﻿

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FHCF Supplement Layer

Reinsurance Contract

Effective:  June 1, 2016

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Federated National Insurance Company

Sunrise, Florida

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_______________________

*****Portions of this document omitted pursuant to an application for an order
for confidential treatment pursuant to Rule 24b-2 under the Exchange Act.
Confidential portions of this document have been filed separately with the
Securities and Exchange Commission.

 

 

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﻿

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Reinsurer(s)

Participation(s)

﻿

 

American Standard Insurance Company of Wisconsin

*%

BGS Services (Bermuda) Limited
 for and on behalf of Lloyd's Syndicate No. 2987

*%

Chubb Tempest Reinsurance Ltd.

*%

DaVinci Reinsurance Ltd.**

*%

Fidelis Insurance Bermuda Limited

*%

Hamilton Re, Ltd.

*%

Horseshoe Re Limited
 on behalf of and for the benefit of its Separate Account CC0024**

*%

Partner Reinsurance Company Ltd.

*%

Renaissance Reinsurance Ltd.**

*%

Securis Re II Ltd. Bermuda

 in respect of its segregated account designated "SRB205"**

*%

Securis Re III Ltd. Bermuda

 in respect of its segregated account designated "SRB305"**

*%

Securis Re V Ltd. Bermuda

 in respect of its segregated account designated "SRB505"**

*%

Securis Re VI Ltd. Bermuda

 in respect of its segregated account designated "SRB605"**

*%

Tokio Millennium Re AG, Bermuda Branch (Elementum Advisors Business)* *

*%

Tokio Millennium Re AG (Bermuda Branch)

*%

Transatlantic Reinsurance Company

*%

XL Bermuda Ltd.**

*%

﻿

 

Through Aon UK Limited trading as Aon Benfield (Placement Only)

 

Ascot Underwriting (Bermuda) Limited
 for and on behalf of American International Reinsurance Company, Ltd.

*%

General Insurance Corporation of India

*%

Länsförsäkringar Sak Forsäkringsaktiebolag (publ)

*%

Pioneer Underwriting Limited
 for and on behalf of PICC Property and Casualty Company Limited

*%

Pioneer Underwriting Limited
 for and on behalf of Taiping Reinsurance Co. Ltd.

*%

Pioneer Underwriting Limited
 for and on behalf of Peak Reinsurance Company Limited

*%

﻿

 

Through Aon UK Limited trading as Aon Benfield

 

Lloyd's Underwriters and Companies
 Per Signing Page(s)

*%

Total

*%

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**Both the Company and the Subscribing Reinsurer sign the Interests and
Liabilities Agreement.

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Table of Contents

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﻿

 

 

Article

 

Page

1 

Classes of Business Reinsured

1  2 

Commencement and Termination

1  3 

Territory

3  4 

Exclusions

3  5 

Retention and Limit

4  6 

Other Reinsurance

5  7 

Definitions

5  8 

Loss Occurrence

6  9 

Loss Notices and Settlements

6  10 

Cash Call

7  11 

Salvage and Subrogation

7  12 

Reinsurance Premium

7  13 

Sanctions

8  14 

Late Payments

8  15 

Offset

9  16 

Access to Records

9  17 

Liability of the Reinsurer

10  18 

Net Retained Lines (BRMA 32E)

10  19 

Errors and Omissions (BRMA 14F)

10  20 

Currency (BRMA 12A)

10  21 

Taxes (BRMA 50B)

11  22 

Federal Excise Tax (BRMA 17D)

11  23 

Foreign Account Tax Compliance Act

11  24 

Reserves

11  25 

Insolvency

13  26 

Arbitration

13  27 

Service of Suit (BRMA 49C)

14  28 

Severability (BRMA 72E)

15  29 

Governing Law (BRMA 71B)

15  30 

Confidentiality

15  31 

Non-Waiver

16  32 

Notices and Contract Execution

16  33 

Intermediary

17 

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FHCF Supplement Layer

Reinsurance Contract

Effective: June 1, 2016

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entered into by and between

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Federated National Insurance Company

Sunrise, Florida

(hereinafter referred to as the "Company")

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and

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The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the "Reinsurer")

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Article 1 - Classes of Business Reinsured

By this Contract the Reinsurer agrees to reinsure the excess liability which may
accrue to the Company under its policies in force at the effective time and date
hereof or issued or renewed at or after that time and date, and classified by
the Company as Property business, including but not limited to, Dwelling Fire,
Inland Marine, Mobile Home, Commercial and Homeowners business (including any
business assumed from Citizens Property Insurance Corporation), subject to the
terms, conditions and limitations hereinafter set forth.

﻿

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Article 2 - Commencement and Termination

A.    This Contract shall become effective at 12:01 a.m., Eastern Standard Time,
June 1, 2016, with respect to losses arising out of loss occurrences commencing
at or after that time and date, and shall remain in force until 12:01 a.m.,
Eastern Standard Time, June 1, 2017.

