exv10w7






Exhibit 10.7




MASTER SERVICE AGREEMENT




          This Master Service Agreement (“Agreement”) is made this First day of August 2005, by and
between FM Claims Management, Incorporated, a Pennsylvania Corporation with its principal place of
business at 150 Berkeley Rd., Glenside, PA 19038 (“FMCM”) and Lebanon Mutual Insurance Company, a
company with its principal place of business at 137 West Penn Avenue, Cleona, PA 17042-1322
(“Customer”).




          FMCM desires to provide certain insurance-related services to Customer, and Customer desires
to utilize these services for a designated fee.




          NOW, THEREFORE, in consideration of the mutual promises contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:





	1.	 	SCOPE OF AGREEMENT







	 	A.	 	Services: FMCM will provide the services set forth in Schedule A
attached hereto and made a part hereof (the “Services”).

	 
	 	B.	 	Term: The term of this Agreement shall begin August 1st, 2005 and shall
continue until each party has fulfilled its obligations hereunder or until terminated
in accordance with its provisions.

	 
	 	C.	 	Termination: Either party may terminate this Agreement at any time upon
90 days advance written notice to the other party. FMCM may terminate this Agreement
upon 30 days advance written notice for (i) Customer’s failure to pay undisputed fees
owing to FMCM within ten (10) days after the time set forth in this Agreement or
(ii) Customer being delinquent three times in any consecutive twelve (12) month period
in payment of fees due FMCM. Fees shall be deemed undisputed in the absence of
Customer notice to FMCM prior to the due date. In any event, the balance of fees not
in dispute are payable.







	2.	 	FEES AND PAYMENT







	 	A.	 	Fees. In consideration of the Services to be performed by FMCM,
Customer shall pay FMCM the fees set forth in Fee Schedule B attached hereto and made a
part hereof. FMCM shall have the right to make changes in the fees and charges set
forth in the Fee Schedule by giving Customer 90 days advance written notice, but in
such event, Customer shall have the right to terminate this Agreement as provided in
Paragraph 1 hereof after receipt of notice from FMCM.

	 
	 	B.	 	Payment. Customer shall pay to FMCM the fees in accordance with the
Fee Schedule. FMCM shall invoice customer with details of Services performed.
Customer shall pay all fees and expenses owing to FMCM hereunder within 30 days after
FMCM has submitted to Customer an itemized invoice. If Customer fails to make payment
when due hereunder. Customer shall pay interest to FMCM at the rate of 1.5% per month
for any unpaid balance outstanding at the end of each calendar month after payment is
due.





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	 	C.	 	Taxes. Customer is solely responsible for payment of any taxes
(including sales or use taxes, intangible taxes, and property taxes) resulting from
Customer’s acceptance of any Services provided hereunder, other than taxes based on
income to FMCM. FMCM reserves the right to have the Customer pay any such unpaid taxes
as they fall due to FMCM for remittance to the appropriate authority. Customer agrees
to pay any interest and/or penalties assessed as a result of any such taxes not
remitted when due. Customer agrees to hold harmless FMCM from all claims and liability
arising from Customer’s failure to report or pay such taxes.







	3.	 	PROPRIETARY RIGHTS

	 
	 	 	Each party acknowledges and agrees that any and all information emanating from the other’s
business in any form, including any compilations of otherwise public information, is
confidential and proprietary information (“Confidential Information”). Each party agrees
that it will not, during or after the term of this Agreement, permit any duplication, use,
or disclosure of any such Confidential Information to any person (other than its own
employee, agent or representative who must have such information for the performance of the
obligations hereunder), unless such duplication, use or disclosure is specifically
authorized in writing by the party who owns such information. Each party shall take
appropriate action with respect to its employees, agents and representatives to ensure that
the obligation of non-use and non-disclosure of Confidential Information under this
Agreement can be fully satisfied. Confidential Information shall include but not be limited
to lists, agreements, data, rates, procedures, supplies and forms provided by FMCM under
this Agreement. The term Confidential Information is not meant to include any information
which, at the time of disclosure, is generally known by the public and any competitors of
the Customer; information disclosed to the other party by third parties having a right to do
so and who have not imposed upon the party obligations of confidentiality in respect
thereof; and information which is, known to the other party prior to the disclosure.

	 
	 	 	Customer acknowledges that the lists, agreements, data, rates, procedures, supplies and
forms provided by FMCM under this Agreement are the exclusive property of FMCM and
constitute proprietary information of FMCM (“Proprietary Information”). Customer agrees not
to copy (directly or indirectly), allow to be copied, or to distribute any FMCM Proprietary
Information. Customer further agrees that any Proprietary Information provided under this
Agreement is for its own use and that Customer will not disclose this information to any
third party without FMCM’s prior written approval or use any Proprietary Information to form
its own preferred vendor program.

