall continue and the Reinsurer shall appoint a successor to the
General Agent, subject to the approval of the Company, to administer and
otherwise handle the run-off as provided herein. Such successor shall perform
all of the duties and obligations of the General Agent with respect to servicing
such run-off business, including the payment of claims. In addition, the Company
in its sole discretion may terminate the authority of the General Agent or a
successor thereto to handle such run-off business and the Reinsurer shall then
appoint a successor to handle the run-off, subject to the Company's approval, at
no cost to the Company.

 

 

 

4.05       In the event this Agreement is terminated, the Reinsurer shall remain
liable to and shall, immediately upon request, reimburse the Company for any
assessment made upon the Company. The Company shall likewise remain liable for,
and account to the Reinsurer for any recovery of such assessment, or any credit
allowed to it against its premium tax, applicable to the risks reinsured
hereunder.

 

4.06       The title and ownership of all undelivered Policies, books, supplies
or other property related to the reinsured business is in the name of the
Company, and upon termination these shall be delivered immediately by the
Reinsurer and/or General Agent to the Company, without compelling the Company to
resort to any legal proceedings to secure the aforesaid described property of
the Company.

 

4.07       This Agreement provides for termination on a run-off basis. The
relevant provisions of the Agreement shall apply to the business being run-off
and shall survive the termination of this Agreement.

 

4.08       At the option of the Company, this Agreement may be terminated on a
cut-off basis. If the Company so elects, (i) the Reinsurer shall pay to the
Company (or its designee) an amount equal to the sum of the ceded outstanding
unearned premium as of the date of termination, and (ii) the Reinsurer shall
incur no liability for losses occurring subsequent to the date of termination.

 

4.09       Upon termination of this Agreement, the Reinsurer shall ensure the
General Agent takes those actions necessary, including, but not limited to,
sending statutorily prescribed non-renewal notices to insureds in a timely
manner to effectuate the intent that there be no renewals or new policies (but
for those required by applicable law or regulation) after the termination of
this Agreement.

 

ARTICLE V

LOSS AND LOSS ADJUSTMENT EXPENSE

 

5.01       All loss settlements made by the Company or the General Agent under
the terms of this Agreement, whether under strict policy conditions or by way of
compromise, shall be unconditionally binding upon the Reinsurer in proportion to
its participation, and the Reinsurer shall benefit proportionately in all
salvage and recoveries. The Reinsurer shall assume and be liable for and pay on
behalf of the Company, 100% of all losses incurred in connection with the risks
covered by this Agreement, including, but not limited to, judgments (including
interest thereon) and settlements in connection therewith. The Reinsurer shall
also be liable for 100% of and pay on behalf of the Company all costs, expenses,
and fees (including, but not limited to, attorney's fees) incurred by the
Company in connection with the investigation or settlement or contesting the
validity of claims or losses covered under this Agreement (this shall include
but, of course, is not limited to, costs, expenses and fees resulting from a
declaratory judgment or injunctive action brought by an insured or other
person).

 

5.02       The Reinsurer's 100% share of losses, expense and loss recovery shall
be carried into the monthly accounting for which provision is hereinafter made.

 

5.03       The Company hereby empowers the Reinsurer, and the Reinsurer may, in
its discretion, and under its supervision appoint the General Agent, to accept
notice of and investigate any claim arising under any of the Policies, to pay,
adjust, settle, resist or compromise any such claim, unless the Company
specifically directs to the contrary with respect to any individual

 

 

claim. In the latter event, the Reinsurer and/or General Agent shall follow the
instructions of the Company as respects such claim. All such loss settlements,
whether under strict policy conditions or by the way of compromise, shall be
unconditionally binding upon the Reinsurer. However, should the Company be
ordered or instructed by an applicable Department of Insurance or any other
regulatory agency of competent jurisdiction to take any action or refrain from
taking any action with regard to any claim, the Reinsurer shall be bound by and
shall follow the order or instructions of such regulatory agency as though
Reinsurer were the object of such order or instruction. The Reinsurer will
exercise the authority granted hereunder in good faith and toward the end of
paying any and all valid claims.

 

5.04       All records pertaining to claims arising under insurance policies
issued on behalf of the Company through or by the General Agent subject to this
Agreement shall be deemed to be jointly owned records of the Company and the
Reinsurer, and shall be made available to the Company or the Reinsurer or their
respective representatives or any duly appointed examiner for any state within
the United States; and these records shall be kept in the State of California or
such other jurisdiction as may be required by applicable state law or
regulation. Notwithstanding the foregoing, the Reinsurer is authorized to
maintain duplicate working files of all such records outside the State of
California. The Company, the Reinsurer and the General Agent each agree that it
will not destroy any such records in its possession without the prior written
approval of the other parties except that the Company shall not be required to
retain files longer than required by the guidelines set forth by any applicable
state department of insurance.

 

5.05       The Reinsurer shall, or shall cause the General Agent to, establish a
separate claim register or method of recording claims arising under the Policies
covered by this Agreement so that all claims may be segregated and identified
separate and apart from other records of the Reinsurer or General Agent, with
such claims register to identify each claim on an individual case basis both as
to identify the insured(s) and the claimant, the reserve for loss and adjusting
expense. Such claim register shall be kept in a manner whereby the Company can,
at any time, determine the status of any claim arising under Policies covered by
this Agreement. Such records shall reflect the amount of reserves established
for the individual claim and the date when such reserve was established, and if
closed, whether such claim was closed with or without payment, and if with
payment, the amount paid thereon.

 

ARTICLE VI

REPORTS AND REMITTANCES

 

6.01       In lieu of the Company furnishing the Reinsurer with bordereaux
showing the particulars of all reinsurances ceded hereunder, the Reinsurer shall
furnish or cause to be furnished to the Company, within thirty (30) days after
the close of each of the respective periods indicated below (on forms agreeable
to the Parties), with monthly, quarterly and annual reports showing the
following statistical data in respect to the business reinsured hereunder:

 

(a) Monthly, with the data segregated by major classes.