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B.    Notwithstanding the provisions of paragraph A above, the Company may
terminate a Subscribing Reinsurer's percentage share in this Contract at any
time by giving written notice to the Subscribing Reinsurer in the event any of
the following circumstances occur:

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1.     The Subscribing Reinsurer's policyholders' surplus (or its equivalent
under the Subscribing Reinsurer's accounting system) at the inception of this
Contract has been reduced by 20.0% or more of the amount of surplus (or the
applicable equivalent) 12 months prior to that date; or

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2.     The Subscribing Reinsurer's policyholders' surplus (or its equivalent
under the Subscribing Reinsurer's accounting system) at any time during the term
of this Contract has been reduced by 20.0% or more of the amount of surplus (or
the applicable equivalent) at the date of the Subscribing Reinsurer's most
recent financial

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statement filed with regulatory authorities and available to the public as of
the inception of this Contract; or

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3.     The Subscribing Reinsurer's A.M. Best's rating has been assigned or
downgraded below A- and/or Standard & Poor's rating has been assigned or
downgraded below BBB+; or

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4.     The Subscribing Reinsurer has become, or has announced its intention to
become, merged with, acquired by or controlled by any other entity or
individual(s) not controlling the Subscribing Reinsurer's operations previously;
or

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5.     A State Insurance Department or other legal authority has ordered the
Subscribing Reinsurer to cease writing business; or

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6.     The Subscribing Reinsurer has become insolvent or has been placed into
liquidation, receivership, supervision, administration, winding-up or under a
scheme of arrangement, or similar proceedings (whether voluntary or involuntary)
or proceedings have been instituted against the Subscribing Reinsurer for the
appointment of a receiver, liquidator, rehabilitator, supervisor, administrator,
conservator or trustee in bankruptcy, or other agent known by whatever name, to
take possession of its assets or control of its operations; or

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7.     The Subscribing Reinsurer has reinsured its entire liability under this
Contract without the Company's prior written consent; or

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8.     The Subscribing Reinsurer has ceased assuming new or renewal property or
casualty treaty reinsurance business; or

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9.     The Subscribing Reinsurer has hired an unaffiliated runoff claims manager
that is compensated on a contingent basis or is otherwise provided with
financial incentives based on the quantum of claims paid; or

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10.   The Subscribing Reinsurer has failed to comply with the funding
requirements set forth in the Reserves Article.

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C.    The "term of this Contract" as used herein shall mean the period from
12:01 a.m., Eastern Standard Time, June 1, 2016 to 12:01 a.m., Eastern Standard
Time, June 1, 2017.  However, if this Contract is terminated, the "term of this
Contract" as used herein shall mean the period from 12:01 a.m., Eastern Standard
Time, June 1, 2016 to the effective time and date of termination.

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D.    If this Contract is terminated or expires while a loss occurrence covered
hereunder is in progress, the Reinsurer's liability hereunder shall, subject to
the other terms and conditions of this Contract, be determined as if the entire
loss occurrence had occurred prior to the termination or expiration of this
Contract, provided that no part of such loss occurrence is claimed against any
renewal or replacement of this Contract.

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Article 3 - Territory

This Contract shall only apply to risks located in the State of Florida.

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Article 4 - Exclusions

A.    This Contract does not apply to and specifically excludes the following:

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1.     Reinsurance assumed by the Company under obligatory reinsurance
agreements, except business assumed by the Company from Citizens Property
Insurance Corporation.

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2.     Hail damage to growing or standing crops.

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3.     Business rated, coded or classified as Flood insurance or which should
have been rated, coded or classified as such.

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4.     Business rated, coded or classified as Mortgage Impairment and Difference
in Conditions insurance or which should have been rated, coded or classified as
such.

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5.     Title insurance and all forms of Financial Guarantee, Credit and
Insolvency.

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6.     Aviation, Ocean Marine, Boiler and Machinery, Fidelity and Surety,
Accident and Health, Animal Mortality and Workers Compensation and Employers
Liability.

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7.     Errors and Omissions, Malpractice and any other type of Professional
Liability insurance.

﻿

8.     Loss and/or damage and/or costs and/or expenses arising from seepage
and/or pollution and/or contamination, other than contamination from
smoke.  Nevertheless, this exclusion does not preclude payment of the cost of
removing debris of property damaged by a loss otherwise covered hereunder,
subject always to a limit of 25.0% of the Company's property loss under the
applicable original policy.

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9.     Loss or liability as excluded under the provisions of the "War Exclusion
Clause" attached to and forming part of this Contract.

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10.   Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Physical Damage - Reinsurance (U.S.A.)" attached to and forming part of this
Contract.

﻿

11.   Loss or liability from any Pool, Association or Syndicate and any
assessment or similar demand for payment related to the FHCF or Citizens
Property Insurance Corporation.

﻿

12.   Loss or 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, insolvency fund, plan, pool, association, fund or other arrangement,
however denominated, established or governed, which provides for any assessment
of or payment or assumption by the

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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.

﻿

13.   Losses in the respect of overhead transmission and distribution lines
other than those on or within 150 meters (or 500 feet) of the insured premises.

