Document:

exv10w20

Exhibit 10.20

LEBANON MUTUAL INSURANCE COMPANY

NON-EMPLOYEE DIRECTOR CHANGE IN CONTROL PROGRAM

     1. Purpose. The purpose of the Program is to foster an environment in
which, upon the onset of an event which may result in the occurrence of a Change in
Control, the Non-Employee Directors of the Corporation will be encouraged to consider
the merits of the transaction with a view toward protecting the best interests of the
Corporation without regard for the impact on such directors of the actual occurrence of
such Change in Control.

     2. Definitions. The following terms, wherever used herein, shall have the
meanings ascribed thereto, unless the context in which such terms are used otherwise
clearly requires.

     (a) “Board” means the board of directors of the Corporation.

     (b) “Change in Control” means the occurrence of any event described in Code
Section 280G(b)(2)(A)(i) with respect to the Corporation. Notwithstanding the
preceding sentence, neither the conversion nor demutualization of the
Corporation, without more, shall be considered to constitute a Change in
Control, although a sponsored demutualization will be so considered.

     (c) “Code” means the Internal Revenue Code of 1986, as amended and as the
same may be amended from time to time.

     (d) “Corporation” means Lebanon Mutual Insurance Company, a
Pennsylvania corporation, whether in mutual or stock form, and as its name
may be changed from time to time.

     (e) “Non-Employee Director” means each director of the Corporation who is
not, at a relevant time, a common law employee of the Corporation or any 50% or
greater owned subsidiary of the Corporation.

     (f) “Program” means the Lebanon Mutual Insurance Company Non-Employee
Director Change in Control Program, as set forth in this document and as the
same may be amended from time to time.

     3. Program Benefit. Unless (i) a Non-Employee Director is appointed to the
board of directors or an advisory board of an acquirer of the Corporation, a successor
to the Corporation or a company affiliated with either, and (ii) such Non-Employee
Director accepts such appointment, concurrently with the occurrence of a Change in
Control, the Corporation, or its successor, shall make a lump sum cash payment to each
person who is immediately prior thereto a Non-Employee Director (or whose status as such
was previously terminated directly or indirectly in connection with such Change in
Control) equal to three times the total fees and other cash compensation (but not
expense reimbursement) received by such person from the Corporation during the
immediately preceding calendar year for services rendered as a director; provided,
however, that the actual amount of payment to any such director shall be limited to

1

 

such extent as may be necessary, if at all, to avoid application of Code Section 4999
to such director. The Corporation or its successor may condition a payment made under
this section on the execution of an agreement by the Non-Employee Director of a consent
to the provisions of Section 4.

     4. Covenants Not to Compete or Solicit; Confidentiality.

     (a) Covenants Not to Compete or Solicit. By accepting a Program
benefit under Section 3, a Non-Employee Director shall be deemed to have agreed
that he or she will not, during the 12 months immediately following the
occurrence of the Change in Control:

     (i) be engaged, directly or indirectly, either for his or her own
account or as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than 5% of the
stock of a publicly owned company) or otherwise, of any person, firm,
corporation, or enterprise engaged in direct competition with the
Corporation, in its then market area, at the time of the Change in
Control; or

     (ii) provide financial or other assistance to any person, firm,
corporation, or enterprise engaged in direct competition with the
Corporation, in its then market area, at the time of the Change in
Control; or

     (iii) solicit (or assist or encourage any person to solicit) any
individual, who was employed by the Corporation or an affiliate of the
Corporation at the time of the Change in Control, to sever his or her
employment relationship with the Corporation or such affiliate.

(b) Confidentiality.

     (i) As used in this section, the term “Confidential Information”
means any and all information regarding the organization, business or
finances of the Corporation or any of its affiliates, including, but not
limited to, any and all business plans and strategies, financial
information, proposals, reports, marketing plans and information, cost
information, customer information, claims history and experience data,
sales volume and other sales statistics, personnel data, pricing
information, concepts and ideas, information respecting existing and
proposed investments and acquisitions, and information regarding customers
and suppliers, but the term “Confidential Information” will not include
information created by the director or which prior to the director’s
receipt thereof (A) was generally publicly available, or (B) was in the
director’s possession free of any restrictions on its use or disclosure
and from a source other than the Corporation or any of its affiliates.

     (ii) By accepting a Program benefit under Section 3, a
Non-Employee Director shall be deemed to have agreed that he or she
will not, during the 12

2

 

months immediately following the occurrence of the Change in Control, use for the
benefit of anyone other than the Corporation and its affiliates, or disclose, any
of the Confidential Information for any reason or purpose whatsoever except to
authorized representatives of such business entities or as directed or authorized
by the Corporation; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law, the
director’s obligations of confidentiality and nondisclosure as set forth in this
sentence will continue and survive after the 12-month period to the greatest
extent permitted by applicable law.

     (c) Judicial Cut-Back. If a final judicial determination is made by a court
having jurisdiction that the time or territory or any other restriction contained in
Section 4(a) or (b) is an unreasonable or otherwise unenforceable restriction, the
provisions of Section 4(a) or (b) shall not be rendered void but shall be deemed amended
to apply as to such maximum time and territory and to such other extent as such court may
determine or indicate to be reasonable.

     (d) Remedy. In addition to any remedy it may have at law for breach or
threatened breach of this section (which shall include, without limitation, the right to
demand repayment of the entire Program benefit paid under Section 3), the Corporation
shall be entitled, without posting bond, to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction, or any
other equitable remedy which may then be available.

     5. Amendment; Termination. The Board may amend the Program from time to time or
terminate the Program at any time; provided, however, that no such amendment or termination may
adversely affect the right of a Non-Employee Director to a Program benefit following the onset of
an event that may result in the occurrence of a Change in Control, unless such amendment or
termination is required by law.

     6. Applicable Law. The Program shall be governed by and construed in accordance
with the law (but not the law of conflict of laws) of the Commonwealth of Pennsylvania.

     7. Headings. The headings of the sections of this Program document are for
convenience of reference only and shall not control or affect the meaning or construction or
limit the scope or intent of any of the provisions of the same.

     8. Number. Words used herein in the singular form shall be construed as being used
in the plural form, as the context requires, and vice versa.

     9. Tax Withholding. All payments made and benefits provided hereunder shall be
subject to such federal, state and local tax withholding as may be required by law.

     10. Effective Date. The effective date of this Program is August 27, 2003.

3exv10w22

EX. 10.22

January 29, 2009

Janet S. Sayer

BMS Intermediaries, Inc.

