EX-10.43



 






Exhibit 10.43




PROPERTY CATASTROPHE OVERLYING EXCESS OF LOSS




REINSURANCE
CONTRACT




ISSUED TO




STATE AUTOMOBILE MUTUAL INSURANCE COMPANY

MILBANK INSURANCE COMPANY

STATE AUTO NATIONAL INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF WISCONSIN

FARMERS CASUALTY INSURANCE COMPANY

MID-PLAINS INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF OHIO

MERIDIAN SECURITY INSURANCE COMPANY

MERIDIAN CITIZENS MUTUAL INSURANCE COMPANY

MERIDIAN CITIZENS SECURITY INSURANCE COMPANY

STATE AUTO FLORIDA INSURANCE COMPANY




BY




STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY














 








STATE AUTOMOBILE MUTUAL INSURANCE COMPANY

MILBANK INSURANCE COMPANY

STATE AUTO NATIONAL INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF WISCONSIN

FARMERS CASUALTY INSURANCE COMPANY

MID-PLAINS INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF OHIO

MERIDIAN SECURITY INSURANCE COMPANY

MERIDIAN CITIZENS MUTUAL INSURANCE COMPANY

MERIDIAN CITIZENS SECURITY INSURANCE COMPANY

STATE AUTO FLORIDA INSURANCE COMPANY




PROPERTY CATASTROPHE OVERLYING EXCESS OF LOSS

REINSURANCE CONTRACT




TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	ARTICLE NO.	 	TITLE	 	PAGE	 	 	 	 
	ARTICLE I
	 	BUSINESS COVERED	 	1	 	 	 	 
	 
	ARTICLE II
	 	EXCLUSIONS	 	1 - 3	 	 	 	 
	 
	ARTICLE III
	 	TERM	 	3	 	 	 	 
	 
	ARTICLE IV
	 	TERRITORY	 	3	 	 	 	 
	 
	ARTICLE V
	 	AMOUNT OF LIMIT AND RETENTION	 	4	 	 	 	 
	 
	ARTICLE VI
	 	ULTIMATE NET LOSS	 	4	 	 	 	 
	 
	ARTICLE VII
	 	NET RETAINED LINES	 	5	 	 	 	 
	 
	ARTICLE VIII
	 	UNDERLYING EXCESS	 	5	 	 	 	 
	 
	ARTICLE IX
	 	DEFINITION OF LOSS OCCURRENCE	 	5 - 6	 	 	 	 
	 
	ARTICLE X
	 	NOTICE OF LOSS AND LOSS SETTLEMENT	 	6 - 7	 	 	 	 
	 
	ARTICLE XI
	 	PREMIUM	 	7	 	 	 	 
	 
	ARTICLE XII
	 	CURRENCY	 	7	 	 	 	 
	 
	ARTICLE XIII
	 	OFFSET	 	7	 	 	 	 
	 
	ARTICLE XIV
	 	ACCESS TO RECORDS	 	7 - 8	 	 	 	 
	 
	ARTICLE XV
	 	ERRORS AND OMISSIONS	 	8	 	 	 	 
	 
	ARTICLE XVI
	 	TAXES	 	8	 	 	 	 
















 






	 	 	 	 	 	 	 	 	 
	ARTICLE NO.	 	TITLE	 	PAGE	 	 	 	 
	ARTICLE XVII
	 	INSOLVENCY	 	8 - 9	 	 	 	 
	 
	ARTICLE XVIII
	 	ARBITRATION	 	9	 	 	 	 
	 
	 
	 	Exhibit A	 	 	 	 	 	 
	 
	 
	 	War Exclusion Clause	 	 	 	 	 	 
	 
	 	 	Pools, Associations & Syndicates Exclusion Clause
	 
	 	 	Nuclear Incident
Exclusion Clause – Physical Damage – Reinsurance –
U.S.A.
	 