﻿

14.   Mold, unless resulting from a peril otherwise covered under the policy
involved.

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15.   Loss or liability as excluded under the provisions of the "Terrorism
Exclusion" attached to and forming part of this Contract.

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16.   All property loss, damage, destruction, erasure, corruption or alteration
of Electronic Data from any cause whatsoever (including, but not limited to,
Computer Virus) or loss of use, reduction in functionality, cost, expense or
whatsoever nature resulting therefrom, unless resulting from a peril otherwise
covered under the policy involved.

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"Electronic Data" as used herein means facts, concepts and information converted
to a form usable for communications, interpretation or processing by electronic
and electromechanical data processing or electronically-controlled equipment and
includes programs, software and other coded instructions for the processing and
manipulation of data or the direction and manipulation of such equipment.

﻿

"Computer Virus" as used herein means a set of corrupting, harmful or otherwise
unauthorized instructions or code, including a set of maliciously-introduced,
unauthorized instructions or code, that propagate themselves through a computer
system network of whatsoever nature.

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However, in the event that a peril otherwise covered under the policy results
from any of the matters described above, this Contract, subject to all other
terms and conditions, will cover physical damage directly caused by such listed
peril.

﻿

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Article 5 - Retention and Limit

A.    The Company shall retain and be liable for the first ***** of ultimate net
loss arising out of any one loss occurrence.  The Reinsurer shall then be liable
for the amount by which such ultimate net loss exceeds the Company's retention,
but the Reinsurer's liability for ultimate net loss (plus an allowance for loss
adjustment expense) shall not exceed ***** as respects all losses arising out of
loss occurrences  commencing during the term of this Contract.

﻿

B.    Notwithstanding the provisions of paragraph A above, the following shall
apply:

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1.     When the Company experiences ultimate net loss from one or two covered
events during the term of this Contract, the Company’s full ***** retention
shall be applied to each of the covered events; and

﻿

2.     When the Company experiences ultimate net loss from more than two covered
events during the term of this Contract, the Company’s full *****
retention shall be applied to

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each of the two covered events causing the largest ultimate net loss for the
Company.  For each other covered event resulting in ultimate net loss, the
Company’s retention shall be reduced to one - third of its full retention *****
and applied to all other covered events.

﻿

C.    No claim will be made under this Contract in any one loss occurrence
unless at least two risks insured or reinsured by the Company are involved in
such loss occurrence.

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D.    As part of the Reinsurer's limit of liability set forth in paragraph A
above, the Reinsurer shall be liable for an amount equal to 5.0% of ultimate net
loss paid or to be paid by the Reinsurer as an allowance for loss adjustment
expense incurred by the Company.

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Article 6 - Other Reinsurance

The Company shall be permitted to carry other reinsurance, recoveries under
which shall inure solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this Contract.

﻿

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Article 7 - Definitions

A.    "Loss in excess of policy limits" and "extra contractual obligations" as
used in this Contract shall mean:

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1.     "Loss in excess of policy limits" shall mean 90.0% of any amount paid or
payable by the Company in excess of its policy limits, but otherwise within the
terms of its policy, such loss in excess of the Company's policy limits having
been incurred because of, but not limited to, failure by the Company to settle
within the policy limits or by reason of the Company's 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 an action against its insured or
reinsured or in the preparation or prosecution of an appeal consequent upon such
an action.  Any loss in excess of policy limits that is made in connection with
this Contract shall not exceed 25.0% of the actual catastrophe loss.

﻿

2.     "Extra contractual obligations" shall mean 90.0% of any punitive,
exemplary, compensatory or consequential damages paid or payable by the Company,
not covered by any other provision of this Contract and which arise from the
handling of any claim on business subject to this Contract, such liabilities
arising because of, but not limited to, failure by the Company to settle within
the policy limits or by reason of the Company's 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 an action against its insured or reinsured or in
the preparation or prosecution of an appeal consequent upon such an action.  An
extra contractual obligation shall be deemed, in all circumstances, to have
occurred on the same date as the loss covered or alleged to be covered under the
policy.  Any extra contractual obligations that are made in connection with this
Contract shall not exceed 25.0% of the actual catastrophe loss.

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Notwithstanding anything stated herein, this Contract shall not apply to any
loss in excess of policy limits or any extra contractual obligation incurred by
the Company as a result of

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any fraudulent and/or criminal act by any officer or director 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.

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B.    "Policies" as used in this Contract shall mean all policies, contracts and
binders of insurance or reinsurance.

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C.    "Ultimate net loss" as used in this Contract shall mean the sum or sums
(including loss in excess of policy limits and extra contractual obligations, as
defined herein) paid or payable by the Company in settlement of claims and in
satisfaction of judgments rendered on account of such claims, after deduction of
all salvage, all recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not.  Nothing herein shall be construed to mean that
losses under this Contract are not recoverable until the Company's ultimate net
loss has been ascertained.

﻿

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Article 8 - Loss Occurrence

A.    "Loss occurrence" as used in this Contract shall mean the sum of
individual insured losses incurred under Policies resulting from the same
covered event.