 

(i)       Ceded premiums written.

(ii)       Ceded unearned premiums.

(iii)       Ceded losses paid.

(iv)       Ceded adjustment expenses paid during this month.

(v)       Losses outstanding.

(vi)       Ceding fee due the Company.

(vii)       Commission due the General Agent.

 

 

 

 

(b)       Annually, with the data segregated by major classes.

 

(i)Annual summaries of net premiums written, net losses paid, net adjusting
expenses paid during the year in such form so as to enable the Company to record
such data in its annual convention statement. Such information is to be
furnished not later than December 15th of the year being reported. In force and
unearned premium segregated as to advance premiums, premiums running twelve (12)
months or less from inception date of policy, and premiums running more than
twelve (12) months from inception date of policy in such form as to enable the
Company to record such data in its convention annual statement.

 

(ii)Annual summaries of net premiums written by geographical location in such
form as to enable the Company to record such premiums in its annual report to
the applicable Catastrophe Property Insurance Association.

 

(c)       Periodic, with data segregated by major lines.

 

Statistical or other data as may be requested from time to time by regulatory
authorities.

 

6.02       In order to facilitate the handling of the business reinsured under
this Agreement, the Reinsurer agrees to furnish the Company with any additional
reports necessary to provide the information needed by the Company to prepare
its monthly, quarterly and annual statements to regulatory authorities.

6.03       Within thirty (30) days after the end of each month, the General
Agent shall remit to the Reinsurer the following:

 

(a)       Ceded net written premium during the month, less;

 

(b)       General Agent's commission thereon, less;

 

(c)Paid losses and loss adjustment expenses paid, provided such losses and loss
adjustment expenses have not been deducted on behalf of the Company in any
previous monthly report.

 

The positive balance of (a) less (b) less (c) shall be remitted by the General
Agent with its report. Any balance shown to be due the Company shall be remitted
by the Reinsurer as promptly as possible after receipt and verification of the
General Agent's report.

 

ARTICLE VII

ERRORS AND OMISSIONS

 

7.01       The Company shall not be prejudiced in any way by any omission
through clerical error, accident or oversight to cede to the Reinsurer any
reinsurance rightly falling under the terms of this Agreement, or by erroneous
cancellation, either partial or total, or any cession, or by omission to report,
or by erroneously reporting any losses, or by any other error or omission, but
any such error or omission shall be corrected immediately upon discovery.

 

 

 

7.02       Should the Company suffer any loss whatsoever arising out of,
relating to or in connection with this Agreement, the Reinsurer shall assume
loss for its own account and save and hold the Company harmless therefor.

 

ARTICLE VIII

PREMIUM AND COMMISSION

 

8.01       In consideration of the acceptance by the Reinsurer of one hundred
percent (100%) of the Company's liability on insurance business reinsured
hereunder, the Reinsurer is entitled to one hundred percent (100%) of the Net
Premiums (as hereinafter defined) received by the General Agent or the Reinsurer
on Policies reinsured less (i) the ceding fee allowed the Company pursuant to
Section 8.02 hereof, (ii) the commission paid to the General Agent and (iii)
premium taxes on Policies subject to reinsurance hereunder. "Net Premiums" shall
mean the gross premiums charged on all original and renewal Policies written on
behalf of the Company, less return premiums (excluding policy fees). Such
amounts as provided in Section 5.09 of the General Agency Agreement (as
hereinafter defined) shall be paid to the Reinsurer or received from the
Reinsurer by the General Agent on behalf of the Company. “Net Policy Fees” shall
mean gross policy fees, if any, charged on all original and renewal Policies
written on behalf of the Company, less return policy fees.

 

8.02       It is understood that the General Agent shall pay, and the Reinsurer
shall guarantee, the Company directly a fee within thirty (30) days following
the end of each month, [***] percent ([***]%) of Net Premiums and Net Policy
Fees, plus the amount of assessments and state premium taxes as provided in this
Article VIII. Notwithstanding anything else contained herein to the contrary,
regardless of the amount of Net Premiums, the minimum ceding fee due the Company
shall be (i) $500,000 for the first twenty-four month period after the effective
date of the Agreement, plus the aforementioned assessments and state premium
taxes and (ii) $250,000 for each twelve-month period thereafter during which the
Agreement is in effect, plus the aforementioned assessments and state premium
taxes. This minimum ceding fee shall not be affected by the amounts of Net
Premiums written in other twelve-month or twenty-four month, as applicable, and
shall not be reduced by reason of payments in excess of the minimum in other
periods. Upon termination of this Agreement, the minimum fee shall be prorated
to the effective date of such termination unless there are Policies issued after
the termination of this Agreement. In such cases, the minimum fee shall continue
past the termination of this Agreement until such time as no further Policies
are issued. The minimum ceding fee for each period shall be paid within sixty
(60) days of the end of each period. For these purposes, a policy's entire
premium shall be applied to the period in which the policy is written. During
the term of this Agreement, the General Agent shall be allowed to pay the ceding
fee payable to the Company under this Section 8.02 on the basis of premiums
written; provided, however, that the General Agent shall remain liable for the
full amount of the ceding fee (i.e., based on premiums written) as specified
above.

 

8.03       The General Agent shall allow and pay within thirty (30) days of the
end of each month to the Company an amount equal to the state premium tax on the
Net Premiums and Net Policy Fees reinsured hereunder for the past month. Should
any additional premium tax be assessed at any time on the Net Premiums and Net
Policy Fees reinsured hereunder, the Reinsurer shall pay the Company such
additional premium tax within thirty (30) days of being informed by the Company
of such additional premium tax. The Parties acknowledge that at the effective
date of this Agreement, the applicable Departments of Insurance (or other state
agency responsible for collecting premium taxes) may require the payment of
estimated premium taxes in advance on

 

 

a semi-annual basis. The Reinsurer shall, therefore, pay to the Company within
five days prior to the due date of any such estimated premium tax payment, the
amount that would be due based upon the business produced hereunder. The General
Agent shall also be responsible for the filing and payment of any and all other
applicable taxes including, but not limited to, federal excise taxes. All such
filings shall be made in the name of the party chosen by the Company. Should the
General Agent fail to file for or pay any taxes due under this Section 8.03, the
Reinsurer shall make such filings and/or payments as required hereunder.

