exv10w3






Exhibit 10.3




EXECUTION VERSION




 





LOSS PORTFOLIO TRANSFER REINSURANCE AGREEMENT




by and among



CONTINENTAL CASUALTY COMPANY,



THE CONTINENTAL INSURANCE COMPANY,



CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL, LTD.,



CNA INSURANCE COMPANY LIMITED



and



NATIONAL INDEMNITY COMPANY



Dated as of August 31, 2010



 






 









 








TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 
	ARTICLE I
	 	 	 	 
	 
	 	 	 	 	 	 
	DEFINITIONS
	 	 	 	 
	 
	 	 	 	 	 	 
	1.1

	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II
	 	 	 	 
	 
	 	 	 	 	 	 
	REINSURANCE CEDED
	 	 	 	 
	 
	 	 	 	 	 	 
	2.1	 	Reinsurance Coverage

	 	 	12	 
	2.2	 	Commencement of the Reinsurer’s Liability

	 	 	12	 
	2.3	 	Ultimate Net Loss

	 	 	12	 
	2.4	 	Exclusions

	 	 	12	 
	2.5	 	Unallocated Loss Adjustment Expenses

	 	 	13	 
	2.6	 	Notice Regarding LPT Limit

	 	 	14	 
	2.7
	 	Territory

	 	 	14	 
	2.8
	 	Change of Control

	 	 	14	 
	2.9

	 	Redomestication	 	 	14	 
	2.10

	 	CNA Insurers Bound	 	 	14	 
	 
	 	 	 	 	 	 
	ARTICLE III
	 	 	 	 
	 
	 	 	 	 	 	 
	REINSURANCE CONSIDERATION
	 	 	 	 
	 
	 	 	 	 	 	 
	3.1

	 	Reinsurance Premium	 	 	15	 
	3.2

	 	Transfer of Pre-Inception Date Receivables	 	 	15	 
	3.3

	 	Payments	 	 	15	 
	 
	 	 	 	 	 	 
	ARTICLE IV
	 	 	 	 
	 
	 	 	 	 	 	 
	ADMINISTRATION
	 	 	 	 
	 
	 	 	 	 	 	 
	4.1

	 	Administration	 	 	16	 
	 
	 	 	 	 	 	 
	ARTICLE V
	 	 	 	 
	 
	 	 	 	 	 	 
	RESERVING REQUIREMENTS
	 	 	 	 
	 
	 	 	 	 	 	 
	5.1

	 	Reserve Assumption Changes	 	 	16	 






i









 






	 	 	 	 	 	 	 
	 	 	 	 
	ARTICLE VI

	 
	 	 	 	 	 	 
	DURATION AND TERMINATION

	 
	 	 	 	 	 	 
	6.1 	 	Duration and Termination
	 	 	16	 
	6.2 	 	Effect of Termination 
	 	 	17	 
	 
	 	 	 	 	 	 
	ARTICLE VII

	 
	 	 	 	 	 	 
	ACCOUNTING AND SETTLEMENT REPORTS

	 
	 	 	 	 	 	 
	7.1 	 	Accounting and Settlement Reports
	 	 	17	 
	7.2  	 	Tax Reporting 
	 	 	17	 
	 
	 	 	 	 	 	 
	ARTICLE VIII

	 
	 	 	 	 	 	 
	INSOLVENCY

	 
	 	 	 	 	 	 
	8.1	 	Insolvency of Reinsured 
	 	 	17	 
	 
	 	 	 	 	 	 
	ARTICLE IX

	 
	 	 	 	 	 	 
	COLLATERAL TRUST ACCOUNT

	 
	 	 	 	 	 	 
	9.1 	 	Establishment of Collateral Trust Account 
	 	 	18	 
	9.2 	 	Ongoing Funding of Collateral Trust Account
	 	 	18	 
	9.3	 	Collateral Trust Assets 
	 	 	19	 
	9.4	 	Settlements 
	 	 	19	 
	9.5	 	Modification Upon Occurrence of Collateral Triggering Event
	 	 	19	 
	9.6	 	Modification Upon Occurrence of a Reinsurance Credit Event
	 	 	20	 
	9.7	 	Withdrawal of Collateral Trust Assets by Reinsured Prior to the Occurrence of a Reinsurance Credit Event
	 	 	21	 
	9.8	 	Withdrawal of Collateral Trust Assets by Reinsured After the Occurrence of a Reinsurance Credit Event
	 	 	22	 
	 
	 	 	 	 	 	 
	ARTICLE X

	 
	 	 	 	 	 	 
	DISPUTE RESOLUTION

	 
	 	 	 	 	 	 
	10.1	 	Dispute Resolution
	 	 	23	 
	10.2	 	Negotiation Amongst the Parties 
	 	 	24	 
	 
	 	 	 	 	 	 
	ARTICLE XI

	 
	 	 	 	 	 	 
	ARBITRATION

	 
	 	 	 	 	 	 
	11.1 	 	Arbitration 
	 	 	24	 






ii









 






	 	 	 	 	 	 	 
	 	 	 	 
	ARTICLE XII

	 
	 	 	 	 	 	 
	EXTRACONTRACTUAL DAMAGES

	 
	 	 	 	 	 	 
	12.1	 	Extracontractual Damages
	 	 	25	 
	 
	 	 	 	 	 	 
	ARTICLE XIII

	 
	 	 	 	 	 	 
	SALVAGE AND SUBROGATION

	 
	 	 	 	 	 	 
	13.1	 	Salvage and Subrogation
	 	 	26	 
	13.2	 	Expenses 
	 	 	26	 
	 
	 	 	 	 	 	 
	ARTICLE XIV

	 
	 	 	 	 	 	 
	THIRD PARTY REINSURANCE AGREEMENTS

	 
	 	 	 	 	 	 
	14.1 	 	Third Party Reinsurance Agreements
	 	 	27	 
	14.2	 	Collection Responsibility 
	 	 	27	 
	 
	 	 	 	 	 	 
	ARTICLE XV

	 
	 	 	 	 	 	 
	REINSURANCE CREDIT

	 
	 	 	 	 	 	 
	15.1	 	Reinsurance Credit 
	 	 	27	 
	 
	 	 	 	 	 	 
	ARTICLE XVI

	 
	 	 	 	 	 	 
	REGULATORY MATTERS

	 
	 	 	 	 	 	 
	16.1	 	Regulatory Matters 
	 	 	28	 
	 
	 	 	 	 	 	 
	ARTICLE XVII

	 
	 	 	 	 	 	 
	CONFIDENTIALITY

	 
	 	 	 	 	 	 
	17.1 	 	Confidentiality
	 	 	29	 
	 
	 	 	 	 	 	 
	ARTICLE XVIII

	 
	 	 	 	 	 	 
	ERRORS AND OMISSIONS

	 
	 	 	 	 	 	 
	18.1 	 	Errors and Omissions 
	 	 	30	 






iii









 






	 	 	 	 	 	 	 
	 	 	 	 
	ARTICLE XIX

	 
	 	 	 	 	 	 
	MATERIAL CHANGES

	 
	 	 	 	 	 	 
	19.1	 	Material Changes to Reinsured Contracts and Third Party Reinsurance Agreements 
	 	 	31	 
	 
	 	 	 	 	 	 
	ARTICLE XX

	 
	 	 	 	 	 	 
	RIGHT TO ASSOCIATE

	 
	 	 	 	 	 	 
	20.1	 	Right to Associate
	 	 	32	 
	 
	 	 	 	 	 	 
	ARTICLE XXI

	 
	 	 	 	 	 	 
	MULTIPLE PARTIES

	 
	 	 	 	 	 	 
	21.1	 	Multiple Parties
	 	 	32	 
	 
	 	 	 	 	 	 
	ARTICLE XXII

	 
	 	 	 	 	 	 
	MISCELLANEOUS PROVISIONS

	 
	 	 	 	 	 	 
	22.1	 	Notices 
	 	 	33	 
	22.2	 	Entire Agreement
	 	 	34	 
	22.3	 	Waiver and Amendment
	 	 	34	 
	22.4	 	Successors and Assigns
	 	 	34	 
	22.5	 	Headings
	 	 	35	 
	22.6	 	Construction; Interpretation
	 	 	35	 
	22.7 	 	Governing Law and Jurisdiction
	 	 	35	 
	22.8 	 	No Third Party Beneficiaries
	 	 	36	 
	22.9	 	Counterparts 
	 	 	36	 
	22.10	 	Severability 
	 	 	36	 
	22.11	 	Specific Performance
	 	 	36	 
	22.12	 	Waiver of Jury Trial
	 	 	37	 
	22.13	 	Incontestability
	 	 	37	 
	22.14	 	Set-Off 
	 	 	37	 
	22.15	 	Currency 
	 	 	38	 






	 	 	 	 	 
	EXHIBITS	 	 	 	 
	Exhibit A

	 	-
	 	 Form of Administrative Services Agreement
	Exhibit B

	 	-
	 	 Form of Collateral Trust Agreement
	Exhibit C

	 	-
	 	 Form of Third Party Reinsurance Allocation Agreement
	Exhibit D

	 	-
	 	 Form of Reinsurance Credit Event II Trust Agreement






iv









 






	 	 	 	 	 
	SCHEDULES	 	 	 	 
	Schedule 1.1(a)

	 	-
	 	Asbestos Accounts
	Schedule 1.1(b)

	 	-
	 	GRM Direct & Assumed, Syndicates, Pools and
Associations
	Schedule 1.1(c)

	 	-
	 	Pollution Accounts
	Schedule 1.1(d)

	 	-
	 	Pre-Inception Date Receivables
	Schedule 2.4(h)

	 	-
	 	Exclusions







v











 





LOSS PORTFOLIO TRANSFER REINSURANCE AGREEMENT




          THIS LOSS PORTFOLIO TRANSFER REINSURANCE AGREEMENT, dated as of August 31, 2010 (this
“Reinsurance Agreement”), is made and entered into by and among Continental Casualty
Company, an Illinois property and casualty insurance company (“CCC”), The Continental
Insurance Company, a Pennsylvania property and casualty insurance company (“CIC”),
Continental Reinsurance Corporation International, Ltd., a Bermuda long-term insurance company
(“CRCI”), and CNA Insurance Company Limited, a United Kingdom property and casualty
insurance company (“CICL” and each of CCC, CIC, and CRCI is individually and all of CCC,
CIC, CRCI and CICL are collectively hereinafter referred to as the “Reinsured”), and
National Indemnity Company, a Nebraska property and casualty insurance company (hereinafter
referred to as the “Reinsurer”).




          WHEREAS, the Parties are entering into this Reinsurance Agreement pursuant to that certain
Master Transaction Agreement, dated as of July 14, 2010 (the “Master Transaction
Agreement”), by and among the Parties (as defined below) and Berkshire Hathaway Inc., a
Delaware corporation and the ultimate parent company of the Reinsurer (“Berkshire”);




          NOW, THEREFORE, in consideration of the mutual and several promises and undertakings herein
contained, and for good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Reinsured and the Reinsurer (individually, a “Party” and collectively,
the “Parties”) hereby agree as follows:




ARTICLE I




DEFINITIONS



          1.1 Definitions. The following terms shall have the respective meanings set forth below
throughout this Reinsurance Agreement (definitions are applicable to both the singular and the
plural forms of each term defined in this Article I):




          “A&P Business” means the business of the Reinsured and the CNA Insurers of insuring,
reinsuring and administering, as applicable, the Reinsured Contracts and the Third Party
Reinsurance Agreements as respects the Business Covered.




          “A&P Claims” means an Asbestos Claim and/or a Pollution Claim.




          “AAA” has the meaning set forth in Section 11.1(a).







 









 








          “Administrative Services Agreement” means the Administrative Services Agreement by and
among the Reinsured and the Reinsurer, substantially in the form of Exhibit A attached
hereto.




          “Affiliate” means, with respect to any Person, another Person that, directly or
indirectly, controls, is controlled by, or is under common control with, such first Person, where
“control” means the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.




          “Allocated Loss Adjustment Expenses” means all court costs, arbitration, mediation or
other dispute resolution costs, attorneys’ fees including staff counsel expressly charged with
performing functions generally performed by outside counsel, expenses, fees and interest accrued
prior to or after any judgment, award, agreement or compromise incurred in connection with or in
any way relating to the adjustment, appraisal, defense, resistance, investigation, audit
negotiation, settlement, payment or appeal of, or the pursuit or collection of any reinsurance on,
or the pursuit or enforcement of any right of subrogation with respect to any Reinsured Liability;
provided, however, in no event shall Allocated Loss Adjustment Expenses include any overhead or
similar internal costs that are attributable to the handling of a claim file arising from the
Business Covered. For the purposes of this Reinsurance Agreement, this definition of “Allocated
Loss Adjustment Expenses” will apply regardless of how the Reinsured reserves for Allocated Loss
Adjustment Expenses on its annual and quarterly statutory financial statements filed with
Governmental Authorities.




          “Applicable Interest Rate” means 4.5% (four point five percent) per annum.




          “Applicable Law” means any domestic or foreign, federal, state or local statute, law,
ordinance or code, or any written rules, regulations or administrative interpretations issued by
any Governmental Authority pursuant to any of the foregoing, in each case applicable to any Party,
and any Order, writ, injunction, directive, judgment or decree of a court of competent jurisdiction
applicable to the Parties.




          “Asbestos Claim” means the following: (i) for claims shown on the Books and Records
of any Reinsured or CNA Insurer as having been made on or prior to December 31, 2009, all claims
coded as “asbestos claims” on the Books and Records of any Reinsured or CNA Insurer and arising
under the accounts listed on Schedule 1.1(a) attached hereto, (ii) for claims shown in the
files and records of any GRM Direct & Assumed, Syndicate, Pool or Association as having been made
on or prior to December 31, 2009, all claims coded as “asbestos claims” in the files and records of
any GRM Direct & Assumed, Syndicate, Pool or Association, and (iii) for claims made after December
31, 2009, any claim involving allegations, in whole or in part, of Property Damage, Bodily Injury,
personal injury, mental anguish, medical monitoring, nuisance and trespass, including claims for
equitable relief, arising out of, or relating to, exposure to asbestos. For the avoidance of
doubt, the Parties acknowledge and agree that, claims asserting






2









 







that any Reinsured or CNA Insurer (A) failed to warn any Person of potential asbestos
exposure, (B) engaged in any unfair trade practice or failed to handle claims in good faith, (C)
negligently conducted loss control functions, (D) failed to settle or pay claims within the limits
of any Reinsured Contract, (E) otherwise negligently conducted claims handling, (F) misrepresented,
or otherwise committed a tort or fraud in connection with the Business Covered, or (G) failed to
properly comply with Medicare or other liens, in each case, as long as such assertions arise out
of, relate to, or are in connection with, Asbestos Claims, shall be deemed Asbestos Claims. If a
claim alleges both an exposure to asbestos and an exposure to another toxin (e.g., “mixed dust”
claims) and the Reinsured Contract contains an asbestos exclusion, the claim will be an Asbestos
Claim to the extent the claim involves asbestos exposure or injury. While the coding of any
Reinsured or CNA Insurer made prior to the Inception Date shall be conclusive as to whether a claim
made on or prior to December 31, 2009 is an Asbestos Claim, for a claim made after December 31,
2009, the past coding of any Reinsured or CNA Insurer of a similar claim shall not be conclusive as
to whether the claim is an Asbestos Claim. Asbestos Claims shall not include Non A&P Claims.




          “Berkshire” has the meaning set forth in the Recitals.




          “Bodily Injury” means actual or threatened bodily injury, sickness or disease
sustained by a person, including death, humiliation, shock, mental anguish or mental injury by that
person at any time which results as a consequence of the bodily injury, sickness or disease.




          “Books and Records” means originals or copies of all records and all other data and
information (in whatever form maintained) in the possession or control of a Party or its Affiliates
and relating to the Business Covered, including (i) administrative records, (ii) claim records,
(iii) policy files, (iv) sales records, (v) files and records relating to Applicable Law, (vi)
reinsurance records, (vii) underwriting records, (viii) accounting records, and (ix) files and
records (including claims bordereaux) of any GRM Direct & Assumed, Syndicate, Pool or Association,
but excluding any (a) Tax Returns and Tax records and all other data and information with respect
to Tax, (b) files, records, data and information with respect to the employees, (c) records, data
and information with respect to any employee benefit plan, (d) files, records, data and information
relating to Retrospective Premiums, (e) any files, records, data and information not reasonably
related to the Reinsurer’s administration of the Business Covered, including the monitoring and
auditing of the Reinsured and their Affiliates of the Reinsurer’s performance in administering the
Business Covered and any internal reports related to such monitoring and auditing, (f) any
materials prepared for the boards of directors of the Reinsured or their Affiliates and (g) any
materials that are privileged and/or confidential for which the Reinsured or their Affiliates do
not have a common interest with the Reinsurer; provided, that if any such records or data referred
to in the foregoing clauses (i) through (ix) contain information which does not relate to the
Business Covered, such information shall not constitute “Books and Records” for purposes of this
Reinsurance Agreement.




          “Business Covered” means:








3









 









	 	(1)	 	All losses relating to A&P Claims that are unpaid, as reflected on the Books
and Records, either on a direct or assumed basis, as of the Inception Date;
	 
	 	(2)	 	All losses relating to Asbestos Claims arising out of or relating to (A)
policies, certificates, binders, contracts or cover notes of insurance or reinsurance
issued by, or on behalf of, any Reinsured or CNA Insurer, (B) insurance or reinsurance
obligations assumed by any Reinsured or CNA Insurer by means of acquisitions,
assumption reinsurance, loss portfolio transfers (whether affected by reinsurance or
otherwise) or otherwise or (C) any participation by any Reinsured or CNA Insurer in any
insurance or reinsurance pool, syndicate or association, in all instances under (A),
(B) and (C) prior to January 1, 2010; and
	 
	 	(3)	 	All losses relating to Pollution Claims arising out of or relating to (A)
policies, certificates, binders, contracts or cover notes of insurance or reinsurance
issued by, or on behalf of, any Reinsured or CNA Insurer, (B) insurance or reinsurance
obligations assumed by any Reinsured or CNA Insurer by means of acquisitions,
assumption reinsurance, loss portfolio transfers (whether affected by reinsurance or
otherwise) or otherwise or (C) any participation by any Reinsured or CNA Insurer in any
insurance or reinsurance pool, syndicate or association, in all instances under (A),
(B) and (C) prior to January 1, 1989.





          “Business Day” means any day other than a Saturday, Sunday or a day on which
commercial banks in Illinois or New York are required or authorized by law to be closed.




          “CCC” has the meaning set forth in the Preamble.




          “Change of Control” shall be deemed to have occurred if: (i) any Person, organization
or association of persons or organizations acting in concert, excluding Affiliates of the Parties,
as applicable, shall acquire more than twenty percent (20%) of the outstanding voting stock of any
of the Parties, CNA, any CNA Insurer or Berkshire; (ii) any Person, organization or association of
persons or organizations acting in concert shall succeed in electing two or more directors to the
boards of directors of any of the Parties, CNA or Berkshire, in any one election in opposition to
those proposed by the Board of Directors of such Party, CNA or Berkshire, as applicable; (iii) any
of the Parties, CNA or Berkshire, as applicable, transfers all or substantially all of its or any
of its Affiliates’ operating properties and assets to another Person, organization or association
of persons or organizations, excluding Affiliates of the Parties, as applicable or (iv) any of the
Parties, CNA or Berkshire, as applicable, shall consolidate with or merge into any Person, firm,
corporation or other entity unless such entity or any one of its Affiliates shall be the continuing
corporation or the successor corporation.




          “CIC” has the meaning set forth in the Preamble.








4









 








          “CICL” has the meaning set forth in the Preamble.




          “Closing Date” means the day on which the closing of the transactions contemplated by
this Reinsurance Agreement and the Transaction Documents takes place.




          “CNA” means CNA Financial Corporation, a Delaware corporation.




          “CNA Insurers” means all property and casualty insurance companies which, as of the
Inception Date, (a) are current or were former Affiliates of the Reinsured, other than (i) the
Reinsured, (ii) First Insurance Company of Hawaii, Ltd. and its insurance company Subsidiaries as
of the Inception Date and (iii) CNA Surety Corporation and its Subsidiaries as of the Inception
Date and (b) ceded an A&P Claim to any Reinsured under a reinsurance agreement or cover note or
whose liability for an A&P Claim was transferred to, or otherwise assumed by, any Reinsured by
means of an acquisition, assumption reinsurance, loss portfolio transfer (whether affected by
reinsurance or otherwise) or otherwise, in each case entered into prior to the Inception Date, and
when such company was an Affiliate of any Reinsured. The term “CNA Insurers” as used herein shall
include any predecessor or successor of such companies, including by reason of merger,
consolidation or otherwise.