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B.    "Covered event" as used in this Contract shall mean any one storm declared
to be a hurricane by the National Hurricane Center which causes insured losses
in Florida.  A covered event begins when a hurricane causes damage in Florida
while it is a hurricane and continues throughout any subsequent downgrades in
storm status by the National Hurricane Center regardless of whether the
hurricane makes landfall.  Any storm, including a tropical storm, which does not
become a hurricane is not a covered event.

﻿

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Article 9 - Loss Notices and Settlements

A.    Whenever losses sustained by the Company are reserved by the Company for
an amount greater than 50.0% of the Company's retention hereunder and/or appear
likely to result in a claim under this Contract, the Company shall notify the
Subscribing Reinsurers and shall provide updates related to development of such
losses.  The Reinsurer shall have the right to participate in the adjustment of
such losses at its own expense.

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B.    All loss settlements made by the Company, provided they are within the
terms of this Contract and the terms of the original policy (with the exception
of loss in excess of policy limits or extra contractual obligations coverage, if
any, under this Contract), shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable, including the
associated allowance for loss adjustment expense, upon receipt of reasonable
evidence of the amount paid by the Company.

﻿

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Article 10 - Cash Call

Notwithstanding the provisions of the Loss Notices and Settlements Article, upon
the request of the Company, the Reinsurer shall pay any amount with regard to a
loss settlement or

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settlements (including the associated allowance for loss adjustment expense)
that are scheduled to be made (including any payments projected to be made)
within the next 20 days by the Company, subject to receipt by the Reinsurer of a
satisfactory proof of loss.  Such agreed payment shall be made within 10 days
from the date the demand for payment was transmitted to the Reinsurer.

﻿

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Article 11 - Salvage and Subrogation

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder.  Salvage thereon shall always
be used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss.  The Company hereby agrees to enforce its rights
to salvage or subrogation relating to any loss, a part of which loss was
sustained by the Reinsurer, and to prosecute all claims arising out of such
rights, if, in the Company's opinion, it is economically reasonable to do so.

﻿

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Article 12 - Reinsurance Premium

A.    As premium for reinsurance coverage provided by this Contract, the Company
shall pay the Reinsurer a premium equal to the product of the following (or a
pro rata portion thereof in the event the term of this Contract is less than
12 months), subject to a minimum premium of ***** (or a pro rata portion thereof
in the event the term of this Contract is less than 12 months):

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1.     An annual deposit premium of *****; times

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2.     The percentage calculated by dividing (a) the actual Average Annual Loss
("AAL") determined by the Company's wind insurance in force on September 30,
2016, by (b) the original AAL of *****.

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However, if the difference between annual deposit premium of *****, and the
premium calculated in accordance with this paragraph A is less than a 10.0%
increase or decrease, the premium due the Reinsurer will equal the annual
deposit premium of *****.

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The Company's AAL shall be derived by averaging the applicable data produced by
Applied Insurance Research (AIR) Touchstone v3.1 and Risk Management Solutions
(RMS) RiskLink v15 catastrophe modeling software, in the long-term perspective,
including secondary uncertainty and loss amplification, but excluding storm
surge.  It is understood that the calculation of the actual AAL shall be based
on the Reinsurer's per occurrence limit of *****, net of the FHCF mandatory
layer of coverage purchased by the Company using the current estimates of the
mandatory FHCF coverage of ***** excess of *****.

﻿

B.    The Company shall pay the Reinsurer an annual deposit premium of *****, in
four equal installments of ***** on July 1 and October 1 of 2016, and on January
1 and April 1 of 2017. 

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However, in the event this Contract is terminated, there shall be no deposit
premium installments due after the effective date of termination.

﻿

C.    On or before May 31, 2017, the Company shall provide a report to the
Reinsurer setting forth the premium due hereunder for the term of this Contract,
computed in accordance with paragraph A above, and any additional premium due
the Reinsurer or return premium due the Company shall be remitted promptly.

﻿

﻿

Article 13 - Sanctions

Neither the Company nor any Subscribing Reinsurer shall be liable for premium or
loss under this Contract if it would result in a violation of any mandatory
sanction, prohibition or restriction under United Nations resolutions or the
trade or economic sanctions, laws or regulations of the European Union, United
Kingdom or United States of America that are applicable to either party.

﻿

﻿

Article 14 - Late Payments

A.    The provisions of this Article shall not be implemented unless
specifically invoked, in writing, by one of the parties to this Contract.

﻿

B.    In the event any premium, loss or other payment due either party is not
received by the intermediary named in the Intermediary Article (hereinafter
referred to as the "Intermediary") by the payment due date, the party to whom
payment is due may, by notifying the Intermediary in writing, require the debtor
party to pay, and the debtor party agrees to pay, an interest charge on the
amount past due calculated for each such payment on the last business day of
each month as follows:

﻿

1.     The number of full days which have expired since the due date or the last
monthly calculation, whichever the lesser; times

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2.     1/365ths of the six-month United States Treasury Bill rate as quoted in
The Wall Street Journal on the first business day of the month for which the
calculation is made; times

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3.     The amount past due, including accrued interest.