 

8.04       The Reinsurer hereby guarantees that the Company will receive the
ceding fee provided hereunder irrespective of any events, losses or developments
for the term of this Agreement. Such payment is not dependent upon the
performance of the General Agent, underwriting experience, loss experience,
whether premium is collected or not, or any other event foreseen or unforeseen
by the parties at the inception of this Agreement. The Reinsurer shall guarantee
payment to the Company of its ceding fee on all premiums reinsured hereunder
(prior to deduction of premiums, if any, ceded by the Company for inuring
reinsurance), and in addition guarantees those amounts described in Section 8.06
of this Agreement and is directly responsible for payment of the amount
described in Article XI. The Company shall allow return ceding fees on return
premiums at the same rates.

 

8.05       The Reinsurer shall allow the General Agent a provisional commission
of [***]% on all premiums ceded to the Reinsurer hereunder. The General Agent
shall allow the Reinsurer return commission on return premiums at the same rate.
This is an obligation owing directly from the Reinsurer to the General Agent.
The General Agent shall not seek to recover from the Company, any commissions
due and the Reinsurer shall not seek to recover from the Company, any return
commissions due. No funds are due the General Agent from the Company.

 

8.06       It is expressly agreed that the commission allowed the General Agent
includes provision for premium taxes, bureau fees and ceding fees. General Agent
shall pay to the Company all premium taxes and ceding fees payable for policies
subject to reinsurance hereunder. In the event that the ceding fee and premium
taxes are not so paid by the General Agent within 60 days following the end of
the month, the unpaid balance shall be paid directly to the Company by the
Reinsurer.

 

ARTICLE IX

ACCESS TO RECORDS

 

The Reinsurer or its duly appointed representatives shall have free access at
any and all reasonable times to such books and records of the Company or General
Agent, its departmental or branch offices, as shall reflect premium and loss
transactions of the Company and/or the business produced hereunder, for the
purpose of obtaining any and all information concerning this Agreement or the
subject matter thereof. Likewise, the Company or its duly appointed
representatives shall have free access at any and all reasonable times to such
books and records of the Reinsurer and/or General Agent, its departmental or
branch offices as shall reflect premium and loss transactions of the Company
and/or the business produced hereunder, for the purpose of obtaining any and all
information concerning this Agreement or the subject matter hereof.

 

ARTICLE X

ARBITRATION

 

 

 

10.01       As a condition precedent to any right of action hereunder, in the
event of any dispute or difference of opinion hereafter arising between the
Company and the Reinsurer with respect to this Agreement, or with respect to
these Parties' obligations hereunder, it is hereby mutually agreed that such
dispute or difference of opinion shall be submitted to arbitration.

 

10.02       One arbiter (an "Arbiter") shall be chosen by the Company and one
Arbiter shall be chosen by the Reinsurer and an umpire (an "Umpire") shall be
chosen by the Arbiters, all of whom shall be active or retired disinterested
executive officers of property and casualty insurance or reinsurance companies.

 

10.03       In the event that a party fails to choose an Arbiter within thirty
(30) days following a written request by either party to the other to name an
Arbiter, the party who has chosen its Arbiter may choose the unchosen Arbiter.
Thereafter, the Arbiters shall choose an Umpire before entering upon
arbitration. If the Arbiters fail to agree upon the selection for the Umpire
within thirty (30) days following their appointment, each Arbiter shall name
three nominees, of whom the other shall decline two, and the decision shall be
made by drawing lots.

 

10.04       Each party shall present its case to the Arbiters and Umpire within
a reasonable amount of time after selection of the Umpire, unless the period is
extended by the Arbiters and the Umpire in writing and/or at a hearing in
Dallas, Texas. The Arbiters and Umpire shall consider this Agreement as an
honorable engagement, as well as a legal obligation, and they are relieved of
all judicial formalities and may abstain from following the strict rules of law
regarding entering of evidence. The decision in writing by a majority of the
Arbiters and Umpire when filed with the Parties shall be final and binding on
the parties. Judgment upon the final decision of the Arbiters and Umpire may be
entered in any court of competent jurisdiction.

 

10.05       In the event of a dispute between the Company and the Reinsurer
concerning this Agreement and the General Agency Agreement (regardless of
whether either party has claims against the General Agent), the entire dispute
between the Company and the Reinsurer shall be subject to arbitration as
provided in this Article X.

 

10.06       The costs of the arbitration, including the fees of the arbitrators
and the umpire, shall be borne equally unless the Arbiters and Umpire shall
decide otherwise.

 

10.07       This Agreement shall be interpreted under the laws of Texas and the
arbitration shall be governed and conducted according to the Texas General
Arbitration Act.

 

ARTICLE XI

ASSESSMENTS, ASSIGNMENTS, FINES AND PENALTIES

 

11.01       The Reinsurer hereby assumes liability for any and all assessments
and assignments imposed as a result of Policies reinsured hereunder (whether
before or after the termination of this Agreement). The Reinsurer shall
immediately reimburse the Company for any assessments made against the Company
pursuant to those laws and regulations creating obligatory funds (including, but
not limited to, insurance guaranty and insolvency funds), pools, joint
underwriting associations, FAIR plans and similar plans. Amounts owed by the
Reinsurer under this Section shall be payable directly by the Reinsurer to the
Company. The Reinsurer shall be entitled to receive from the Company on or prior
to June 30 of each year thereafter (or such date on which such premium taxes are
paid) a sum equal to the premium tax credit that is allowed to the Company with
respect to such assessments. The premium tax credit allowed the Reinsurer
hereunder is to be on a pro-rata and first-in, first-out basis. The Company
shall

 

 

promptly return to the Reinsurer any amount of assessment refunded to or
credited to the Company.