One Corporate Drive, Suite 715

Shelton, CT 06484

RE: Workers’ Compensation Excess of Loss Reinsurance Agreements — Safety National and Catlin

Dear Janet:

Thank your for your letter dated January 22, 2009 and covering the First Excess of Loss
Reinsurance Agreement with Catlin and the Second Excess of Loss Reinsurance Agreement with
Safety National.

In accordance with your instructions, a signed copy of the Interests and Liabilities
endorsement for each contract is enclosed.

As always, your service is very much appreciated.

	 	 	 
	Sincerely,
	 	 
	 
	 	 
	/s/ Rollin P. Rissinger
 

Rollin P. Rissinger, Jr.

	 	 
	President
	 	 

137
West Penn
Avenue   •   P.O. Box 2005   •   Cleona, PA 17042-2005   •   Phone: 717-272-6655

 

 

VIA
EXPRESS MAIL

January 22, 2009

Mr. Rollin Rissinger

President

Lebanon Mutual Insurance Company

137 West Penn Avenue

Cleona, PA 17042

			
	RE:	 	Lebanon Mutual Insurance Company

Workers’ Compensation First Excess of Loss Reinsurance Agreement

$2,500,000 xs $5,000,000 (Catlin obo SJC 2003);

$2,500,000 xs $7,500,000 (Safety National)

Effective: January 1, 2009

Contract No. A9CFGX001 (Catlin); A9CFGX002 (SNCC)

Dear Rollin:

We are pleased to enclose the following documents with respect to the captioned program.

	Ø	 	Formal Copy of the Reinsurance Agreement
	 
	Ø	 	Interest and Liabilities Contract Pages — Two (2) sets for each layer
	 
	Ø	 	Memorandum of Changes for each layer

Regarding
the Interest and Liabilities Contract pages, please sign all pages
and return one set
to our office retaining the other set for your files.

We trust you will find all to be in order and your files now complete. Please let us know
right away if this is not the case.

	 	 	 
	Regards,
	 	 
	 
	 	 
	/s/ Janet S. Sayer
 

Janet S. Sayer

	 	 
	Technical Assistant
	 	 
	3978359
	 	 

enclosures

cc: Victor M. Marques

London, UK       Dallas, TX
      Chicago, IL
      Shelton, CT
      Princeton, NJ
      Burlington, NC

One
Corporate Drive, Suite 715, Shelton, CT 06484

Tel: 203.929.6200 Fax: 203.929.6272

 

 

INTERESTS AND LIABILITIES CONTRACT

in respect of

WORKERS’ COMPENSATION FIRST EXCESS OF LOSS REINSURANCE AGREEMENT

between

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

(hereinafter referred to as the “COMPANY”)

and

CATLIN UNDERWRITING INC.

for and on behalf of

SJC SYNDICATE 2003

(hereinafter called the “SUBSCRIBING REINSURER”)

It is hereby agreed by and between the Company, of the one part, and the SUBSCRIBING REINSURER,
of the other part, that effective 12:01 a.m., Eastern Standard Time, January 1, 2009, the
SUBSCRIBING REINSURER subscribes a 100.00% share of the Interests and Liabilities of the
“Reinsurer” as set forth in the WORKERS’ COMPENSATION FIRST EXCESS OF LOSS REINSURANCE
AGREEMENT.

The share of the SUBSCRIBING REINSURER in the Interests and Liabilities of the “Reinsurer” in
respect of said Agreement shall be separate and apart from the shares of the other reinsurers
subscribing to said Agreement, and the Interests and Liabilities of the SUBSCRIBING REINSURER
shall not be joint with those of the other reinsurers, and the SUBSCRIBING REINSURER in no event
shall participate in the Interests and Liabilities of the other reinsurers subscribing hereon.

IN WITNESS WHEREOF, the parties here to have caused this Interests and Liabilities Contract to
be executed in triplicate by their respective duly authorized officers:

In Cleona, Pennsylvania, this 29th day of January, 2009

	 	 	 
	/s/
Rollin P. Rissinger, Jr., President
 

	 	 
	LEBANON MUTUAL INSURANCE COMPANY
	 	 

And in
Summit, New Jersey, this
30th day of December, 2008

	 	 	 
	/s/ ILLEGIBLE
 

	 	 
	CATLIN UNDERWRITING, INC.
	 	 
	for
and on behalf of
	 	 
	SJC SYNDICATE 2003
	 	 

      

			
	A9CFGX001_3666417

December 30, 2008
	 	 

 

 

memorandum
 of changes

LEBANON MUTUAL INSURANCE COMPANY

Workers’ Compensation First Excess of Loss Treaty

Effective January 1, 2009

The following changes have been made to the 2008 expiring wording:

	 	 	 	 	 
	COVER

	 	:
	 	Effective and expiration dates have been amended to read
“January 1, 2009” and “January 1, 2010” accordingly.
	 
	 	 	 	 
	TABLE OF CONTENTS

	 	:
	 	Added Article XXVII — Severability (BRMA 72E) and Article
XXIX — Mode of Execution. The Intermediary article has been
renumbered according.
	 
	 	 	 	 
	TERM

	 	:
	 	Effective and expiration dates have been amended to read
“January 1, 2009” and “January 1, 2010” accordingly.
	 
	 	 	 	 
	REINSURANCE PREMIUM

	 	:
	 	All expiring rate and premium figures have been amended
accordingly
	 
	 	 	 	 
	SEVERABILITY

	 	:
	 	This article has been added to the agreement.
	 
	 	 	 	 
	MODE OF EXECUTION

	 	:
	 	This article has been added to the agreement.

PLEASE NOTE:

Article
numbers have been changed from Arabic numbers to Roman numerals.

Numbers under ten are spelled out.