﻿

It is agreed that interest shall accumulate until payment of the original amount
due plus interest charges have been received by the Intermediary.

﻿

C.    The establishment of the due date shall, for purposes of this Article, be
determined as follows:

﻿

1.     As respects the payment of routine deposits and premiums due the
Reinsurer, the due date shall be as provided for in the applicable section of
this Contract.  In the event a due date is not specifically stated for a given
payment, it shall be deemed due 30 days after the date of transmittal by the
Intermediary of the initial billing for each such payment.

﻿

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2.     Any claim or loss payment due the Company hereunder shall be deemed due
10 days after the proof of loss or demand for payment is transmitted to the
Reinsurer.  If such loss or claim payment is not received within the 10 days,
interest will accrue on the payment or amount overdue in accordance with
paragraph B above, from the date the proof of loss or demand for payment was
transmitted to the Reinsurer.

﻿

3.     As respects any payment, adjustment or return due either party not
otherwise provided for in subparagraphs 1 and 2 of this paragraph C, the due
date shall be as provided for in the applicable section of this Contract.  In
the event a due date is not specifically stated for a given payment, it shall be
deemed due 10 days following transmittal of written notification that the
provisions of this Article have been invoked.

﻿

For purposes of interest calculations only, amounts due hereunder shall be
deemed paid upon receipt by the Intermediary.

﻿

D.    Nothing herein shall be construed as limiting or prohibiting a Subscribing
Reinsurer from contesting the validity of any claim, or from participating in
the defense of any claim or suit, or prohibiting either party from contesting
the validity of any payment or from initiating any arbitration or other
proceeding in accordance with the provisions of this Contract.  If the debtor
party prevails in an arbitration or other proceeding, then any interest charges
due hereunder on the amount in dispute shall be null and void.  If the debtor
party loses in such proceeding, then the interest charge on the amount
determined to be due hereunder shall be calculated in accordance with the
provisions set forth above unless otherwise determined by such proceedings.  If
a debtor party advances payment of any amount it is contesting, and proves to be
correct in its contestation, either in whole or in part, the other party shall
reimburse the debtor party for any such excess payment made plus interest on the
excess amount calculated in accordance with this Article.

﻿

E.    Interest charges arising out of the application of this Article that are
$1,000 or less from any party shall be waived unless there is a pattern of late
payments consisting of three or more items over the course of any 12-month
period.

﻿

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Article 15 - 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 contract heretofore or
hereafter entered into between the Company and the Reinsurer, whether acting as
assuming reinsurer or ceding company.  The provisions of this Article shall not
be affected by the insolvency of either party.

﻿

﻿

Article 16 - Access to Records

The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance, provided the Reinsurer gives the Company at least 15 days prior
notice of request for such access.  However, a Subscribing Reinsurer or its
designated representatives shall not have any right of access to the records of
the Company if it is not current in all undisputed payments due the
Company.  "Undisputed" as used herein shall mean any amount that the Subscribing
Reinsurer has not contested in writing to the Company specifying the reason(s)
why the payments are disputed. 

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﻿

﻿

Article 17 - Liability of the Reinsurer

A.    The liability of the Reinsurer shall follow that of the Company in every
case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company's policies and
any endorsements thereon.  However, in no event shall this be construed in any
way to provide coverage outside the terms and conditions set forth in this
Contract.

﻿

B.    Nothing herein shall in any manner create any obligations or establish any
rights against the Reinsurer in favor of any third party or any persons not
parties to this Contract.

﻿

﻿

Article 18 - Net Retained Lines (BRMA 32E)

A.    This Contract applies only to that portion of any policy which the Company
retains net for its own account (prior to deduction of any underlying
reinsurance specifically permitted in this Contract), 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 policy 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 reinsurer(s), whether specific or general, any amounts
which may have become due from such reinsurer(s), whether such inability arises
from the insolvency of such other reinsurer(s) or otherwise.

﻿

﻿

Article 19 - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.

﻿

﻿

Article 20 - Currency (BRMA 12A)

A.    Whenever the word "Dollars" or the "$" sign appears in this Contract, they
shall be construed to mean United States Dollars and all transactions under this
Contract shall be in United States Dollars.

﻿

B.    Amounts paid or received by the Company in any other currency shall be
converted to United States Dollars at the rate of exchange at the date such
transaction is entered on the books of the Company.

﻿

﻿

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Article 21 - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect 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 the District of Columbia.

﻿

﻿

Article 22 - Federal Excise Tax (BRMA 17D)

A.    The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Code) to the extent such premium is
subject to the Federal Excise Tax.

﻿

B.    In the event of any return of premium becoming due hereunder the Reinsurer
will deduct the applicable percentage from the return premium payable hereon and
the Company or its agent should take steps to recover the tax from the United
States Government.

