First-Third Excess of Loss Reinsurance Contract



 EXHIBIT 10.82 
 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  
 issued to

  
 SCPIE HOLDINGS, INC., and/or 
 SCPIE INDEMNITY COMPANY and/or 
 AMERICAN HEALTHCARE
INDEMNITY COMPANY, and/or 
 AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or 
 SCPIE INSURANCE SERVICES, INC., and/or 
 SCPIE MANAGEMENT SERVICES, INC. 
 Los Angeles, California 
  









 INTERESTS AND LIABILITIES AGREEMENT 
 (the “Agreement”) 
  
 of

  
 (the “Subscribing Reinsurer”) 
  
 as respects the 
  
 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
 Effective: January 1, 2004 
 (the “Contract”) 
  
 issued to and executed by 
  
 SCPIE HOLDINGS, INC., and/or 
 SCPIE INDEMNITY COMPANY
and/or 
 AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or 
 AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or 
 SCPIE INSURANCE SERVICES, INC., and/or 
 SCPIE MANAGEMENT SERVICES, INC. 
 Los Angeles, California

 (collectively, the “Company”) 
  
 The Subscribing Reinsurer’s share in the interests and liabilities of the Reinsurer as set forth in the Contract shall be: 
  

			
	 First Layer:
	  	%
		
	 Second Layer:
	  	%
		
	 Third Layer:
	  	%

  
 The share of the Subscribing Reinsurer in the
interests and liabilities of the Reinsurer in respect of the Contract shall be separate and apart from the shares of other subscribing reinsurers, if any, on the Contract. The interests and liabilities of the Subscribing Reinsurer shall not be joint
with those of such other subscribing reinsurers and in no event shall the Subscribing Reinsurer participate in the interests and liabilities of such other subscribing reinsurers. 
  
 This Agreement shall become effective on January 1, 2004 and shall be subject to the provisions of the Term Article of the Contract. 
  

 1 of 2 








 IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be executed by its duly authorized representative as
follows: 
  
 on this
                     day of
                                , in the year
                . 
  

	
	
	  



  
 Market Reference Number for the First Layer:

  
 Market Reference Number for the Second Layer: 
  
 Market Reference Number for the Third Layer: 
  
 SCPIE HOLDINGS, INC., and/or 
 SCPIE INDEMNITY COMPANY and/or 
 AMERICAN HEALTHCARE
INDEMNITY COMPANY, and/or 
 AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or 
 SCPIE INSURANCE SERVICES, INC., and/or 
 SCPIE MANAGEMENT SERVICES, INC. 
  
 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  

 2 of 2 








 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  
 TABLE OF CONTENTS 
  

					
	 Article

	  	 	  	Page


	 	  	 Preamble
	  	 
	   1
	  	 Business Covered
	  	3
	   2
	  	 Term
	  	4
	   3
	  	 Attachment of Liability
	  	5
	   4
	  	 Territory
	  	5
	   5
	  	 Exclusions
	  	5
	   6
	  	 Warranties
	  	7
	   7
	  	 Reports and Remittances
	  	7
	   8
	  	 Definitions
	  	8
	   9
	  	 Excess of Original Policy Limits
	  	9
	 10
	  	 Extra Contractual Obligations
	  	10
	 11
	  	 Net Retained Lines
	  	10
	 12
	  	 Original Conditions
	  	10
	 13
	  	 No Third Party Rights
	  	11
	 14
	  	 Notice of Loss and Loss Settlements
	  	11
	 15
	  	 Alternate Payee
	  	12
	 16
	  	 Commutation
	  	12
	 17
	  	 Offset
	  	13
	 18
	  	 Currency
	  	13
	 19
	  	 Unauthorized Reinsurance
	  	13
	 20
	  	 Special Funding
	  	16
	 21
	  	 Taxes
	  	17
	 22
	  	 Access to Records
	  	17
	 23
	  	 Confidentiality
	  	17
	 24
	  	 Errors and Omissions
	  	18
	 25
	  	 Insolvency
	  	18
	 26
	  	 Arbitration
	  	19
	 27
	  	 Service of Suit
	  	20
	 28
	  	 Governing Law
	  	20
	 29
	  	 Agency
	  	21
	 30
	  	 Intermediary
	  	21
	 31
	  	 Mode of Execution
	  	21
	 	  	 Company Signing Block
	  	22
			
	 Exhibits

	  	 	  	 
	 	  	 Exhibit A - First Layer
	  	23
	 	  	 Exhibit B - Second Layer
	  	24
	 	  	 Exhibit C - Third Layer
	  	25

  

 1 of 37 








 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  
 TABLE OF CONTENTS 
  

					
	 Attachments

	  	 	  	Page


	 	  	 Exhibit D - Loss Funding - Including IBNR
	  	26
	 	  	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. and Canada)	  	27
	 	  	 Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A.
	  	30
	 	  	 Nuclear Incident Exclusion Clause - Liability - Reinsurance - Canada
	  	35