Memorandum
of Changes 2008 to 2009_3893647

A9CFGX001 — LMIC WC 1st XOL Program

12/30/2008 (Wording dated 12/30/2008)

Page 1 of 1

 

 

WORKERS’ COMPENSATION FIRST EXCESS OF LOSS

REINSURANCE AGREEMENT

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

EFFECTIVE: January 1, 2009

EXPIRATION: January 1, 2010

 

 

WORKERS’ COMPENSATION FIRST EXCESS OF LOSS REINSURANCE AGREEMENT

	 	 	 	 	 	 	 
	ARTICLE	 	DESCRIPTION	 	PAGE
	I

	 	Business Covered
	 	 	1	 
	II

	 	Term
	 	 	1	 
	III

	 	Territory
	 	 	1	 
	IV

	 	Exclusions
	 	 	2	 
	V

	 	Warranty
	 	 	3	 
	VI

	 	Reinsurance Premium
	 	 	3	 
	VII

	 	Retention and Limit
	 	 	4	 
	VIII

	 	Reinstatement
	 	 	4	 
	IX

	 	Commutation
	 	 	5	 
	X

	 	Definition of Loss Occurrence
	 	 	6	 
	XI

	 	Net Retained Lines
	 	 	6	 
	XII

	 	Ultimate Net Loss
	 	 	6	 
	XIII

	 	Loss Notice and Settlement
	 	 	7	 
	XIV

	 	Taxes
	 	 	7	 
	XV

	 	Federal Excise Tax
	 	 	8	 
	XVI

	 	Offset
	 	 	8	 
	XVII

	 	Currency
	 	 	8	 
	XVIII

	 	Access to Records
	 	 	8	 
	XIX

	 	Errors and Omissions
	 	 	8	 
	XX

	 	Insolvency
	 	 	8	 
	XXI

	 	Arbitration
	 	 	9	 
	XXII

	 	Service of Suit
	 	 	10	 
	XXIII

	 	Unauthorized Reinsurance
	 	 	11	 
	XXIV

	 	Choice of Law and Jurisdiction
	 	 	12	 
	XXV

	 	Original Conditions
	 	 	12	 
	XXVI

	 	Entire Agreement
	 	 	13	 
	XXVII

	 	Severability
	 	 	13	 
	XXVIII

	 	Intermediary
	 	 	13	 
	XXIX

	 	Mode of Execution
	 	 	13	 

Attachments:

     Nuclear
Incident Exclusion Clause — Liability - Reinsurance — U.S.A.

A9CFGX001_3666417

December 30, 2008

 

 

WORKERS’ COMPENSATION FIRST EXCESS OF LOSS

REINSURANCE AGREEMENT

Issued to

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

(hereinafter referred to as the “Company”)

by

The REINSURERS executing

Interests and Liabilities Contracts

attached to this Agreement

(hereinafter referred to as the “Reinsurer”)

ARTICLE I — BUSINESS COVERED

The Agreement is to indemnify the Company for statutory benefits paid or payable as a result of
Accidental Death, Dismemberment, Accidental Disability and Accidental Medical Expenses arising
under all policies, binders, contracts or agreements of insurance, whether written or oral as
intended to be covered hereunder (hereinafter called “Policies”) which are in force, written or
renewed by or on behalf of the Company during the term of this Agreement and classified by the
Company as Workers’ Compensation, subject to the terms and conditions herein contained.

ARTICLE
II — TERM

This Agreement shall take effect 12:01 a.m., Eastern Standard Time, January 1, 2009 and shall
apply to all losses occurring on and after this date, and shall remain in force until 12:01 a.m.
Eastern Standard Time, January 1, 2010.

If this Agreement 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
Agreement, be determined as if the entire Loss Occurrence had occurred prior to the expiration of
this Agreement, provided that no part of such Loss Occurrence is claimed against any renewal or
replacement of this Agreement.

If any law or regulation of the federal or state or local government of any jurisdiction in which
the Company is doing business shall render illegal the arrangements made in this Agreement, the
Agreement can be terminated immediately insofar as it applies to such jurisdiction by the Company
giving notice to the Reinsurer to such effect.

ARTICLE III — TERRITORY

The liability of the Reinsurer under this Agreement shall be limited to losses in connection with
business underwritten within the United States of America, and shall apply to losses occurring

A9CFGX001_3666417

December 30, 2008

Page 1 of 13

 

 

within the territorial limits of the Company’s original Policies, including incidental exposures as
covered in the Company’s original Policies.

ARTICLE IV — EXCLUSIONS

This Agreement does not cover:

	1.	 	All reinsurance assumed by the Company howsoever styled or classified;
	 
	2.	 	Any liability of the Company arising from its participation or membership, whether voluntary
or involuntary, in any insolvency fund including any guarantee fund, association, pool, plan
or other facility which provides for the assessment of, payment by, or assumption by the
Company of a part or the whole of any claim, debt, charge fee or other obligations of an
insurer, or its successors or assigns, which has been declared insolvent by any authority
having jurisdiction;
	 
	3.	 	Nuclear incidents, in accordance with the Nuclear Incident Exclusion Clause — Liability
— Reinsurance — U.S.A., attached hereto, such exclusion to be understood to apply equally to
so-called “hot testing” of nuclear plants;
	 
	4.	 	Liability in respect of loss or damage directly or indirectly occasioned by, happening
through or in consequence of war (whether war be declared or not), invasion, acts of foreign
enemies, hostilities, riot or civil commotion, civil war, rebellion, revolution, insurrection,
military or usurped power, or any act of terrorism;
	 
	5.	 	Aviation exposures as respects professional flight crews;
	 
	6.	 	Industrial Aid Aircraft;
	 
	7.	 	Exposures involving underground or subaqueous work on tunneling or mining operations;
	 
	8.	 	United States Longshoremen and Harbor Workers Compensation;
	 
	9.	 	Manufacture and/or production of:

	 	a.	 	Fireworks, fuse(s), cartridges, ammunition, powder, nitroglycerine or any explosives;
	 
	 	b.	 	Gases and/or air under pressure in containers;
	 
	 	c.	 	Butane, Methane, Propane and other liquefied gases;
	 
	 	d.	 	Toxic substances and toxic waste with inherent potential for catastrophic loss;

	10.	 	Amusement Parks, Carnivals, Circuses, Professional Athletes and Performers;

	 
	11.	 	Employers’ Liability, Jones Act and Maritime Act;
	 
	12.	 	Cumulative Trauma; the term “cumulative trauma” shall mean an injury that fulfills all of
the following conditions:

	 	a.	 	It is not traceable to a definite compensable accident occurring during the
employee’s present or past employment;
	 
	 	b.	 	It has occurred from, and has been aggravated by, a repetitive employment related
activity;
	 
	 	c.	 	It has resulted in a disability or death.

	13.	 	Extra Contractual Obligations and/or Excess of Policy Limits;
	 
	 	 	The terms “Extra Contractual Obligations and/or Excess of Policy Limits” are defined as those
liabilities not covered under any other provisions of this Agreement and which arise from the
handling of any claim on the policies reinsured hereunder, such liabilities including

A9CFGX001_3666417

December 30, 2008

Page 2 of 13

 

 

but not limited to compensatory, exemplary and punitive damages or fines or statutory
penalties which are awarded against the Company as a result of an act, error, omission, or
course of conduct committed by or on behalf of the Company arising because of, but not limited
to the following: failure by the Company to settle within the policy limit or by reason of
alleged or actual negligence or bad faith in rejecting an offer of settlement or in the
preparation or prosecution of an appeal consequent upon such action.