﻿

﻿

Article 23 - Foreign Account Tax Compliance Act

A.    To the extent the Reinsurer is subject to the deduction and withholding of
premium payable hereon as set forth in the Foreign Account Tax Compliance Act
(Sections 1471-1474 of the Internal Revenue Code), the Reinsurer shall allow
such deduction and withholding from the premium payable under this Contract.

﻿

B.    In the event of any return of premium becoming due hereunder, the return
premium shall be determined and paid in full without regard to any amounts
deducted or withheld under paragraph A of this Article.  In the event the
Company or its agent recovers such premium deductions and withholdings on the
return premium from the United States Government, the Company or its agent shall
reimburse the Reinsurer for such amounts.

﻿

﻿

Article 24 - Reserves

A.    The Reinsurer agrees to fund its share of amounts, including but not
limited to, the Company's ceded unearned premium and outstanding loss and the
allowance for loss adjustment expense reserves (including all case reserves plus
any reasonable amount estimated to be unreported from known loss occurrences)
(hereinafter referred to as "Reinsurer's Obligations") by:

﻿

1.     Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory authorities
involved, by a bank or banks meeting the NAIC Securities Valuation Office credit
standards for issuers of letters of credit and acceptable to said insurance
regulatory authorities; and/or

﻿

2.     Escrow accounts for the benefit of the Company; and/or

﻿

3.     Cash advances;

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﻿

if the Reinsurer:

﻿

1.     Is unauthorized in any state of the United States of America or the
District of Columbia having jurisdiction over the Company and if, without such
funding, a penalty would accrue to the Company on any financial statement it is
required to file with the insurance regulatory authorities involved; or

﻿

2.     Has an A.M. Best Company's rating equal to or below B++ at the inception
of this Contract.

﻿

The Reinsurer, at its sole option, may fund in other than cash if its method and
form of funding are acceptable to the insurance regulatory authorities involved.

﻿

B.    With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to insurance
regulatory authorities involved, will be issued for a term of at least one year
and will include an "evergreen clause," which automatically extends the term for
at least one additional year at each expiration date unless written notice of
non-renewal is given to the Company not less than 30 days prior to said
expiration date.  The Company and the Reinsurer further agree, notwithstanding
anything to the contrary in this Contract, that said letters of credit may be
drawn upon by the Company or its successors in interest at any time, without
diminution because of the insolvency of the Company or the Reinsurer, but only
for one or more of the following purposes:

﻿

1.     To reimburse itself for the Reinsurer's share of unearned premiums
returned to insureds on account of policy cancellations, unless paid in cash by
the Reinsurer;

﻿

2.     To reimburse itself for the Reinsurer's share of losses and/or the
allowance for loss adjustment expense paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;

﻿

3.     To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;

﻿

4.     To fund a cash account in an amount equal to the Reinsurer's share of
amounts, including but not limited to, the Reinsurer's Obligations as set forth
above, funded by means of a letter of credit which is under non-renewal notice,
if said letter of credit has not been renewed or replaced by the Reinsurer
10 days prior to its expiration date;

﻿

5.     To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of amounts, including but not limited to,
the Reinsurer's Obligations as set forth above, if so requested by the
Reinsurer.

﻿

In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1), B(2) or B(4), or in the case of
B(3), the actual amount determined to be due, the Company shall promptly return
to the Reinsurer the excess amount so drawn.

﻿

﻿

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Article 25 - Insolvency

A.    In the event of the 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 claim.  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 a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the receivership,
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 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.

﻿

B.    Where two or more Subscribing 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 Company.

﻿

C.    It is further understood and agreed that, in the event of the insolvency
of the Company, the reinsurance under this Contract shall be payable directly by
the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance Law
or except (1) where this Contract specifically provides another payee of such
reinsurance in the event of the insolvency of the Company or (2) 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 obligations of the
Company to such payees.

﻿

﻿

Article 26 - Arbitration

A.    As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be chosen by the two
Arbiters before they enter upon arbitration, all of whom shall be active or
retired disinterested executive officers of insurance or reinsurance companies
or Lloyd's London Underwriters.  In the event that either party should fail to
choose an Arbiter within 30 days following a written request by the other party
to do so, the requesting party may choose two Arbiters who shall in turn choose
an Umpire before entering upon arbitration.  If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two of whom
the other shall decline, and the decision shall be made by drawing lots.

﻿

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B.    Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire.  The Arbiters shall consider this
Contract as an honorable engagement rather than merely as a legal obligation and
they are relieved of all judicial formalities and may abstain from following the
strict rules of law.  The decision of the Arbiters shall be final and binding on
both parties; but failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both parties.  Judgment
upon the final decision of the Arbiters may be entered in any court of competent
jurisdiction.

﻿

C.    If more than one Subscribing Reinsurer is involved in the same dispute,
all such Subscribing Reinsurers shall, at the option of the Company, constitute
and act as one party for purposes of this Article and communications shall be
made by the Company to each of the Subscribing Reinsurers constituting one
party, provided, however, that nothing herein shall impair the rights of such
Subscribing Reinsurers to assert several, rather than joint, defenses or claims,
nor be construed as changing the liability of the Subscribing Reinsurers
participating under the terms of this Contract from several to joint.