 

11.02       This Agreement shall apply to risks assigned to the Company under
any assigned risk plan if, in the reasonable judgment of the Company, such risks
were assigned to the Company because of the business written and reinsured
hereunder. Should it be determined, in the Company’s sole discretion, that the
General Agent, or any agent with whom assigned risks are also allocated under a
specific assigned risk plan with the General Agent, is unwilling or unable to
fulfill policyholder obligations under such assigned risk plan, the Company may
elect alternative means to fulfill the policyholder obligations under the
assigned risk plan. Any cost or expense arising out of or related to the
administration of the assigned risks shall be paid by the Reinsurer under this
Agreement.

 

11.03       The Reinsurer shall also pay promptly and directly to the Company
any fines, penalties and/or any other charge incurred by the Company as respects
the business reinsured hereunder arising out of the actions or inactions of the
General Agent unless such fines, penalties and/or any other charge was a direct
result of any willful misconduct on the part of the Company, which has been
finally determined by a court of competent jurisdiction after the exhaustion of
all appeals.

 

ARTICLE XII

PREMIUM FINANCING

 

With respect to Policies covered under the provisions of this Agreement, if any
premiums are financed, the General Agent shall receive and accept on behalf of
the Company all notices required by statute, contract or otherwise to be given
to the Company, including, without limitation, notices of the existence of
premium finance agreements or of cancellation of policies the premiums of which
are financed ("financed policies"). No producing agent or any other agent shall
be entitled to receive or accept any notice on behalf of the Company, and the
General Agent shall be responsible for and will indemnify and hold the Company
harmless from and against any and all liabilities, losses, claims, damages and
expenses incurred by reason of or arising out of any action taken or inaction
suffered as a result of receipt of any notice by any person, firm or entity
other than the General Agent or the Company. Notwithstanding any other term or
provision of this Agreement, the General Agent agrees to return and pay over to
any premium finance company (whether affiliated with the Company or not) which
has sent notice of cancellation of a financed policy to the General Agent, on
behalf of the Company, within thirty (30) days of receipt of such notice of
cancellation, any and all unearned commissions as of the date of cancellation,
together with any and all unearned premiums due any premium finance company. The
General Agent agrees to and does hereby relinquish any and all rights to any
unearned commissions for any such financed policy as of the date of
cancellation. The obligation of the General Agent to refund unearned commissions
and unearned premiums on a canceled financed policy shall survive the
termination or cancellation of this Agreement for so long as any policy written
under the terms of this Agreement remains in force. If the General Agent does
not fulfill its obligations to refund unearned commissions and unearned premiums
as provided in this Article XII and/or to indemnify the Company as provided in
this Article XII, then the Reinsurer shall pay the amount of the refund owed
and/or shall indemnify the Company even if the premium finance company is an
affiliate of the Company.

 

ARTICLE XIII

INSOLVENCY

 

 

 

13.01       In the event of insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claims.

 

13.02       It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer of
the pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of the
Reinsurer within thirty (30) days after such claim is filed in the insolvency,
conservation or liquidated proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such claims and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurer.

 

13.03       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 Agreement as though such
expense had been incurred by the Company.

 

13.04       It is further understood and agreed that, in the event of the
insolvency of the Company, the reinsurance under this Agreement shall be payable
directly by the Reinsurer to the Company or to its liquidator, receiver or
statutory successor, except (i) as provided by applicable law, (ii) where the
Agreement specifically provides another payee of such reinsurance in the event
of the insolvency of the Company and (iii) where the Reinsurer with the consent
of the direct insured or insureds has assumed such policy obligations of the
Company as direct obligations of the Reinsurer to the payees under such policies
and in substitution for the obligation of the Company to such payees.

 

ARTICLE XIV

ALTERNATE PAYEE

 

14.01       As respects subject business assumed as reinsurance under this
Agreement, it is agreed that if the Company has a conservator, liquidator or
receiver appointed for it, or becomes the subject of any conservation,
liquidation or insolvency proceeding, and the General Agent exercises its option
to require the Company to permit all its liabilities under the Policies
reinsured hereunder to be assumed by another licensed insurer as is permitted
pursuant to the General Agency Agreement, such assuming insurer shall be
substituted for the Company as payee of any reinsurance recoverable hereunder in
respect of losses under Policies subject hereto, and the Reinsurer, shall make
payment thereof directly to the substituted insurer. In the event of assumption,
the Company shall, however, be entitled to any ceding fees and other sums owing
hereunder with respect to Policies originally issued on its behalf.

 

14.02       In the event that an assuming insurer is substituted for the Company
under Section 14.01, all the other provisions of this Agreement shall apply to
the substituted insurer in the same manner as if said insurer were substituted
for the Company as the reinsured party hereunder, and to the extent this
Agreement reinsures such substituted insurer, coverage hereunder shall be
excluded as respects the Company.

 

 

 

ARTICLE XV

HOLD HARMLESS PROVISIONS

 

15.01       Notwithstanding anything else contained herein to the contrary, as
respects all matters related to this Agreement, in addition to those specific
provisions insulating the Company from specific risks hereunder, the Reinsurer
hereby covenants and agrees to reimburse and hold the Company harmless from and
against every claim, demand, liability, loss, damage, cost, charge, attorneys'
fees, expense, suit, order, judgment and adjudication of whatever kind or
character regarding (i) this Agreement and/or (ii) the business reinsured
hereunder (including, but not limited to, underwriting loss, credit loss, and/or
run-off expense and/or all legal fees and expenses incurred by the Company in
asserting its rights under this Agreement) whether or not such claim, demand,
loss, damage, cost, charge, attorneys' fees, expense, suit, order, judgment or
liability is within the terms of Policies written and reinsured hereunder. The
Reinsurer's obligation hereto relates to, but is not limited to the following:
all liability for agents' balances; return premiums and commissions; deceptive
trade practice liability; premiums, policy fees or other charges (whether
collected or not); costs, liability, damages, fees and/or expenses incurred by
the Company due to a lawsuit between the Reinsurer and/or the General Agent (any
dispute involving the Company and the Reinsurer is subject to arbitration); all
actions or inactions by General Agent relating to this Agreement, any agreement
with a premium finance company or claims administrator; and/or all fees and/or
commissions owing to the General Agent under this and the aforementioned related
agreements.