ARTICLE V — WARRANTY

Notwithstanding item 4 of the Exclusions Article, this Agreement shall include coverage for
Terrorism as follows:

An act of terrorism is either (a) any act defined as such by the Federal government as
determined by the Federal Office of Homeland Security or other such Federal agency that may
hold jurisdiction over whether a given act is terrorist in nature, or in the absence of any
such federal determination, (b) any violent act within the United States causing damage to
property or injury to persons for which there is reasonable belief that the perpetrator
undertook such act for political or ideological reasons and that the perpetrator’s principal
purpose was to: (1) engender fear among American people for their safety; (2) disrupt any
segment of the American economy; or (3) influence governmental action or policy, provided,
however, that an act of terrorism for purposes of this definition shall not include any act as
described above perpetrated by an official, employee, or agent of a foreign state acting for or
on behalf of such state.

Notwithstanding any provision to the contrary within this Agreement or any endorsement hereto,
it is agreed that in no event will this Agreement provide coverage for loss, damage, cost or
expense directly or indirectly caused by, contributed to by, resulting from, or arising out of
or in connection with biological, chemical, radioactive or nuclear explosion, pollution,
contamination and/or fire following thereon.

ARTICLE VI — REINSURANCE PREMIUM

The premium for the reinsurance afforded by this Agreement shall be calculated by applying a rate
of 2.360% to the Subject Gross Net Earned Premium Income accounted for by the Company on business
the subject matter of this Agreement for the term of this Agreement subject to a minimum premium
of $40,500.

A deposit premium of $45,000 shall be paid to the Reinsurer on January 1, 2009.

“Subject Gross Net Earned Premium Income” shall mean the gross earned premium for business the
subject matter of this Agreement less premium paid for reinsurance, recoveries under which would
inure to the benefit of Agreement.

As soon as practical, but no later than 45 days following the expiration of this Agreement, the
Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed
in accordance with the first paragraph, and any additional premium due the Reinsurer or return
premium due the Company shall be remitted promptly.

A9CFGX001_3666417

December 30, 2008

Page 3 of 13

 

 

ARTICLE VII — RETENTION AND LIMIT

The Reinsurer shall indemnify the Company in respect to loss(es) from each Loss Occurrence, for
100% of the Ultimate Net Loss in excess of $5,000,000 each Loss
Occurrence.

The Reinsurer’s limit of liability in respect to each and every Loss Occurrence shall be 100% of
$2,500,000.

The Reinsurer’s limit of liability as respects all Loss Occurrences during the term of this
Agreement shall be limited 100% of $5,000,000.

ARTICLE VIII — REINSTATEMENT

In the event all or any portion of the reinsurance hereunder is exhausted by loss, the amount so
exhausted shall be reinstated immediately from the time the Loss Occurrence commences. For each
amount so reinstated the Company agrees to pay an additional premium equal to the product of the
following:

The percentage of the occurrence limit reinstated (based on the loss actually paid by the
Reinsurer); times

The earned reinsurance premium for the term of this Agreement (exclusive of
reinstatement premium).

Provisional statements of reinstatement premium due the Reinsurer (based on the estimated earned
reinsurance premium for this Agreement) shall be prepared by the Company and submitted to the
Reinsurer with each request for partial settlement of losses hereunder. Any reinstatement premium
shown to be due the Reinsurer (less prior payments, if any) shall be remitted by the Company with
each of its provisional statements or deducted from the loss payment(s) made by the Reinsurer.

Thereafter, provisional statements of reinstatement premium due the Reinsurer shall be prepared by
the Company and submitted to the Reinsurer periodically at the discretion of the Company or as
requested by the Reinsurer or when the Company calculates the earned reinsurance premium for this
Agreement. Any reinstatement premium shown to be due the Reinsurer (less prior payments, if any)
shall be remitted by the Company with its statement. Any return reinstatement premium shown to be
due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and
verification of the Company’s final statement.

Notwithstanding anything stated herein, the liability of the Reinsurer hereunder shall not exceed
100% of $2,500,000 as respects loss or losses caused by any one occurrence, nor shall it exceed
100% of $5,000,000 in all during the term of this Agreement.

A9CFGX001_3666417

December 30, 2008

Page 4 of 13

 

ARTICLE IX — COMMUTATION

Seven years after the expiry of this Agreement, the Company shall advise the Reinsurer of all
claims for said annual period, not finally settled which are likely to result in a claim under
this Agreement. No liability shall attach hereunder for any claim or claims not reported to the
Reinsurer within this seven-year period.

With respect to any claim under business covered hereunder, either the Reinsurer or the Company
may, after seven years from the date of occurrence of the claim, request commutation of the
Ultimate Net Loss hereunder.

Within 80 days after receipt by either party of the request to commute the claim, the Company
shall submit a statement of valuation of the claim showing the elements considered reasonable to
establish the Ultimate Net Loss of the claim to be commuted. The Company and the Reinsurer shall
agree upon the capitalized value of such claim to the reinsured layer and the Reinsurer shall pay
to the Company the amount so determined. Payment by the Reinsurer to the Company, of the amount as
determined herein, shall release the Reinsurer of any further liability in respect of such claim.

If the Company and the Reinsurer fail to agree on the capitalized value of such claim, then any
difference shall be settled by a panel of three Actuaries or Appraisers, one to be chosen by each
party and third by the two so chosen. If either party refuses or neglects to appoint an Actuary or
Appraiser within 60 days after the request in writing that the difference be settled by a panel of
three Actuaries or Appraisers, the other party may appoint two Actuaries or Appraisers. If the two
Actuaries or Appraisers fail to agree on the selection of a third Actuary or Appraiser within 30
days of their appointment, each of them shall name two, of whom the other shall decline one and
the decision shall be made by drawing lots. All the Actuaries or Appraisers shall be regularly
engaged in the valuation of claims subject to the provisions of this Article. None of the
Actuaries or Appraisers shall be under the control of either party to this Agreement nor shall
they have any interest in the claim being commuted other than, that which is required to fulfill
their obligations hereunder.