	 	 	Nuclear Incident
Exclusion Clause – Physical Damage – Reinsurance –
CANADA
















 






PROPERTY CATASTROPHE OVERLYING EXCESS OF LOSS

REINSURANCE CONTRACT




between




STATE AUTOMOBILE MUTUAL INSURANCE COMPANY

MILBANK INSURANCE COMPANY

STATE AUTO NATIONAL INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF WISCONSIN

FARMERS CASUALTY INSURANCE COMPANY

MID-PLAINS INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF OHIO

MERIDIAN SECURITY INSURANCE COMPANY

MERIDIAN CITIZENS MUTUAL INSURANCE COMPANY

MERIDIAN CITIZENS SECURITY INSURANCE COMPANY

STATE AUTO FLORIDA INSURANCE COMPANY

(hereinafter collectively referred to as the “Company”)




and




STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY

(hereinafter referred to as the Subscribing “Reinsurer”)




ARTICLE I




BUSINESS COVERED:





The Reinsurer shall indemnify the Company for the net excess liability as hereinafter
provided and specified, which may accrue to the Company as a result of any loss or losses
which may occur during the currency of the Contract under any and all policies, contracts,
binders and other evidence of insurance and reinsurance, oral or written (hereinafter
referred to as “Policies”) heretofore or hereafter issued or entered into by or on behalf of
the Company and classified by the Company as Fire, Allied Lines, Homeowners (property
coverages), Farmowners (property coverages), Commercial Multiple Peril policies (property
coverages), Ocean Marine, Inland Marine and Automobile Physical Damage.



ARTICLE II




EXCLUSIONS:





	 	The following shall be excluded from the scope of this Contract:
	 
	 	1.  	Business written and classified by the Company as:






	 	a)  	Aviation Insurance;

	 
	 	b)  	Casualty Insurance (i.e. Accident, Health, Third Party Liability, Workers’
Compensation and Employers’ Liability, Fidelity, Plate Glass and Burglary and
Theft when written as such);














 






	 	c)  	Credit Insurance;
	 
	 	d)  	Financial Guarantee Insurance;
	 
	 	e)  	Insolvency Insurance;
	 
	 	f)  	Life Insurance;
	 
	 	g)  	Mortgage Impairment Insurance;
	 
	 	h)  	Title Insurance;
	 
	 	i)  	Surety;
	 
	 	j)  	Flood Insurance when written as such;
	 
	 	k)  	Earthquake Insurance when written as such;
	 
	 	l)  	Difference in Conditions Insurance when written as such;
	 
	 	m)  	Ocean Marine Insurance when written as such, except yachts;
	 
	 	n)  	Boiler and Machinery;
	 
	 	o)  	 Multiple Peril policies other than the Property coverages as included
in the Business Covered Section, hereof;
	 
	 	p)  	Reinsurance assumed, but not to exclude so-called agency
reinsurance, reinsurance of an individual risk or policy, or any intercompany
pooling arrangements.






	 	2.  	Wind and Hail on growing and standing crops.
	 
	 	3.  	Manufacture, processing, storage, filling or breaking down of explosives.
	 
	 	4.  	Oil and petrochemical refineries and pipelines and oil or gas drilling rigs.
	 
	 	5.  	Excess of Loss insurance or reinsurance where the deductible exceeds $500,000.
	 
	 	6.  	Bridges and Tunnels where the Total Insured Value over all interests exceeds
$300,000,000.
	 
	 	7.  	Extra Contractual Obligations and Losses in Excess of Policy Limits as per the
following definitions:






	 	a)  	Extra contractual obligations, which shall mean any punitive,
exemplary, compensatory or consequential damages, other than loss in excess of
policy limits, paid or payable by the Company as a result of an action against
it by its insured, its insured’s assignee or a third party claimant, which
action alleges negligence, fraud or bad faith on the part of the Company in
handling a claim under a Policy subject to this Contract.
	 
	 	b)  	Loss in excess of policy limits, which shall mean an amount that
the Company would have been contractually liable to pay had it not been for the
limit of the original Policy as a result of an action against it by its insured
or its insured’s assignee. Such loss in excess of the limit shall have been
incurred because of failure by the Company to settle within the Policy limit, or
by reason of alleged or actual negligence, fraud, or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of any
action against its insured or in the preparation or prosecution of an appeal
consequent upon such action.






	 	8.  	Loss/or Damage/or Costs/or Expenses arising from seepage and/or Pollution
and/or Contamination, other than Contamination from Smoke Damage. Nevertheless, this
exclusion does not preclude payment of the cost of removal of debris of property
damaged by a loss otherwise covered hereunder, but subject always to a limit of 25% of
the Company’s property loss under the original Policy.
	 
	 	9.  	Loss in respect of overhead transmission and distribution lines and their
supporting structure other than those on or within 150 meters (or 500 feet) of the
insured premises. It is














 






	 	   	understood and agreed that public utilities extension and/or
suppliers extension and/or contingent business interruption coverages are not subject
to this exclusion, provided that these are not part of a transmitters’ or distributors’
Policy.
	 