          “Collateral Reduction Event” has the meaning set forth in Section 9.5.




          “Collateral Triggering Agreement” shall have the meaning set forth in the Collateral
Trust Agreement.




          “Collateral Triggering Event” shall have the meaning set forth in the Collateral Trust
Agreement.




          “Collateral Trust Account” has the meaning set forth in Section 9.1(a).




          “Collateral Trust Agreement” means the trust agreement by and among the Reinsured,
Reinsurer and Trustee, substantially in the form of Exhibit B attached hereto.




          “Collateral Trust Assets” means the assets held in the Collateral Trust Account,
including, as applicable, Eligible Investments and Permitted Investments.




          “Collection Expenses” means the reasonable out-of-pocket expenses incurred by any
Party in connection with the negotiation and collection of Third Party Reinsurance Recoverables or
Commutation Payments.








5









 








          “Commutation Payments” means Gross Commutation Payments, less Collection Expenses.




          “Confidential Information” has the meaning set forth in Section 17.1(c).




          “CRCI” has the meaning set forth in the Preamble.




          “Declaratory Judgment Expense” means all Collection Expenses, attorneys’ fees,
expenses and other costs attributable to coverage analysis, declaratory judgment actions or other
coverage dispute resolution procedures brought to determine defense, indemnification and/or payment
obligations for any Business Covered, whether or not a loss has been paid. For purposes of this
Reinsurance Agreement, this definition of “Declaratory Judgment Expenses” shall apply regardless of
how the Reinsured reserves for Declaratory Judgment Expenses on its annual and quarterly statutory
financial statements filed with Governmental Authorities.




          “Disclosing Party” has the meaning set forth in Section 17.1(a).




          “Dispute” has the meaning set forth in Section 10.1.




          “Eligible Investments” shall have the meaning set forth in the Collateral Trust
Agreement.




          “Excluded Liabilities” has the meaning set forth in Section 2.4(g).




          “Extracontractual Damages” has the meaning set forth in Section 12.1(a).




          “Governmental Authority” means any government, political subdivision, court, board,
commission, regulatory or administrative agency or other instrumentality thereof, whether federal,
state, provincial, local or foreign and including any regulatory authority which may be partly or
wholly autonomous.




          “GRM Direct & Assumed, Syndicate, Pool or Association” means (a) any counterparty
under any insurance or reinsurance agreement or cover note with any Reinsured, (b) any Person whose
liability for an A&P Claim has been transferred to, or otherwise assumed by, any Reinsured by means
of an acquisition, direct insurance, assumption reinsurance, loss portfolio transfer (whether
affected by reinsurance or otherwise) or otherwise, or (c) any insurance or reinsurance pool,
syndicate or association that, in the case of clauses (a), (b) and (c) is listed on Schedule
1.1(b) attached hereto, in all cases as such assumptions or transfers were in place as of the
Inception Date.








6









 








          “Gross Commutation Payments” means any payments received by the Reinsured or the
Reinsurer (acting on behalf of the Reinsured) from a reinsurer counterparty under a Third Party
Reinsurance Agreement in connection with the recapture, commutation, termination or reduction of
any reinsurance under a Third Party Reinsurance Agreement that is effectuated on or after the
Inception Date, but prior to the expiration or termination of this Reinsurance Agreement.




          “Gross Third Party Reinsurance Recoverables” means any amounts actually collected by
the Reinsured or the Reinsurer (acting on behalf of the Reinsured) in connection with Third Party
Reinsurance Agreements.




          “Inception Date” means 12:01 a.m. Central Standard Time on January 1, 2010.




          “Initial Reconciliation Statement” means the estimated reconciliation statement as of
the month ending prior to the Closing Date provided by the Reinsured to the Reinsurer five (5)
Business Days prior to the Closing Date pursuant to Schedule 2.3 of the Master Transaction
Agreement.




          “LPT Limit” has the meaning set forth in Section 2.1.




          “Master Transaction Agreement” has the meaning set forth in the Recitals.




          “Non-A&P Claims” means: (i) all claims that are not defined as an Asbestos Claim or a
Pollution Claim herein or (ii) all claims made after December 31, 2009 alleging Bodily Injury as a
result of exposure to a Pollutant, except for those Bodily Injury claims that otherwise meet the
definition of a “Pollution Claim” as defined and set forth herein. For the avoidance of doubt, the
following types of claims are Non-A&P Claims: silica, breast implants, indoor mold, blood
factorates, repetitive stress injuries, noise induced hearing loss, lead pigment on buildings,
indoor air pollution (unless caused by actual, alleged or threatened pollution of land, the
external atmosphere, or any watercourse or body of water) and firearms.




          “Order” means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental Authority.




          “Other Recoveries” means any and all payments, collections and recoveries relating to
A&P Claims paid on and after the Inception Date, other than (i) Third Party Reinsurance
Recoverables and (ii) Retrospective Premiums, and shall include, among other things, any salvage
and subrogation received as further set forth in Section 13.1.




          “Party” or “Parties” has the meaning set forth in the Recitals.








7









 








          “Person” means any natural person, corporation, partnership, limited liability
company, trust, joint venture or other entity, including a Governmental Authority.




          “Permitted Investments” shall have the meaning set forth in the Collateral Trust
Agreement.




          “Pollutants” as used in the definition of “Pollution Claim” includes any solid,
liquid, gaseous or thermal substance, irritant or contaminant, including smoke, vapor, soot, fumes,
acids, alkalis, chemicals and waste (including any materials to be recycled, reconditioned or
reclaimed).




          “Pollution Claim” means the following: (i) for claims shown on the Books and Records
of any Reinsured or CNA Insurer as having been made on or prior to December 31, 2009, all claims
coded as “pollution claims” or “environmental claims” on the Books and Records of any Reinsured or
CNA Insurer and arising under the accounts listed on Schedule 1.1(c) attached hereto, (ii)
for claims shown in the files and records of any GRM Direct & Assumed, Syndicate, Pool or
Association as having been made on or prior to December 31, 2009, all claims coded as “pollution
claims” or “environmental claims” in the files and records of any GRM Direct & Assumed, Syndicate,
Pool or Association, and (iii) for claims made after December 31, 2009, (A) any claim involving
allegations, in whole or in part, of Property Damage arising out of, or relating to, an actual,
alleged or threatened discharge, emission, dispersal, seepage, migration, release or escape of
Pollutants into or upon land, the atmosphere or any watercourse or body of water including claims
for nuisance and trespass and claims for equitable relief and (B) any claim involving allegations
of Bodily Injury, personal injury, mental anguish, medical monitoring, nuisance and trespass,
including claims for equitable relief, associated with, related to or resulting from any actual,
alleged or threatened discharge, emission, dispersal, seepage, migration, release or escape of
Pollutants into or upon land, the atmosphere or any watercourse or body of water which caused or
threatened to cause Property Damage. For the avoidance of doubt, the Parties acknowledge and agree
that claims arising from actual, alleged or threatened pollution of the air inside a building
(e.g., indoor mold claims) are not a “Pollution Claim” unless the pollution was caused by actual,
alleged or threatened pollution of land, the external atmosphere or any watercourse or body of
water. For the further avoidance of doubt, the Parties also acknowledge and agree that claims
asserting that any Reinsured or CNA Insurer (A) failed to warn any Person of potential Pollutants,
(B) engaged in any unfair trade practice or failed to handle claims in good faith, (C) negligently
conducted loss control functions, (D) failed to settle or pay claims within the limits of any
Reinsured Contract, (E) otherwise negligently conducted claims handling, (F) misrepresented, or
otherwise committed a tort or fraud in connection with the Business Covered, or (G) failed to
properly comply with Medicare or other liens, in each case, as long as such assertions arise out
of, relate to, or are in connection with, Pollution Claims, shall be deemed Pollution Claims.
While the coding of any Reinsured or CNA Insurer shall be conclusive as to whether a claim made on
or prior to December 31, 2009 is a Pollution Claim, for a claim made after December 31, 2009, the
past coding of any Reinsured or CNA Insurer of a similar claim shall not be conclusive as to
whether the claim is a Pollution Claim. Pollution Claims shall not include Non A&P Claims.







8









 








          “Pre-Inception Date Receivables” means all receivables that arise out of or relate to
the Business Covered and which are payable under the Third Party Reinsurance Agreements
attributable to Asbestos Claims and Pollution Claims paid by or on behalf of the Reinsured prior to
the Inception Date, including those set forth on Schedule 1.1(d) hereto.




          “Property Damage” means actual or threatened or potential: (i) physical injury to
tangible property, including all resulting loss of use of that property; or (ii) loss of use of
tangible property that is not physically injured. For the avoidance of doubt, electronic data
shall not be considered to be tangible property.




          “Receiving Party” has the meaning set forth in Section 17.1(a).




          “Reinsurance Agreement” has the meaning set forth in the Preamble.




          “Reinsurance Credit Event” has the meaning set forth in Section 15.1(a).




          “Reinsurance Credit Event I” has the meaning set forth in Section 9.6(a)(i).




          “Reinsurance Credit Event II” has the meaning set forth in Section 9.6(a)(i).




          “Reinsurance Credit Event II Trust Accounts” has the meaning set forth in Section
9.6(a)(iv).




          “Reinsurance Credit Event II Trust Agreement” has the meaning set forth in Section
9.6(a)(iii).




          “Reinsured” has the meaning set forth in the Preamble. The term “Reinsured”
as used herein shall include any predecessor or successor of such companies, including by reason of
merger, consolidation or otherwise.




          “Reinsured Contracts” means all policies, contracts, certificates, binders and cover
notes of insurance or reinsurance issued by any Reinsured or CNA Insurer, or by any GRM Direct &
Assumed, Syndicate, Pool or Association, covering or pertaining to the Business Covered.




          “Reinsured Liabilities” has the meaning set forth in Section 2.1.




          “Reinsurance Premium” has the meaning set forth in Section 3.1.








9









 








          “Reinsurer” has the meaning set forth in the Preamble. The term “Reinsurer”
as used herein shall include any predecessor or successor of such company, including by reason of
merger, consolidation or otherwise.




          “Representatives” means, with respect to any Person, such Person’s officers,
directors, employees, managing directors, agents, advisors and other representatives.




          “Required Amount” has the meaning set forth in the Collateral Trust Agreement.




          “Reserves” means, as required by SAP or Applicable Law of the jurisdiction of domicile
of such Person, reserves (including any gross, net and ceded reserves), funds or provisions for
losses, claims, unearned premiums, benefits, costs and expenses (including Allocated Loss
Adjustment Expenses) in respect of the Business Covered.




          “Retrospective Premiums” means any amounts due from a policyholder or insured under a
Reinsured Contract as a result of any increase in premiums charged thereunder or additional premium
payable thereunder based upon the claims or loss experience pursuant to the terms and conditions of
such Reinsured Contract.




          “Rules” has the meaning set forth in Section 11.1(a).




          “SAP” means, as to any Person, the statutory accounting principles prescribed or
permitted by the Governmental Authority responsible for the regulation of insurance companies in
the jurisdiction in which such entity is domiciled.




          “Security Amount” shall have the meaning set forth in the Collateral Trust Agreement.




          “Subsidiary” or “Subsidiaries” means, when used with respect to any Party, any
corporation, limited liability company, partnership, association, trust or other entity of which
securities or other ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power (or, in the case of a partnership, more than 50% of the general
partnership interests) are, as of such date, owned by such Party or one or more Subsidiaries of
such Party or by such Party and one or more Subsidiaries of such Party.




          “Tax Authority” means, with respect to any Tax, any government or political
subdivision thereof that imposes such Tax, and any agency charged with the collection, assessment,
determination or administration of such Tax for such government or subdivision.








10









 








          “Tax” means any and all federal, state, foreign or local income, gross receipts,
premium, capital stock, franchise, profits, withholding, social security, unemployment, disability,
real property, ad valorem/personal property, stamp, excise, occupation, sales, use, transfer, value
added, alternative minimum, estimated or other tax, fee, duty, levy, custom, tariff, impost,
assessment, obligation or charge of the same or of a similar nature to any of the foregoing,
including any interest, penalty or addition thereto.




          “Tax Return” means any return, report, declaration, claim for refund, certificate,
bill, or other return or statement, including any schedule or attachment thereto, and any amendment
thereof, filed or required to be filed with any Tax Authority in connection with the determination,
assessment or collection of any Tax.




          “Third Party Reinsurance Agreements” means reinsurance agreements, other than this
Reinsurance Agreement and reinsurance agreements solely between or among CNA Affiliates, whereby
any Reinsured or CNA Insurer has ceded the Business Covered, and which agreements have not been
voided or commuted.




          “Third Party Reinsurance Allocation Agreement” means the Third Party Reinsurance
Allocation Agreement by and among the Parties, substantially in the form of Exhibit C
attached hereto.




          “Third Party Reinsurance Recoverables” means Gross Third Party Reinsurance
Recoverables, less Collection Expenses.




          “Transaction Documents” means the Master Transaction Agreement and the Ancillary
Agreements (as such term is defined in the Master Transaction Agreement), other than this
Reinsurance Agreement.




          “Trustee” means the trustee named in the Collateral Trust Agreement and any successor
trustee appointed as such pursuant to the terms of such Collateral Trust Agreement.




          “Ultimate Net Loss” has the meaning set forth in Section 2.3.




          “Unallocated Loss Adjustment Expenses” means any loss adjustment expenses which are
not Allocated Loss Adjustment Expenses. For purposes of this Reinsurance Agreement, this
definition of “Unallocated Loss Adjustment Expenses” will apply regardless of how the Reinsured
reserve for Unallocated Loss Adjustment Expenses on its annual and quarterly statutory financial
statements filed with Governmental Authorities.





11











 





ARTICLE II




REINSURANCE CEDED



          2.1 Reinsurance Coverage.




          Effective as of the Inception Date, the Reinsured shall cede to the Reinsurer, and the
Reinsurer shall reinsure 100% of all losses, liabilities and expenses included within the
definition of Ultimate Net Loss paid by the Reinsured (as recorded on the general ledger of the
Reinsured) on or after the Inception Date, subject to the LPT Limit (the “Reinsured
Liabilities”). Notwithstanding any other provision in this Reinsurance Agreement or the
Transaction Documents to the contrary, the Reinsurer’s aggregate limit of liability for Ultimate
Net Loss shall be no greater than Four Billion Dollars ($4,000,000,000) (the “LPT Limit”).




          2.2 Commencement of the Reinsurer’s Liability.




          The Reinsurer’s liability under this Reinsurance Agreement shall attach simultaneously with
that of the Reinsured, and all reinsurance with respect to which the Reinsurer shall be liable by
virtue of this Reinsurance Agreement shall be subject in all respects to the same risks, terms,
rates, conditions, interpretations, assessments and waivers and to the same modifications,
alterations and cancellations, as the respective Reinsured Contracts and Business Covered to which
liability under this Reinsurance Agreement attaches, the true intent of this Reinsurance Agreement
being that the Reinsurer shall, in every case to which liability under this Reinsurance Agreement
attaches, follow the fortunes of the Reinsured, and the Reinsurer shall be bound, without
limitation, by all payments and settlements entered into by or on behalf of the Reinsured, subject
to the terms, conditions, provisions and the LPT Limit set forth herein, and the Administrative
Services Agreement.




          2.3 Ultimate Net Loss.




          “Ultimate Net Loss” means the sum of any amount which is paid, required to be paid or
due to be paid by any Reinsured or CNA Insurer on and after the Inception Date in respect of
Business Covered for: (i) settlement or satisfaction of the A&P Claims relating to the Business
Covered; plus (ii) Allocated Loss Adjustment Expenses; plus (iii) Declaratory
Judgment Expenses; plus (iv) Extracontractual Damages; minus (v) Third Party
Reinsurance Recoverables and Other Recoveries (but expressly excluding Pre-Inception Date
Receivables), to the extent actually collected and paid to the Reinsurer; provided, however, in no
event shall Ultimate Net Loss include any Unallocated Loss Adjustment Expenses.




          2.4 Exclusions.




          Notwithstanding any provision of this Reinsurance Agreement to the contrary, the Reinsurer
shall not be liable for any liabilities or obligations of the Reinsured that are not Reinsured
Liabilities, including:




12









 









     (a) Any sum paid or booked as paid prior to the Inception Date in settlement or payment
of any obligation arising from Business Covered, including any such sums for Allocated Loss
Adjustment Expenses, Declaratory Judgment Expenses or Extracontractual Damages which, in
each case, were paid or booked as paid prior to the Inception Date;




     (b) Any liability of any Reinsured or CNA Insurer for the intentional and malicious
acts or omissions of their employees, officers or directors (as so determined by final
adjudication by any Order, writ, injunction, directive, judgment or decree of a court of
competent jurisdiction applicable to the Parties), except to the extent that any loss would
otherwise constitute an Extracontractual Damage;




     (c) Any liability with respect to any Tax or assessment, whether paid directly by the
Reinsured or billed to the Reinsured by or through a cedent or insured, regardless of
whether the Tax is denominated as an income tax, excise tax, premium tax, surplus lines tax
or any other Tax or assessment;




     (d) Any claims under workers’ compensation policies (except for coverage for (1B)
employer’s liability claims that involve asbestos or pollution) or under first party
insurance policies;




     (e) Any liability arising from Reinsured’s role as a managing general agent or pool
manager;




     (f) Any liability assumed by any Reinsured under a reinsurance agreement or cover note
entered into on or after the Inception Date, including with any CNA Insurer who was not
an Affiliate of CNA on the date such reinsurance agreement or cover note was entered into,
or any additional liability arising from an amendment to a reinsurance agreement, which
amendment was entered into on or after the Inception Date;




     (g) Any additional liability arising from an amendment to a Reinsured Contract by a
Reinsured pursuant to Section 19.1(b); or




     (h) Any claim or liability set forth on Schedule 2.4(h) attached hereto
(collectively, (a)-(h) constitute the “Excluded Liabilities”).



          2.5 Unallocated Loss Adjustment Expenses.




          For the avoidance of doubt, notwithstanding any provision of this Reinsurance Agreement to the
contrary, the Reinsurer shall be responsible for reimbursing the Reinsured for three million five
hundred thousand dollars ($3,500,000), which amount represents the




13









 







Reinsurer’s share of the
Unallocated Loss Adjustment Expenses incurred by the Reinsured in connection with the Business
Covered on or after the Inception Date up to the Closing Date, and such payment shall not affect
the LPT Limit or the reinsurance provided hereunder. The amount of the payment referenced in the
foregoing sentence shall be deposited into the Collateral Trust Account in accordance with
Section 2.3 of the Master Transaction Agreement. The Reinsurer shall be liable for
Unallocated Loss Adjustment Expenses that (i) Reinsurer has incurred in connection with its
administration of the Business Covered pursuant to the Administrative Services Agreement, or (ii)
have been expressly approved for payment in writing by Reinsurer or otherwise provided for in this
Reinsurance Agreement, and such payments shall not affect the LPT Limit.




          2.6 Notice Regarding LPT Limit.




          In the event that the remaining LPT Limit is, through the Reinsurer’s payment of Ultimate Net
Loss under this Reinsurance Agreement, reduced to one billion dollars ($1,000,000,000) on a paid
basis, the Reinsurer shall promptly provide written notice to the Reinsured and, to the extent that
the Reinsurer has concluded that the remaining LPT Limit will be exhausted on a paid basis, a good
faith estimate of the date when the LPT Limit is expected to be exhausted.




          2.7 Territory.




          The reinsurance provided under this Reinsurance Agreement shall be coextensive with the
territory of the Reinsured Contracts.




          2.8 Change of Control.




          For the avoidance of doubt, the reinsurance provided under this Reinsurance Agreement shall
continue unchanged regardless of any Change of Control.




          2.9 Redomestication.




          The Reinsurer’s consent shall be obtained prior to any action by a Reinsured or a CNA Insurer
(including a Change of Control) that results in redomestication of that entity outside the United
States.