Each party shall submit its case to its Actuary or Appraiser within 30 days of the appointment of
the third Actuary or Appraiser. The decision in writing of any two Actuaries or Appraisers, when
filed with the Company and the Reinsurer, shall be final and binding on both parties. The expense
of the Actuaries or Appraisers and of the Commutation shall be equally divided between the Company
and the Reinsurer. Said Commutation shall take place in Cleona, Pennsylvania, unless some other
place is mutually agreed upon by the Company and the Reinsurer.

The term “Capitalized Value” as used herein shall mean, as respects losses exceeding the retention
hereunder, the total of all payments made hereunder up to the date of commutation plus the present
value of all future estimated payments hereunder, discounted at a rate of interest to be mutually
agreed upon, which together comprise the Ultimate Net Loss to be commuted hereunder.

A9CFGX001_3666417

December 30, 2008

Page 5 of 13

 

ARTICLE X — DEFINITION OF LOSS OCCURRENCE

The term “Loss Occurrence” shall mean any one accident, disaster, casualty or happening, or series
of accidents, disasters, casualties or happenings arising out of or caused by one event or one
causative agency.

Furthermore, it is understood and agreed that each case of an employee contracting any disease for
which the company may be held liable shall be considered as constituting a separate and distinct
Loss Occurrence, regardless of the date of disability.

ARTICLE XI — NET RETAINED LINES (BRMA 32B)

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

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

ARTICLE XII — ULTIMATE NET LOSS

The term “Ultimate Net Loss” shall mean the actual sum paid or payable by the Company including
Claim Expenses, in settlement of losses, in payment of benefits, or in satisfaction of judgments or
awards for which it is liable including prejudgment interest included in the judgment (after making
deductions for all salvages, all recoveries and all claims made upon other reinsurances whether
collected or not). Nothing in this clause shall be construed to mean that losses under this
Agreement are not recoverable until the Company’s Ultimate Net Loss has been ascertained.

However, in the event of the insolvency of the Company, “Ultimate Net Loss” shall be in accordance
with the Insolvency Clause of the Agreement.

The term “Claim Expenses” shall mean court costs, interest upon judgments when not included in
judgments, allocated investigation, adjustment and legal expenses. Claim Expenses shall be included
herein as part of the Ultimate Net Loss but shall be subject to the limit of liability of this
reinsurance.

Neither Ultimate Net Loss nor Claim Expenses shall include ordinary overhead expenses of the
Company such as salaries, retainers, and other fixed expenses, but salaries and expenses of the
Company’s field employees while adjusting losses and expense of officials incurred in connection
with a loss shall be included.

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All salvages, recoveries or payments recovered or received subsequent to a loss settlement under
this Agreement shall be applied as if recovered or received prior to the aforesaid settlement, and
all necessary adjustments shall be made by the parties hereto.

Unless the Company and Reinsurer agrees to the contrary, the Company will enforce its right to
subrogation and will prosecute all claims arising out of such right. Should the Company refuse or
neglect to enforce this right, the Reinsurer is hereby empowered and authorized to institute
appropriate action in the name of the Company.

ARTICLE XIII — LOSS NOTICE AND SETTLEMENT

Prompt notice of any loss and any subsequent developments thereto, which, in the Company’s
opinion, may result in a claim under this Agreement shall be given by the Company to the
Reinsurer. All loss settlements made or agreed by the Company, provided they are within the terms
and conditions of the original Policies and of this Agreement, shall be payable promptly by the
Reinsurer upon reasonable evidence of the amount due or to be due being given by the Company.

The Company shall immediately report, irrespective of any appointment of negligence, any
occurrence which involves serious bodily injury including but not limited to:

	a.	 	fatal injuries,
	 
	b.	 	brain injuries,
	 
	c.	 	spinal injury,
	 
	d.	 	paraplegia or quadriplegia,
	 
	e.	 	any other major permanent disability.

These serious injuries shall be reported when incurred by either an insured person, a third party
or both, regardless of the Company’s assessment of liability.

The Company agrees to investigate, defend and settle claims arising under Policies with respect to
which reinsurance is afforded by this Agreement and to keep the Reinsurer advised as to any
developments which may affect the cost of any such claim.

The Reinsurer shall have the right, at its own expense, to participate jointly with the Company in
the investigation, defense and settlement of claims to which, in the judgment of the Reinsurer, it
is or might become exposed.

ARTICLE XIV — TAXES (BRMA 50B)

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

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ARTICLE XV — FEDERAL EXCISE TAX (BRMA 17A)

(Applicable to those reinsurers, excepting Underwriters at Lloyd’s London and other reinsurers
exempt from Federal Excise Tax, who are domiciled outside the United States of America).

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

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

ARTICLE XVI — OFFSET (BRMA 36D)

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 Agreement; 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 XVII — CURRENCY

All payments made under this Agreement shall be in currency of the United States of America.

ARTICLE XVIII — ACCESS TO RECORDS (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any reasonable time to all
records of the Company which pertain in any way to this reinsurance.

ARTICLE XIX — ERRORS AND OMISSIONS (BRMA 14C)

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

ARTICLE XX — INSOLVENCY (BRMA 19B)

In the event of the insolvency of the Company, this reinsurance shall be payable directly to the
Company or to its liquidator, receiver, conservator, or statutory successor on the basis of the
liability of the Company without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a
portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a
claim against the Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time

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after such claim is filed in the conservation or liquidation proceeding or in the receivership, and
that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses
that it may deem available to the Company or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval
of the court, against the Company as part of the expense of conservation or liquidation to the
extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by the Reinsurer.

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 Agreement as though such expense had been incurred by the insolvent Company.

It is further understood and agreed that, in the event of the insolvency of the Company, the
reinsurance under this Agreement shall be payable directly by the Reinsurer to the Company or to
its liquidator, receiver, conservator, or statutory successor, except as provided by 

Section
4118(a) of the New York Insurance Law or except (a) where this Agreement specifically provides
another payee of such reinsurance in the event of the insolvency of the Company and (b) where the
Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of
the Company as direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.

ARTICLE XXI — ARBITRATION (BRMA 6E)

As a precedent to any right of action hereunder, if any differences shall arise between the
contracting parties with reference to the interpretation of this Agreement or their rights with
respect to any transaction involved, whether arising before or after termination of this
Agreement, such differences shall be submitted to arbitration upon the written request of one of
the contracting parties.

Each party shall appoint an arbitrator within 30 days of being requested to do so, and the two
named shall select a third arbitrator before entering upon the arbitration. If either party refuses
or neglects to appoint an arbitrator within the time specified, the other party may appoint the
second arbitrator. If the two arbitrators fail to agree on a third arbitrator within 30 days of
their appointment, each of them shall name three individuals, of whom the other shall decline two,
and the choice shall be made by drawing lots. All arbitrators shall be active or retired
disinterested officers of insurance or reinsurance companies or Underwriters at Lloyd’s, London not
under the control of either party to this Agreement.