	 	10.  	Liability of the Company arising by contract, operation of law, or otherwise,
from its participation or membership, whether voluntary or involuntary, in any
insolvency fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan,
pool, association, fund or other arrangement, howsoever denominated, established or
governed, which provides for any assessment of or payment or assumption by the Company
of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or
its successors or assigns, which has been declared by any competent authority to be
insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
	 
	 	11.  	War Risk as per the “War Exclusion Clause” attached hereto.
	 
	 	12.  	Pools, Associations and Syndicates as per the “Pools, Associations & Syndicates
Exclusion Clause” attached hereto.
	 
	 	13.  	Nuclear Incident as per the “Nuclear Incident Exclusion Clause — Physical
Damage — Reinsurance — U.S.A.” (NMA 1119) attached hereto.
	 
	 	14.  	Nuclear Incident as per the “Nuclear Incident Exclusion Clause — Physical
Damage — Reinsurance — CANADA” (NMA 1980a) attached hereto.
	 
	 	15.  	Loss, damage, costs, and/or expenses resulting from: i) the release or
dispersion of or contamination from harmful micro-organisms or other biological
contagion; ii) the release or dispersion of or contamination from harmful chemical
agents or contaminants; iii) the use of any nuclear device or release or dispersion of
radioactive contamination.
	 
	 	16.  	Loss, damage, costs, and/or expenses resulting from an act of terrorism.





ARTICLE III




TERM:





The term of this Contract shall be from 12:01 A.M., Eastern Time, July 1, 2004 to 12:01
A.M., Eastern Time, July 1, 2005.




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



ARTICLE IV




TERRITORY:





This Contract shall cover wherever the Company’s Policies cover.













 





ARTICLE V




AMOUNT OF LIMIT AND RETENTION:





No claim shall be made hereunder unless and until the Company, on a pooled basis where
applicable, shall have first sustained an Ultimate Net Loss (as defined below) in excess of
$120,000,000, regardless of the number of Policies under which such loss is payable or the
number of interests insured. The Reinsurer shall then be liable for the amount of Ultimate
Net Loss for the Company in excess of $120,000,000 per occurrence, but the sum recoverable
from the Reinsurer in respect of each such Loss Occurrence shall not exceed the Cat Cover
Cap (as defined below), nor more than the Cat Cover Cap, in respect of all Loss Occurrences
during the term of this Contract. The Cat Cover Cap is such amount as is available to the
Reinsurer from State Auto Financial Corporation (“STFC”), the Reinsurer’s immediate parent,
following STFC’s sale of its class A Preferred Stock to SAF Funding Corporation (“SAF”), an
independent special purpose Delaware corporation, pursuant to the terms of a Standby
Purchase Agreement between STFC and SAF dated November 16, 2001 and any amendments thereto
or replacements thereof, which is part of a structured contingent financing arrangement
effected through: x) the then current Credit Agreement between SAF and one or more
financial institutions (the “Lenders”); y) the aforesaid Standby Purchase Agreement; and z)
the then current Put Agreement among STFC, State Automobile Mutual Insurance Company, and
the Lenders
(it being understood and agreed that as of the date hereof the Cat Cover Cap shall not
exceed $100,000,000).




The applicability of coverage under this Contract is subject to at least two risks being
involved in the same Loss Occurrence.



ARTICLE VI




ULTIMATE NET LOSS:





The term “Ultimate Net Loss” shall mean the amount that the Company pays as insured losses.
Ultimate Net Loss also includes, but is not limited to, all expenses incurred by the Company
in connection with the settlement of losses or resistance to or negotiations concerning a
loss, including salaries and expenses of employees of the Company while diverted from their
normal duties to the service of field adjustment but shall not include any office expenses
of the Company. However, nothing in this Article shall be construed to prevent the Company
from including all such amounts defined as Ultimate Net Loss attributable to the Group (as
defined below), on a pooled basis where applicable, for the first $120,000,000 of Ultimate
Net Loss. The Group shall mean, collectively, the Company and State Auto Property and
Casualty Insurance Company.




Subject to Article VIII, all salvages and recoveries and payments (net of the cost of
obtaining any salvage, recovery or payment), whether recovered or received prior or
subsequent to loss settlement under this Contract, including amounts recoverable under other
reinsurance, whether collected or not, shall be applied as if recovered or received prior to
the aforesaid settlement and shall be deducted from the actual loss incurred to arrive at
the amount of Ultimate Net Loss. Nothing in this Article shall be construed to mean losses
are not recoverable until the Ultimate Net Loss to the Company has been ascertained.