 

15.02       The Company shall not be liable to the Reinsurer for premiums unless
the Company itself has actually received those premiums and wrongfully not
remitted them to the Reinsurer. The Reinsurer may not offset any balances on
account of losses, loss adjustment expenses or any other amounts due except as
to premiums actually received by the Company itself (as distinct from premiums
not collected, or premiums collected by the General Agent, or premium placed in
the premium trust account pursuant to the General Agency Agreement) which have
wrongfully not been transmitted to the Reinsurer.

 

15.03       If for any reason the General Agent fails or is unable to administer
the policies reinsured hereunder (whether the Agreement is still in effect or
the business is being run-off), (i) the Reinsurer shall appoint a party
(acceptable and approved by the Company) to administer the business and the
Reinsurer shall be responsible for 100% of the cost of said administration and
(ii) the General Agent will fully cooperate with the Company (or its designated
representative) in providing access to such of the General Agent’s personnel,
computer systems or other assets or procedures as the Company may deem necessary
to provide for an orderly transition of the administration of the Policies
reinsured hereunder. If return premiums or other funds need to be returned to
premium finance companies, policyholders or sub-agents, the Reinsurer shall pay
these amounts if the successor or administrator does not.

 

15.04       The Reinsurer shall not sue, or seek arbitration, against the
Company for any acts of the General Agent for any monies which the General Agent
owes unless the Company has actually received those monies and has wrongfully
not remitted them to the Reinsurer; and the Reinsurer shall indemnify the
Company for any damages, liabilities and expenses incurred by reason of the
General Agent's acts or failure to act. The Company is not responsible for any
commissions or other monies payable to the General Agent in connection with this
Agreement and the General Agent shall not sue, or seek arbitration against, the
Company for any actions by, or debts owing from, the Reinsurer. The Reinsurer
shall not seek to recover from, or offset against, the Company any sums, whether
premiums or other monies, which the General Agent

 

 

was unable or unwilling to remit to the Company or the Reinsurer.

 

15.05       In the event the Reinsurer, or any agent appointed pursuant to this
Agreement, binds the Company for insurance coverage on insurance risks which are
in excess of the policy limits set forth in Article I, and/or are not within the
terms of business specified in Article I, and/or are not within the territory
specified in Article I, and/or are excluded under Article III, whether
intentional or not, the Reinsurer and General Agent will do such things and take
such actions as may be necessary to reduce the Company's exposure to such risks
and to hold the Company harmless against any liability or loss which may be
incurred by the Company in excess hereof. At the Company's request, the General
Agent in accordance with applicable law, and policy terms, shall cancel or not
renew any risk bound which is not in conformance with this Agreement. Any such
insurance coverage on insurance risks bound contrary to the limitations which
are in excess of the policy limits set forth in Article I, and/or are not within
the classes of business specified in Article I, and/or are not within the
territory specified in Article I, and/or are excluded under Article III, whether
intentional or not, shall be 100% reinsured and subject to this Agreement.

 

15.06       In furtherance of the protections afforded to the Company under this
Agreement, the Reinsurer expressly acknowledges that certain circumstances may
come to exist with respect to the Policies reinsured hereunder that require
adjustment to the timing of Reinsurer remittances. If, in the sole discretion of
the Company, an advance payment or payments of the Reinsurer’s obligations under
this Agreement is necessary to avoid irreparable harm to the Company (as, for
example, in the circumstance where the funds available in the premium trust
account established pursuant to Section 2.01 of the General Agency Agreement are
insufficient to provide for timely payment of claims), the Reinsurer shall make
such payment or payments promptly upon the Reinsurer’s receipt of the Company’s
good faith estimate or calculation of the necessity thereof.

 

15.07       When a claim is asserted or action commenced, including class
actions regardless of whether the class has been certified, relating in any way
to the Policies produced under this Agreement, the General Agent shall assume
the defense and associated costs and expenses thereof. The Company may elect,
however, at its sole discretion, on a case-by-case basis, to engage counsel
directly on its own behalf, and the expenses and costs related to such defense
shall be passed on to and paid by the General Agent within 60 days written
notice from the Company. In such cases where the claim or action relates to
business written by more than one agent of the Company, costs and expenses shall
be proportioned among applicable agents at the Company’s sole discretion. Should
the General Agent fail to remit any amounts due to Company under this Section
15.07, then the Reinsurer shall pay such amounts within 60 days written notice
from the Company.

 

ARTICLE XVI

LOSS IN EXCESS OF POLICY LIMITS/EXTRA CONTRACTUAL OBLIGATIONS

 

16.01       In the event the Company pays or is held liable to pay an amount of
loss in excess of its policy limit, but otherwise within the terms of its policy
(hereinafter called "loss in excess of policy limits") or any punitive,
exemplary, compensatory or consequential damages (hereinafter called "extra
contractual obligations") because of alleged or actual bad faith or negligence
on its part in rejecting a settlement within policy limits, or in discharging
its duty to defend or prepare the defense in the trial of an action against its
policyholder, or in discharging its duty to prepare or prosecute an appeal
consequent upon such an action, or in otherwise handling a claim under a policy
subject to this Agreement, 100% of the loss in excess of policy limits and/or
100% of

 

 

the extra contractual obligations shall be added to the Company's loss, if any,
under the Policy involved, and the sum thereof shall be reinsured 100% under
this Agreement.

 

16.02       An extra contractual obligation shall be deemed to have occurred on
the same date as the loss covered or alleged to be covered under the Policy.

 

16.03       Notwithstanding anything stated herein, this Agreement shall not
apply to any loss incurred by the Company as a result of any fraudulent and/or
criminal act which has been finally determined by a court of competent
jurisdiction, after the exhaustion of all appeals, by any officer or director of
the Company acting individually or collectively or in collusion with any
individual, corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.