          2.10 CNA Insurers Bound.




          The Reinsured shall cause the CNA Insurers to abide by and be bound by the terms and
conditions of this Reinsurance Agreement and the Administrative Services Agreement.




14









 








ARTICLE III




REINSURANCE CONSIDERATION



          3.1 Reinsurance Premium.




          On the Closing Date, the Reinsured shall pay to the Reinsurer cash in the aggregate amount of
two billion dollars ($2,000,000,000) (the “Reinsurance Premium”), as adjusted in the
Initial Reconciliation Statement pursuant to Section 2.3 of the Master Transaction
Agreement, to be deposited directly by the Reinsured on behalf of the Reinsurer into the Collateral
Trust Account.




          3.2 Transfer of Pre-Inception Date Receivables.




          In addition to the payment of the Reinsurance Premium, the Reinsured shall transfer the right
to collect the Pre-Inception Date Receivables to the Reinsurer. All Pre-Inception Date Receivables
actually collected by the Reinsurer shall be for the benefit and account of the Reinsurer. The
Parties hereby acknowledge and agree that neither the collection of, or failure to collect,
Pre-Inception Date Receivables shall affect the LPT Limit. The Reinsured shall, if reasonably
requested by the Reinsurer, aid the Reinsurer at the Reinsurer’s expense in the collection of
Pre-Inception Date Receivables, and the Reinsurer is authorized to undertake such efforts as it
deems reasonably necessary, including on behalf of and in the name of a CNA Insurer, in order to
collect such Pre-Inception Date Receivables.




          3.3 Payments.





     (a) Except with respect to payments of Ultimate Net Loss made by Reinsurer to third
parties on behalf of Reinsured, and except as otherwise set forth in Section 2.3 of the
Master Transaction Agreement with respect to the accounting reconciliation, all payments
between the Parties made pursuant to this Reinsurance Agreement shall be made either (i) by
wire transfer of United States dollars in cash to such bank account or accounts as
designated by the recipient or (ii) by direct deposit or direct debit through the Automated
Clearing House (ACH) system.




     (b) Except with respect to payments of Ultimate Net Loss made by Reinsurer to third
parties on behalf of Reinsured, and except as otherwise set forth in Section 2.3 of the
Master Transaction Agreement with respect to the accounting reconciliation, all
payments by the Reinsurer to the Reinsured shall be made directly to the Reinsured or
to its liquidator, receiver, or its statutory successor.



15









 





ARTICLE IV




ADMINISTRATION



          4.1 Administration.




          Pursuant to the Administrative Services Agreement, the Reinsured and the CNA Insurers appoint
the Reinsurer and/or its duly appointed Affiliate(s) to perform all administrative services with
respect to the Reinsured Contracts and Third Party Reinsurance Agreements as respects the Business
Covered until the date of termination of this Reinsurance Agreement (or the date of termination of
the Administrative Services Agreement, if earlier) and the Reinsurer agrees to perform such
services on behalf of the Reinsured as provided in the Administrative Services Agreement.




ARTICLE V




RESERVING REQUIREMENTS



          5.1 Reserve Assumption Changes.




          On and after the Inception Date, the Reinsurer shall establish and at all times maintain a
reserve liability on the Reinsurer’s statutory financial statements with respect to the Reserves on
the Business Covered, which shall be determined by the Reinsurer in accordance with SAP, including
applicable actuarial principles. The Reinsured shall determine its Reserves on the Business
Covered in accordance with SAP, including applicable actuarial principles.




ARTICLE VI




DURATION AND TERMINATION



          6.1 Duration and Termination.




          Without limiting any provision of the Master Transaction Agreement, this Reinsurance Agreement
shall commence on the Closing Date and continue in force until (i) such time as the Reinsurer’s
liability with respect to Ultimate Net Loss terminates, which will be the earlier of: (a) the date
the Reinsured’s liability with respect to the Business Covered is terminated and all amounts due
the Reinsured under this Reinsurance Agreement with respect to the Business Covered is paid or (b)
the date on which the Reinsurer has paid an amount of
Ultimate Net Loss equal to the LPT Limit or (ii) the date on which this Reinsurance Agreement
is terminated by the mutual written consent of the Parties.




16









 








          6.2 Effect of Termination.




          Notwithstanding the other provisions of this Article VI, the terms and conditions of
Articles I and X and the provisions of Sections 21.1, 22.1,
22.7, 22.12, and 22.13 shall remain in full force and effect after the
termination of this Reinsurance Agreement.




ARTICLE VII




ACCOUNTING AND SETTLEMENT REPORTS



          7.1 Accounting and Settlement Reports.




          Pursuant to and in accordance with the terms of the Administrative Services Agreement, the
Reinsurer will provide to the Reinsured accounting and settlement reports as to the Reinsured
Contracts and Third Party Reinsurance Agreements as respects the Business Covered.




          7.2 Tax Reporting.




          Each Party to the transaction provided for in this Reinsurance Agreement has conducted prior
to execution of this Reinsurance Agreement such risk transfer testing analysis as that Party deems
appropriate in its independent judgment in order to report properly the transaction for SAP and
federal income tax purposes. Based on such analysis each Party has independently determined that
the transaction provided for in this Reinsurance Agreement is properly accounted for as reinsurance
for SAP and federal income tax purposes.




ARTICLE VIII




INSOLVENCY



          8.1 Insolvency of Reinsured.





     (a) The Reinsurer hereby agrees that in the event of the insolvency of any Reinsured
and the appointment of a conservator, liquidator, receiver or statutory successor of the
Reinsured, all amounts due the Reinsured under this Reinsurance Agreement shall be payable
by the Reinsurer to any conservator, liquidator, receiver or statutory successor of the
Reinsured on the basis of the claims allowed against the Reinsured by any court of competent
jurisdiction or by any conservator, liquidator, receiver or statutory successor of the
Reinsured having authority to allow such claims, without diminution because of that
insolvency, or because the conservator, liquidator,
receiver or statutory successor has failed to pay all or a portion of any claims.
Payments by the Reinsurer as set forth in this Section shall be made directly to the
Reinsured or to



17









 






its conservator, liquidator, receiver, or statutory successor, except where
the Reinsurance Agreement specifically provides another payee of such reinsurance in the
event of the insolvency of the Reinsured. Under no circumstances shall Reinsurer’s
liability hereunder be accelerated or enlarged by the insolvency of any Reinsured.




     (b) It is agreed and understood, however, that in the event of the insolvency of any
Reinsured the liquidator, receiver or statutory successor of such Reinsured shall give
written notice of the pendency of a claim against such Reinsured on a Reinsured Contract
within a reasonable period of time after such claim is filed in the insolvency proceedings
and that during the pendency of such claim 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 such Reinsured or its liquidator,
receiver or statutory successor. It is further understood that the expense thus incurred by
Reinsurer shall be chargeable, subject to court approval, against such Reinsured as part of
the expense of liquidation to the extent of a proportionate share of the benefit which may
accrue to such Reinsured solely as a result of the defense undertaken by Reinsurer.



ARTICLE IX




COLLATERAL TRUST ACCOUNT



          9.1 Establishment of Collateral Trust Account.





     (a) In accordance with the Collateral Trust Agreement to be entered into between the
Parties and the Trustee as of the date hereof, the Reinsurer shall have procured, on or
prior to the date hereof, with and in the name of the Trustee, a segregated trust account
maintained by the Trustee with account number 80460400 (the “Collateral Trust
Account”), to be held for the benefit of each of the Reinsured pursuant to the
provisions of the Collateral Trust Agreement.




     (b) On the Closing Date, (i) the Reinsured shall transfer and assign to the Collateral
Trust Account, on behalf of the Reinsurer, assets consisting of cash in the aggregate amount
of the Reinsurance Premium, as adjusted in the Initial Reconciliation Statement pursuant to
Section 2.3 of the Master Transaction Agreement and (ii) the Reinsurer shall
transfer and assign to the Collateral Trust Account assets consisting of cash in the
aggregate amount of two hundred million dollars ($200,000,000).



          9.2 Ongoing Funding of Collateral Trust Account.




          In accordance with the requirements of the Collateral Trust Agreement, unless there is a
Collateral Triggering Event or a Reinsurance Credit Event, the Reinsurer shall not be
required to deposit additional assets into the Collateral Trust Account after the Closing
Date. All




18









 







transfers to and withdrawals from the Collateral Trust Account shall be in accordance
with the terms set forth herein and subject to the requirements set forth in the Collateral Trust
Agreement.




          9.3 Collateral Trust Assets.





     (a) Prior to the occurrence of a Reinsurance Credit Event, the assets that may be held
in the Collateral Trust Account shall consist of Eligible Investments. Upon the occurrence
of a Reinsurance Credit Event, however, in accordance with the requirements of the
Collateral Trust Agreement and Section 9.6 herewith, the assets in the Collateral
Trust Account shall consist of Permitted Investments.




     (b) The Reinsurer shall, prior to depositing any Eligible Investments or Permitted
Investments, as applicable, into the Collateral Trust Account, and from time to time as
required, execute all assignments and endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignment in order that
the Trustee, upon direction of the Reinsured, may whenever necessary negotiate any such
assets without consent or signature from the Reinsurer or any other entity.




     (c) Pursuant to the terms of the Collateral Trust Agreement, the Collateral Trust
Assets shall be held by the Trustee for the sole purpose of satisfying any obligations of
the Reinsurer to the Reinsured with respect to the Business Covered under this Reinsurance
Agreement.



          9.4 Settlements.




          All settlements of account under the Collateral Trust Agreement between the Reinsurer and the
Reinsured shall be made in United States dollars in cash or its equivalent.




          9.5 Modification Upon Occurrence of Collateral Triggering Event.




          The Parties acknowledge and agree that, upon the occurrence of a Collateral Triggering Event,
all references to “Security Amount” in the Collateral Trust Agreement shall be modified in
accordance with its definition to give effect to the Collateral Triggering Event. In addition, as
soon as is practicable, but no later than contemporaneously with the posting of the collateral
under any Collateral Triggering Agreement that results in the Reinsurer posting one billion dollars
or more of collateral either on an individual or aggregate basis, the Reinsurer shall deposit such
additional assets into the Collateral Trust Account so that the aggregate fair market value of the
Eligible Investments in the Collateral Trust Account equals the newly computed Security Amount.
Until such time as (i) the events, changes or conditions that gave rise to the collateral
requirement under one or more of the Collateral Triggering Agreements cease to exist or apply and
(ii) the Reinsurer has withdrawn or reduced the aggregate amount of collateral posted under
Collateral Triggering Agreements ((i) and (ii) together, the “Collateral Reduction Event”),
the Reinsurer shall ensure that the Collateral Trust Account shall hold Eligible
Investments at all times with a fair market value of no less than 100% of the Security Amount (as






19









 







defined in clause (ii) of Section 1.1(jj) of the Collateral Trust Agreement); provided,
however, if a Collateral Reduction Event has occurred, the Security Amount shall be reduced by a
percentage which is proportionate to each percentage reduction of all collateral posted under the
Collateral Triggering Agreements; provided, further, however, in no event shall the Security Amount
be reduced to an amount less than 100% of the Security Amount (as defined in clause (i) of
Section 1.1(jj) of the Collateral Trust Agreement).




          9.6 Modification Upon Occurrence of a Reinsurance Credit Event.





     (a) The Parties acknowledge and agree that, upon the occurrence of a Reinsurance Credit
Event, this Reinsurance Agreement, the Collateral Trust Agreement and the Collateral Trust
Account shall be modified for that period of time for which the Reinsurance Credit Event
continues to apply, to fully conform to the requirements of the laws and regulations
governing credit for reinsurance of the domiciliary state of the Reinsured that that is the
subject of the Reinsurance Credit Event. Furthermore, the Parties acknowledge and agree
that a Reinsurance Credit Event may occur as a result of the financial impairment of the
Reinsurer or it may occur as a result of other causes, some of which may be cured by the
Reinsurer within a reasonable period of time. Consequently, the Parties hereto agree that:




     (i) Should either Party become aware of a Reinsurance Credit Event or the
likelihood of the occurrence of a Reinsurance Credit Event, such Party shall provide
prompt written notice to the other either (i) certifying that a Reinsurance Credit
Event has occurred or (ii) describing the circumstances and cause for such notice.
Such notice shall indicate whether the Reinsurance Credit Event resulted or is likely
to result from any financial impairment of the Reinsurer or from other causes. For
purposes of this Article IX, a Reinsurance Credit Event resulting from or
likely to result from any financial impairment of the Reinsurer shall be referred to
as a “Reinsurance Credit Event I” and a Reinsurance Credit Event resulting
from or likely to result from causes other than the financial impairment of the
Reinsurer shall be referred to as a “Reinsurance Credit Event II.”




     (ii) Upon the occurrence of a Reinsurance Credit Event I, the Parties acknowledge
and agree that certain provisions of the Collateral Trust Agreement shall cease to be
effective, and other provisions shall automatically become effective thereafter, as
described in the Collateral Trust Agreement. In addition, any other provisions
required under applicable law and regulations governing trusts providing full
statutory financial statement credit for reinsurance ceded by property and casualty
insurance companies shall be incorporated into the Collateral Trust Agreement.




     (iii) Upon the occurrence of a Reinsurance Credit Event II, then the Reinsurer
shall have a period of ninety (90) calendar days to seek to cure or address
to the satisfaction of the Reinsured the circumstances giving rise to the
Reinsurance



20









 






Credit Event II. Should the Reinsurer be unable to cure the situation or
address it to the satisfaction of the Reinsured during such period, Reinsurer shall
establish a new trust account for each Reinsured that is the subject of the
Reinsurance Credit Event II, pursuant to a trust agreement substantially in the form
attached hereto as Exhibit D (“Reinsurance Credit Event II Trust
Agreement”). Notwithstanding anything to the contrary stated herein, the
Reinsurer shall be required to establish a new trust account solely for the benefit of
CCC and/or CIC, respectively, and only to the extent CCC and/or CIC is the subject of
the Reinsurance Credit Event II.




     (iv) The trust account or accounts established pursuant to the Reinsurance Credit
Event II Trust Agreements (“Reinsurance Credit Event II Trust Accounts”) shall
initially be funded by such Permitted Investments from the Collateral Trust Account
that represents the percentage of the remaining value of Collateral Trust Assets
reflecting the portion of the Reinsurance Premium that was contributed by the
applicable Reinsured, less Ultimate Net Loss paid in respect of such Reinsured. In
addition to such assets, the Reinsurer shall deposit into the Reinsurance Credit Event
II Trust Accounts sufficient additional assets so that the aggregate fair market value
of the Reinsurance Credit Event II Trust Accounts equals the applicable Required
Amount. The Reinsurance Credit Event II Trust Accounts shall be funded with Permitted
Investments only.




     (v) The Reinsurance Credit Event II Trust Accounts shall remain in place only for
so long, and only to the extent, required to address the event, change or condition
giving rise to the establishment of such trust accounts. The Reinsured agrees that in
the event that the Reinsurance Credit Event ceases to exist or apply, the Reinsured
will provide its approval for the termination of the Reinsurance Credit Event II Trust
Accounts and for the return of all assets to the Reinsurer; provided, however, the
fair market value of the Permitted Investments transferred from the Collateral Trust
Account to the Reinsurance Credit Event II Trust Account less Ultimate Net Loss paid
on behalf of the Reinsured since such transfer shall be transferred to the Collateral
Trust Account. In addition, to the extent that the obligations of the Reinsurer to
provide security diminish, the Reinsured shall provide its approval for the reduction
of the Reinsurance Credit Event II Trust Account.



          9.7 Withdrawal of Collateral Trust Assets by Reinsured Prior to the Occurrence of a Reinsurance
Credit Event.





     (a) The Parties agree that Collateral Trust Assets may be withdrawn by the Reinsured,
and utilized and applied by the Reinsured, or any successor by operation of law of the
Reinsured including, any liquidator or rehabilitator, receiver or conservator of the
Reinsured, without diminution because of insolvency on the part of the Reinsured or the
Reinsurer, only for one or both of the following purposes:



21









 






     (i) to pay or reimburse the Reinsured for the Reinsurer’s share of claims, losses
or other amounts due and payable to the Reinsured under the terms and conditions of
this Reinsurance Agreement or to pay or reimburse the Reinsured for amounts to which
it is entitled under the terms and conditions of the Administrative Services Agreement
not yet recovered from the Reinsurer or the Collateral Trust Account; and




     (ii) to pay to the Reinsurer amounts held in the Collateral Trust Account in
excess of the Security Amount.




     (b) Notwithstanding the foregoing, the Reinsured shall only withdraw Collateral Trust
Assets under Section 9.7(a)(i) pursuant to the terms of a final order of an
arbitration panel or court of competent jurisdiction with which the Reinsurer has failed to
comply, provided that notice of such withdrawal is provided not less than five (5) Business
Days in advance of the requested withdrawal. If the Reinsurer contests the validity of the
arbitration order by notice to the Reinsured, the Reinsurer may challenge the validity of
the withdrawal order in a court of competent jurisdiction. During the pendency of such
litigation, notice of withdrawal shall not be effective except as ordered by the court in
which the litigation is pending;




     (c) The Reinsured shall return to the Collateral Trust Account, within five (5)
Business Days, assets withdrawn in excess of all amounts due under Sections
9.7(a)(i) and (ii). Any such excess amount shall at all times be held by the
Reinsured (or any successor by operation of law of the Reinsured, including any liquidator,
rehabilitator, receiver or conservator of Reinsured) in trust for the benefit of the
Reinsurer and be maintained in a segregated account, separate and apart from any assets of
the Reinsured for the sole purpose of funding the payments and reimbursements described in
Section 9.7(a).



          9.8 Withdrawal of Collateral Trust Assets by Reinsured After the Occurrence of a Reinsurance Credit
Event.





     (a) The Parties agree that the Collateral Trust Assets may only be withdrawn by the
Reinsured, and utilized and applied by the Reinsured, or any successor by operation of law
of the Reinsured including any liquidator or rehabilitator, receiver or conservator of the
Reinsured, without diminution because of insolvency on the part of the Reinsured or the
Reinsurer, for one or more of the following purposes:




     (i) to pay or reimburse the Reinsured for the Reinsurer’s share of premiums
returned to policyholders or ceding companies of the Reinsured Contracts because of
cancellations of such contracts to the extent same constitute Ultimate Net Loss
hereunder;



22









 






     (ii) to reimburse the Reinsured for the Reinsurer’s share of surrenders and
benefits or losses paid by the Reinsured pursuant to the provisions of the Reinsured
Contracts to the extent same constitute Ultimate Net Loss hereunder;




     (iii) to fund an account with the Reinsured in an amount at least equal to the
deduction, for reinsurance ceded, from the Reinsured’s liabilities for the Reinsured
Liabilities. The account must include, but not be limited to, amounts for policy
reserves, claims and losses incurred, including losses incurred but not reported,
Allocated Loss Adjustment Expenses, and unearned premium reserves; and




     (iv) to pay any other amounts the Reinsured claims are due under this Reinsurance
Agreement.




     (b) The Reinsured shall return to the Collateral Trust Account, within five (5)
Business Days, assets withdrawn in excess of all amounts due under Sections
9.8(a)(i), (ii) and (iv), or, in the case of Section
9.8(a)(iii), assets that are subsequently determined not to be due. Any such excess
amount shall at all times be held by the Reinsured (or any successor by operation of law of
the Reinsured, including any liquidator, rehabilitator, receiver or conservator of
Reinsured) in trust for the benefit of the Reinsurer and be maintained in a segregated
account, separate and apart from any assets of Reinsured for the sole purpose of funding the
payments and reimbursements described in paragraphs (i), (ii) and (iv) of Section
9.8(a). The Reinsured shall pay interest in cash to the Reinsurer on the amount
withdrawn, equal to the actual amount of interest, dividends, and other income earned on the
assets in such segregated account so long as the fair market value of the assets in such
segregated account and the fair market value of any remaining Collateral Trust Assets
equals, in the aggregate, 102% of the Required Amount, and shall otherwise credit to such
segregated account all such income earned on the assets in such segregated account.



ARTICLE X




DISPUTE RESOLUTION



          10.1 Dispute Resolution.




          Notwithstanding anything contained herein to the contrary, any dispute between the Parties
arising out of or relating to this Reinsurance Agreement or the breach, termination or validity
hereof (“Dispute”) will be first addressed in accordance with the procedures specified in
Section 10.2, and subsequently, if necessary, Article XI, which will be the sole
and exclusive procedures for the resolution of any such Disputes.