 





ARTICLE VII




NET RETAINED LINES:





This Contract applies to only that portion of any Policy which the Company and the other
members of the Group, on a pooled basis where applicable, retains net for its own account.




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



ARTICLE VIII




UNDERLYING EXCESS:





The Company has in force underlying catastrophe excess of loss reinsurance and recoveries
thereunder shall be disregarded for all purposes of this Contract and shall inure to the
sole benefit of the Company.



ARTICLE IX




DEFINITION OF LOSS OCCURRENCE:





The term “Loss Occurrence” shall mean the sum of all individual losses directly occasioned
by any one disaster, accident or loss or series of disasters, accidents or losses arising
out of one event which occurs within the area of one state of the United States or province
of Canada and states or provinces contiguous thereto and to one another. However, the
duration and extent of any one “Loss Occurrence” shall be limited to all individual losses
sustained by the Company occurring during any period of one hundred sixty-eight (168)
consecutive hours arising out of and directly occasioned by the same event except that the
term “Loss Occurrence” shall be further defined as follows:




	 	A.  	As regards windstorm, hail, tornado, hurricane, cyclone,
including ensuing collapse and water damage, all individual losses sustained by
the Company occurring during any period of seventy-two (72) consecutive hours
arising out of and directly occasioned by the same event. However, the event
need not be limited to one state or province or states or provinces contiguous
thereto.
	 
	 	B.  	As regards riot, riot attending a strike, civil commotion,
vandalism and malicious mischief, all individual losses sustained by the Company
occurring during any period of seventy-two (72) consecutive hours within the
area of one municipality or county and the municipalities or counties contiguous
thereto arising out of and directly occasioned by the same event. The maximum
duration of seventy-two (72) consecutive hours may be extended in respect of
individual losses which occur beyond such seventy-two (72) consecutive hours
during the continued occupation of an assured’s premises by strikers, provided
such occupation commenced during the aforesaid period.
	 
	 	C.  	As regards earthquake (the epicentre of which need not
necessarily be within the territorial confines referred to in the opening
paragraph of this Article) and fire














 






	 	   	following directly occasioned by the
earthquake, only those individual fire losses which commence during the period
of one hundred and sixty-eight (168) consecutive hours may be included in the
Company’s “Loss Occurrence.”
	 
	 	  D.  	As regards “freeze”, only individual losses directly occasioned
by collapse, breakage of glass and water damage (caused by bursting of frozen
pipes and tanks) may be included in the Company’s “Loss Occurrence.”






	 	   	For all “Loss Occurrences” except as referred to under sub-paragraph B, the Company
may choose the date and time when any such period of consecutive hours commences,
provided that it is not earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out of that disaster,
accident, or loss and provided that only one such period of one hundred and
sixty-eight (168) consecutive hours shall apply with respect to one event, except for
those “Loss Occurrences” referred to in sub-paragraph A above, where only one such
period of seventy-two (72) consecutive hours shall apply with respect to one event,
regardless of the duration of the event.
	 
	 	   	As respect those “Loss Occurrences” referred to in sub-paragraph B above, if the
disaster, accident or loss occasioned by the event is of greater duration than
seventy-two (72) consecutive hours, then the Company may divide that disaster,
accident or loss into two or more “Loss Occurrences” provided no two periods overlap
and no individual loss is included in more than one such period and provided that no
period commences earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out of that disaster,
accident or loss.
	 
	 	   	No individual losses occasioned by an event that would be covered by seventy-two (72)
hours clauses may be included in any “Loss Occurrence” claimed under the one hundred
and sixty-eight (168) hours provision.
	 
	 	   	Losses directly or indirectly occasioned by:






	 	a.  	loss of, alteration of , or damage to
	 
	 	   	         or
	 
	 	b.  	a reduction in the functionality, availability or operation of:






	 	   	a computer system, hardware, program, software, data, information repository,
microchip, integrated circuit or similar device in computer equipment or non-computer
equipment, whether the property of the policyholder of the Company or not, do not in
and of themselves constitute an event unless arising out of one or more of the
following perils:





fire, lightning, explosion, aircraft, or vehicle impact, falling objects,
windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano, tsunami,
flood, freeze or weight of snow.



ARTICLE X




NOTICE OF LOSS AND LOSS SETTLEMENT:




The Company shall adjust, settle, or compromise all claims and losses hereunder.



All loss settlements by the Company which comply with the terms hereof shall be
unconditionally binding upon the Reinsurer.