Each party shall submit its case to its arbitrator within 30 days of the appointment of the third
arbitrator or within such period as may be agreed by the arbitrators. All arbitrators shall
interpret this Agreement as an honorable engagement rather than as merely a legal obligation. They
are relieved of all judicial formalities and may abstain from following the strict rules of law.
They shall make their award with a view to effecting the general purpose of this Agreement in a
reasonable manner rather than in accordance with a literal interpretation of the language.

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The decision in writing of any two arbitrators, when filed with the contracting parties, shall be
final and binding on both parties. Judgment upon the award rendered may be entered in any court
having jurisdiction thereof. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the expense of the third arbitrator and of the
arbitration. In the event that two arbitrators are chosen by one party as above provided, the
expense of the arbitrators and the arbitration shall be equally divided between the two parties.
Any arbitration shall take place in the city in which the ceding Company’s Head Office is located
unless some other place is mutually agreed upon by the contracting parties.

ARTICLE XXII — SERVICE OF SUIT (BRMA 49E)

(This Article applies to Reinsurers domiciled outside the United States of America and/or
unauthorized in any state, territory, or district of the United States of America that has
jurisdiction over the Company and in which a subject suit has been instituted. This Article is not
intended to conflict with or override the parties’ obligation to arbitrate their disputes in
accordance with the Arbitration Article).

In the event any Reinsurer hereon fails to pay any amount claimed due hereunder, such Reinsurer, at
the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction
within the United States and shall comply with all requirements necessary to give that court
jurisdiction. Nothing in this Article constitutes or should be understood to constitute a waiver of
the Reinsurer’s right to commence an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a transfer of a case to
another court as permitted by the laws of the United States or of any state in the United States.
Service of process in such suit may be made upon Mendes and Mount, 750 Seventh Avenue, New York,
New York 10019-6829, or another party specifically designated in the applicable Interests and
Liabilities Agreement attached hereto. In any suit instituted against it upon this Agreement, the
Reinsurer shall abide by the final decision of such court or of any appellate court in the event of
an appeal.

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

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

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ARTICLE XXIII — UNAUTHORIZED REINSURANCE (BRMA 55C)

(Applies only to a Reinsurer who does not qualify for full credit with any insurance regulatory
authority having jurisdiction over the Company’s reserves.)

As regards policies or bonds issued by the Company coming within the scope of this Agreement, the
Company agrees that when it shall file with the insurance regulatory authority or set up on its
books reserves for losses covered hereunder which it shall be required by law to set up, it will
forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to
the Reinsurer. The Reinsurer hereby agrees to fund such reserves in respect of known outstanding
losses that have been reported to the Reinsurer and allocated loss adjustment expense relating
thereto, losses and allocated loss adjustment expense paid by the Company but not recovered from
the Reinsurer, plus reserves for losses incurred but not reported, as shown in the statement
prepared by the Company (hereinafter referred to as “Reinsurer’s Obligations”) by funds withheld,
cash advances or a Letter of Credit. The Reinsurer shall have the option of determining the method
of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction
over the Company’s reserves.

When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure timely delivery
to the Company of a clean, irrevocable and unconditional Letter of Credit issued by a bank and
containing provisions acceptable to the insurance regulatory authorities having jurisdiction over
the Company’s reserves in an amount equal to the Reinsurer’s proportion of said reserves. Such
Letter of Credit shall be issued for a period of not less than one year, and shall be
automatically extended for one year from its date of expiration or any future expiration date
unless 30 days (60 days where required by insurance regulatory authorities) prior to any
expiration date the issuing bank shall notify the Company by certified or registered mail that the
issuing bank elects not to consider the Letter of Credit extended for any additional period.

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

	(a)	 	to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due
under the terms of this Agreement and which has not been otherwise paid;
	 
	(b)	 	to make refund of any sum which is in excess of the actual amount required to pay the
Reinsurer’s Obligations under this Agreement;
	 
	(c)	 	to fund an account with the Company for the Reinsurer’s Obligations. Such cash deposit
shall be held in an interest bearing account separate from the Company’s other assets,
and interest thereon not in excess of the prime rate shall accrue to the benefit of the
Reinsurer;

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	(d)	 	to pay the Reinsurer’s share of any other amounts the Company claims are due under this
Agreement.

In the event the amount drawn by the Company on any Letter of Credit is in excess of the actual
amount required for (a) or (c), or in the case of (d), the actual amount determined to be due, the
Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing
shall be applied without diminution because of insolvency on the part of the Company or the
Reinsurer.

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

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

	(a)	 	If the statement shows that the Reinsurer’s Obligations exceed the balance of credit as
of the statement date, the Reinsurer shall, within 30 days after receipt of notice of such
excess, secure delivery to the Company of an amendment to the Letter of Credit
increasing the amount of credit by the amount of such difference.
	 
	(b)	 	If, however, the statement shows that the Reinsurer’s Obligations are less than the
balance of credit as of the statement date, the Company shall, within 30 days after
receipt of written request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of credit available by
the amount of such excess credit.

ARTICLE XXIV — CHOICE OF LAW AND JURISDICTION

This Agreement shall be governed by the laws of Pennsylvania and shall be subject to the
jurisdiction of the courts of the United States of America (subject to the provisions of the
Service of Suit Clause).

ARTICLE XXV — ORIGINAL CONDITIONS

All reinsurance under this Agreement shall be subject to the same terms, conditions,
interpretations, waivers, modifications, alterations, and cancellations as the respective Policies
of the Company to which this Agreement applies. However, in no event shall this be construed in
any way to provide coverage outside the terms and conditions set forth in this Agreement.

Nothing herein shall in any manner create any obligations or establish any rights against the
Reinsurer in favour of any third party or any persons not parties to this Agreement except as
provided in the Insolvency Article.

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ARTICLE XXVI — ENTIRE AGREEMENT (BRMA 74B)

This Agreement constitutes the entire agreement between the parties. In no event shall this
Agreement provide any guarantee of profit, directly or indirectly, from the Reinsurer to the
Company or from the Company to the Reinsurer. This Agreement may be clarified, amended or modified
only by written agreement signed by both parties. Such written agreement shall become part of this
Agreement.