﻿

D.    Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration.  In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.

﻿

E.    Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Contract, but notwithstanding the location of the
arbitration, all proceedings pursuant hereto shall be governed by the law of the
state in which the Company has its principal office.

﻿

﻿

Article 27 - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)

﻿

A.    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 a 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.

﻿

B.    Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or if no
party is named therein, 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
Contract.

﻿

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﻿

Article 28 - Severability (BRMA 72E)

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.

﻿

﻿

Article 29 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of
the State of Florida.

﻿

﻿

Article 30 - Confidentiality

A.    The Reinsurer hereby acknowledges that the documents, information and data
provided to it by the Company, whether directly or through an authorized agent,
in connection with the placement and execution of this Contract, including all
information obtained through any audits and any claims information between the
Company and the Reinsurer, and any submission or other materials relating to any
renewal (hereinafter referred to as "Confidential Information") are proprietary
and confidential to the Company. 

﻿

B.    Except as provided for in paragraph C below, the Reinsurer shall not
disclose any Confidential Information to any third parties, including but not
limited to the Reinsurer's subsidiaries and affiliates, other insurance
companies and their subsidiaries and affiliates, underwriting agencies, research
organizations, any unaffiliated entity engaged in modeling insurance or
reinsurance data, and statistical rating organizations. 

﻿

C.    Confidential Information may be used by the Reinsurer only in connection
with the performance of its obligations or enforcement of its rights under this
Contract and will only be disclosed when required by (1) retrocessionaires
subject to the business ceded to this Contract, (2) regulators performing an
audit of the Reinsurer's records and/or financial condition, (3) external
auditors performing an audit of the Reinsurer's records in the normal course of
business, or (4) the Reinsurer's legal counsel; provided that the Reinsurer
advises such parties of the confidential nature of the Confidential Information
and their obligation to maintain its confidentiality.  The Company may require
that any third-party representatives of the Reinsurer agree, in writing, to be
bound by this Confidentiality Article or by a separate written confidentiality
agreement, containing terms no less stringent than those set forth in this
Article.  If a third-party representative of the Reinsurer is not bound, in
writing, by this Confidentiality Article or by a separate written
confidentiality agreement, the Reinsurer shall be responsible for any breach of
this provision by such third-party representative of the Reinsurer.

﻿

D.    Notwithstanding the above, in the event that the Reinsurer is required by
court order, other legal process or any regulatory authority to release or
disclose any or all of the Confidential Information, the Reinsurer agrees to
provide the Company with written notice of same at least 10 days prior to such
release or disclosure, to the extent legally permissible, and to

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use its best efforts to assist the Company in maintaining the confidentiality
provided for in this Article.

﻿

E.    Any disclosure of Non-Public Personally Identifiable Information shall
comply with all state and federal statutes and regulations governing the
disclosure of Non-Public Personally Identifiable Information.  "Non-Public
Personally Identifiable Information" shall be defined as this term or a similar
term is defined in any applicable state, provincial, territory, or federal
law.  Disclosing or using this information for any purpose not authorized by
applicable law is expressly forbidden without the prior consent of the Company.

﻿

F.    The parties agree that any information subject to privilege, including the
attorney-client privilege or attorney work product doctrine (collectively
"Privilege") shall not be disclosed to the Reinsurer until, in the Company's
opinion, such Privilege is deemed to be waived or otherwise compromised by
virtue of its disclosure pursuant to this Contract.  Furthermore, the Reinsurer
shall not assert that any Privilege otherwise applicable to the Confidential
Information has been waived or otherwise compromised by virtue of its disclosure
pursuant to this Contract. 

﻿

G.    The provisions of this Article shall extend to the officers, directors and
employees of the Reinsurer and its affiliates, and shall be binding upon their
successors and assigns.

﻿

﻿

Article 31 - Non-Waiver

The failure of the Company or Reinsurer to insist on compliance with this
Contract or to exercise any right, remedy or option hereunder shall not:  (1)
constitute a waiver of any rights contained in this Contract, (2) prevent the
Company or Reinsurer from thereafter demanding full and complete compliance,
(3) prevent the Company or Reinsurer from exercising such remedy in the future,
nor (4) affect the validity of this Contract or any part thereof.

﻿

﻿

Article 32 - Notices and Contract Execution

A.    Whenever a notice, statement, report or any other written communication is
required by this Contract, unless otherwise specified, such notice, statement,
report or other written communication may be transmitted by certified or
registered mail, nationally or internationally recognized express delivery
service, personal delivery, electronic mail, or facsimile.  With the exception
of notices of termination, first class mail is also acceptable.

﻿

B.    The use of any of the following shall constitute a valid execution of this
Contract or any amendments thereto:

﻿

1.     Paper documents with an original ink signature;

﻿

2.     Facsimile or electronic copies of paper documents showing an original ink
signature; and/or

﻿

3.     Electronic records with an electronic signature made via an electronic
agent.  For the purposes of this Contract, the terms "electronic record,"
"electronic signature" and

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"electronic agent" shall have the meanings set forth in the Electronic
Signatures in Global and National Commerce Act of 2000 or any amendments
thereto.