 








The Company shall advise the Reinsurer promptly of all claims and any subsequent
developments pertaining thereto, which may, in the Company’s opinion, develop into losses
involving Reinsurance hereunder. Inadvertent omission or oversight in dispatching such
advices shall in no way affect the liability of the Reinsurer under this Contract provided
the Company informs the Reinsurer of such omission or oversight promptly upon its discovery.



The Reinsurer shall tender all loss payments as soon as practicable after receipt of any
proof of loss.



ARTICLE XI




PREMIUM:





The premium to be paid to the Reinsurer shall be $3,250,000, payable in four equal quarterly
installments. Each company shall pay a percentage of the premium based on its share of
subject premium, as shown in Exhibit A.



ARTICLE XII




CURRENCY:





All retentions, limits and premiums referenced in this Contract are expressed in United
States Dollars and all payments made by either party shall be made in United States Dollars.




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



ARTICLE XIII




OFFSET:





The Company and the Reinsurer, each at its option, may offset any balance or balances,
whether on account of premiums, claims and losses, loss expenses or salvages due from one
party to the other under this Contract; provided, however, that in the event of the
insolvency of a party hereto, offsets shall only be allowed in accordance with applicable
statutes and regulations.



ARTICLE XIV




ACCESS TO RECORDS:





The Company shall place at the disposal of the Reinsurer at all reasonable times, and the
Reinsurer shall have the right to inspect through its designated representatives, during the
term of this Contract and thereafter, all books, records and papers of the Company in
connection with any reinsurance hereunder, or the subject matter hereof.













 





ARTICLE XV




ERRORS AND OMISSIONS:





Any inadvertent delay, omission or error shall not be held to relieve either party hereto
from any liability which would attach to either party if such delay, omission or error had
not been made, provided such delay, omission or error is rectified as soon as practicable
after discovery.



ARTICLE XVI




TAXES:





In consideration of the terms under which this Contract is issued, the Company will not
claim a deduction in respect of the premium hereon when making tax returns, other than
income or profits tax returns, to any state or territory of the United States of America,
the District of Columbia or Canada.



ARTICLE XVII




INSOLVENCY:





The reinsurance under this Contract shall be payable by the Reinsurer on the basis of the
liability of one or more of the Companies under the Policy or Policies reinsured without
diminution because of the insolvency of one or more of the Companies reinsured or because
the liquidator, receiver, conservator or statutory successor of the Company(ies) has failed
to pay all or a portion of any claim.




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




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




In the event of the insolvency of one or more of the Companies reinsured, the reinsurance
under this Contract shall be payable by the Reinsurer directly to the Company(ies) or to the
liquidator, receiver, conservator or statutory successor, except as provided by subsection
(A) of section 4118 of the Insurance Law of New York or except where (I) the Contract
specifies another payee of such Reinsurance in the event of the insolvency of the
Company(ies) and (II) the Reinsurer with the consent of the direct insureds and, with the
prior approval of the Superintendent of Insurance of New York to the certificate of
assumption issued to New York direct insureds, has assumed such Policy













 






obligations of the
Company(ies) as its direct obligations to the payees under such Policies, in substitution
for the obligations of the Company(ies) to such payees.



ARTICLE XVIII




ARBITRATION:





If any dispute shall arise between the parties to this Contract, either before or after its
termination, with reference to the interpretation of this Contract or the rights of either
party with respect to any transactions under this Contract, including the formation or
validity thereof, the dispute shall be referred to three (3) arbitrators as a condition
precedent to any right of action arising under this Contract. The arbitrators shall be
active or retired disinterested officers of insurance or reinsurance companies or Lloyd’s
Underwriters other than the parties or their affiliates. One arbitrator shall be chosen by
each party and the third by the two so chosen. If either party refuses or neglects to
appoint an arbitrator within thirty (30) days after the receipt of written notice from the
other party requesting it to do so, the requesting party may nominate two (2) arbitrators
who shall choose the third.




In the event the arbitrators do not agree on the selection of the third arbitrator within
thirty (30) days after both arbitrators have been named, the Company shall petition the
American Arbitration Association to appoint the third arbitrator. If the American
Arbitration Association fails to appoint the third arbitrator within thirty (30) days after
it has been requested to do so, either party may request a justice of a court of general
jurisdiction of the state in which the arbitration is to be held, to appoint an officer or
retired officer of an insurance or reinsurance company or Lloyd’s Underwriter as the third
arbitrator. In the event both parties request the appointment of the third arbitrator, the
third arbitrator shall be the soonest named in writing by the justice of the court.