 

ARTICLE XVII

REGULATORY MATTERS

 

17.01       It is the Parties' understanding that any premiums which are overdue
from the General Agent to the Company may be deemed non-admitted assets. In
confirmation of the liabilities assumed by the Reinsurer under this Agreement,
the Reinsurer hereby assumes 100% of all liability and responsibility for all
premiums in the course of collection.

 

17.02       The Reinsurer shall agree, at no cost to the Company, to take those
actions (including, but not limited to, modifications in how funds are handled
and how accounts are cleared, settled and the manner in which incurred losses
are accounted for) and agree to those arrangements necessary to ensure that the
Company suffers no adverse impact because of this reinsurance program and is in
compliance with any applicable laws of a state insurance department, insofar as
this reinsurance program is concerned.

 

ARTICLE XVIII

THE GENERAL AGENT

 

18.01       The Company, the Reinsurer and the General Agent have entered into a
General Agency Agreement effective April 1, 2020 (the "General Agency
Agreement"), which is incorporated herein by this reference. The Reinsurer has
selected the General Agent to administer the business reinsured hereunder. While
for regulatory purposes, the General Agent may need to be appointed as the
Company's agent, it is recognized that the General Agent is acting on behalf of
the Reinsurer. The Company is making no evaluation of the General Agent's
qualification, has no obligation to furnish reports or statistics to the
Reinsurer, or to monitor the performance of the General Agent. The Company shall
file with the State all reports requested by the State based upon information
received from the General Agent and Reinsurer.

 

18.02       The Company will, at the request of the General Agent and the
Reinsurer, appoint producing agents to produce business through the General
Agent. The Company, in its sole discretion, may refuse to appoint any such
agent; provided, however, that such appointment shall not be unreasonably
withheld. The General Agent will not establish any sub-general agencies or any
agencies with the authority of a general agency. The Reinsurer shall hold the
Company harmless from and indemnify it for any damage, liability, claim,
expense, cost or fees (including attorneys' fees and expenses) of whatever kind
or character caused directly or indirectly by any action of or failure to act,
by any such producing agent.

 

18.03       The General Agent shall be responsible for the control of the
producing agents

 

 

appointed by the Company at the request of and on behalf of the Reinsurer,
including compliance with state licensing laws and the financial condition of
such agents.

 

18.04       The Reinsurer shall guarantee payment to the Company of any amounts
due the Company from business produced by and/or policies issued by or through
the producing agents appointed by the Company at the request of and on behalf of
the General Agent and the Reinsurer. The Reinsurer and the General Agent shall
be solely responsible for notifying such agents of this Agreement and of any
termination hereof, and the Reinsurer shall be responsible for the consequences
of any failure to provide such notification.

 

18.05       The General Agent shall not sue, or seek arbitration, against the
Company for any acts of the Reinsurer and shall indemnify and hold the Company
harmless from and against any damages, liabilities and expenses incurred by
reason of the Reinsurer's acts or failures to act.

 

18.06       The Company shall conduct or have conducted the examinations of the
General Agent as provided in Section 5.13 of the General Agency Agreement. The
examinations provided for herein shall be at no cost to the Company, and the
Reinsurer shall indemnify and hold the Company completely harmless as respects
any liability, damage, charge, cost, fine, or penalty, the Company may incur as
a result of such examinations.

 

ARTICLE XIX

REINSURER OR GENERAL AGENT SALE OR TRANSFER

 

The Reinsurer or the General Agent agree to give the Company, 90 days advance
written notice of any sale or transfer of such party's business, or such party's
consolidation with a successor firm, in order that the Company may, in its sole
discretion:

 

(a)Assign this Agreement to the successor; or

 

(b)Enter into a new reinsurance agreement with the successor; or

 

(c)Terminate this Agreement as provided in Section 4.02(g) of this Agreement.

 

ARTICLE XX

MISCELLANEOUS

 

20.01       This Agreement has been made and entered into in the State of Texas
and the Agreement shall be subject to and construed under the laws of the State
of Texas. This Agreement shall be deemed performable at the Company's
administrative office in Bedford, Texas, and it is agreed that the venue of any
controversy arising out of this Agreement, or any breach thereof, shall be in
Tarrant County, Texas.

 

20.02       All notices required to be given hereunder shall be deemed to have
been duly given by personally delivering such notice in writing or by mailing
it, Certified Mail, return receipt requested, with postage prepaid. Any Party
may change the address to which notices and other communications hereunder are
to be sent to such Party by giving the other Party prior written notice thereof
in accordance with this provision.

 

20.03       This Agreement shall be binding upon the Parties hereto, together
with their respective successors. None of the Parties hereto may assign any of
their rights or obligations under this Agreement.

 

 

 

20.04       This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

 

20.05       This Agreement is the entire agreement between the parties and
supersedes any and all previous agreements, written or oral, and amendments
thereto with respect to the subject matter hereof.

 

20.06       This Agreement may only be modified or changed by a written
amendment to this Agreement executed by all Parties hereto.

 

20.07       A waiver by the Company, Reinsurer or General Agent of any breach or
default by the other party under this Agreement shall not constitute a
continuing waiver or a waiver by the Company or the Reinsurer of any subsequent
act in breach or of default hereunder.

 

20.08       Headings used in this Agreement are for reference purposes only and
shall not be deemed a part of this Agreement.

 

20.09       The Parties hereto intend all provisions of this Agreement to be
enforced to the fullest extent permitted. Accordingly, should a court of
competent jurisdiction or arbitration panel determine that the scope of any
provision is too broad to be enforced as written, the Parties intend that the
court or arbitration panel should reform the provision to such narrower scope as
it determines to be enforceable under present or future law; such provision
shall be fully severable; this Agreement shall be construed and enforced as if
such illegal, invalid, or unenforceable provision were never a part hereof; and
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision or
by its severance.

 

20.10       This Agreement is not exclusive and the Company reserves the right
to appoint or contract with other reinsurers, agents and/or managing agents in
the territory covered by this Agreement.