ARTICLE XXVII — SEVERABILITY (BRMA 72E)

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

ARTICLE XXVIII — INTERMEDIARY

BMS Intermediaries, Inc. is hereby recognized as the intermediary negotiating this Agreement for
all business hereunder. All communications (including, but not limited to notices, statements,
premiums, return premiums, commissions, taxes, losses, loss adjustment expenses, salvages and loss
settlements) relating thereto shall be transmitted to the Company or the Reinsurer through BMS
Intermediaries, Inc., 5005 LBJ Freeway, Suite 700, Dallas, Texas
75244. Payments by the Company to
the intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer
to the intermediary shall be deemed only to constitute payment to the Company to the extent that
such payments are actually received by the Company.

ARTICLE XXIX — MODE OF EXECUTION

	A.	 	This Agreement may be executed by:

	 	1.	 	an original written ink signature of paper documents;
	 
	 	2.	 	an exchange of facsimile copies showing the original written ink signature of paper
documents;
	 
	 	3.	 	electronic signature technology employing computer software and a digital signature
or digitizer pen pad to capture a person’s handwritten signature in such a manner
that the signature is unique to the person signing, is under the sole control of the
person signing, is capable of verification to authenticate the signature and is linked
to the document signed in such a manner that if the data is changed, such signature
is invalidated.

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

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NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE

U.S.A.

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

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

Limited Exclusion Provision.*

	 	I.	 	It is agreed that the policy does not apply under any liability coverage, to
(injury, sickness,
disease, death or destruction (bodily injury or property damage with respect to which an
insured under the policy is also an insured under a nuclear energy liability policy issued
by
Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability
Underwriters or
Nuclear Insurance Association of Canada, or would be an insured under any such policy but
for
its termination upon exhaustion of its limit of liability.
	 
	 	II.	 	Family Automobile Policies (liability only), Special Automobile Policies
(private passenger
automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability
only),
Comprehensive Personal Liability Policies (liability only) or policies of a similar
nature; and the
liability portion of combination forms related to the four classes of policies stated
above, such
as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.
	 
	 	III.	 	The inception dates and thereafter of all original policies as described in II
above, whether new,
renewal or replacement, being policies which either (a) become effective on or after 1st
May,
1960, or (b) become effective before that date and contain the Limited Exclusion Provision
set
out above; provided this paragraph (2) shall not be applicable to Family Automobile
Policies,
Special Automobile Policies,
	 
	 	 	 	or policies or combination policies of a similar nature, issued by the Reassured on New
York risks, until 90 days following approval of the Limited Exclusion Provision by the
Governmental Authority having jurisdiction thereof.

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

Owners, Landlords and Tenants Liability,
Contractual
 Liability, Elevator Liability, Owners
or Contractors
 (including railroad) Protective
Liability,  Manufacturers
and Contractors Liability,
Product Liability, 
Professional and Malpractice
Liability, Storekeepers
 Liability, Garage
Liability, Automobile Liability
 (including
Massachusetts Motor Vehicle or Garage Liability)

	 	 	
shall be deemed to include, with respect to such coverages, from the time specified in Clause
V of this paragraph (3), the following provision (specified as the
Broad Exclusion Provision):

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Broad Exclusion Provision.*

It is agreed that the policy does not apply:

	 	I.	 	Under any Liability Coverage, to (injury, sickness, disease, death or destruction
(bodily injury or property damage

	 	(a)	 	with respect to which an insured under the policy is also an insured under
a nuclear
energy liability policy issued by Nuclear Energy Liability Insurance Association,
Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or
would
be an insured under any such policy but for its termination upon exhaustion of its
limit of
liability; or
	 
	 	(b)	 	resulting from the hazardous properties of nuclear material and with
respect to which (1)
any person or organization is required to maintain financial protection pursuant to
the
Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or
had
this policy not been issued would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered into by the United States
of
America, or any agency thereof, with any person or organization.

	 	II.	 	Under any Medical Payments Coverage, or under any Supplementary Payments Provision
relating to (immediate medical or surgical relief, (first aid, to expenses incurred with
respect to
(bodily injury, sickness, disease or death (bodily injury resulting from the hazardous
properties
of nuclear material and arising out of the operation of a nuclear facility by any person
or
organization.

	 	III.	 	Under any Liability Coverage to (injury, sickness, disease, death or destruction
(bodily injury or
property damage resulting from the hazardous properties of nuclear material, if

	 	(a)	 	the nuclear material (1) is at any nuclear facility owned by, or operated
by or on behalf of,
an insured or (2) has been discharged or dispersed therefrom;
	 
	 	(b)	 	the nuclear material is contained in spent fuel or waste at any time
possessed, handled,
used, processed, stored, transported or disposed of by or on behalf of an insured; or
	 
	 	(c)	 	the (injury, sickness, disease, death or destruction (bodily injury or
property damages out
of the furnishing by an insured of services, materials, parts or equipment in
connection
with the planning, construction, maintenance, operation or use of any nuclear
facility, but
if such facility is located within the United States of America, its territories, or
possessions
or Canada, this exclusion (c) applies only to (injury to or destruction of property at such
nuclear facility (property damage to such nuclear facility and any property thereat.

	 	IV.	 	As used in this endorsement:

“Hazardous properties” include radioactive, toxic or explosive properties; “nuclear
material” means source material, special nuclear material or byproduct material; “source
material,” “special nuclear material,” and “byproduct material” have the meanings given
them in the Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel”
means any fuel element or fuel component, solid or liquid, which has been used or exposed
to radiation in a nuclear reactor; “waste” means any waste material (1) containing
byproduct material and (2) resulting from the operation by any person or organization of
any nuclear facility included within the definition of nuclear facility under paragraph
(a) or (b) thereof; “nuclear facility” means

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	 	(a)	 	any nuclear reactor,
	 
	 	(b)	 	any equipment or device designed or used for (1) separating the isotopes of
uranium or
plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or
packaging
waste,
	 
	 	(c)	 	any equipment or device used for the processing, fabricating or alloying of
special nuclear
material if at any time the total amount of such material in the custody of the
insured at
the premises where such equipment or device is located consists of or contains more
than
25 grams of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
	 
	 	(d)	 	any structure, basin, excavation, premises or place prepared or used for
the storage or
disposal of waste, and includes the site on which any of the foregoing is located,
all
operations conducted on such site and all premises used for such operations; “nuclear
reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting
chain reaction or to contain a critical mass of fissionable material;

(With respect to injury to or destruction of property, the word “injury” or
“destruction” (“property damage” includes all forms of radioactive contamination
of property. (includes all forms of radioactive contamination of property.