  

 2 of 37 








 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT  
 (the “Contract”) 
  
 issued to 
  
 SCPIE HOLDINGS, INC., and/or 
 SCPIE INDEMNITY COMPANY and/or 

AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or 
 AMERICAN HEALTHCARE SPECIALTY COMPANY, and/or 
 SCPIE INSURANCE SERVICES, INC., and/or 
 SCPIE MANAGEMENT SERVICES, INC. 
 Los
Angeles, California  
 (collectively, the “Company”) 
  
 by 
  
 THE SUBSCRIBING REINSURER(S) IDENTIFIED 
 IN THE
INTERESTS AND LIABILITIES AGREEMENT(S) 
 ATTACHED TO AND FORMING PART OF THIS CONTRACT 
 (the “Reinsurer”) 
  
 ARTICLE 1 
  
 BUSINESS COVERED

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

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

  

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

  

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

  

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

  

 3 of 37 









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

  

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

  

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

  
 ARTICLE 2 
  
 TERM 
  

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


  

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

  

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

  

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


  

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

  

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

  

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

  

 4 of 37 









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

  
 ARTICLE 3 
  
 ATTACHMENT OF LIABILITY 
  

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

  

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


  
 ARTICLE 4 
  
 TERRITORY 
  
 This Contract shall apply to losses occurring within the territorial limits of the Company’s original Policies. 
  
 ARTICLE 5 
  
 EXCLUSIONS 
  
 This Contract specifically excludes: 
  

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

  

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

  

 5 of 37 









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

  

	 4. 
	 a.      All actual or alleged losses, liabilities, damages, injuries, defense costs, costs or
expense(s) directly or indirectly arising out of, contributed by, caused by, resulting from or in connection with any of the following regardless of any other cause or event contributing concurrently or in any other sequence of the loss:



  

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

  

	 	ii.	riots, strikes or civil commotion; or 

  

	 	iii.	any Act of Terrorism. 

  

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

  

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

  

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

  

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

  

 6 of 37 








 ARTICLE 6 
  

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

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

  

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

  

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

  

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

  

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

  
 ARTICLE 7 
  
 REPORTS AND REMITTANCES 
  

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

  

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

  

 7 of 37 









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

  
 ARTICLE 8 
  
 DEFINITIONS

  

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



  

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

  

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

  

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


  

 8 of 37 









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


  

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

  

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


  

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

  

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


  
 ARTICLE 9 
  
 EXCESS OF ORIGINAL POLICY LIMITS 
  

	A.	This Contract shall protect the Company, within the limits hereof, in connection with any loss in excess of the limit of its original Policy, such Loss in Excess of the Original
Policy Limit having been incurred because of failure by it to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial
of any action against its insured or in the preparation or prosecution of an appeal consequent upon such action. 

  

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

  

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

  

 9 of 37 








 ARTICLE 10 
  

EXTRA CONTRACTUAL OBLIGATIONS 
  

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

  

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

  

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

  
 ARTICLE 11 
  
 NET RETAINED LINES 
  

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

  

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

  
 ARTICLE 12 
  
 ORIGINAL CONDITIONS 
  
 All reinsurance under this Contract shall be subject to the same rates, terms, conditions, waivers and interpretations, and to the same
modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract. 
  

 10 of 37 








 ARTICLE 13 
  

NO THIRD PARTY RIGHTS 
  
 Except as provided in the Alternate Payee Article, nothing hereinafter shall in any manner create any obligations or establish any rights against the Reinsurer in favor
of any third parties or any persons not parties to this Contract. 
  
 ARTICLE 14 
  
 NOTICE OF LOSS AND LOSS SETTLEMENTS

  

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

  

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

  

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

  

	 	2.	Brain injury; 

  

	 	3.	Nerve injury; 

  

	 	4.	Paralysis or cord injury; 

  

	 	5.	Amputations; 

  

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

  

	 	7.	Blindness. 

  

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

  

 11 of 37 








 ARTICLE 15 
  

ALTERNATE PAYEE 
  

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

  

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

  

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

  
 ARTICLE 16 
  
 COMMUTATION 
  

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

  

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

  

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

  

 12 of 37 









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

  

ARTICLE 17 
  
 OFFSET 
  
 The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Contract or any other agreement heretofore or hereafter entered into between the Company and the Reinsurer,
whether acting as assuming reinsurer or ceding company. This provision shall not be affected by the insolvency of either party to this Contract. 
  
 ARTICLE 18 
  
 CURRENCY 
  
 Premiums shall be payable by the Company and losses shall be paid to the Company in United States currency. 
  