 

20.11       The Reinsurer or General Agent shall not insert any advertisement
respecting the Company or the business to be written under this Agreement in any
publication or issue any circular or paper referring to the Company or such
business without first obtaining the written consent of the Company. The
Reinsurer and/or General Agent shall establish and maintain records of any such
advertising as required by applicable statutes and regulations.

 

20.12       Policy cancellations at the Company's request will be made strictly
subject to requirements imposed by the Company's underwriting rules and
practices or the Reinsurer's underwriting rules and practices, as approved by
the Company, and in compliance with applicable statutes and regulations and the
applicable provisions contained in this Agreement and the pertinent policy. Such
cancellation authority shall be exercised only for causes inherent in the
particular risk and shall not be construed as authority to make general or
indiscriminate cancellations or replacement of the Policies with those of
another Company, except upon specific written instructions from the Company.
When directed by the Company, the Reinsurer will cancel any and all Policies
produced by it for any reason the Company deems necessary.

 

20.13       This Agreement shall be interpreted in conformance with applicable
Texas law and regulation. If it is found or ordered by a court or regulatory
body that a term or provision of this Agreement does not conform to such law or
regulation then this Agreement shall be deemed to

 

 

be amended and modified in accordance with such law. However, where this
Agreement is found not to comply with applicable law or regulation, the Company
may in its sole discretion terminate this Agreement immediately and without
prior notice.

 

20.14       The Company agrees that the Reinsurer shall have the right, with the
approval of the Company, to determine the rates and prepare the rate filing for
the Company to file during the term of this Agreement and during the term of the
run-off. The Reinsurer and General Agent understand and agree that no business
shall be produced, until a written approval of the applicable rate rules and
forms is received from the regulatory authority of competent jurisdiction, if
applicable or required by statute.

 

20.15       It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company, will
submit to the jurisdiction of any court of competent jurisdiction within the
United States. 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, 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 or of any state in the United States.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby designates
the Superintendent, Commissioner or Director of Insurance or other officer
specified for that purpose in the statute, or his successor or successors in
office, as its true and lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding instituted by or on behalf of the
Company or any beneficiary hereunder arising out of this Agreement.

 

ARTICLE XXI

LOSS AND UNEARNED PREMIUM RESERVE FUNDING

 

21.01       Within 10 business days of the effective date of this Agreement, the
Reinsurer will secure [***]% of its obligations under this Agreement
(“Obligations Under the Reinsurance Agreement”), which include but are not
limited to [***]% of the obligations for unearned premiums reserves, if any, and
reserves for losses incurred but not reported and losses reported but unpaid,
via a security fund or trust agreement or letter of credit to be obtained by the
Reinsurer in favor of the Company, which shall be in all respects acceptable to
the Company and allow the Company to receive credit for the reinsurance
hereunder from the Department of Insurance or applicable regulator of the state
of domicile of the Company.

 

(a)At a minimum, the security fund or trust or letter of credit must:

 

(i)comply with the applicable laws and regulations; and

(ii)be issued by or held with a Qualified United States Financial Institution
acceptable to the Company (as defined by the applicable statute and regulation).

 

(b)The Company may draw the full amount of the security fund or trust or letter
of credit to satisfy, in whole or in part the obligations of the Reinsurer
hereunder or, if:

 

(i)The Reinsurer fails to comply with the provisions of this Agreement; or

(ii)the issuer of the security fund or trust or letter of credit gives the
Company notice of cancellation or non-renewal of the security fund or

 

 

letter of credit.

 

21.02        Within 10 business days of the effective date of this Agreement,
and within 10 business days prior to the end of each calendar quarter
thereafter, the Company shall provide the Reinsurer with a good faith estimate
of the expected sum of [***]% of the Company’s ceded Unearned Premium and Loss
Reserves as of the end of the forthcoming calendar quarter (the “Estimate”). The
Reinsurer shall, within 2 business days of first receiving the Estimate, and
within 2 business days prior to the commencement of such forthcoming calendar
quarter thereafter, fund/obtain a security fund or letter of credit in an amount
equivalent to [***]% of the Estimate. Additionally, each time thereafter that:
(i) the Reinsurer’s A.M. Best rating or outlook is at any time reduced; or (ii)
the Reinsurer’s A.M. Best rating or outlook is at any time removed or withdrawn
such that the Reinsurer is not rated or unrated by A.M. Best; or (iii) the
Reinsurer’s capital and policyholder surplus (or its equivalent) reduces [***]
percent ([***]%) or more during any rolling twelve (12) month period measured
quarterly; or (iv) the Reinsurer fails to maintain its CAT XOL reinsurance with
coverage up to [***] dollars ($[***]) with a [***] ($[***]) retention and its
multiline XOL reinsurance with coverage up to [***] dollars ($[***]) with a
[***] dollar ($[***]) retention, each provided by the Reinsurer’s reinsurers
existing as of the effective date of this Agreement, provided that the Reinsurer
may add reinsurers with a minimum surplus of at least [***] dollars ($[***]) and
an “A” rating by A.M. Best, the components of the Estimate shall increase by
[***]% (i.e. the first time the Estimate shall increase to [***]% of the
Company’s ceded outstanding Unearned Premium and Loss Reserves as of the end of
the forthcoming calendar quarter, the second time the Estimate shall increase to
[***]% of the Company’s ceded outstanding Unearned Premium and Loss Reserves as
of the end of the forthcoming calendar quarter, etc.).

 

21.03       If at any time, based upon the monthly reporting provided to Company
under this Agreement, it shall be determined by the Company or Reinsurer that
the amount of the security fund or letter of credit may not be equivalent to the
greater of: (i) [***]% of Company’s ceded Unearned Premium and Loss Reserves;
(ii) [***]% of Company’s ceded Unearned Premium and Loss Reserves as of the end
of the current calendar quarter (the “Revised Estimate”); or (iii) the amounts
required under Section 21.02 of this Agreement, then upon written notice from
Company, the Reinsurer shall immediately increase the amount of the security
fund or letter of credit to an amount equivalent to the greater of (i), (ii) or
(iii) and the Company shall at all times be in possession of a security fund or
letter of credit equivalent to the greater of (i), (ii) or (iii) as of the end
of the current calendar quarter.