﻿

C.    This Contract may be executed in one or more counterparts, each of which,
when duly executed, shall be deemed an original.

﻿

﻿

Article 33 - Intermediary

Aon Benfield Inc., or one of its affiliated corporations duly licensed as a
reinsurance intermediary, is hereby recognized as the Intermediary negotiating
this Contract for all business hereunder.  All communications (including but not
limited to notices, statements, premiums, return premiums, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating to this
Contract will be transmitted to the Company or the Reinsurer through the
Intermediary.  Payments by the Company to the Intermediary will be deemed
payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be
deemed payment to the Company only to the extent that such payments are actually
received by the Company.

﻿

﻿

In Witness Whereof, the Company by its duly authorized representative has
executed this Contract as of the date specified below:

﻿

This ________________ day of ____________________________ in the year
____________.

﻿

Federated National Insurance Company

﻿

/s/ Michael H. Braun           

﻿

*/s/ signed by all participating reinsurers

 

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﻿

War Exclusion Clause

﻿

﻿

﻿

As regards interests which at time of loss or damage are on shore, no liability
shall attach hereto in respect of any loss or damage which is occasioned by war,
invasion, hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by order
of any government or public authority.

﻿

 

 

 

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Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)

﻿

﻿

1.     This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.

﻿

2.     Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:

﻿

﻿

 

I.

 

Nuclear reactor power plants including all auxiliary property on the site, or

 

II.

 

Any other nuclear reactor installation, including laboratories handling
radioactive materials in connection with reactor installations, and "critical
facilities" as such, or

 

III.

 

Installations for fabricating complete fuel elements or for processing
substantial quantities of "special nuclear material," and for reprocessing,
salvaging, chemically separating, storing or disposing of "spent" nuclear fuel
or waste materials, or

 

IV.

Installations other than those listed in paragraph (2) III above using
substantial quantities of radioactive isotopes or other products of nuclear
fission.

﻿

3.     Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate

﻿

(a)      where Reassured does not have knowledge of such nuclear reactor power
plant or nuclear installation, or

﻿

(b)      where said insurance contains a provision excluding coverage for damage
to property caused by or resulting from radioactive contamination, however
caused.  However on and after 1st January 1960 this sub-paragraph (b) shall only
apply provided the said radioactive contamination exclusion provision has been
approved by the Governmental Authority having jurisdiction thereof.

﻿

4.     Without in any way restricting the operations of paragraphs (1), (2) and
(3) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.

﻿

5.     It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.

﻿

6.     The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.

﻿

7.     Reassured to be sole judge of what constitutes:

﻿

(a)      substantial quantities, and

﻿

(b)      the extent of installation, plant or site.

﻿

Note.-Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that

﻿

(a)      all policies issued by the Reassured on or before 31st December 1957
shall be free from the application of the other provisions of this Clause until
expiry date or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.

﻿

(b)      with respect to any risk located in Canada policies issued by the
Reassured on or before 31st December 1958 shall be free from the application of
the other provisions of this Clause until expiry date or 31st December 1960
whichever first occurs whereupon all the provisions of this Clause shall apply.

﻿

12/12/57

N.M.A. 1119

BRMA 35B

 

 

 

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Terrorism Exclusion

(Property Treaty Reinsurance)

﻿

﻿

﻿

Notwithstanding any provision to the contrary within this Contract or any
amendment thereto, it is agreed that this Contract excludes loss, damage, cost
or expense directly or indirectly caused by, contributed to by, resulting from
or arising out of or in connection with any act of terrorism, as defined herein,
regardless of any other cause or event contributing concurrently or in any other
sequence to the loss.

﻿

An act of terrorism includes any act, or preparation in respect of action, or
threat of action designed to influence the government de jure or de facto of any
nation or any political division thereof, or in pursuit of political, religious,
ideological or similar purposes to intimidate the public or a section of the
public of any nation by any person or group(s) of persons whether acting alone
or on behalf of or in connection with any organization(s) or government(s) de
jure or de facto, and which:

﻿

1.     Involves violence against one or more persons, or

﻿

2.     Involves damage to property; or

﻿

3.     Endangers life other than the person committing the action; or

﻿

4.     Creates a risk to health or safety of the public or a section of the
public; or

﻿

5.     Is designed to interfere with or disrupt an electronic system.

﻿

This Contract also excludes loss, damage, cost or expense directly or indirectly
caused by, contributed to by, resulting from or arising out of or in connection
with any action in controlling, preventing, suppressing, retaliating against or
responding to any act of terrorism.

﻿

Notwithstanding the above and subject otherwise to the terms, conditions, and
limitations of this Contract, in respect only of personal lines, this Contract
will pay actual loss or damage (but not related cost and expense) caused by any
act of terrorism provided such act is not directly or indirectly caused by,
contributed to by, resulting from or arising out of or in connection with
radiological, biological, chemical, or nuclear pollution or contamination.

﻿

﻿

﻿

 

 

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