 ARTICLE 19 
  
 UNAUTHORIZED REINSURANCE 
  

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

  

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


  

 13 of 37 









	 	1.	unearned premium (if applicable); 

  

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

  

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

  

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


  

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

  

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

  

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

  

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


  

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

  

 14 of 37 









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

  

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

  

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

  

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

  

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

  

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

  

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

  

 15 of 37 








 ARTICLE 20 
  

SPECIAL FUNDING 
  

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

  

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

  

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

  

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


  

 16 of 37 








 ARTICLE 21 
  

TAXES 
  

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

  

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


  

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

  

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

  
 ARTICLE 22 
  
 ACCESS TO RECORDS 
  

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

  

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

  
 ARTICLE 23

  
 CONFIDENTIALITY 
  

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

  

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

  

 17 of 37 








 ARTICLE 24 
  

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

ARTICLE 25 
  
 INSOLVENCY 
  

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

  

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

  

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

  

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

  

 18 of 37 








 ARTICLE 26 
  

ARBITRATION 
  

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

  

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


  

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

  

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


 

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


  

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

  

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

  

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


 

 19 of 37 








 ARTICLE 27 
  

SERVICE OF SUIT 
  

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

  

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

  

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

  

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


  
 ARTICLE 28 
  
 GOVERNING LAW 
  
 This Contract shall be governed by and interpreted in accordance with the laws of the State of California. 
  

 20 of 37 








 ARTICLE 29 
  

AGENCY 
  
 For purposes of sending and receiving notices and payments required by this Contract, the first named Company shall be deemed the agent of all other reinsured Companies referenced in this Contract. In no event,
however, shall any reinsured Company be deemed the agent of another with respect to the terms of the Insolvency Article. 
  
 ARTICLE 30 
  
 INTERMEDIARY 
  
 Guy Carpenter & Company, Inc. is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premium, return
premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Guy Carpenter & Company, Inc., 3600 Minnesota Drive, Suite 400, Edina, MN
55435. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are
actually received by the Company. 
  
 ARTICLE 31 

 
 MODE OF EXECUTION 
  

	1.	This Contract may be executed by: 

  

	 	a.	An original written ink signature of paper documents. 

  

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

  

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

  

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

  

 21 of 37 








 IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s) this
17th day of September, in the year of 2004. 
  
 SCPIE HOLDINGS, INC., and/or 
 SCPIE INDEMNITY COMPANY and/or 
 AMERICAN HEALTHCARE INDEMNITY COMPANY, and/or 
 AMERICAN HEALTHCARE SPECIALTY
COMPANY, and/or 
 SCPIE INSURANCE SERVICES, INC., and/or 
 SCPIE MANAGEMENT SERVICES, INC. 
  

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


  
 FIRST-THIRD
EXCESS OF LOSS REINSURANCE CONTRACT 
  

 22 of 37 








 EXHIBIT A - FIRST LAYER 
  
 attaching to and forming a part of the 
  
 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  
 RETENTION AND LIMIT 
  

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


  

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

  

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

  
 PREMIUM 
  

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


  

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

  

 23 of 37 








 EXHIBIT B - SECOND LAYER 
  
 attaching to and forming a part of the 
  
 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  
 RETENTION AND LIMIT 
  
 The Company shall retain for its own account and pay under one or more of the Company’s Policies the first $5,000,000 Ultimate Net Loss, Each and Every Loss and the
Reinsurer agrees to reimburse the Company for the amount of Ultimate Net Loss paid in excess of $5,000,000, Each and Every Loss, but the Reinsurer’s liability under this Exhibit B shall not exceed $5,000,000 resulting from Each and Every Loss.

  
 PREMIUM 
  

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


  

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

  
 REINSTATEMENT 
  

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

  

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

  

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

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

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

  

 24 of 37 








 EXHIBIT C - THIRD LAYER 
  
 attaching to and forming a part of the 
  
 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  
 RETENTION AND LIMIT 
  
 The Company shall retain for its own account and pay under one or more of the Company’s Policies the first $10,000,000 Ultimate Net Loss, Each and Every Loss and the
Reinsurer agrees to reimburse the Company for the amount of Ultimate Net Loss paid in excess of $10,000,000, Each and Every Loss, but the Reinsurer’s maximum liability shall not exceed $10,000,000 resulting from Each and Every Loss. 

 
 PREMIUM 
  

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


  

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

  
 REINSTATEMENT 
  

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

  

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

  

 25 of 37 








 EXHIBIT D - LOSS FUNDING - INCLUDING IBNR 
  
 attaching to and forming a part of the 
  
 FIRST-THIRD EXCESS OF LOSS REINSURANCE CONTRACT 
  
 THIS IS APPLICABLE TO NON-ADMITTED REINSURERS ONLY 

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

				
	 Period

	  	 IBNR
 Factor

	 
	 Current Year
	  	97.00	%
	 First Development Year
	  	40.00	%
	 Second Development Year
	  	17.00	%
	 Third Development Year
	  	7.00	%
	 Fourth Development Year & Subsequent
	  	2.00	%

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

 26 of 37 








 NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994) 
 (WORLDWIDE EXCLUDING U.S.A. AND CANADA) 
  
 This Agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by way of reinsurance and/or via Pools and/or Associations. 