Each party shall submit its case to the arbitrators within thirty (30) days of the
appointment of the arbitrators. The arbitrators shall consider this Contract an honorable
engagement rather than merely a legal obligation; they are relieved of all judicial
formalities and may abstain from following the strict rules of law. The decision of a
majority of the arbitrators shall be final and binding on both the Company and the
Reinsurer. Judgment may be entered upon the award of the arbitrators in any court having
jurisdiction.




Each party shall bear the fee and expenses of its own arbitrator, one half of the fee and
the expenses of the third arbitrator and one half of the other expenses of the arbitration.
In the event both arbitrators are chosen by one party, the fees of the arbitrators shall be
equally divided between the parties.




Any such arbitration shall take place in Columbus, Ohio unless some other location is
mutually agreed upon by the parties.













 





WAR EXCLUSION CLAUSE





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




This War Exclusion Clause shall not, however, apply to interests which at time of
loss or damage are within the territorial limits of the United States of America
(comprising the fifty States of the Union and the District of Columbia, its
territories and possessions, including the Commonwealth of Puerto Rico and
including Bridges between the United States of America and Mexico provided they
are under United States ownership), Canada, St. Pierre and Miquelon, provided such
interests are insured under policies, endorsements or binders containing a
standard war or hostilities or warlike operations exclusion clause.




Nevertheless, this Clause shall not be construed to apply to loss or damage
occasioned by riots, strikes, civil commotion, vandalism, and malicious damage.













 





POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE




SECTION A:




EXCLUDING:





	 	(a)  	All Business derived directly or indirectly from any Pool, Association or
Syndicate which maintains its own reinsurance facilities.
	 
	 	(b)  	Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, l968
for the purpose of insuring Property whether on a country-wide basis or in respect of
designated areas. This exclusion shall not apply to so-called Automobile Insurance
Plans or other Pools formed to provide coverage for Automobile Physical Damage.





SECTION B:




It is agreed that business written by the Company for the same perils, which is known at the time
to be insured by, or in excess of underlying amounts placed in the following Pools, Associations,
or Syndicates, whether by way of insurance or reinsurance, is excluded hereunder:


Industrial Risk Insurers,

Associated Factory Mutuals,

Improved Risk Mutuals,

Any Pool, Association or Syndicate formed for the purpose of writing Oil, Gas or

   Petro-Chemical Plants and/or Oil or Gas Drilling Rigs,

United States Aircraft Insurance Group,

Canadian Aircraft Insurance Group,

Associated Aviation Underwriters,

American Aviation Underwriters.



SECTION B does not apply:





	 	(a)  	Where the Total Insured Value over all interests of the risk in question is
less than $300,000,000.
	 
	 	(b)  	To interests traditionally underwritten as Inland Marine or Stock and/or
Contents written on a Blanket basis.
	 
	 	(c)  	To Contingent Business Interruption, except when the Company is aware that the
key location is known at the time to be insured in any Pool, Association or Syndicate
named above, other than as provided for under Section B (a).
	 
	 	(d)  	To risks as follows:
	 
	 	   	Offices, Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(other than Railroad Schedules) and Builder’s Risks on the classes of risks specified
in this subsection (d) only.














 











Page 1 of 3




Where this Clause attaches to catastrophe excesses, the following Section C is added:




SECTION C:




NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its
participation in residual market mechanisms including but not limited to:





	 	(l)  	The following so-called “Coastal Pools”:
	 
	 	   	ALABAMA INSURANCE UNDERWRITING ASSOCIATION




LOUISIANA INSURANCE UNDERWRITING ASSOCIATION




MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION




NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION




SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION




TEXAS WINDSTORM INSURANCE ASSOCIATION





AND





	 	(2)  	All “FAIR Plan” and “Rural Risk Plan” business





AND





	 	   	The Citizens Property Insurance Corporation (“CPIC”) and the California Earthquake
Authority (“CEA”)





for all perils otherwise protected hereunder shall not be excluded, except, however, that this
reinsurance does not include any increase in such liability resulting from:




	 	(i)  	The inability of any other participant in such “Coastal Pool” and/or “FAIR
Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.
	 
	 	(ii)  	Any claim against such “Coastal Pool” and/or “FAIR Plan” and/or “Rural Risk
Plan” and/or Residual Market Mechanisms, or any participant therein, including the
Company, whether by way of subrogation or otherwise, brought by or on behalf of any
Insolvency Fund (as defined in the Insolvency Fund Exclusion Clause incorporated in
this Contract).