	 
	 	 	Each party acknowledges that any information which it receives from the other party about a
claimant or policyholder (“Confidential Consumer Information”) may be subject to state and
federal laws and regulations regarding privacy. Each party agrees that it will not disclose
Confidential Consumer Information which it receives from the other party without the express
written permission of the claimant or policyholder and the other party, except those
disclosures which are reasonably necessary to perform each party’s obligations under this
Agreement or as otherwise allowed by applicable law.





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	 	 	The provisions of this paragraph 3 shall survive the termination of this Agreement.

	 
	4.	 	REPRESENTATIONS AND WARRANTIES







	 	A.	 	FMCM and Customer represent to each other that this Agreement has been duly
authorized, executed and delivered as a legal, binding and enforceable obligation.

	 
	 	B.	 	FMCM and Customer represent and warrant to each other that at all times during
the term of this Agreement they shall comply with all applicable laws and regulations
relating to the operations of their businesses and their performances of their
obligations hereunder.

	 
	 	C.	 	FMCM and Customer represent and warrant to each other that they have obtained
all required permits or certificates; that they are duly licensed as may be required
under statutes, rules and regulations of the jurisdictions in which they are located
and in which their obligations under this Agreement will be performed; and that such
permits, certificates and/or licenses shall be maintained in full force and effect
during the term of this Agreement.

	 
	 	D.	 	FMCM and Customer represent and warrant to each other that the execution of
this Agreement will not violate any restriction of any kind or character to which
either party is subject.







	5.	 	INDEMNIFICATION

	 
	 	 	Customer agrees to hold harmless and indemnify FMCM and its directors, officers, employees
and affiliates from and shall be liable for, any and all losses, claims, damages, injuries,
liabilities and/or expenses, including extra contractual and punitive damages and attorneys
fees, including all costs and expenses incidental thereto, which arise out of the Customer’s
performance under this Agreement, and are based on any of the following:







	 	a.	 	Any negligent, grossly negligent or reckless act or omission of
the Customer;

	 
	 	b.	 	Any misstatement, error or omission in any, or the breach of
any, of the Customer’s obligations, representations and warranties contained in
this Agreement;

	 
	 	c.	 	Any unauthorized disclosure by the Customer of
Policyholder/Claimant Information; or

	 
	 	d.	 	Any unauthorized disclosure by Customer of FMCM’s Proprietary
Information.







	 	 	In addition, Customer agrees to defend, indemnify and hold FMCM harmless from and against
all liabilities, demands, claims, suits, losses, damages, fines and judgments, including
costs, attorneys fees, and expenses incidental thereto, arising out
of or in connection with any claims related act or omission performed or omitted in accordance with
and pursuant to the express instructions of Customer.





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	 	 	FMCM agrees to hold harmless and indemnify the Customer and its directors, officers,
employees and affiliates from and shall be liable for, any and all losses, claims, damages,
injuries, liabilities and/or expenses, including extra contractual and punitive damages and
attorneys fees, including all costs and expenses incidental thereto, which arise out of
FMCM’s performance under this Agreement, and are based on any of the following:







	 	a.	 	Any negligent, grossly negligent or reckless act or omission of
FMCM;

	 
	 	b.	 	Any misstatement, error or omission in any, or the breach of
any, of FMCM’s obligations, representations and warranties contained in this
Agreement;

	 
	 	c.	 	Any unauthorized disclosure by FMCM of Policyholder/Claimant
Information; or

	 
	 	d.	 	Any unauthorized disclosure by FMCM of Customer’s Proprietary
Information.







	6.	 	GENERAL







	 	A.	 	Notices. All notices or other communications required to be given
hereunder shall be in writing and delivered personally or mailed by prepaid registered
or certified mail (return receipt requested) or by telegram, telex, or overnight
delivery to the principal place of business as indicated on the first page hereof or
such other address of which the party has notified the other. Notice shall be
effective upon receipt.

	 
	 	B.	 	Parties in Interest. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.

	 
	 	C.	 	Dispute Resolution. In the event any dispute arises related to this
Agreement or any transaction governed by this Agreement, executive officers of both
parties, vested with authority to settle the dispute, agree to meet and attempt in good
faith to resolve the dispute before either party may resort to judicial proceedings.
The meeting will be held reasonably promptly at the request of either party in the
offices of the party requesting the meeting or by telephone conference. Each party
will bear its own costs related to said meeting.

	 
	 	D.	 	Agreement. It is expressly understood and agreed that FMCM, including
its employees, is performing services under this Agreement as an independent contractor
for Customer and that this Agreement does not create a joint venture, partnership or
employment relationship between the parties.

	 
	 	E.	 	Entire Agreement: Modification. This Agreement and Schedules attached
hereto represent the entire agreement between the parties and supersede all prior
written or oral agreements between the parties and shall be modified only by a written
amendment hereto.