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

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

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

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

  

	 	(a)	the generation of nuclear energy; or 

  

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

  

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

  

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

  
 Except as undernoted, Nuclear
Energy Risks shall not include: 
  

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

  

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

  
 Provided always that such insurance or reinsurance shall exclude the perils of irradiation
and contamination by Nuclear Material. 
  
 However, the above exemption shall not
extend to: 
  

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

  

	 	(a)	Nuclear Material; 

  

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

  

 27 of 37 









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

  

	 	•	 	fire, lightning, explosion; 

  

	 	•	 	earthquake; 

  

	 	•	 	aircraft and other aerial devices or 

  

	 	•	 	articles dropped therefrom; 

  

	 	•	 	irradiation and radioactive contamination; 

  

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

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

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

  

	 	(ii)	Radioactive Products or Waste. 

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

	 	(i)	Any Nuclear Reactor; 

  

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

  

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

  

 28 of 37 








 “Nuclear Reactor” means any structure containing nuclear fuel in such an arrangement that a self-sustaining
chain process of nuclear fission can occur therein without an additional source of neutrons. 
  
 “Production, Use or Storage of Nuclear Material” means the production, manufacture, enrichment, conditioning, processing, reprocessing, use, storage, handling and disposal of Nuclear Material. 
  
 “Property” shall mean all land, buildings, structures, plant, equipment, vehicles,
contents (including but not limited to liquids and gases) and all materials of whatever description whether fixed or not. 
  
 “High Radioactivity Zone or Area” means: 
  

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

  

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

  
 N.M.A. 1975(a) 
 April 1, 1994 
  

	NOTES:	Wherever used herein the terms: 

  

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

  

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


  

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

  

 29 of 37 








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

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

  

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

  
 Limited Exclusion Provision.*

  

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

  

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

  

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

  

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

  

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

  

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

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

 30 of 37 









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

  
 Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including
railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage
Liability) 
  
 shall be deemed to include, with respect to such
coverages, from the time specified in Clause V of this paragraph (3), the following provision (specified as the Broad Exclusion Provision): 
  
 Broad Exclusion Provision.* 
  
 It is agreed that the policy does not apply: 
  

	 	I.	Under any Liability Coverage, to 

  
 injury, sickness, disease, death or destruction 
  
 bodily injury or property damage 
  

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

  

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

  

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

  
 immediate medical or surgical relief 
  
 first aid, 
  

 31 of 37 








 to expenses incurred with respect to 
  
 bodily injury, sickness, disease or death 
  
 bodily injury 
  
 resulting from the hazardous properties of nuclear material and arising out
of the operation of a nuclear facility by any person or organization. 
  

	III.	Under any Liability Coverage, to 

  
 injury, sickness, disease, death or destruction 
  
 bodily injury or property damage 
  
 resulting from the hazardous properties of nuclear material, if 
  

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


 

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


  

	 	(c)	the 

  
 injury, sickness, disease, death or destruction 
  
 bodily injury or property damage 
  
 arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories or possessions or Canada, this exclusion (c) applies only to 
  
 injury to or destruction of property at such nuclear
facility. 
  
 property damage to such nuclear
facility and any property thereat. 
  

	IV.	As used in this endorsement: 

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

  

 32 of 37 








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

	 	(a)	any nuclear reactor, 

  

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

  

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

  

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

  
 and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such operations; “nuclear reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of
fissionable material; 
  
 With respect to injury to or
destruction of property, the word “injury” or “destruction” includes all forms of radioactive contamination of property. “property damage” includes all forms of radioactive contamination of property. 
  

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

  

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

  

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

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

  

 33 of 37 









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

  

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

  

	NOTES:	Wherever used herein the terms: 

  

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

  

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


  

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

  
 21/9/67 

NMA 1590 (amended) 
  

 34 of 37 








 NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA 
  

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

  

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

  
 Personal Liability 
 Farmers’ Liability

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

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

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

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

  
 Broad Exclusion Provision 
  
 It is agreed that this Policy does not apply: 
  

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

  

 35 of 37 









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

  

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

  

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

  

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


  

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

  
 As used in this Policy: 
  

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

  

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

  

	3.	The term “nuclear facility” means: 

  

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

  

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

  

 36 of 37 









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

  

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

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

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


  

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

  
 NMA 1979a 
 (01.04.96) Form approved by Lloyd’s Underwriters’ Non-Marine Association Limited. 
  

	NOTES:	Wherever used herein the terms: 

  

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

  

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


  

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

  

 37 of 37