23









 








          10.2 Negotiation Amongst the Parties.





     (a) The Parties agree that they shall first attempt to resolve Disputes by informal
in-person discussions and negotiations of their respective representatives. If the Parties
are unable to resolve any such Dispute through such in-person discussions and negotiations
within thirty (30) calendar days of the day on which a Party receives from the other Party
or Parties written notice of a Dispute, the Dispute shall be submitted for resolution to a
designated executive officer of each Party, with authority to make a decision. If the
designated executive officers are unable to reach a mutually acceptable resolution within
ten (10) calendar days after expiration of such thirty-day period, on the request of any
Party, the Dispute shall be resolved in accordance with subsection (b) of this Section
10.2. All negotiations, discussions, and communications made or conducted pursuant to
the procedures set forth in this Section 10.2(a) are confidential and will be
treated as compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and any other applicable rules of evidence.




     (b) Upon completion of the dispute resolution process described in subsection (a) of
this Section 10.2 without resolution of the Dispute, any Party may submit the
Dispute for resolution in accordance with Article XI.



ARTICLE XI




ARBITRATION



          11.1 Arbitration.





     (a) Except as provided in Article X, any Dispute shall be finally determined by
arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (“AAA”) then in effect (the “Rules”), except as modified herein.
If the amount in controversy is five million dollars ($5,000,000) or less (including all
claims and counterclaims) there shall be one arbitrator who shall be agreed upon by the
Parties within twenty (20) calendar days of receipt by respondent(s) of a copy of the demand
for arbitration. The single arbitrator may not award an amount greater than five million
dollars ($5,000,000) in value under any circumstances. If the amount in controversy is more
than five million dollars ($5,000,000) (including all claims and counterclaims) there shall
be three neutral and impartial arbitrators, one of whom shall be appointed by each of (i)
the Reinsured, on the one hand and (ii) the Reinsurer, on the other hand, within thirty (30)
calendar days of receipt by respondent(s) of the demand for arbitration, and the third
arbitrator, who shall chair the arbitral tribunal, shall be appointed by the Party appointed
arbitrators within fifteen (15) calendar days of the appointment of the second arbitrator.
If any arbitrator is not appointed within the time limit provided herein, such arbitrator
shall be appointed by the AAA in accordance with the listing, striking and ranking procedure
in the Rules, with each Party being given a limited number of strikes, except for cause.
Any arbitrator appointed by the AAA shall



24









 






be a retired federal or state appellate court judge or a current or retired officer of
an insurance company with no less than fifteen (15) years of experience in the property
casualty insurance industry. The arbitration hearing on the merits shall be commenced
within ninety (90) calendar days of the appointment of the arbitrator(s) or as soon
thereafter as practicable. In rendering an award, the arbitral tribunal shall be required
to follow the laws of the State of New York. The award shall be in writing and shall
briefly state the findings of fact and conclusions of law on which it is based. The
arbitrator(s) shall be permitted to award any relief permitted under New York law, including
damages and any form of temporary or permanent injunctive relief, but shall not be permitted
to award special, indirect, punitive or incidental damages or damages for lost profits or
any other consequential damages or damages based on multiples or similar valuation
techniques. The award shall be final and binding upon the Parties and shall be the sole and
exclusive remedy between the Parties regarding any claims, counterclaims, issues or
accounting presented to the arbitrator(s). Judgment upon the award may be entered in any
court having jurisdiction over any Party or any of its assets. Any costs or fees (including
attorneys’ fees and expenses) incident to enforcing the award shall be charged against the
Party or Parties resisting such enforcement. Arbitrability of any and all disputes shall be
decided by the arbitrator(s). In the event of any inconsistency between the Rules and the
provisions of this Article XI, the provisions of this Article XI shall
control.




     (b) Arbitration hereunder shall be conducted in Chicago, Illinois or New York, New
York, as determined by the Party against whom the arbitration is demanded.



ARTICLE XII




EXTRACONTRACTUAL DAMAGES



          12.1 Extracontractual Damages.





     (a) To the maximum extent permitted by Applicable Law, this Reinsurance Agreement shall
cover Extracontractual Damages. “Extracontractual Damages” as used in this
Reinsurance Agreement means all liabilities arising from the Business Covered for which any
Reinsured and CNA Insurer is liable arising from actual or alleged misconduct, negligence,
fraud or bad faith of any Reinsured, any CNA Insurer or any of their Affiliates, or their
agents, brokers or Representatives (other than the Reinsurer acting on behalf of the
Reinsured pursuant to the Administrative Services Agreement, which liability shall be
indemnified pursuant to such agreement) in their handling of claims or losses, or in any of
their dealings with their insureds or any other Person. Such liabilities shall include
punitive, exemplary, compensatory, and consequential damages. Extracontractual Damages
shall also include any and all amounts otherwise included in the definition of Ultimate Net
Loss that any Reinsured pays or is obligated to pay to ceding companies under Business
Covered that are agreements of assumed reinsurance, whether under the terms of such
reinsurance



25









 






contracts or as a result of agreements between the Reinsured and cedents as to the
settlement of specific claims.




     (b) For the avoidance of doubt, notwithstanding anything to the contrary in this
Reinsurance Agreement, any liability of the Reinsured or the CNA Insurers for the
intentional and malicious acts or omissions of their employees, officers or directors (as so
determined by final adjudication by any Order, writ, injunction, directive, judgment or
decree of a court of competent jurisdiction applicable to the Parties) shall be paid by the
Reinsured or the CNA Insurers and any such payment shall not affect the LPT Limit.




     (c) For the avoidance of doubt, notwithstanding anything to the contrary in this
Reinsurance Agreement, any liability of the Reinsurer for the intentional and malicious acts
or omissions of their employees, officers or directors (as so determined by final
adjudication by any Order, writ, injunction, directive, judgment or decree of a court of
competent jurisdiction applicable to the Parties) shall be paid by the Reinsurer; provided,
however, any such payment shall not affect the LPT Limit.



ARTICLE XIII




SALVAGE AND SUBROGATION



          13.1 Salvage and Subrogation.




          The Reinsurer shall be subrogated to all rights of any Reinsured or CNA Insurer against any
Person or other entity who may be legally responsible in damages constituting Ultimate Net Loss for
which the Reinsurer shall actually pay, or become liable to pay, on or after the Inception Date
(but only to the extent of the amount of payment by, or the amount of liability of, the Reinsurer).
The Reinsured and the CNA Insurers hereby assign, transfer and convey to the Reinsurer any and all
rights of the Reinsured and the CNA Insurers to salvage and subrogation on the Business Covered
which was paid prior to the Inception Date. The rights of the Reinsurer and the obligations of the
Reinsured under this Section 13.1 shall terminate at such time as the Reinsurer shall have
paid to the Reinsured under this Reinsurance Agreement an amount of Ultimate Net Loss equal to the
LPT Limit.




          13.2 Expenses.




          In determining the amount of salvage or subrogation, there shall first be deducted from any
amount recovered the out-of-pocket expenses incurred in effecting the recovery (including, without
limitation, all court, arbitration, mediation or other dispute resolution costs, attorneys’ fees
and expenses but excluding overhead, salaries and expenses of officers and employees of the
Reinsured and similar internal costs), except to the extent otherwise paid or reimbursed by the
Reinsurer hereunder.








26









 








ARTICLE XIV




THIRD PARTY REINSURANCE AGREEMENTS



          14.1 Third Party Reinsurance Agreements.





     (a) The Third Party Reinsurance Agreements shall be administered in accordance with the
Administrative Services Agreement. Any Third Party Reinsurance Recoverables will be
allocated in accordance with the terms and conditions of the Third Party Reinsurance
Allocation Agreement. Third Party Reinsurance Recoverables relating to A&P Claims paid by
Reinsurer shall be paid to Reinsurer. The Parties acknowledge and agree that amounts
recoverable under the Third Party Reinsurance Agreements are available both to the Reinsurer
for the Business Covered and to the Reinsured for all other claims in accordance with the
terms of the Third Party Reinsurance Allocation Agreement.




     (b) The Reinsured shall not, without the Reinsurer’s prior approval (which approval
shall not be unreasonably or arbitrarily withheld, conditioned or delayed), terminate or
materially modify any existing Third Party Reinsurance Agreement providing protection to the
Business Covered.



          14.2 Collection Responsibility.




          The Reinsured and the CNA Insurers shall, if reasonably requested by the Reinsurer, cooperate
with the Reinsurer, at the Reinsurer’s expense, in collection of all amounts due in respect of the
Reinsured Liabilities under the Third Party Reinsurance Agreements. The collection of such
reinsurance shall be the responsibility of the Reinsurer as provided in the Administrative Services
Agreement. To the extent such collections are not in fact made, the amounts uncollected shall not
serve to reinstate remaining Ultimate Net Loss as provided in Section 2.3. The Reinsured
shall not have any responsibility to the Reinsurer for any uncollectible amounts under Third Party
Reinsurance Agreements.




ARTICLE XV




REINSURANCE CREDIT



          15.1 Reinsurance Credit.





     (a) Reinsurer shall, at its own expense, be required to take all steps (including the
posting of letters of credit or other acceptable security) necessary to comply with all
Applicable Laws in United States jurisdictions so as to permit all Reinsureds to obtain full
credit on their statutory financial statements (including those financial statements or
portions thereof required in connection with maintaining each Reinsured’s status as an



27









 






accredited reinsurer or eligible surplus lines insurer) for the reinsurance provided by
this Reinsurance Agreement in all applicable United States jurisdictions throughout the
entire term of this Reinsurance Agreement to the extent credit is not otherwise available
under such Applicable Law. Any event that results in any Reinsured being unable to obtain
full statutory financial statement credit for the reinsurance provided under this
Reinsurance Agreement in any applicable United States jurisdiction at any point in time
during the term of this Reinsurance Agreement shall be referenced herein as a
“Reinsurance Credit Event.” Reinsurer shall promptly notify Reinsured of any event
or change or condition that will reasonably likely result in a Reinsurance Credit Event.




     (b) It is understood and agreed that any term or condition required by such Applicable
Law in a United States jurisdiction to be included in this Reinsurance Agreement for all
Reinsureds to receive financial statement credit for the reinsurance provided by this
Reinsurance Agreement shall be deemed to be incorporated in this Reinsurance Agreement by
reference. Furthermore, the Parties agree to amend this Reinsurance Agreement or enter into
other agreements or execute additional documents as needed to comply with the credit for
reinsurance laws and regulations and/or the requirements of the applicable Governmental
Authorities in all United States jurisdictions in which Reinsured requires financial credit
for the reinsurance provided by this Reinsurance Agreement. To the extent that any other
agreements or additional documents are deemed by Reinsurer to increase or accelerate its
liabilities hereunder or otherwise adversely impact the economics of this Reinsurance
Agreement as respects the Reinsurer, the Reinsurer shall be afforded the opportunity to
investigate alternatives for accomplishing the financial statement credit objectives set
forth herein; provided, however, any such investigation of alternatives shall not cause the
Reinsured to incur a Schedule F penalty or otherwise fail to receive financial statement
credit in a timely manner.




     (c) Notwithstanding anything else contained herein, under no circumstances shall
Reinsurer be required at any time to fund any trust(s) and/or account(s) in excess of the
amount equal to the LPT Limit less Ultimate Net Loss paid.



ARTICLE XVI




REGULATORY MATTERS



          16.1 Regulatory Matters.





     (a) If the Reinsured or the Reinsurer receives notice of, or otherwise becomes aware of
any inquiry, investigation, examination, audit or proceeding by Governmental Authorities
(other than Tax Authorities) relating to the Reinsured Contracts, the Business Covered or
the reinsurance provided hereunder, the Reinsured or the Reinsurer, as applicable, shall
promptly notify the other Party thereof, whereupon the Parties shall



28









 






cooperate to resolve such matter in accordance with the terms of the Administrative
Services Agreement.




     (b) If the Reinsured or the Reinsurer receives notice of, or otherwise becomes aware of
any enforcement action by any Governmental Authority (other than a Tax Authority) arising
out of any inquiry, investigation, examination, audit or proceeding by such Governmental
Authority, the Reinsured or the Reinsurer, as applicable, shall promptly notify the other
Party thereof, and the Parties shall cooperate to resolve such matter.




     (c) The Reinsured and the Reinsurer agree that this Reinsurance Agreement shall not be
cancelled or rescinded without the prior consent of the domiciliary state insurance
commissioners of CCC and CIC to the extent such prior consent is required.



ARTICLE XVII




CONFIDENTIALITY



          17.1 Confidentiality.





     (a) The Parties (each, the “Receiving Party”) hereby covenant and agree, each
on behalf of itself and on behalf of its Affiliates, that from and after the date hereof,
the Receiving Party and its Affiliates will not disclose, give, sell, use or otherwise
divulge any Confidential Information (defined below) of the other Party (the “Disclosing
Party”) or permit their respective Representatives to do the same, except that each
Receiving Party may disclose such Confidential Information or portions thereof (i) if
legally compelled to do so or as required in connection with an examination by an insurance
regulatory authority, (ii) to the extent necessary for the performance of such Receiving
Party’s obligations under this Reinsurance Agreement or the Transaction Documents, (iii) the
enforcement of the rights of such Receiving Party and its Affiliates under this Reinsurance
Agreement or the Transaction Documents, (iv) to those of such Receiving Party’s Affiliates,
and to their respective Representatives in each case who need to know such information for
the foregoing purposes, (v) as required under any Applicable Law, (vi) as required to a Tax
Authority to support a position taken on any Tax Return or (vii) as required by the rules of
any stock exchange on which the stock of a Receiving Party’s Affiliate is traded. If the
Receiving Party or its Affiliates, or any of their respective Representatives become legally
compelled to disclose any Confidential Information (other than as required in connection
with an examination by an insurance regulatory authority or as required to a Tax Authority
to support a position taken on any Tax Return), the Receiving Party shall provide Disclosing
Party with prompt written notice of such requirement so that the Disclosing Party may seek a
protective order or other remedy or waive compliance with this Section 17.1. In the
event that such protective order or other remedy is not obtained, or the Disclosing Party
waives compliance with this Section 17.1, the Receiving Party or its Affiliates, as
applicable,



29









 






shall furnish only that portion of Confidential Information which is legally required
to be provided and exercise its commercially reasonable efforts to obtain assurances that
appropriate confidential treatment will be accorded to the Confidential Information.




     (b) The Receiving Party, on behalf of itself and on behalf of its Affiliates and their
respective Representatives acknowledges that a breach of its obligations under this
Section 17.1 may result in irreparable injury to the Disclosing Party. In the event
of the breach by Receiving Party or any of its Affiliates or their respective
Representatives of any of the terms and conditions of this Section 17.1 to be
performed, the Disclosing Party shall be entitled to the remedies provided in Section
10.1.




     (c) For the purposes of this Reinsurance Agreement, “Confidential Information”
means all confidential information (irrespective of the form of such information) of any
kind, including any analyses, compilations, data, studies, notes, translations, memoranda or
other documents, concerning the Disclosing Party or any of its Affiliates obtained directly
or indirectly from the Disclosing Party or any of its Affiliates, or Representatives in
connection with the transactions contemplated by this Reinsurance Agreement and the
Transaction Documents, including any information regarding the A&P Business, except
information (i) which at the time of the disclosure or thereafter is ascertainable or
available to the public (other than as a result of a disclosure directly or indirectly by
the Receiving Party or any of its Affiliates, or Representatives), (ii) is or becomes
available to the Receiving Party on a non-confidential basis from a source other than the
Disclosing Party or any of its Affiliates, or Representatives, provided that, to the
knowledge of such Receiving Party, such source was not prohibited from disclosing such
information to the Receiving Party by a legal, contractual or fiduciary obligation owed to
another Person, (iii) the Receiving Party can establish is already in its possession or the
possession of any of its Affiliates, or Representatives (other than information furnished by
or on behalf of the Disclosing Party) or (iv) which is independently developed by the
Receiving Party or its Affiliates without the use or benefit of any information that would
otherwise be Confidential Information.



ARTICLE XVIII




ERRORS AND OMISSIONS



          18.1 Errors and Omissions.




          Inadvertent delays, errors or omissions made in connection with this Reinsurance Agreement or
any transaction hereunder shall not relieve either Party from any liability which would have
attached had such delay, error or omission not occurred, provided that such error or omission is
rectified as soon as possible after discovery, and provided, further, that the Party making such
error or omission or responsible for such delay shall be responsible for any additional liability
which attaches as a result. If (a) the failure of either Party to comply with any provision of
this Reinsurance Agreement is unintentional or the result of a misunderstanding or






30









 







oversight and (b) such failure to comply is promptly rectified, both Parties shall be restored
as closely as possible to the positions they would have occupied if no error or oversight had
occurred.




ARTICLE XIX




MATERIAL CHANGES



          19.1 Material Changes to Reinsured Contracts and Third Party Reinsurance Agreements.





     (a) Neither Party shall voluntarily make or agree to any material changes in the terms
and conditions of any Reinsured Contract or Third Party Reinsurance Agreement without the
prior approval of such changes by the other Party, which shall not be unreasonably withheld
or delayed.




     (b) In the event any material changes are made by the Reinsured to any Reinsured
Contracts without the prior approval of the Reinsurer and such changes result in any
additional Ultimate Net Loss, the Reinsured shall not be reinsured for the amount of any
additional Ultimate Net Loss resulting from such amendment to a Reinsured Contract in
accordance with the terms of Section 2.4(g). In the event any material changes are
made by the Reinsured to any Third Party Reinsurance Agreements without the prior approval
of the Reinsurer, and such changes result in a reduction in the amount of Third Party
Reinsurance Recoverables that would have been recoverable had such changes not been made,
the LPT Limit shall be reduced by the amount of Third Party Reinsurance Recoverables that
would have been recoverable had such amendment to a Third Party Reinsurance Agreement not
been made.




     (c) In the event any material changes are made by the Reinsurer to any Reinsured
Contracts without the prior approval of the Reinsured and such changes result in any
additional Ultimate Net Loss, the Reinsurer shall be responsible for paying the entire
amount of additional Ultimate Net Loss arising from such Reinsured Contract, provided,
however, the additional amount of Ultimate Net Loss paid by the Reinsurer attributable to
such amendment shall not reduce the LPT Limit. In the event any material changes are made
by the Reinsurer to any Third Party Reinsurance Agreements without the prior approval of the
Reinsured, and such changes result in a reduction in the amount of Third Party Reinsurance
Recoverables that would have been recoverable had such changes not been made, the remaining
LPT Limit shall be increased by the entire amount of such reduction in Third Party
Reinsurance Recoverables attributable to such amendment to the Third Party Reinsurance
Agreement.



31









 





ARTICLE XX




RIGHT TO ASSOCIATE



          20.1 Right to Associate.




          The Reinsurer shall defend, at its own expense pursuant to the terms hereof and the
Administrative Services Agreement, and in the name of the applicable Reinsured when necessary, any
litigation, arbitration or other legal proceeding brought on any Reinsured Contract or Third Party
Reinsurance Agreement with respect to the Business Covered. The Reinsurer, when so requested,
shall afford the applicable Reinsured an opportunity to be associated with the Reinsurer, at the
expense of the Reinsured, in the defense or control of any claim, suit or proceeding involving the
Business Covered and the Parties shall cooperate in every respect in the defense of such claim,
suit or proceeding.




ARTICLE XXI




MULTIPLE PARTIES



          21.1 Multiple Parties.





     (a) The retention of the Reinsured and the liability of the Reinsurer and all other
benefits accruing to the Reinsured as provided in this Reinsurance Agreement or any
amendments hereto, shall apply to the Reinsured as a group and not separately to each
Reinsured. Nevertheless, the Reinsurer and each Reinsured agree to honor the terms set
forth herein as if this Reinsurance Agreement were a separate agreement between the
Reinsurer and each Reinsured; however, this shall not operate so as to increase either the
Reinsurer’s or the Reinsured’s liability under this Reinsurance Agreement. In the event
that the Reinsurer asserts that any one Reinsured has by any act or omission entitled the
Reinsurer to avoid this Reinsurance Agreement and/or discharged the Reinsurer from any
liability hereunder, the alleged act or omission shall not entitle the Reinsurer to seek to
avoid this Reinsurance Agreement and/or discharge the Reinsurer from any liability hereunder
against any other Reinsured. The Reinsurer agrees that so far as any other Reinsured is
concerned, the Reinsurance Agreement shall continue in full force and effect as if the act
or omission had not occurred. Nothing in this Section 21.1(a) shall be interpreted
or construed in any manner to alter the LPT Limit, which is a single aggregate limit for all
Reinsureds combined.