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	 	F.	 	Effect of Termination – Except as otherwise provided herein, this
Agreement shall be of no further force or effect as of the date of termination except
that each party will remain responsible for all obligations or liabilities arising from
activities carried on by such party or its agents or employees during the period this
Agreement was in effect. Accordingly, Customer shall remain responsible for paying all
invoices outstanding as of the effective date of termination. Likewise, FMCM shall
remain obligated to fully perform all services on Claim Features which have been
accepted by FMCM and fully paid for by Customer, in accordance with the attached fee
schedule, as of the latter of the effective date of the termination of this Agreement
or the date payment is due pursuant to paragraph 2.B of this Agreement. FMCM shall
have no further obligation to provide any services on any Claim Feature for which it
has not received full payment in accordance with the attached fee schedule, plus all
interest due and expense cost incurred, by the latter of the effective date of the
termination of this Agreement or the date payment is due pursuant to paragraph 2.B of
this Agreement. FMCM’s obligation to perform services on any Claim Feature beyond the
effective date of the termination of this Agreement or the payment due date for
services performed, pursuant to this paragraph, will terminate upon Customer’s Allure
to pay any fee due, including expense costs, within the time period provided in
paragraph 2.B of this Agreement





IN WITNESS WHEREOF, the parties hereto have each by their duly authorized and acting officers
executed and delivered this Agreement this 28th day of July, 2005.




	 	 	 	 	 	 	 
	 	 	FM Claims Management, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	CUSTOMER:	 	 
	 
	 	 	 	 	 	 
	 	 	BY: LEBANON MUTUAL INSURANCE CO.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 





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SCHEDULE A




CLAIMS ADMINISTRATION



SERVICES – FMCM will provide full service claim handling with regard to claim lines set forth in
Schedule B, Fee Structure, including:





	 	•	 	A file will be established within one business day of receipt of claim notification.

	 
	 	•	 	Customer contacts will be made within one business day of receipt of the claims report.
The order of priority will be phone, voice mail and other written correspondence.

	 
	 	•	 	Claims will be handled in accordance with the rules and regulations governing each
jurisdiction and in conformance with the procedures and policies established by FMCM and
Customer.

	 
	 	•	 	Customer will make all loss payments and all “expense payments” as that term is more
fully described below.





Management Services – FMCM will provide guidance and direction to Lebanon Mutual staff adjusters
on Lebanon Mutual retained claims, as well as FMCM-managed claims, as set forth below:





	 	A.	 	Lebanon Mutual Retained Files







Lebanon Mutual to retain all Workers’ Compensation, Personal Injury
Protection, Automobile Collision, Comprehensive and Property Damage
claims.




	 	—	 	Review and instructions on new losses when appropriate.

	 
	 	—	 	Provide direction and control when requested on coverage, liability and damages
issues.

	 
	 	—	 	Reserve and authority approval on losses over $25,000.

	 
	 	—	 	Transmittal of same to Lebanon Mutual Management.

	 
	 	—	 	Report on trends, issues and personnel issues noted during the normal course of
business.

	 
	 	—	 	Monthly on-site meetings with Lebanon Mutual claim staff and Management.






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	 	B.	 	FMCM Managed Files







	 	—	 	FMCM will roundtable all liability files in excess of $10,000 anticipated
exposure. Should consensus not be reached, FMCM will utilize outside resources at
its own expense to facilitate reaching an agreement on reserving/handling.

	 
	 	—	 	FMCM will conduct quarterly reviews of 10% of the current FMCM-managed pending.
Files will be reviewed by a non-handling associate.

	 
	 	—	 	FMCM will conduct quarterly roundtable reviews of all cases in litigation for
the purposes of legal fees/costs/file life versus anticipated indemnity-paid
analysis.





Fees – Customer will pay FMCM claim-adjusting and management services fees. The fees will be
determined based on the attached schedule (Schedule B).





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SCHEDULE A


PAGE 2



Expense Payments – FMCM will use its resources to adjust claims to every extent possible.
Notwithstanding this, in the event costs or fees of third party vendors or service providers,
including but not limited to field investigators, experts, appraisers, attorneys and medical
service providers, are incurred, Customer will be responsible for all such costs and fees.



Claim Audit – FMCM will allow Customer access to claims information at the FMCM location, upon
reasonable notice and during normal working hours sufficient to allow Customer or its designated
representative to determine compliance with this Agreement.





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SCHEDULE
B

FEE STRUCTURE




First Party Property Claims Service, Liability Claims Service

(OBI, ABI, UM/UIM, All PD) and Management Services:



          2.75% of Net Earned Premium, exclusive of Worker’s Compensation Premium, to be paid on a
monthly basis




Supplemental Catastrophe pricing:



Catastrophes – “CAT” pricing is in effect based on “rolling twelve month” property loss activity.
CAT pricing is in effect when, in any given month, new property losses reach or exceed 200% of the
rolling twelve month average for new losses.




	 	 	 	 	 
	CAT pricing – personal property
	 	$150 per claim
	CAT pricing – commercial property
	 	$200 per claim






Subrogation




	 	 	 
	< $5,000

	 	20% of net recovery
	$5,000 - $10,000

	 	17.5% of net recovery
	> $10,000

	 	15% of net recovery
	Litigated files

	 	33 1/3% + expense







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