SECTION D:





	 	(1)  	Notwithstanding Section C above, in respect of the CEA, where an assessment is
made against the Company by the CEA, the Company may include in the Ultimate Net Loss
only that assessment directly attributable to each separate loss occurrence covered
hereunder. The Company’s initial capital contribution to the CEA shall not be included
in the Ultimate Net Loss.
	 
	 	(2)  	Notwithstanding Section C above, in respect of the CPIC, where an assessment is
made against the Company by the CPIC, the maximum loss that the Company may include in
the Ultimate Net Loss in respect of any loss occurrence hereunder shall not exceed the
lesser of:






	 	a)  	The Company’s assessment from the CPIC for the accounting year in
which the loss occurrence commenced, or














 











Page 2 of 3





	 	b)  	The product of the following:






	 	(i)  	The Company’s percentage participation in the
CPIC for the accounting year in which the loss occurrence commenced; and
	 
	 	(ii)  	The CPIC’s total losses in such loss occurrence.





Any assessments for accounting years subsequent to that in which the loss occurrence commenced may
not be included in the Ultimate Net Loss hereunder. Moreover, notwithstanding Section C above, in
respect of the CPIC, the Ultimate Net Loss hereunder shall not include any monies expended to
purchase or retire bonds as a consequence of being a member of the CPIC. For the purposes of this
Contract, the Company may not include in the Ultimate Net Loss any assessment or any percentage
assessment levied by the CPIC to meet the obligations of an insolvent insurer member or other
party, or to meet any obligations arising from the deferment by the CPIC of the collection of
monies.



Page 3 of 3














 








NUCLEAR INCIDENT
EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.





	1)  	This Agreement does not cover any loss or liability accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers
formed for the purpose of covering Atomic or Nuclear Energy risks.
	 
	2)  	Without in any way restricting the operation of paragraph 1) of this Clause, this Agreement
does not cover any loss or liability accruing to the Reinsured, directly or indirectly, and
whether as Insurer or Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such Physical Damage) to:






	 	I.  	Nuclear reactor power plants including all auxiliary property on the site, or
	 
	 	II.  	Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and “critical facilities” as such, or
	 
	 	III.  	Installations for fabricating complete fuel elements or for
processing substantial quantities of “special nuclear material,” and
for reprocessing, salvaging, chemically separating, storing or
disposing of “spent” nuclear fuel or waste materials, or
	 
	 	IV.  	Installations other than those listed in paragraph 2) III above using
substantial quantities of radioactive isotopes or other products of
nuclear fission.






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






	 	a)  	where the Reinsured does not have knowledge of such nuclear reactor power plant or
nuclear installation, or
	 
	 	b)  	where said insurance contains a provision excluding coverage for damage to property
caused by or resulting from radioactive contamination, however caused. However, on and
after 1st, January 1960 this sub-paragraph b) shall only apply provided the
said radioactive contamination exclusion provision has been approved by the Governmental
Authority having jurisdiction thereof.






	4)  	Without in any way restricting the operations of paragraphs 1), 2) and 3) hereof, this
Agreement does not cover any loss or liability by radioactive contamination accruing to the
Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.
	 
	5)  	It is understood and agreed that this Clause shall not extend to risks using radioactive
isotopes in any form where the nuclear exposure is not considered by the Reinsured to be the
primary hazard.
	 
	6)  	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act
of 1954, or by any law amendatory thereof.
	 
	7)  	Reinsured to be sole judge of what constitutes:






	 	a)  	substantial quantities, and
	 
	 	b)  	the extent of installation, plant or site.





NOTE: Without in any way restricting the operation of paragraph 1) hereof, it is understood and
agreed that:




	 	a)  	all policies issued by the Reinsured on or before 31st, December 1957, shall be
free from the application of the other provision of this Clause until expiry date or
31st, December 1960, whichever first occurs whereupon all the provisions of this
Clause shall apply,
	 
	 	b)  	with respect to any risk located in Canada policies issued by the Reinsured on or before
31st, December 1958, shall be free from the application of the other provisions of
this Clause until expiry date or 31st, December 1960, whichever first occurs
whereupon all the provisions of this Clause shall apply.














 













NUCLEAR INCIDENT
EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - CANADA





	1)  	This Agreement does not cover any loss or liability accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers
formed for the purpose of covering Atomic or Nuclear Energy risks.
	 