     (b) Loss notices, reports and premium payments made to the Reinsurer are to be in
sufficient detail to identify what portion of any premium or loss relates to each Reinsured,
and shall be accordance with the terms set forth in the Third Party Reinsurance Allocation
Agreement and the Administrative Services Agreement.



32









 






     (c) As among the Reinsured, CCC shall be designated as an agent of the Reinsured with
the full authority to act on behalf of the Reinsured under this Reinsurance Agreement.



ARTICLE XXII




MISCELLANEOUS PROVISIONS



          22.1 Notices.




          Any notice, request, demand, waiver, consent, approval or other communication required or
permitted to be given by any Party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission, sent by registered or certified mail, postage prepaid, or sent by a
standard overnight courier of national reputation with written confirmation of delivery. Any such
notice shall be deemed given when so delivered personally, or if sent by facsimile transmission, on
the date received (provided that any notice received after 5:00 p.m. (addressee’s local time) shall
be deemed given at 9:00 a.m. (addressee’s local time) on the next Business Day), or if mailed, on
the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery. Such notices shall be given to the following address:



If to the Reinsured:



CNA Financial Corporation

333 S. Wabash Avenue

Chicago, IL 60604

Attention: Jonathan D. Kantor

Executive Vice President,

General Counsel and Secretary

Fax: 312-817-0511



With a copy to:



CNA Financial Corporation

333 S. Wabash Avenue

Chicago, IL 60604

Attention: Michael P. Warnick

Senior Vice President and Deputy General Counsel

Fax: 312-755-2479







33









 







If to the Reinsurer:



National Indemnity Company

100 First Stamford Place

Stamford, CT 06902

Attention: General Counsel

Fax: 203-363-5221



With a copy to:



National Indemnity Company

3024 Harney Street

Omaha, NE 68131

Attention: Treasurer

Fax: 402-916-3030




          Any Party may change its notice provisions on fifteen (15) calendar days’ advance notice in
writing to the other Parties.




          22.2 Entire Agreement.




          This Reinsurance Agreement (including the exhibits and schedules hereto), the Transaction
Documents and any other documents delivered pursuant hereto or thereto, constitute the entire
agreement among the Parties and their respective Affiliates with respect to the subject matter
hereof and supersede all prior negotiations, discussions, writings, agreements and understandings,
oral and written, among the Parties with respect to the subject matter hereof and thereof.




          22.3 Waiver and Amendment.




          This Reinsurance Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by an instrument in writing signed by the Parties hereto, or, in
the case of a waiver, by the Party waiving compliance. No delay on the part of any Party in
exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any other such right, power or privilege. No waiver of any breach of this Reinsurance Agreement
shall be held to constitute a waiver of any other or subsequent breach.




          22.4 Successors and Assigns.




          The rights and obligations of the Parties under this Reinsurance Agreement shall not be
subject to assignment without the prior written consent of the other Parties, and any attempted
assignment without the prior written consent of the other Parties shall be invalid ab






34









 







initio. The terms of this Reinsurance Agreement shall be binding upon, inure to the benefit
of and be enforceable by and against the successors and permitted assigns of the Parties.




          22.5 Headings.




          The headings of this Reinsurance Agreement are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof.




          22.6 Construction; Interpretation.




          The Reinsured and the Reinsurer have participated jointly in the negotiation and drafting of
this Reinsurance Agreement. In the event of an ambiguity or question of intent or interpretation
arises, this Reinsurance Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the
authorship of any of the provisions of this Reinsurance Agreement. When a reference is made to an
Article, Section, Schedule or Exhibit, such reference shall be to an Article, Section, Schedule or
Exhibit of or to this Reinsurance Agreement unless otherwise indicated. Whenever the words
“include”, “includes” or “including” are used in this Reinsurance Agreement, they shall be deemed
to be followed by the words “without limitation.” The word “Reinsurance Agreement,” means this
Reinsurance Agreement as amended or supplemented, together with all Exhibits and Schedules attached
hereto or incorporated by reference, and the words “hereof,” “herein,” “hereto,” “hereunder” and
other words of similar import shall refer to this Reinsurance Agreement in its entirety and not to
any particular Article, Section or provision of this Reinsurance Agreement. The references to “$”
shall be to United States dollars. Reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, and all rules and regulations promulgated
thereunder. References to a Person are also to its successors and permitted assigns.




          22.7 Governing Law and Jurisdiction.




          This Reinsurance Agreement shall be governed by and construed in accordance with the laws of
the State of New York without regard to such state’s principles of conflict of laws that could
compel the application of the laws of another jurisdiction. SUBJECT TO ARTICLE X, ANY
SUIT, ACTION OR PROCEEDING TO COMPEL ARBITRATION OR FOR TEMPORARY INJUNCTIVE RELIEF IN AID OF
ARBITRATION OR TO PRESERVE THE STATUS QUO PENDING THE APPOINTMENT OF THE ARBITRATOR(S) SHALL BE
BROUGHT BY THE PARTIES SOLELY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, PROVIDED THAT IF SAID COURT DETERMINES THAT IT DOES NOT HAVE SUBJECT MATTER JURISDICTION THEN
SAID ACTIONS MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY; AND
EACH REINSURED AND THE REINSURER EACH HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF
SUCH COURTS FOR SUCH PURPOSE AND ANY APPELLATE COURTS THEREOF, EXCEPT THAT ANY FINAL ARBITRAL AWARD
RENDERED IN






35









 







ACCORDANCE WITH ARTICLE XI MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING
JURISDICTION OVER ANY PARTY OR ANY OF ITS ASSETS.




          22.8 No Third Party Beneficiaries.




          Nothing in this Reinsurance Agreement is intended or shall be construed to give any Person,
other than the Parties, any legal or equitable right, remedy or claim under or in respect of this
Reinsurance Agreement or any provision contained herein.




          22.9 Counterparts.




          This Reinsurance Agreement may be executed by the Parties in separate counterparts, each of
which when so executed and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument binding upon all of the Parties notwithstanding the fact
that all Parties are not signatory to the original or the same counterpart. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together signed by all of
the Parties. Each counterpart may be delivered by facsimile transmission, which transmission shall
be deemed delivery of an originally executed document.




          22.10 Severability.




          Any term or provision of this Reinsurance Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms and provisions of
this Reinsurance Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Reinsurance Agreement in any other jurisdiction, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any Party. If any provision of this Reinsurance Agreement is so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is enforceable. In the
event of such invalidity or unenforceability of any term or provision of this Reinsurance
Agreement, the Parties shall use their commercially reasonable efforts to reform such terms or
provisions to carry out the commercial intent of the Parties as reflected herein, while curing the
circumstance giving rise to the invalidity or unenforceability of such term or provision.




          22.11 Specific Performance.




          Each of the Parties acknowledges and agrees that the other Party would be irreparably damaged
in the event that any of the provisions of this Reinsurance Agreement were not performed or
complied with in accordance with their specific terms or were otherwise breached, violated or
unfulfilled. Accordingly, each of the Parties agrees that the other Party shall be entitled to an
injunction or injunctions to prevent noncompliance with, or breaches or violations of, the
provisions of this Reinsurance Agreement by the other Party and to enforce specifically this
Reinsurance Agreement and the terms and provisions hereof in any action






36









 







instituted in accordance with Section 22.7, in addition to any other remedy to which
such Party may be entitled, at law or in equity. In the event that any action is brought in equity
to enforce the provisions of this Reinsurance Agreement, no Party will allege, and each Party
hereby waives the defense or counterclaim, that there is an adequate remedy at law. The Parties
further agree that (i) by seeking the remedies provided for in this Section 22.11, a Party
shall not in any respect waive its right to seek any other form of relief that may be available to
a Party under this Reinsurance Agreement, including monetary damages in the event that this
Reinsurance Agreement has been terminated or in the event that the remedies provided for in this
Section 22.11 are not available or otherwise are not granted and (ii) nothing contained in
this Section 22.11 shall require any Party to institute any action for (or limit any
Party’s right to institute any action for) specific performance under this Section 22.11
before exercising any termination right under Article VI nor shall the commencement of any
action pursuant to this Section 22.11 or anything contained in this Section 22.11
restrict or limit any Party’s right to terminate this Reinsurance Agreement in accordance with the
terms of Article VI or pursue any other remedies under this Reinsurance Agreement that may
be available then or thereafter.




          22.12 Waiver of Jury Trial.




          EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS REINSURANCE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
REINSURANCE AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTIES
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES
THAT IT HAS BEEN INDUCED TO ENTER INTO THIS REINSURANCE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
BY THIS REINSURANCE AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 22.12.




          22.13 Incontestability.




          In consideration of the mutual covenants and agreements contained herein, each Party does
hereby agree that this Reinsurance Agreement, and each and every provision hereof, is and shall be
enforceable by and between them according to its terms, and each Party does hereby agree that it
shall not contest in any respect the validity or enforceability hereof.




          22.14 Set-Off.




          Any debts or credits, matured or unmatured, liquidated or unliquidated, regardless of when
they arose or were incurred, in favor of or against either of the Reinsured or the Reinsurer with
respect to this Reinsurance Agreement are deemed mutual debts or credits, as the case may be, and
shall be set off, and only the net balance shall be allowed or paid.




37









 








          22.15 Currency.




          All financial data required to be provided pursuant to the terms of this Reinsurance Agreement
shall be expressed in United States dollars. All payments and all settlements of account between
the Parties shall be in United States currency unless otherwise agreed by the Parties.




(The remainder of this page has been intentionally left blank.)





38












 




IN WITNESS WHEREOF, the Parties hereby execute this Reinsurance Agreement as of the day and
year first set forth above.




	 	 	 	 	 
	 	CONTINENTAL CASUALTY COMPANY

 	 
	 	By:  	/s/ Lawrence J. Boysen
 	 
	 	 	Name:  	Lawrence J. Boysen 	 
	 	 	Title:  	Senior Vice President and Corporate Controller 	 
	 
	 	THE CONTINENTAL INSURANCE COMPANY

 	 
	 	By:  	/s/ Lawrence J. Boysen
 	 
	 	 	Name:  	Lawrence J. Boysen 	 
	 	 	Title:  	Senior Vice President and Corporate Controller 	 
	 
	 	CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL, LTD.

 	 
	 	By:  	/s/ Lawrence J. Boysen
 	 
	 	 	Name:  	Lawrence J. Boysen 	 
	 	 	Title:  	Chairman of the Board and President 	 
	 
	 	CNA INSURANCE COMPANY LIMITED

 	 
	 	By:  	/s/ Lawrence J. Boysen
 	 
	 	 	Name:  	Lawrence J. Boysen 	 
	 	 	Title:  	Authorized Representative 	 
	 
	 	NATIONAL INDEMNITY COMPANY

 	 
	 	By:  	/s/ Brian Snover
 	 
	 	 	Name:  	Brian Snover 	 
	 	 	Title:  	Vice President 	 
	 



[Signature Page to Loss Portfolio Transfer Reinsurance Agreement]











 









 








Exhibit A




Form of Administrative Services Agreement



SEE ATTACHED.






A-1









 








See executed Administrative Services Agreement filed as Exhibit 10.1 to this Form 8-K.









A-2









 








Exhibit B




Form of Collateral Trust Agreement



SEE ATTACHED.






B-1









 








See executed Collateral Trust Agreement filed as Exhibit 10.2 to this Form 8-K.





B-2









 





CONFIDENTIAL




Exhibit C




Form of Third Party Reinsurance Allocation Agreement



SEE ATTACHED.

















 





THIRD PARTY REINSURANCE ALLOCATION AGREEMENT




          THIS THIRD PARTY REINSURANCE ALLOCATION AGREEMENT, dated as of [•], 2010 (this “TPR
Allocation Agreement”), is made and entered into by and among Continental Casualty Company, an
Illinois property and casualty insurance company (“CCC”), The Continental Insurance
Company, a Pennsylvania property and casualty insurance company (“CIC”), Continental
Reinsurance Corporation International, Ltd., a Bermuda long-term insurance company
(“CRCI”), and CNA Insurance Company Limited, a United Kingdom property and casualty
insurance company (“CICL,” and each of CCC, CIC, CRCI and CICL is individually and all of
CCC, CIC, CRCI and CICL are collectively hereinafter referred to as the “Reinsured”), and
National Indemnity Company, a Nebraska property and casualty insurance company (hereinafter
referred to as the “Reinsurer”). All capitalized terms used in this TPR Allocation
Agreement and not otherwise defined herein shall have the respective meanings assigned to them in
the LPT Reinsurance Agreement (as defined below).




WITNESSETH:




          WHEREAS, in accordance with that certain Master Transaction Agreement (the “Master
Transaction Agreement”), dated June [•], 2010, by and among the Reinsured, the Reinsurer and
Berkshire Hathaway Inc., a Delaware corporation and the ultimate parent company of the Reinsurer,
the Reinsured and the Reinsurer entered into that certain Loss Portfolio Transfer Reinsurance
Agreement, dated [•], 2010 (the “LPT Reinsurance Agreement”);




          WHEREAS, concurrently with the execution of the LPT Reinsurance Agreement and in accordance
with the Master Transaction Agreement, the Reinsured and the Reinsurer entered into that certain
Administrative Services Agreement (the “Administrative Services Agreement”), pursuant to
which the Reinsurer has agreed to provide claims handling and other administrative services with
respect to the Reinsured Contracts and the Third Party Reinsurance Agreements;




          WHEREAS, certain Third Party Reinsurance Agreements that will be administered by the Reinsurer
pursuant to the Administrative Services Agreement may result in recoveries that are allocable to
the A&P Claims reinsured by the Reinsurer under the LPT Reinsurance Agreement and/or that are
allocable to Non-A&P Claims that are not ceded to the Reinsurer; and




          WHEREAS, the Reinsured and the Reinsurer desire to set forth how the rights, obligations and
proceeds with respect to the Third Party Reinsurance Agreements are to be allocated among the
Reinsured and the Reinsurer.








4









 








          NOW, THEREFORE, in consideration of the foregoing, the representations, warranties, covenants
and agreements set forth herein, and other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, and intending to be legally bound hereby, the Reinsured
and the Reinsurer (individually, a “Party” and collectively, the “Parties”) hereby
agree as follows:




ARTICLE I




DEFINITIONS



          1.1 Definitions.




          The following terms shall have the respective meanings set forth below throughout this TPR
Allocation Agreement:



“A&P Recoverables” means all Recoverables that arise out of or relate to A&P Claims and
which are attributable to reinsurance billings issued on or after the Inception Date, but prior to
the expiration or termination of the LPT Reinsurance Agreement.



“Administrative Services Agreement” has the meaning set forth in the Recitals.



“CCC” has the meaning set forth in the Preamble.



“CIC” has the meaning set forth in the Preamble.



“CICL” has the meaning set forth in the Preamble.



“CRCI” has the meaning set forth in the Preamble.



“Collection Expenses” means the reasonable out-of-pocket expenses incurred by any Party in
connection with the negotiation and collection of Recoverables or Commutation Payments.



“Commutation Payments” means Gross Commutation Payments, less Collection Expenses.



“Gross Commutation Payments” means any amounts either (a) payable to the Reinsured or the
Reinsurer (acting on behalf of the Reinsured) by a reinsurer counterparty under a Third Party
Reinsurance Agreement, or (b) payable by the Reinsured or the Reinsurer (acting on behalf of




5









 




the Reinsured) to a reinsurer counterparty under a Third Party Reinsurance Agreement in connection
with the recapture, commutation, termination or reduction of any reinsurance under a Third Party
Reinsurance Agreement, or pursuant to a scheme of arrangement or any similar domestic or foreign
proceeding in connection with the initiation or commencement of a liquidation, insolvency,
rehabilitation, conservation, supervision or similar proceeding by or against the reinsurer of a
Third Party Reinsurance Agreement, that is consummated on or after the Inception Date, but prior to
the expiration or termination of the LPT Reinsurance Agreement.



“Gross Recoverables” means any amounts actually collected by the Reinsured or the Reinsurer
(acting on behalf of the Reinsured) pursuant to the Third Party Reinsurance Agreements.



“LPT Reinsurance Agreement” has the meaning set forth in the Recitals.



“Master Transaction Agreement” has the meaning set forth in the Recitals.



“Non-A&P Claims” has the meaning set forth in the Definitions section of the LPT
Reinsurance Agreement.



“Non-A&P Recoverables” means all Recoverables that arise out of or relate to Non-A&P Claims
and which are attributable to reinsurance billings issued on or after the Inception Date, but prior
to the expiration or termination of the LPT Reinsurance Agreement.



“Party” or “Parties” has the meaning set forth in the Recitals.



“Pre-Inception Date Receivables” has the meaning set forth in the Definitions section of
the LPT Reinsurance Agreement.



“Recoverables” means Gross Recoverables, less Collection Expenses.



“Reinsured” shall have the meaning specified in the Preamble. The term “Reinsured” as used
herein shall include any predecessor or successor of such companies, including by reason of merger,
consolidation or otherwise.



“Reinsurer” shall have the meaning specified in the Preamble. The term “Reinsurer” as used
herein shall include any predecessor or successor of such companies, including by reason of merger,
consolidation or otherwise.








6









 







“Third Party Reinsurance Payables” means those amounts payable by the Reinsured or the
Reinsurer (acting on behalf of the Reinsured) under the terms and conditions of any Third Party
Reinsurance Agreement.



“TPR Allocation Agreement” has the meaning set forth in the Preamble.



“Transaction Documents” means the Master Transaction Agreement and the Ancillary
Agreements, other than this TPR Allocation Agreement.




ARTICLE II




ALLOCATION OF RECOVERABLES AND PAYABLES



     2.1 Pre-Inception Date Receivables.



          Pursuant to the LPT Reinsurance Agreement, the Reinsured shall transfer the right to collect
the Pre-Inception Date Receivables to the Reinsurer. All Pre-Inception Date Receivables actually
collected by the Reinsurer shall be for the benefit and account of the Reinsurer. The Parties
hereby acknowledge and agree that neither the collection of, or failure to collect, Pre-Inception
Date Receivables shall affect the LPT Limit. The Reinsured shall, if reasonably requested by the
Reinsurer, aid the Reinsurer in the collection of Pre-Inception Date Receivables, and the Reinsurer
is authorized to undertake such efforts as it deems reasonably necessary, including on behalf of
and in the name of a CNA Insurer, in order to collect such Pre-Inception Date Receivables. Costs
reasonably incurred by the Reinsured in aiding the Reinsurer’s collection efforts, excluding any
overhead or similar internal costs of the Reinsured, shall be paid by the Reinsurer.




     2.2 Post-Inception Date Recoverables.




          (a) On or after the Inception Date, A&P Recoverables under currently effective Third
Party Reinsurance Agreements shall be administered and collected by the Reinsurer in
accordance with the Administrative Services Agreement, and Non-A&P Recoverables under
currently effective Third Party Reinsurance Agreements shall continue to be administered and
collected by the Reinsured. Each Party will be responsible for any Collection Expenses
associated with A&P Recoverables or Non-A&P Recoverables, as applicable.




          (b) A resolution or settlement of an A&P Recoverable by way of cash payment or set-off
shall remain the property of the Reinsurer, and a resolution or settlement of a Non-A&P
Recoverable by way of cash payment or set-off shall remain



7









 






the property of the Reinsured; provided, however, that any recoveries or set-offs
arising out of an account with Reinsured Contracts that includes both A&P Claims and Non-A&P
Claims shall be allocated among the Parties in accordance with Section 4.2 of the
Administrative Services Agreement. In no event will the Reinsurer set-off Non-A&P
Recoverables, or will the Reinsured set-off A&P Recoverables, without the prior consent of
the other Party.