 

21.04       Should the amount of the security fund or letter of credit at the
end of any calendar quarter be greater than the amount required in this Article
XXI, the Reinsurer shall be entitled to reduce the amount of the security fund
or letter of credit to an amount not less than the amount required in this
Article XXI. The Qualified United States Financial Institution shall permit such
reduction upon receipt by it of the Company’s written statement that Reinsurer
is entitled to such reduction, which written statement shall not be unreasonably
withheld by Company.

 

21.05       For the purpose of this Article XXI, Unearned Premiums means, as of
any given date, the aggregate premium attributable to the unexpired coverage
period of all insurance policies produced under the Agreement, as determined in
accordance with generally accepted statutory accounting principles consistently
applied. For this purpose, premium shall be the written premium charged on the
insurance policy for the period such policy is in force irrespective of the
subsequent billing and collection of such premium.

 

 

 

21.06       For the purpose of this Article XXI, Loss Reserves means, as of any
given date, the reserve attributable to losses incurred but not reported and
losses reported but not paid with respect to the insurance policies produced
under this Agreement, and shall include provision for both allocated and
unallocated loss adjustment expense, in each instance as determined in
accordance with generally accepted accounting principles consistently applied.

 

21.07       The Reinsurer hereby agrees that the actuarial opinion of the
Company’s internal actuary shall be controlling, in its sole discretion, as to
the timing and determination of the adequacy of loss reserves established for
losses incurred and outstanding on business produced under this Agreement and
the General Agency Agreement for the purposes of posting collateral hereunder.
However, the Reinsurer shall have the right to have the Company engage on a
semi-annual basis, at the expense of the Reinsurer an independent actuarial
opinion, performed by MILLIMAN USA’s Dallas office, attesting to the adequacy of
loss reserves established for losses incurred and outstanding on business
produced under this Agreement and the General Agency Agreement. If the Reinsurer
requests hereunder the actuarial opinion of MILLIMAN USA’s Dallas office, the
Reinsurer hereby agrees to post the collateral required hereunder in accordance
with the actuarial analysis of the Company’s internal actuary until an analysis
is completed by MILLIMAN USA’s Dallas office.  At such time, the Reinsurer shall
post the collateral required hereunder in accordance with the actuarial analysis
of MILLIMAN USA’s Dallas office. If MILLIMAN USA’s Dallas office is unable to
perform the actuarial analysis, the analysis of the Company’s internal actuary
shall be controlling for the purpose of determining the ultimate loss ratio and
loss adjustment expense ratio picks required for posting collateral under the
Agreements.  If subsequent to the receipt of the applicable independent
actuarial opinion, the Company determines in its sole discretion that there has
been a significant change in the loss reserves as compared to the applicable
independent actuarial opinion, the Company’s internal actuary shall again be
controlling, in its sole discretion, as to the timing and determination of the
adequacy of loss reserves established for losses incurred and outstanding on
business produced under this Agreement and the General Agency Agreement until
the Company again engages, at the expense of the Reinsurer, an independent
actuarial opinion, performed by MILLIMAN USA’s Dallas office, attesting to the
adequacy of loss reserves established for losses incurred and outstanding on
business produced under this Agreement and the General Agency Agreement.
Additionally, if the actuarial opinion of the Company’s internal actuary is not
available, for any reason, the Company shall engage semi-annually, at the
expense of the Reinsurer, an independent actuarial opinion, performed by
MILLIMAN USA’s Dallas office, attesting to the adequacy of loss reserves
established for losses incurred and outstanding on business produced under this
Agreement and the General Agency Agreement.

 

ARTICLE XXII

SAVINGS CLAUSE

 

22.01       If any law or regulation of any Federal, State or local government
of the United States of America, or the ruling of officials having supervision
over insurance companies, should prohibit or render illegal this Agreement, or
any portion thereof, as to risks or properties located in the jurisdiction of
such authority, either the Company or the Reinsurer may upon written notice to
the other suspend or abrogate this Agreement insofar as it relates to risks or
properties located within such jurisdiction to such extent as may be necessary
to comply with such law, regulations or ruling. Such illegality shall in no way
affect any other portion thereof; provided, however, that the Reinsurer or the
Company may terminate or suspend this Agreement insofar as it relates to the
business to which such law or regulation may apply.

 

22.02       This Agreement shall be interpreted in accordance with the laws of
the State of Texas.

 

 

All provisions of this Agreement are intended to be enforced to the fullest
extent permitted. Accordingly, should a court of competent jurisdiction or
arbitration panel determine that the scope of any provision is too broad to be
enforced as written, the Parties intend that the court or arbitration panel
should reform the provision to such narrower scope as it determines to be
enforceable under present or future law; such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision were never a part hereof; and the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid, or unenforceable provision or by its
severance; provided, however, that where this Agreement is so found not to
comply with applicable law or regulation, the Company may in it sole discretion
terminate this Agreement immediately without prior notice.

 

[THE REMAINDER OF THE PAGE IS LEFT INTENTIONALLY BLANK.

SIGNATURES APPEAR ON THE FOLLOWING PAGE.]

 

 

 

IN WITNESS WHEREOF, the Parties hereto by their respective duly authorized
representatives have executed this Agreement as of the date first above written.

 

UNITED SPECIALTY INSURANCE COMPANY

 

 

BY: /s/ David Cleff

 

ITS: EVP

 

DATE: 4-3-2020

 

 

CRUSADER INSURANCE COMPANY

 

 

BY: /s/ Cary L. Cheldin

 

ITS: President

 

DATE: 4-1-20

 

 

UNIFAX INSURANCE SYSTEMS, INC.

 

 

BY: /s/ Cary L. Cheldin

 

ITS: President

 

DATE: 4-1-20