	2)  	Without in any way restricting the operation of paragraph 1) of this Clause, this Agreement
does not cover any loss or liability accruing to the Reinsured, directly or indirectly, and
whether as Insurer or Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such Physical Damage) to:






	 	(a)  	Nuclear reactor power plants including all auxiliary property on the site, or
	 
	 	(b)  	Any other nuclear reactor installation, including laboratories handling radioactive materials
in connection with reactor installations, and critical facilities as such, or
	 
	 	(c)  	Installations for fabricating complete fuel elements or for processing substantial quantities
of prescribed substances, and for reprocessing, salvaging, chemically separating, storing or
disposing of spent nuclear fuel or waste materials, or
	 
	 	(d)  	Installations other than those listed in (c) above using substantial quantities of
radioactive isotopes or other products of nuclear fission.






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






	 	(a)  	where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear
installation, or
	 
	 	(b)  	where said insurance contains a provision excluding coverage for damage to property caused by
or resulting from radioactive contamination, however caused.






	4)  	Without in any way restricting the operations of paragraphs 1), 2) and 3) of this Clause,
this Agreement does not cover any loss or liability by radioactive contamination accruing to
the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, when such
radioactive contamination is a named hazard specifically insured against.
	 
	5)  	This Clause shall not extend to risks using radioactive isotopes in any form where the
nuclear exposure is not considered by the Reinsured to be the primary hazard.
	 
	6)  	The term “radioactive material” means uranium, thorium, plutonium, neptunium, their
derivatives and compounds, radioactive isotopes of other elements and any other substances
which may be designated by or pursuant to any law, act or statute, or any law amendatory
thereof as being prescribed substances capable of releasing atomic energy, or as being
requisite for the production, use or application of atomic energy.
	 
	7)  	Reinsured to be sole judge of what constitutes:






	 	a)  	substantial quantities, and
	 
	 	b)  	 the extent of installation, plant or site.






	8)  	Without in any way restricting the operation of paragraphs 1), 2), 3) and 4) of this Clause,
this Agreement does not cover any loss or liability accruing to the Reinsured, directly or
indirectly, and whether as Insurer or Reinsurer caused:






	 	a)  	by any nuclear incident as defined by The Nuclear Liability Act or any other nuclear
liability act, law or statute, or any law amendatory thereof or nuclear explosion, except for
ensuing loss or damage which results directly from fire, lightning or explosion of natural,
coal or manufactured gas;
	 
	 	b)  	by contamination by radioactive material.





NOTE: Without in any way restricting the operation of paragraphs 1), 2), 3) and 4) of this Clause,
paragraph 8) of this Clause shall only apply to all original contracts of the Reinsured whether
new, renewal or replacement which become effective on or after December 31, 1992.

















 












INTERESTS AND LIABILITIES AGREEMENT




between




STATE AUTOMOBILE MUTUAL INSURANCE COMPANY

MILBANK INSURANCE COMPANY

STATE AUTO NATIONAL INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF WISCONSIN

FARMERS CASUALTY INSURANCE COMPANY

MID-PLAINS INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF OHIO

MERIDIAN SECURITY INSURANCE COMPANY

MERIDIAN CITIZENS MUTUAL INSURANCE COMPANY

MERIDIAN CITIZENS SECURITY INSURANCE COMPANY

STATE AUTO FLORIDA INSURANCE COMPANY




(the “Company”)




and




STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY




(the Subscribing “Reinsurer”)




It is hereby mutually agreed by and between the Company on the one part, and the Subscribing
Reinsurer on the other part that effective July 1, 2004, the Subscribing Reinsurer’s share of the
Interests and Liabilities of the PROPERTY CATASTROPHE OVERLYING EXCESS OF LOSS REINSURANCE CONTRACT
attached hereto and forming part of this Agreement, shall be for one hundred percent (100%).



IN WITNESS WHEREOF, the parties hereto by their authorized representative have executed this
Agreement as of the date specified below:



Signed in Columbus, Ohio this 1st day of July 2004.


STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY


By /s/ John
R. Lowther




          Title Senior  Vice President, Secretary and General Counsel













 








Signed in Columbus, Ohio this 1st day of July 2004.



STATE AUTOMOBILE MUTUAL INSURANCE COMPANY

MILBANK INSURANCE COMPANY

STATE AUTO NATIONAL INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF WISCONSIN

FARMERS CASUALTY INSURANCE COMPANY

MID-PLAINS INSURANCE COMPANY

STATE AUTO INSURANCE COMPANY OF OHIO

MERIDIAN SECURITY INSURANCE COMPANY

MERIDIAN CITIZENS MUTUAL INSURANCE COMPANY

MERIDIAN CITIZENS SECURITY INSURANCE COMPANY

STATE AUTO FLORIDA INSURANCE COMPANY


By /s/ John R. Lowther



          
Title Senior Vice President and General Counsel