     2.3 Third Party Reinsurance Reinstatements.




(a)  In the event that a Third Party Reinsurance Agreement contains an automatic
reinstatement provision,




	 	(i)	 	the Third Party Reinsurance Payables shall be
for the account of (A) the Reinsurer, if the reinsured losses
attributable to A&P Claims paid on or after the Inception Date
triggered the automatic reinstatement or (B) the Reinsured, if the
reinsured losses attributable to Non-A&P Claims paid on or after the
Inception Date triggered the automatic reinstatement, and
	 
	 	(ii)	 	the coverage under such reinstated Third Party
Reinsurance Agreement shall only be available to (A) the Reinsurer, if
the reinsured losses attributable to A&P Claims paid on or after the
Inception Date triggered the automatic reinstatement or (B) the
Reinsured, if the reinsured losses attributable to Non-A&P Claims paid
on or after the Inception Date triggered the automatic reinstatement,
provided, however, that if the other Party desires to share in the
coverage of such reinstated Third Party Reinsurance Agreement, the A&P
Recoverables and Non-A&P Recoverables shall be collected in accordance
with Section 2.2.






(b)  In the event that a Third Party Reinsurance Agreement contains an elective
reinstatement provision,




	 	(i)	 	the Third Party Reinsurance Payables shall be
for the account of the Party that elected the reinstatement, provided,
however, that if the other Party desires to share in the coverage of
such reinstated Third Party Reinsurance Agreement, the Parties shall
negotiate an equitable allocation of the Third Party Reinsurance
Payables among the Parties, and




8









 












	 	(ii)	 	the coverage under such reinstated Third Party
Reinsurance Agreement shall only be available to the Party that elected
the reinstatement, provided, however, that if the other Party desires
to share in the coverage of such reinstated Third Party Reinsurance
Agreement, the A&P Recoverables and Non-A&P Recoverables shall be
collected in accordance with Section 2.2.





     2.4 Maximum Recoverables Under Third Party Reinsurance Contracts.




          (a) Either Party shall be able to present claims for Recoverables under Third Party
Reinsurance Agreements; provided, however, Recoverables which exhaust or substantially
impair, on or after the Inception Date, the maximum remaining recoverable amount under an
individual Third Party Reinsurance Agreement (due to an aggregate limit of liability or
similar feature designed to limit total Recoverables from an individual Third Party
Reinsurance Agreement), will be divided between the Reinsurer and the Reinsured based on an
allocation methodology agreed upon by the Parties. For purposes of this Section
2.4, the maximum remaining recoverable amount under an individual Third Party
Reinsurance Agreement will be substantially impaired to the extent that either Party paid a
loss that entitles such Party to present a claim for Recoverables in an amount equal to
fifty percent (50%) or more of the maximum remaining recoverable amount under such Third
Party Reinsurance Agreement. To accommodate the negotiation of an appropriate allocation
methodology, a Party shall be obligated to provide written notice to the other Party once it
reasonably expects to pay a loss that would substantially impair the maximum remaining
recoverable amount under such Third Party Reinsurance Agreement.




          (b) In the event there is a dispute among the Parties with respect to the allocation
methodology to be agreed upon by the Parties as set forth in Section 2.4(a), such
dispute will be addressed in accordance with Section 5.1; provided, however, that if
such dispute is submitted for resolution in accordance with Article XI of the Master
Transaction Agreement, the designated arbitrator or arbitral tribunal shall, in resolving
such dispute, make its decision based on what is fair and equitable to the Parties and
giving particular attention to the known claim exposures of the Parties at such time.



     2.5 Commutation of Third Party Reinsurance Agreement.



          During the period beginning on the Inception Date and ending upon the expiration or
termination of the LPT Reinsurance Agreement, if the Parties mutually agree to (i) recapture,
commute, terminate or reduce any reinsurance under a Third Party Reinsurance Agreement, or (ii)
approve of a scheme of arrangement or any similar domestic or foreign proceeding in connection with
the initiation or commencement of a liquidation, insolvency, rehabilitation, conservation,
supervision or similar proceeding by or against the reinsurer of a Third Party Reinsurance
Agreement, then the Parties shall agree upon an allocation of the applicable Commutation






9









 







Payment as part of such recapture, commutation, termination or reduction of reinsurance or
scheme of arrangement or any similar domestic or foreign proceeding. For the avoidance of doubt,
(x) there will be no future adjustment to the agreed upon Commutation Payment regardless of any
reinsured loss development or other future development with respect to the losses under such Third
Party Reinsurance Agreement, and (y) each individual Third Party Reinsurance Agreement that is
subject to recapture, commutation, termination or reduction of reinsurance or scheme of arrangement
or any similar domestic or foreign proceeding, shall each have a separately negotiated Commutation
Payment allocated among the Parties. In agreeing upon such allocation, the Parties shall take into
consideration all relevant factors, including the credit quality of the reinsurer of such Third
Party Reinsurance Agreement and, the net present value of future Recoverables under such Third
Party Reinsurance Agreement net of other costs and premium adjustments, and the remaining future
Recoverables under such Third Party Reinsurance Agreement.




ARTICLE III




COVENANTS OF THE PARTIES



     3.1 Cooperation.



          The Parties hereto shall cooperate in a commercially reasonable manner in order to accomplish
the objectives of this TPR Allocation Agreement, including making available to each other their
respective officers and employees for interviews and meetings with Governmental Authorities and
furnishing any additional assistance, information and documentation as may be reasonably requested
by the other Party from time to time.




ARTICLE IV




TERM AND TERMINATION



     4.1 Termination of Agreement.



          This TPR Allocation Agreement shall automatically terminate upon the expiration or termination
of the LPT Reinsurance Agreement.




     4.2 Effect of Termination.



          The termination of this TPR Allocation Agreement shall not affect any rights or obligations of
any of the Parties applicable to the period prior to the effective date of termination.






10









 







Article III, Article V and Article VI shall survive the termination of
this TPR Allocation Agreement. Notwithstanding anything in this TPR Allocation Agreement or the
Transaction Documents to the contrary, all Gross Recoverables attributable to Asbestos Claims and
Pollution Claims paid following the termination of this TPR Allocation Agreement and the LPT
Reinsurance Agreement shall be for the account of, and be administered by, the Reinsured.




ARTICLE V




DISPUTE RESOLUTION



     5.1 Dispute Resolution.



          Notwithstanding anything contained herein to the contrary, any dispute between the Parties
arising out of or relating to this TPR Allocation Agreement or the breach, termination or validity
thereof will be addressed in accordance with Article X and Article XI of the Master Transaction
Agreement.




ARTICLE VI




MISCELLANEOUS PROVISIONS



     6.1 Notices.



          Any notice, request, demand, waiver, consent, approval or other communication required or
permitted to be given by any Party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission, sent by registered or certified mail, postage prepaid, or sent by a
standard overnight courier of national reputation with written confirmation of delivery. Any such
notice shall be deemed given when so delivered personally, or if sent by facsimile transmission, on
the date received (provided that any notice received after 5:00 p.m. (addressee’s local time) shall
be deemed given at 9:00 a.m. (addressee’s local time) on the next Business Day), or if mailed, on
the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery. Such notices shall be given to the following address:




     If to the Reinsured:


CNA Financial Corporation

333 S. Wabash Avenue

Chicago, IL 60604

Attention: Jonathan D. Kantor

Executive Vice President,

General Counsel and Secretary

Fax: (312) 817-0511







11









 





     With a copy to:


CNA Financial Corporation

333 S. Wabash Avenue

Chicago, IL 60604

Attention: Michael P. Warnick

Senior Vice President and Deputy General Counsel

Fax: (312) 755-2479




     If to the Reinsurer:


National Indemnity Company

100 First Stamford Place

Stamford, CT 06902

Attention: General Counsel

Fax: (203) 363-5221




     With a copy to:


National Indemnity Company

3024 Harney Street

Omaha, NE 68131

Attention: Treasurer

Fax: (402) 916-3030



Any Party may change its notice provisions on fifteen (15) calendar days’ advance notice in writing
to the other Parties.




     6.2 Entire Agreement.



          This TPR Allocation Agreement, the Transaction Documents and any other documents delivered
pursuant hereto or thereto, constitute the entire agreement among the Parties and their respective
Affiliates with respect to the subject matter hereof and supersede all prior negotiations,
discussions, writings, agreements and understandings, oral and written, among the Parties with
respect to the subject matter hereof and thereof.




     6.3 Waiver and Amendment.



          This TPR Allocation Agreement may be amended, superseded, canceled, renewed or extended, and
the terms hereof may be waived, only by an instrument in writing signed by the Parties hereto, or,
in the case of a waiver, by the Party waiving compliance. No delay on the part of any Party in
exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any other such right, power or privilege. No waiver of any breach of






12









 







this TPR Allocation Agreement shall be held to constitute a waiver of any other or subsequent
breach.




     6.4 Successors and Assigns.



          The rights and obligations of the Parties under this TPR Allocation Agreement shall not be
subject to assignment without the prior written consent of the other Parties, and any attempted
assignment without the prior written consent of the other Parties shall be invalid ab initio. The
terms of this TPR Allocation Agreement shall be binding upon, inure to the benefit of and be
enforceable by and against the successors and permitted assigns of the Parties.




     6.5 Headings.



          The headings of this TPR Allocation Agreement are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.




     6.6 Construction; Interpretation.



          The Reinsured and the Reinsurer have participated jointly in the negotiation and drafting of
this TPR Allocation Agreement. In the event of an ambiguity or question of intent or
interpretation arises, this TPR Allocation Agreement shall be construed as if drafted jointly by
the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party
by virtue of the authorship of any of the provisions of this TPR Allocation Agreement. When a
reference is made to an Article, Section, Schedule or Exhibit such reference shall be to an
Article, Section, Schedule or Exhibit of or to this TPR Allocation Agreement unless otherwise
indicated. Whenever the words “include”, “includes” or “including” are used in this TPR Allocation
Agreement, they shall be deemed to be followed by the words “without limitation.” The word
“Agreement,” means this TPR Allocation Agreement as amended or supplemented, together with all
Exhibits and Schedules attached hereto or incorporated by reference, and the words “hereof,”
“herein,” “hereto,” “hereunder” and other words of similar import shall refer to this TPR
Allocation Agreement in its entirety and not to any particular Article, Section or provision of
this TPR Allocation Agreement. The references to “$” shall be to United States dollars. Reference
to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or
reenacted, and all rules and regulations promulgated thereunder. References to a Person are also
to its successors and permitted assigns.



6.7 Governing Law and Jurisdiction.




          This TPR Allocation Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to such state’s principles of conflict of laws that could
compel the application of the laws of another jurisdiction. SUBJECT TO ARTICLE V, ANY
SUIT, ACTION OR PROCEEDING TO COMPEL ARBITRATION OR FOR TEMPORARY INJUNCTIVE RELIEF IN AID OF
ARBITRATION OR TO PRESERVE THE STATUS QUO PENDING THE APPOINTMENT OF THE ARBITRATOR(S) SHALL






13









 







BE BROUGHT BY THE PARTIES SOLELY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK, PROVIDED THAT IF SAID COURT DETERMINES THAT IT DOES NOT HAVE SUBJECT MATTER
JURISDICTION THEN SAID ACTIONS MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW
YORK COUNTY; AND EACH REINSURED AND THE REINSURER EACH HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE AND ANY APPELLATE COURTS THEREOF, EXCEPT THAT ANY
FINAL ARBITRAL AWARD RENDERED IN ACCORDANCE WITH ARTICLE V MAY BE ENTERED AND ENFORCED IN
ANY COURT HAVING JURISDICTION OVER ANY PARTY OR ANY OF ITS ASSETS.




     6.8 No Third Party Beneficiaries.



          Nothing in this TPR Allocation Agreement is intended or shall be construed to give any Person,
other than the Parties, any legal or equitable right, remedy or claim under or in respect of this
TPR Allocation Agreement or any provision contained herein.




     6.9 Counterparts.



          This TPR Allocation Agreement may be executed by the Parties in separate counterparts, each of
which when so executed and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument binding upon all of the Parties notwithstanding the fact
that all Parties are not signatory to the original or the same counterpart. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together signed by all of
the Parties. Each counterpart may be delivered by facsimile transmission, which transmission shall
be deemed delivery of an originally executed document.




     6.10 Severability.



          Any term or provision of this TPR Allocation Agreement which is invalid or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms and provisions of
this TPR Allocation Agreement or affecting the validity or enforceability of any of the terms or
provisions of this TPR Allocation Agreement in any other jurisdiction, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any Party. If any provision of this TPR Allocation Agreement is so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is enforceable. In the
event of such invalidity or unenforceability of any term or provision of this TPR Allocation
Agreement, the Parties shall use their commercially reasonable efforts to reform such terms or
provisions to carry out the commercial intent of the Parties as reflected herein, while curing the
circumstance giving rise to the invalidity or unenforceability of such term or provision.





14









 








     6.11 Specific Performance.



          Each of the Parties acknowledges and agrees that the other Party would be irreparably damaged
in the event that any of the provisions of this TPR Allocation Agreement were not performed or
complied with in accordance with their specific terms or were otherwise breached, violated or
unfulfilled. Accordingly, each of the Parties agrees that the other Party shall be entitled to an
injunction or injunctions to prevent noncompliance with, or breaches or violations of, the
provisions of this TPR Allocation Agreement by the other Party and to enforce specifically this TPR
Allocation Agreement and the terms and provisions hereof in any action instituted in accordance
with Section 6.7, in addition to any other remedy to which such Party may be entitled, at
law or in equity. In the event that any action is brought in equity to enforce the provisions of
this TPR Allocation Agreement, no Party will allege, and each Party hereby waives the defense or
counterclaim, that there is an adequate remedy at law. The Parties further agree that (i) by
seeking the remedies provided for in this Section 6.11, a Party shall not in any respect
waive its right to seek any other form of relief that may be available to a Party under this TPR
Allocation Agreement, including monetary damages in the event that this TPR Allocation Agreement
has been terminated or in the event that the remedies provided for in this Section 6.11 are
not available or otherwise are not granted and (ii) nothing contained in this Section 6.11
shall require any Party to institute any action for (or limit any Party’s right to institute any
action for) specific performance under this Section 6.11 before exercising any termination
right under Article IV nor shall the commencement of any action pursuant to this
Section 6.11 or anything contained in this Section 6.11 restrict or limit any
Party’s right to terminate this TPR Allocation Agreement in accordance with the terms of
Article IV or pursue any other remedies under this TPR Allocation Agreement that may be
available then or thereafter.




     6.12 Waiver of Jury Trial.



          EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS TPR ALLOCATION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
THIS TPR ALLOCATION AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS TPR ALLOCATION AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THIS TPR ALLOCATION AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.12.




     6.13 Incontestability.



          In consideration of the mutual covenants and agreements contained herein, each Party does
hereby agree that this TPR Allocation Agreement, and each and every provision






15









 







hereof, is and shall be enforceable by and between them according to its terms, and each Party
does hereby agree that it shall not contest in any respect the validity or enforceability hereof.




     6.14 Set-Off.



          Any debts or credits, matured or unmatured, liquidated or unliquidated, regardless of when
they arose or were incurred, in favor of or against either of the Reinsured or the Reinsurer with
respect to this TPR Allocation Agreement are deemed mutual debts or credits, as the case may be,
and shall be set off, and only the net balance shall be allowed or paid.




     6.15 Currency. 



          All financial data required to be provided pursuant to the terms of this TPR Allocation
Agreement shall be expressed in United States dollars. All payments and all settlements of account
between the Parties shall be in United States currency unless otherwise agreed by the Parties.




(The remainder of this page has been intentionally left blank.)






16









 







IN WITNESS WHEREOF, the Parties hereby execute this TPR Allocation Agreement as of the day and year
first set forth above.




	 	 	 	 	 
	 	CONTINENTAL CASUALTY COMPANY

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	THE CONTINENTAL INSURANCE COMPANY

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	CONTINENTAL REINSURANCE CORPORATION

INTERNATIONAL, LTD.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	CNA INSURANCE COMPANY LIMITED

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NATIONAL INDEMNITY COMPANY

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




C-1









 





CONFIDENTIAL




Exhibit D




Form of Reinsurance Credit Event II Trust Agreement



SEE ATTACHED.




 












 





 





TRUST AGREEMENT




by and among



[CNA BENEFICIARY]

(hereinafter referred as the “Beneficiary”),



NATIONAL INDEMNITY COMPANY

(hereinafter referred to as the “Grantor”)



and



[TRUSTEE]

(hereinafter referred to as the “Trustee”)



[•], 2010



 













 









 








Table of Contents




	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE I	 	DEFINED TERMS
	 	D-1
	 
	 	 	 	 
	Section 1.1	 	Definitions
	 	D-1
	Section 1.2	 	Interpretation
	 	D-3
	 
	 	 	 	 
	ARTICLE II	 	CREATION OF TRUST ACCOUNT
	 	D-3
	 
	 	 	 	 
	Section 2.1	 	Obligations of the Beneficiary and the Grantor
	 	D-3
	Section 2.2	 	Purpose of the Trust
	 	D-4
	Section 2.3	 	Grantor Trust for United States Federal Income Tax Purposes
	 	D-4
	Section 2.4	 	 Designation of Agents
	 	D-4
	Section 2.5	 	Title to Assets
	 	D-4
	 
	 	 	 	 
	ARTICLE III	 	MAINTENANCE OF THE TRUST
	 	D-4
	 
	 	 	 	 
	Section 3.1	 	Substitution of Trust Account Assets
	 	D-4
	Section 3.2	 	Valuation of Assets
	 	D-5
	Section 3.3	 	Quarterly Certification
	 	D-5
	 
	 	 	 	 
	ARTICLE IV	 	RELEASE AND ADJUSTMENT OF TRUST ACCOUNT ASSETS
	 	D-6
	 
	 	 	 	 
	Section 4.1	 	Adjustment of Trust Account Assets
	 	D-6
	Section 4.2	 	Release of Trust Account Assets to the Beneficiary
	 	D-6
	Section 4.3	 	Release of Trust Account Assets to the Grantor
	 	D-7
	 
	 	 	 	 
	ARTICLE V	 	DUTIES OF THE TRUSTEE
	 	D-7
	 
	 	 	 	 
	Section 5.1	 	Acceptance of Assets by the Trustee
	 	D-7
	Section 5.2	 	Collection of Interest and Dividends; Voting Rights
	 	D-7
	Section 5.3	 	Obligations of the Trustee
	 	D-8
	Section 5.4	 	Responsibilities of the Trustee
	 	D-8
	Section 5.5	 	Books and Records
	 	D-8
	Section 5.6	 	Activity Reports
	 	D-8
	Section 5.7	 	Resignation or Removal of the Trustee; Appointment of Successor Trustee
	 	D-9
	Section 5.8	 	Release of Information
	 	D-9
	Section 5.9	 	Indemnification of the Trustee
	 	D-10
	Section 5.10	 	Charges of the Trustee
	 	D-10
	Section 5.11	 	Limitations of the Trustee
	 	D-10






D-i









 






	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE VI	 	TERMINATION
	 	D-10
	 
	 	 	 	 
	Section 6.1	 	Termination
	 	D-10
	Section 6.2	 	Disposition of Assets Upon Termination
	 	D-10
	 
	 	 	 	 
	ARTICLE VII	 	GENERAL PROVISIONS
	 	D-11
	 
	 	 	 	 
	Section 7.1	 	Notices
	 	D-11
	Section 7.2	 	Construction and Effect
	 	D-12
	Section 7.3	 	Waiver and Amendment
	 	D-12
	Section 7.4	 	Successors and Assigns
	 	D-12
	Section 7.5	 	Headings
	 	D-12
	Section 7.6	 	Governing Law and Jurisdiction
	 	D-12
	Section 7.7	 	No Third Party Beneficiaries
	 	D-13
	Section 7.8	 	Counterparts
	 	D-13
	Section 7.9	 	Severability
	 	D-13
	Section 7.10	 	Specific Performance
	 	D-13
	Section 7.11	 	Waiver of Jury Trial
	 	D-14
	Section 7.12	 	Incontestability
	 	D-14
	Section 7.13	 	Set-Off
	 	D-14
	Section 7.14	 	Currency
	 	D-14
	 
	 	 	 	 
	ARTICLE VIII	 	DISPUTE RESOLUTION
	 	D-15
	 
	 	 	 	 
	Section 8.1	 	Dispute Resolution
	 	D-15
	Section 8.2	 	Negotiation Amongst the Parties
	 	D-15
	Section 8.3	 	Arbitration
	 	D-15
	 
	 	 	 	 
	ARTICLE IX	 	EFFECTIVE DATE AND EXECUTION
	 	D-16






D-ii









 






TRUST AGREEMENT




          THIS TRUST AGREEMENT (this “Trust Agreement”) is made and entered into as of [•],
2010, by and among [•] (the “Beneficiary”), National Indemnity Company, a Nebraska property and
casualty insurance company (the “Grantor”) and [•], a banking association organized under the laws
of [•] (hereinafter referred to as “Trustee”).




          WHEREAS, in accordance with Section 9.6(a) of that certain Loss Portfolio Transfer
Reinsurance Agreement, dated [•], by and among the Beneficiary, [•] and the Grantor (the “LPT
Reinsurance Agreement”), the Grantor and the Beneficiary have agreed to enter into this Trust
Agreement upon the occurrence of a Reinsurance Credit Event, if the Grantor has not been able to
cure or address to the satisfaction of the Beneficiary and [•] the circumstances giving rise to the
Reinsurance Credit Event within [90] calendar days.




          NOW THEREFORE, the Grantor, the Beneficiary and the Trustee, in consideration of the mutual
covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and upon the terms and conditions hereinafter set
forth, agree as follows:




ARTICLE I




DEFINED TERMS



          Section 1.1 Definitions. The following terms, when used in this Trust Agreement, shall
have the meanings set forth in this Section 1.1. The terms defined below shall be deemed
to refer to the singular or plural, as the context requires.




               “AAA” shall have the meaning ascribed to such term in Section 8.3(a).



               “Assets” shall have the meaning ascribed to such term in Section 2.1(b).



               “Beneficiary” shall have the meaning ascribed to such term in the Preamble.



               “Business Covered” shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.













 





               “Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial
banks in Illinois or New York are required or authorized by law to be closed.



               “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.



               “Dispute” shall have the meaning ascribed to such term in Section 8.1.



               “Governmental Authority” shall mean any government, political subdivision, court, board,
commission, regulatory or administrative agency or other instrumentality thereof, whether federal,
state, provincial, local or foreign and including any regulatory authority which may be partly or
wholly autonomous.



               “Grantor” shall have the meaning ascribed to such term in the Preamble.



               “Insurance Commissioner” shall mean the Governmental Authority responsible for the regulation
of insurance companies in the jurisdiction in which the Beneficiary is domiciled.



               “LPT Limit” shall have the meaning ascribed to such term in the LPT Reinsurance Agreement.



               “Permitted Investments” shall mean cash and any investments of the types permitted under the
laws and regulations of the Beneficiary’s domiciliary state for trusts providing full statutory
financial statement credit for reinsurance ceded by property and casualty insurance companies,
provided, however, that no Permitted Investments may be issued by an institution that is the
parent, subsidiary or affiliate of the Grantor. All Permitted Investments deposited in the Trust
Account shall be free of all liens, charges or encumbrances at the time so deposited.



               “Quarterly Certification” shall have the meaning ascribed to such term in Section
3.3.



               “Reinsurance Credit Event” shall mean any event, other than the financial impairment of the
Grantor, that results in the Beneficiary being unable to obtain full statutory financial statement
credit for the reinsurance provided by the LPT Reinsurance Agreement in any applicable jurisdiction
at any point in time during the term of the LPT Reinsurance Agreement.



D-2









 





               “Required Amount” shall mean an amount equal to the lesser of (A) the aggregate gross
Reserves of the Beneficiary (including reserves for losses incurred but not reported) calculated in
accordance with SAP with respect to the Business Covered and (B) the LPT Limit less the Ultimate
Net Loss paid by the Grantor.



               “Reserves” shall mean, as required by SAP or applicable law of the jurisdiction of domicile of
any entity, reserves, funds or provisions for losses, claims, unearned premiums, benefits, costs
and expenses (including allocated loss adjustment expenses) in respect of the Business Covered.



               “Rules” shall have the meaning ascribed to such term in Section 8.3(a).



               “SAP” shall mean, as to any entity, the statutory accounting principles prescribed or
permitted by the Governmental Authority responsible for the regulation of insurance companies in
the jurisdiction in which such entity is domiciled.



               “Third Party Appraiser” shall mean an independent appraisal firm which is mutually acceptable
to the Grantor and the Beneficiaries, or, if Grantor and Beneficiaries cannot agree on such an
appraisal firm, an independent appraisal firm selected by the parties’ respective accountants.



               “Trust” shall mean the trust formed hereunder.



               “Trust Account” shall have the meaning ascribed to such term in Section 2.1(a).



               “Trust Agreement” shall have the meaning ascribed to such term in the Preamble.



               “Trustee” shall have the meaning ascribed to such term in the Preamble.



               “Ultimate Net Loss” shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.



          Section 1.2 Interpretation. When a reference is made in this Trust Agreement to a Section
or Article, such reference shall be to a section or article of this Trust Agreement unless
otherwise clearly indicated to the contrary. The Article and Section headings contained in this
Trust Agreement are solely for the purpose of reference, are not part of the agreement of the
parties and shall not affect in any way the meaning or interpretation of this Trust Agreement.
Whenever the words “include,” “includes” or “including” are used in this Trust Agreement, they






D-3









 







shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and
“herewith” and words of similar import shall, unless otherwise stated, be construed to refer to
this Trust Agreement as a whole and not to any particular provision of this Trust Agreement. The
meaning assigned to each term used in this Trust Agreement shall be equally applicable to both the
singular and the plural forms of such term and to both the masculine as well as the feminine and
neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes. Where a word or phrase is defined herein, each of its other
grammatical forms shall have a corresponding meaning. References to a person are also to its
successors and permitted assigns.




ARTICLE II




CREATION OF TRUST ACCOUNT



          Section 2.1 Obligations of the Beneficiary and the Grantor. (a) Prior to the execution of
this Trust Agreement, the Grantor shall have procured with the Trustee, in the name of the Trustee,
to be held for the sole benefit of the Beneficiary pursuant to the provisions of this Trust
Agreement, a segregated trust account maintained by the Trustee with account number [ACCOUNT
NUMBER] (which shall be hereinafter referred to, including all successor accounts thereto, as the
“Trust Account”).




               (b) The Grantor shall transfer and assign to the Trustee, for deposit to the Trust Account,
such assets as it may from time to time desire (all such assets actually received in the Trust
Account are herein referred to individually as an “Asset” and collectively as the “Assets”). The
Assets shall consist only of Permitted Investments.



               (c) The Grantor shall ensure that the Trust Account shall hold Permitted Investments at all
times with a fair market value of no less than 100% of the Required Amount, as determined in
accordance with Section 5.6 of this Trust Agreement.



          Section 2.2 Purpose of the Trust. The Assets in the Trust Account shall be held by the
Trustee for the sole benefit of the Beneficiary. The Grantor grants to the Trustee all trust
powers necessary and reasonable in the performance of its duties hereunder except as otherwise
expressly provided herein.




          Section 2.3 Grantor Trust for United States Federal Income Tax Purposes. The Trust Account
shall be treated as a grantor trust (pursuant to sections 671 through 677 of the Code) for United
States federal income tax purposes. The Grantor shall constitute the grantor (within the meaning
of sections 671 and 677 of the Code) and, thus, any and all income derived from the Assets held in
the Trust shall constitute income or gain of the Grantor as the owner of such Assets.




          Section 2.4 Designation of Agents. Except as otherwise expressly provided in this Trust
Agreement, any statement, certificate, notice, request, consent, approval, or other






D-4









 







instrument to be delivered or furnished by the Grantor or the Beneficiary shall be sufficiently
executed if executed in the name of the Grantor or the Beneficiary by such officer or officers of
Grantor or Beneficiary or by such other agent or agents of the Grantor or the Beneficiary as may be
designated in a resolution of the Board of Directors of the Grantor or the Beneficiary or Committee
thereof or a letter of advice issued by the President, Secretary or Treasurer of the Grantor or the
Beneficiary, as applicable. Written notice of such designation by the Grantor or the Beneficiary
shall be filed with the Trustee. The Trustee shall be protected in acting upon any written
statement or other instrument made by such officers or agents of the Grantor or the Beneficiary
with respect to the authority conferred on it.




          Section 2.5 Title to Assets. Title to any Assets transferred by the Grantor to the Trustee
for deposit to the Trust Account will be recorded in the name of the Trustee. The out-of-pocket
costs of transfers of title between the Grantor and the Trustee shall be shared equally by the
Grantor and the Beneficiary, and the Grantor shall use reasonable efforts to limit such costs. The
Beneficiary shall not have legal title to any part of the Assets, but shall have an undivided
beneficial interest in all Assets.




ARTICLE III




MAINTENANCE OF THE TRUST



          Section 3.1 Substitution of Trust Account Assets. (a) Upon receipt of the prior written
consent of the Beneficiary, the Grantor may, from time to time, substitute or exchange Assets
contained in the Trust Account, provided, however, (i) the Assets so substituted or exchanged must
be Permitted Investments, (ii) after giving effect to such substitution, the fair market value of
the newly deposited Assets are at least equal to the fair market value of the substituted Assets
and (iii) the replacement Assets to be deposited in the Trust Account in such substitution or
exchange are deposited therein on the day of withdrawal of the substituted or exchanged Assets.
Upon any substitution or exchange as provided for herein, the Grantor shall certify to the Trustee
and Beneficiary that such substitution or exchange meets the requirements of this Section
3.1. The Trustee shall give the Beneficiary prompt written notice of any substitution made
pursuant hereto.




               (b) The Grantor shall, prior to depositing any Assets into the Trust Account, and from time to
time as required, execute all assignments and endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignment in order that the
Trustee, upon direction of the Beneficiary, may whenever necessary negotiate any such assets
without consent or signature from the Grantor or any other entity.



          Section 3.2 Valuation of Assets. The Grantor shall determine the fair market value of any
Assets in the Trust Account. In making this determination, the Grantor shall use prices published
by a nationally recognized pricing service for Assets for which such prices are available, and for
Assets for which such prices are not available, the Grantor shall use methodologies consistent with
those which it uses for determining the fair market value of assets held in its own general account
(other than the Assets) in the ordinary course of business.







D-5









 








          Section 3.3 Quarterly Certification. Within fourteen (14) calendar days following the end
of each calendar quarter, the Grantor shall provide the Beneficiary a written certification (the
“Quarterly Certification”) stating the Required Amount as of the calendar quarter end and the
aggregate fair market value of the Permitted Investments held in the Trust Account as of the
calendar quarter end (both on an asset-by-asset basis and a cumulative basis). Such certification
shall separately state the effect on the fair market value of the Assets of withdrawals by the
Grantor from the Trust Account effected during such calendar quarter. As soon as is practicable,
but in no event more than ten (10) Business Days following its receipt of the Quarterly
Certification, the Beneficiary shall either (i) countersign such certification and forward it to
the Trustee or (ii) notify the Grantor that it objects to the Grantor’s calculation of the Required
Amount or the Grantor’s valuation of any Asset. If the parties are able to resolve such dispute
within ten (10) Business Days of the Beneficiary’s transmittal to the Grantor of its notice of
objection, they shall promptly forward to the Trustee a jointly signed certification of the
Required Amount. If the parties are unable to resolve such dispute within ten (10) Business Days
of the Beneficiary’s transmittal to the Grantor of its notice of objection, and the dispute relates
to the valuation of an Asset, the value of such Asset shall be determined by a Third Party
Appraiser and the parties shall be bound by such valuation. All other disputes shall be resolved
in accordance with Section 8.1 of this Trust Agreement. Upon resolution of such dispute,
the parties shall forward to the Trustee a copy of the corrected Quarterly Certification setting
forth the Required Amount as resolved through such Third Party Appraiser or arbitration. The
Grantor shall, to the extent reasonably necessary or required in order to verify Grantor’s
certification, permit the Beneficiary to audit its records in order to determine its compliance
with this Section 3.3. The Grantor shall cooperate fully with such audit. Access to the
Grantor and its employees by the Beneficiary in connection with such audit shall be at reasonable
times during regular business hours upon reasonable prior written notice (including by e-mail) in a
manner which does not unreasonably interfere with the business or operations of the Grantor.




ARTICLE IV




RELEASE AND ADJUSTMENT OF TRUST ACCOUNT ASSETS



          Section 4.1 Adjustment of Trust Account Assets. (a) The Required Amount as of the end of
each calendar quarter shall be certified to the Trustee by the Grantor in the manner set forth in
Section 3.3 hereof.




               (b) If the aggregate fair market value of the Permitted Investments maintained in the Trust
Account as of any calendar quarter end is less than the Required Amount as of such calendar quarter
end, then within five (5) Business Days of its receipt of the certification set forth in
Section 3.3, the Grantor shall deposit into the Trust Account such additional Assets with
an aggregate fair market value as are necessary to ensure that the aggregate fair market value of
the Permitted Investments held in the Trust Account is no less than 100% of the Required Amount as
of the immediately prior calendar quarter end.



          Section 4.2 Release of Trust Account Assets to the Beneficiary. (a) Notwithstanding
anything in this Trust Agreement to the contrary, the Beneficiary shall have the right to withdraw
Assets from the Trust Account at any time, without notice to the Grantor,






D-6









 







subject only to written notice to the Trustee from the Beneficiary given in accordance with Section
7.1 of this Trust Agreement. Other than such notice, no other statement or document need be
presented by the Beneficiary to withdraw such Assets except that the Beneficiary shall acknowledge
to the Trustee receipt of such withdrawn Assets. Upon such written notice of demand of the
Beneficiary, the Trustee shall immediately take any and all steps necessary to transfer absolutely
and unequivocally all right, title and interest in the Assets to the Beneficiary and, to the extent
applicable, deliver physical custody of such Assets to the Beneficiary. Upon such transfer,
Trustee shall promptly forward a copy of such notice to the Grantor. The Trustee shall not be
subject to any liability for any payment made by it to the Beneficiary pursuant to such written
demand by the Beneficiary.




               (b) The Grantor and the Beneficiary agree that the Assets from the Trust Account may only be
withdrawn by the Beneficiary, and utilized and applied by the Beneficiary, or any successor by
operation of law of the Beneficiary including any liquidator or rehabilitator, receiver or
conservator of the Beneficiary, without diminution because of insolvency on the part of the
Beneficiary or the Grantor, for one or more of the following purposes:




                    (i) to pay or reimburse the Beneficiary for the Grantor’s share of premiums
returned to policyholders or ceding companies of the Reinsured Contracts because of
cancellations of such contracts to the extent same constitute Ultimate Net Loss;




                    (ii) to reimburse the Beneficiary for the Grantor’s share of surrenders and
benefits or losses paid by the Beneficiary pursuant to the provisions of the
Reinsured Contracts to the extent same constitute Ultimate Net Loss;




                    (iii) to fund an account with the Beneficiary in an amount at least equal to
the deduction, for reinsurance ceded, from the Beneficiary’s liabilities for the
Reinsured Liabilities. The account must include, but not be limited to, amounts for
policy reserves, claims and losses incurred, including losses incurred but not
reported, allocated loss adjustment expenses, and unearned premium reserves; and




                    (iv) to pay any other amounts the Beneficiary claims are due under the LPT
Reinsurance Agreement.



          Section 4.3 Release of Trust Account Assets to the Grantor. Subject to receipt of the
Beneficiary’s prior written instructions, the Trustee may, from time to time, release to the
Grantor Assets with an aggregate fair market value equal to the excess over 102% of the Required
Amount as of the prior calendar quarter end. In connection with any such release of Assets, the
Trustee shall take any and all necessary steps to transfer absolutely and unequivocally all right,
title and interest in such released Assets to the Grantor or its designee. The Trustee






D-7









 







shall not be subject to any liability for any payment made by it to the Grantor pursuant to such
written instructions received by it from the Beneficiary.




ARTICLE V




DUTIES OF THE TRUSTEE



          Section 5.1 Acceptance of Assets by the Trustee. (a) The Trustee shall not accept any
Assets (other than cash) for deposit into the Trust Account unless the Trustee determines that it
is or will be the registered owner of and holder of legal title to the Assets or that such Assets
are in such form that the Trustee may, if applicable to such asset class, negotiate any such
Assets, without consent or signature from the Grantor or any other person or entity. Any Assets
received by the Trustee which, if applicable to such asset class, are not in such proper negotiable
form or for which title has not been transferred to the Trustee shall not be accepted by the
Trustee and shall be returned to the Grantor as unacceptable.




               (b) The Trustee and its lawfully appointed successors is and are authorized and shall have the
power to receive such Assets as the Grantor (or the Beneficiary on behalf of the Grantor) from time
to time may transfer or remit to the Trust Account and to hold and dispose of the same for the uses
and purposes and in the manner and according to the provisions herein set forth. All such Assets
at all times shall be maintained as a trust account, separate and distinct from all other assets on
the books and records of the Trustee, and shall be continuously kept in a safe place within the
United States.



          Section 5.2 Collection of Interest and Dividends; Voting Rights. The Trustee is hereby
authorized, without prior notice to the Grantor or the Beneficiary, to demand payment of and
collect all interest or dividends on the Assets comprising the Trust Account if any. All payments
of interest, dividends and other income in respect to Assets in the Trust Account shall be
deposited promptly upon receipt by the Trustee into the Trust Account. Subject to the other
provisions of this Trust Agreement, the Grantor shall have the full and unqualified right to direct
the Trustee to vote, and to execute consents, bond powers, stock powers, mortgage and title
instruments and other instruments of transfer, pledge and release with respect to any Assets
comprising the Trust Account.




          Section 5.3 Obligations of the Trustee. The Trustee agrees to hold and disburse the
various Assets of the Trust Account in accordance with the provisions expressed herein.




          Section 5.4 Responsibilities of the Trustee. (a) The Trustee, in the administration of
the Trust Account, is to be bound solely by the express provisions herein, and such further written
and signed directions as the appropriate party or parties may, under the conditions herein
provided, deliver to the Trustee. The Trustee shall be under no obligation to enforce the
Grantor’s obligations under this Trust Agreement, except as otherwise expressly provided or
directed pursuant hereto. The Trustee shall be restricted to holding title to, operating and
collecting the Assets comprising the Trust Account and the payment and distribution thereof for the
purposes set forth in this Trust Agreement and to the conservation and protection of such






D-8









 







Assets and the administration thereof in accordance with the provisions of this Trust Agreement,
and the Trustee shall be liable only for its own negligence, willful misconduct, lack of good faith
or breach of fiduciary duty and for the breach of the Trustee’s obligations under this Trust
Agreement. The Trustee further agrees to forward upon request of the Beneficiary, the Grantor or
any Insurance Commissioner a certified list and valuation of all Assets held under this Trust
Agreement.




               (b) Subject to the other provisions of this Trust Agreement, including the requirements that
only Permitted Investments may be held in the Trust Account and provisions relating to the
substitution of Assets, (i) the Grantor shall have the irrevocable authority and sole power to
direct the Trustee, in the Grantor’s sole discretion, with respect to all aspects of the management
or investment of the Assets contained in the Trust Account, including, but not limited to,
directing the Trustee to enter into one or more investment management, advisory, custodial,
depository or other agreements of form and substance specified by the Grantor, with any other
person, including any affiliate of the Grantor, selected by the Grantor and (ii) the Trustee and
the Beneficiary each acknowledges that it has no authority with respect to such management or
investment activities, the Trustee agrees it will not exercise any discretion or take any action
with respect to the matters in clause (i) above and will take any actions related thereto as
directed by the Grantor in accordance therewith.



          Section 5.5 Books and Records. The Trustee shall keep full and complete records of the
administration of the Trust Account. The Grantor, the Beneficiary and/or the Insurance
Commissioner may examine such records, upon reasonable notice to the Trustee, at any time during
business hours through any person or persons duly authorized in writing by Grantor, the Beneficiary
and/or the Insurance Commissioner.




          Section 5.6 Activity Reports. The Trustee agrees to provide an activity report to the
Beneficiary and the Grantor upon creation of the Trust Account and within five (5) days following
receipt of the report from the Grantor, which report shall, in reasonable detail, show (i) all
deposits, withdrawals and substitutions during such quarter; (ii) a listing of securities and other
assets held and cash balances in the Trust Account as of the last day of such quarter and (iii) the
fair market value (determined in accordance with Section 2.1(b) on such day) of each Asset
held in the Trust Account (other than cash) and the amount of cash held in the Trust Account as of
the last day of such quarter. The Trustee agrees to provide written notification to the Grantor
and the Beneficiary within five (5) days of any deposits to or withdrawals from the Trust Account.




          Section 5.7 Resignation or Removal of the Trustee; Appointment of Successor Trustee. (a)
The Trustee may at any time resign as Trustee and terminate its capacity hereunder by delivery of
written notice of resignation, effective not less than ninety (90) days after receipt by both the
Beneficiary and the Grantor. The Trustee may be removed by the Grantor by (i) delivery to the
Trustee and the Beneficiary of a written notice of removal, effective not less than ninety (90)
days after receipt by the Trustee and the Beneficiary of the notice and (ii) receipt of
Beneficiary’s consent to such action, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, no such resignation by the Trustee or removal by the Grantor shall
be effective until a successor to the Trustee shall have been duly appointed by the Grantor and
approved by the Beneficiary and all the securities and other Assets in the Trust Account have






D-9









 







been duly transferred to such successor. The Grantor, upon receipt of such notice of resignation,
shall undertake to obtain the agreement of a qualified, successor depository, agreeable to the
Beneficiary, to act as a successor Trustee in accordance with all agreements of the Trustee herein
and upon duly qualifying to act as such pursuant to Section 5.7(b). The Beneficiary agrees
not to withhold unreasonably approval of such Trustee. Upon the Trustee’s delivery of the Assets
to the qualified, successor depository, along with a closing statement showing all activities from
the last quarterly report, the Trustee shall be discharged of further responsibilities hereunder,
subject to any remaining obligations under Section 5.4 and 5.7(b).




               (b) Any successor Trustee appointed hereunder shall execute an instrument accepting such
appointment hereunder and shall deliver the same to the Grantor and to the then acting Trustee.
Thereupon such successor Trustee shall, without any further act, become vested with all the
estates, properties, rights, powers, trusts and duties of its predecessor in the Trust with like
effect as if originally named herein; but the predecessor Trustee shall nevertheless, when
requested in writing by the successor Trustee, execute an instrument or instruments conveying and
transferring to the Trustee upon the Trust herein all the estates, properties, rights, powers and
trusts of such predecessor Trustee, and shall duly assign, transfer and deliver to the Trustee all
property and money held by such predecessor hereunder. The predecessor Trustee shall be entitled
to reimbursement in accordance with Section 5.10 for all expenses it incurs in connection
with the settlement of its accounts and the transfer and delivery of the Trust Assets to its
successor. The predecessor Trustee shall continue to be indemnified by reason of such entity being
or having been a Trustee in accordance with Section 5.9 hereof.



          Section 5.8 Release of Information. The Trustee shall promptly respond to any and all
reasonable requests for information concerning the Trust Account or the Assets held therein by
either of the parties to this Trust Agreement. Furthermore, the Trustee shall fully and completely
respond to any direct inquiries of the Insurance Commissioner, or any of its representatives,
concerning the Trust Account or the Assets held hereunder, including, detailed inventories of
securities or funds, and the Trustee shall permit the Insurance Commissioner, or its
representatives, to examine and audit all securities or funds held hereunder. The Trustee shall
promptly provide notice to the Beneficiary and the Grantor concerning all such inquiries, and shall
provide seven (7) days prior notice to the Beneficiary and the Grantor of all such examinations and
audits.




          Section 5.9 Indemnification of the Trustee. Subject to Section 5.4, whenever an
action by the Trustee is authorized by written signed direction pursuant to the provisions of this
Trust Agreement and such action is taken strictly in accordance with such written and signed
direction by the appropriate party or parties, the party or parties authorizing such action hereby
agree to indemnify the Trustee against all losses, damages, costs and expenses, including
reasonable attorneys’ fee, resulting from any action so taken by the Trustee.




          Section 5.10 Charges of the Trustee. The Grantor agrees to pay all reasonable costs or
fees charged by the Trustee for acting as the Trustee pursuant to this Trust Agreement, as agreed
between the Grantor and the Trustee, including fees incurred by the Trustee for legal services
deemed reasonably necessary by the Trustee as a result of the Trustee’s so acting; provided,
however, that no such costs, fees or expenses shall be paid out of the Assets held in or credited
to the Trust Account.





D-10











 





          Section 5.11 Limitations of the Trustee. The Trustee shall in no way be responsible for
determining the amount of Assets required to be deposited, or monitoring whether or not the Assets
held within the Trust Account are Permitted Investments. The Trustee shall be under no liability
for any release of Assets made by it to the Grantor in accordance with this Article V.




ARTICLE VI




TERMINATION



          Section 6.1 Termination. This Trust Agreement may not be terminated by
the Grantor unless the Grantor has obtained and the Trustee has received, a written consent
signed by the General Counsel of the Beneficiary to terminate this Trust Agreement. The
Beneficiary shall provide its consent to the termination of this Trust Agreement if the
Grantor seeks to terminate this Trust Agreement as a result of the exhaustion of the LPT
Limit.




          Section 6.2 Disposition of Assets Upon Termination. Upon a termination pursuant to this
Article VI, the Trustee shall distribute all Assets held and deposited under this Trust
Agreement, subject to the written approval of the Beneficiary, to the Grantor and shall take any
and all steps necessary to transfer absolutely and unequivocally all right, title and interest in
such Assets and to deliver physical custody, if applicable, in such Assets to the Grantor or as
otherwise directed by the Grantor.




ARTICLE VII




GENERAL PROVISIONS



          Section 7.1 Notices. Any notice, request, demand, waiver, consent, approval or other
communication required or permitted to be given by any party under this Trust Agreement shall be in
writing and shall be delivered personally, sent by facsimile transmission, sent by registered or
certified mail, postage prepaid, or sent by a standard overnight courier of national reputation
with written confirmation of delivery. Any such notice shall be deemed given when so delivered
personally, or if sent by facsimile transmission, on the date received (provided that any notice
received after 5:00 p.m. (addressee’s local time) shall be deemed given at 9:00 a.m. (addressee’s
local time) on the next Business Day), or if mailed, on the date shown on the receipt therefor, or
if sent by overnight courier, on the date shown on the written confirmation of delivery. Such
notices shall be given to the following addresses:




	 	 	 	 	 
	 

	 	If to the Trustee:
	 	[•]
	 

	 	 	 	[•]
	 

	 	 	 	[•]
	 

	 	 	 	Attention: [•]






D-11









 






	 	 	 	 	 

	 

	 	With a copy to:
	 	[•]
	 

	 	 	 	[•]
	 

	 	 	 	[•]
	 

	 	 	 	Attention: [•]
	 
	 	 	 	 
	 

	 	If to the Grantor:
	 	National Indemnity Company
	 

	 	 	 	100 First Stamford Place
	 

	 	 	 	Stamford, CT 06902
	 

	 	 	 	Attention: General Counsel
	 

	 	 	 	Fax: 203-363-5221
	 
	 	 	 	 
	 

	 	With a copy to:
	 	National Indemnity Company
	 

	 	 	 	3024 Harney Street
	 

	 	 	 	Omaha, NE 68131
	 

	 	 	 	Attention: Treasurer
	 

	 	 	 	Fax: 402-916-3030
	 
	 	 	 	 
	 

	 	If to the Beneficiary:
	 	CNA Financial Corporation
	 

	 	 	 	333 S. Wabash Avenue
	 

	 	 	 	Chicago, IL 60604
	 

	 	 	 	Attention: Jonathan D. Kantor
	 

	 	 	 	Executive Vice President,
	 

	 	 	 	General Counsel and Secretary
	 

	 	 	 	Fax: 312-817-0511
	 
	 	 	 	 
	 

	 	With a copy to:
	 	CNA Financial Corporation
	 

	 	 	 	333 S. Wabash Avenue
	 

	 	 	 	Chicago, IL 60604
	 

	 	 	 	Attention: Michael P. Warnick
	 

	 	 	 	Senior Vice President and
	 

	 	 	 	Deputy General Counsel
	 

	 	 	 	Fax: 312-755-2479





Each party to this Trust Agreement may change its notice provisions on fifteen (15) calendar days’
advance notice in writing to the other parties to this Trust Agreement.




          Section 7.2 Construction and Effect. This Trust Agreement and the enforceability hereof
shall not be subject to the satisfaction of any conditions or qualifications not expressly included
herein.




          Section 7.3 Waiver and Amendment. This Trust Agreement and the Trust created hereunder
shall be irrevocable, subject solely to the termination provisions set forth herein. The Grantor
shall have no right or power in any capacity to revoke, terminate or alter or amend any terms of
this Trust Agreement, in whole or in part, without the prior written consent of the Beneficiary and
the Grantor. Notwithstanding the foregoing, this Trust Agreement may be altered, amended or
terminated at any time by written agreement executed by each party hereto and, in the case of
Grantor’s and the Beneficiary’s written agreement, delivered to the Trustee.






D-12









 








The Beneficiary’s failure at any time to exercise any of the rights or powers conferred upon it
herein shall constitute neither a waiver of its right to exercise, nor stop it from exercising, any
rights at any subsequent time, nor shall such failure reduce in any degree any liability or
obligation for which the Grantor is bound hereunder.




          Section 7.4 Successors and Assigns. The rights and obligations of a party under this Trust
Agreement shall not be subject to assignment without the prior written consent of the other parties
hereto, and any attempted assignment without the prior written consent of the other parties hereto
shall be invalid ab initio. The terms of this Trust Agreement shall be binding upon, inure to the
benefit of and be enforceable by and against the successors and permitted assigns of the parties
hereto.




          Section 7.5 Headings. The headings of this Trust Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions hereof.




          Section 7.6 Governing Law and Jurisdiction. This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to such state’s
principles of conflict of laws that could compel the application of the laws of another
jurisdiction. SUBJECT TO ARTICLE VIII, ANY SUIT, ACTION OR PROCEEDING TO COMPEL
ARBITRATION OR FOR TEMPORARY INJUNCTIVE RELIEF IN AID OF ARBITRATION OR TO PRESERVE THE STATUS QUO
PENDING THE APPOINTMENT OF THE ARBITRATOR(S) SHALL BE BROUGHT BY THE PARTIES HERETO SOLELY IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, PROVIDED THAT IF SAID COURT
DETERMINES THAT IT DOES NOT HAVE SUBJECT MATTER JURISDICTION THEN SAID ACTIONS MAY BE BROUGHT IN
THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY; AND THE BENEFICIARY, THE GRANTOR
AND THE TRUSTEE EACH HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
SUCH PURPOSE AND ANY APPELLATE COURTS THEREOF, EXCEPT THAT ANY FINAL ARBITRAL AWARD RENDERED IN
ACCORDANCE WITH ARTICLE VIII MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION OVER ANY
PARTY HERETO OR ANY OF ITS ASSETS.




          Section 7.7 No Third Party Beneficiaries. Nothing in this Trust Agreement is intended or
shall be construed to give any person, other than the parties hereto, any legal or equitable right,
remedy or claim under or in respect of this Trust Agreement or any provision contained herein.




          Section 7.8 Counterparts. This Trust Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an original, but all
such counterparts shall together constitute one and the same instrument binding upon all of the
parties hereto notwithstanding the fact that all parties hereto are not signatory to the original
or the same counterpart. Each counterpart may consist of a number of copies hereof each signed by
less than all, but together signed by all of the parties hereto. Each counterpart may be delivered
by facsimile transmission, which transmission shall be deemed delivery of an originally executed
document.







D-13









 








          Section 7.9 Severability. Any term or provision of this Trust Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Trust Agreement or affecting the validity or enforceability of any of
the terms or provisions of this Trust Agreement in any other jurisdiction, so long as the economic
or legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any party hereto. If any provision of this Trust Agreement is so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is enforceable. In the
event of such invalidity or unenforceability of any term or provision of this Trust Agreement, the
parties hereto shall use their commercially reasonable efforts to reform such terms or provisions
to carry out the commercial intent of the parties hereto as reflected herein, while curing the
circumstance giving rise to the invalidity or unenforceability of such term or provision.




          Section 7.10 Specific Performance. Each of the parties hereto acknowledges and agrees that
the other parties hereto would be irreparably damaged in the event that any of the provisions of
this Trust Agreement were not performed or complied with in accordance with their specific terms or
were otherwise breached, violated or unfulfilled. Accordingly, each of the parties hereto agrees
that the other parties hereto shall be entitled to an injunction or injunctions to prevent
noncompliance with, or breaches or violations of, the provisions of this Trust Agreement by the
other parties hereto and to enforce specifically this Trust Agreement and the terms and provisions
hereof in any action instituted in accordance with Section 7.6, in addition to any other
remedy to which such party may be entitled, at law or in equity. In the event that any action is
brought in equity to enforce the provisions of this Trust Agreement, no party hereto will allege,
and each party hereto hereby waives the defense or counterclaim, that there is an adequate remedy
at law. The parties hereto further agree that (i) by seeking the remedies provided for in this
Section 7.10, a party hereto shall not in any respect waive its right to seek any other
form of relief that may be available to a party under this Trust Agreement, including monetary
damages in the event that this Trust Agreement has been terminated or in the event that the
remedies provided for in this Section 7.10 are not available or otherwise are not granted
and (ii) nothing contained in this Section 7.10 shall require any party hereto to institute
any action for (or limit any party’s right to institute any action for) specific performance under
this Section 7.10 before exercising any termination right under Article VI, nor
shall the commencement of any action pursuant to this Section 7.10 or anything contained in
this Section 7.10 restrict or limit any party’s right to terminate this Trust Agreement in
accordance with the terms of Article VI, or pursue any other remedies under this Trust
Agreement that may be available then or thereafter.




          Section 7.11 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS TRUST AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS TRUST AGREEMENT. EACH OF THE PARTIES HERETO HEREBY (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT HAS






D-14









 







BEEN INDUCED TO ENTER INTO THIS TRUST AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS TRUST
AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 7.11.




          Section 7.12 Incontestability. In consideration of the mutual covenants and agreements
contained herein, each party hereto does hereby agree that this Trust Agreement, and each and every
provision hereof, is and shall be enforceable by and between them according to its terms, and each
party hereto does hereby agree that it shall not contest in any respect the validity or
enforceability hereof.




          Section 7.13 Set-Off. Any debts or credits, matured or unmatured, liquidated or
unliquidated, regardless of when they arose or were incurred, in favor of or against any of the
Beneficiaries or the Grantor with respect to this Trust Agreement are deemed mutual debts or
credits, as the case may be, and shall be set off, and only the net balance shall be allowed or
paid.




          Section 7.14 Currency. All financial data required to be provided pursuant to the terms of
this Trust Agreement shall be expressed in United States dollars. All payments and all settlements
of account between the parties hereto shall be in United States currency unless otherwise agreed by
the parties hereto.




ARTICLE VIII




DISPUTE RESOLUTION



          Section 8.1 Dispute Resolution. Notwithstanding anything contained herein to the contrary,
any dispute between the Beneficiary and the Grantor arising out of or relating to this Trust
Agreement or the breach, termination or validity hereof (“Dispute”) will be first addressed
in accordance with the procedures specified in Section 8.2, and subsequently, if necessary,
Section 8.3, which will be the sole and exclusive procedures for the resolution of any such
Disputes.




          Section 8.2 Negotiation Amongst the Parties. (a) The Beneficiary and the Grantor agree
that they shall first attempt to resolve Disputes by informal in-person discussions and
negotiations of their respective representatives. If a Beneficiary and the Grantor are unable to
resolve any such Dispute through such in-person discussions and negotiations within thirty (30)
calendar days of the day on which either the Beneficiary and the Grantor receives from the other
party or parties written notice of a Dispute, the Dispute shall be submitted for resolution to a
designated executive officer of each of the Beneficiary and the Grantor with authority to make a
decision. If the designated executive officers are unable to reach a mutually acceptable
resolution within ten (10) calendar days after expiration of such thirty-day period, on the request
of either the Beneficiary or the Grantor, the Dispute shall be resolved in accordance with
subsection (b). All negotiations, discussions, and communications made or conducted pursuant to
the procedures set forth in this Section 8.2(a) are confidential and will be treated as
compromise and settlement negotiations for purposes of the Federal Rules of Evidence and any other
applicable rules of evidence.







D-15









 








          (b) Upon completion of the dispute resolution process described in subsection (a) of this
Section 8.2 without resolution of the Dispute, either the Beneficiary or the Grantor may
submit the Dispute for resolution in accordance with Section 8.3.




          Section 8.3 Arbitration. (a) Except as provided in Sections 8.1 and 8.2,
any Dispute shall be finally determined by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (“AAA”) then in effect (the “Rules”),
except as modified herein. If the amount in controversy is five million dollars ($5,000,000) or
less (including all claims and counterclaims) there shall be one arbitrator who shall be agreed
upon by the Beneficiary and the Grantor within twenty (20) calendar days of receipt by
respondent(s) of a copy of the demand for arbitration. The single arbitrator may not award an
amount greater than five million dollars ($5,000,000) in value under any circumstances. If the
amount in controversy is more than five million dollars ($5,000,000) (including all claims and
counterclaims) there shall be three neutral and impartial arbitrators, one of whom shall be
appointed by each of (i) the Beneficiary, on the one hand and (ii) the Grantor, on the other hand,
within thirty (30) calendar days of receipt by respondent(s) of the demand for arbitration, and the
third arbitrator, who shall chair the arbitral tribunal, shall be appointed by the party appointed
arbitrators within fifteen (15) calendar days of the appointment of the second arbitrator. If any
arbitrator is not appointed within the time limit provided herein, such arbitrator shall be
appointed by the AAA in accordance with the listing, striking and ranking procedure in the Rules,
with each of the Beneficiary and the Grantor being given a limited number of strikes, except for
cause. Any arbitrator appointed by the AAA shall be a retired federal or state appellate court
judge or a current or retired officer of an insurance company with no less than fifteen (15) years
of experience in the property casualty insurance industry. The arbitration hearing on the merits
shall be commenced within ninety (90) calendar days of the appointment of the arbitrator(s) or as
soon thereafter as practicable. In rendering an award, the arbitral tribunal shall be required to
follow the laws of the State of New York. The award shall be in writing and shall briefly state
the findings of fact and conclusions of law on which it is based. The arbitrator(s) shall be
permitted to award any relief permitted under New York law, including damages and any form of
temporary or permanent injunctive relief, but shall not be permitted to award special, indirect,
punitive or incidental damages or damages for lost profits or any other consequential damages or
damages based on multiples or similar valuation techniques. The award shall be final and binding
upon the Beneficiary and the Grantor and shall be the sole and exclusive remedy between the
Beneficiary and the Grantor regarding any claims, counterclaims, issues or accounting presented to
the arbitrator(s). Judgment upon the award may be entered in any court having jurisdiction over
the Beneficiary and the Grantor or any of their respective assets. Any costs or fees (including
attorneys’ fees and expenses) incident to enforcing the award shall be charged against the
Beneficiary and the Grantor resisting such enforcement. Arbitrability of any and all disputes
shall be decided by the arbitrator(s). In the event of any inconsistency between the Rules and the
provisions of this Article VIII, the provisions of this Article VIII shall control.




     (b) Arbitration hereunder shall be conducted in Chicago, Illinois or New York, New York, as
determined by the party against whom the arbitration is demanded.



D-16









 





ARTICLE IX




EFFECTIVE DATE AND EXECUTION



          IN WITNESS OF THE ABOVE, this Trust Agreement is executed in triplicate by the parties’ duly
authorized officers on the dates indicated below with an effective date of:                                         .




	 	 	 	 	 	 	 	 	 

	[CNA BENEFICIARY], as Beneficiary	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	Title: 	 

	 	 	 	 	 	 
	 

	Date: 	 

	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Attest:	 	 	 	 
	 

	 	 	 	 
	Title: 	 

	 	 
	 

	 	 	 	 
	Date: 	 

	 	 
	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	NATIONAL INDEMNITY COMPANY, as Grantor	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	Title: 	 

	 	 	 	 	 	 
	 

	Date: 	 

	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Attest:	 	 	 	 
	 

	 	 	 	 
	Title: 	 

	 	 
	 

	 	 	 	 
	Date: 	 

	 	 
	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	[TRUSTEE], as Trustee	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	Title: 	 

	 	 	 	 	 	 
	 

	Date: 	 

	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Attest:	 	 	 	 
	 

	 	 	 	 
	Title: 	 

	 	 
	 

	 	 	 	 
	Date: 	 

	 	 
	 

	 	 	 	 	 	 

	 	 







D-17