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

applicable to

	 	(i)	 	Garage and Automobile Policies issued by the Reassured on New York risks, or
	 
	 	(ii)	 	statutory liability insurance required under Chapter 90, General Laws of
Massachusetts, until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.

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

 

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

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INTERESTS AND LIABILITIES CONTRACT

in respect of

WORKERS’ COMPENSATION SECOND EXCESS OF LOSS REINSURANCE AGREEMENT

between

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

(hereinafter referred to as the “COMPANY”)

and

SAFETY NATIONAL CASUALTY CORPORATION

St. Louis, Missouri

(hereinafter called the “SUBSCRIBING REINSURER”)

It is hereby agreed by and between the Company, of the one part, and the
SUBSCRIBING REINSURER, of the other part, that effective 12:01 a.m., Eastern
Standard Time, January 1, 2009, the SUBSCRIBING REINSURER subscribes a 100.00%
share of the Interests and Liabilities of the “Reinsurer” as set forth in the
WORKERS’ COMPENSATION SECOND EXCESS OF LOSS REINSURANCE
AGREEMENT.

The share of the SUBSCRIBING REINSURER in the Interests and Liabilities of the
“Reinsurer” in respect of said Agreement shall be separate and apart from the
shares of the other reinsurers subscribing to said Agreement, and the Interests
and Liabilities of the SUBSCRIBING REINSURER shall not be joint with those of the
other reinsurers, and the SUBSCRIBING REINSURER in no event shall participate in
the Interests and Liabilities of the other reinsurers subscribing hereon.

IN WITNESS WHEREOF, the parties here to have caused this Interests and Liabilities
Contract to be executed in triplicate by their respective duly authorized
officers: .

In
Cleona, Pennsylvania, this 29th day of January, 2009

	 	 	 
	/s/
Rollin P. Rissinger Jr., President
 

	 	 
	LEBANON MUTUAL INSURANCE COMPANY
	 	 

And in
St. Louis, Missouri, this 22nd day of January, 2009

	 	 	 
	/s/
Gene R. Maier
 

SAFETY NATIONAL CASUALTY CORPORATION

	 	 

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MEMORANDUM
OF
CHANGES

LEBANON MUTUAL INSURANCE COMPANY

Workers’ Compensation Second Excess of Loss Treaty

Effective January 1, 2009

The following changes have been made to
the 2008 expiring wording:

	 	 	 
	COVER

	:	 Effective and expiration dates have been amended to read
“January 1, 2009” and “January 1, 2010” accordingly.
	 
	 	 
	TABLE OF CONTENTS

	:	 Added Article XXVII — Severability (BRMA 72E) and Article
XXIX — Mode of Execution. The Intermediary article has been
renumbered according.
	 
	 	 
	TERM

	:	 Effective and expiration dates have been amended to read
“January 1, 2009” and “January 1, 2010” accordingly.
	 
	 	 
	REINSURANCE PREMIUM

	:	 All expiring rate and premium figures have been amended
accordingly.
	 
	 	 
	COMMUTATION

	:	In the last paragraph, amended the phrase “capitalized value“to upper/lower case.
	 
	 	 
	SEVERABILITY

	:	 This article has been added to the agreement.
	 
	 	 
	MODE OF EXECUTION

	:	 This article has been added to the agreement.
	 
	 	 
	TERRORISM DEFINITION

	:	In the first paragraph, added the
phrase “or subsequent amendments thereto,” after
the phrase “Terrorism Risk insurance Act of 2002 (the
“Act”)”.

PLEASE NOTE:

Article numbers have been changed from Arabic numbers to Roman numerals.

Numbers under ten are spelled out.

Memorandum of Changes 2008 to 2009_3893653

A9CFGX002_LMIC WC 2nd XOL Program

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WORKERS’ COMPENSATION SECOND EXCESS OF LOSS

REINSURANCE AGREEMENT

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

EFFECTIVE: January 1, 2009

EXPIRATION: January 1, 2010

 

 

WORKERS’ COMPENSATION SECOND EXCESS OF LOSS REINSURANCE AGREEMENT

	 	 	 	 	 	 	 	 	 
	ARTICLE	 	DESCRIPTION	 	PAGE
	 	I

	 	 	Business Covered
	 	 	1	 
	 	II

	 	 	Term
	 	 	1	 
	 	III

	 	 	Territory
	 	 	1	 
	 	IV

	 	 	Exclusions
	 	 	2	 
	 	V

	 	 	Reinsurance Premium
	 	 	3	 
	 	VI

	 	 	Retention and Limit
	 	 	3	 
	 	VII

	 	 	Reinstatement
	 	 	3	 
	 	VIII

	 	 	Other Reinsurance
	 	 	4	 
	 	IX

	 	 	Commutation
	 	 	4	 
	 	X

	 	 	Definition of Loss Occurrence
	 	 	5	 
	 	XI

	 	 	Net Retained Lines
	 	 	5	 
	 	XII

	 	 	Ultimate Net Loss
	 	 	5	 
	 	XIII

	 	 	Loss Notice and Settlement
	 	 	6	 
	 	XIV

	 	 	Taxes
	 	 	7	 
	 	XV

	 	 	Federal Excise Tax
	 	 	7	 
	 	XVI

	 	 	Offset
	 	 	7	 
	 	XVII

	 	 	Currency
	 	 	7	 
	 	XVIII

	 	 	Access to Records
	 	 	7	 
	 	XIX

	 	 	Errors and Omissions
	 	 	7	 
	 	XX

	 	 	Insolvency
	 	 	8	 
	 	XXI

	 	 	Arbitration
	 	 	8	 
	 	XXII

	 	 	Service of Suit
	 	 	9	 
	 	XXIII

	 	 	Unauthorized Reinsurance
	 	 	10	 
	 	XXIV

	 	 	Choice of Law and Jurisdiction
	 	 	11	 
	 	XXV

	 	 	Original Conditions
	 	 	11	 
	 	XXVI

	 	 	Entire Agreement
	 	 	12	 
	 	XXVII

	 	 	Severability
	 	 	12	 
	 	XXVIII

	 	 	Intermediary
	 	 	12	 
	 	XXIX

	 	 	Mode of Execution
	 	 	12	 

Attachments:

     Terrorism Definition

     Nuclear Incident Exclusion Clause — Liability — Reinsurance — U.S.A.

A9CFGX002_3666419

December 30, 2008

 

 

WORKERS’ COMPENSATION SECOND EXCESS OF LOSS

REINSURANCE AGREEMENT

issued to

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

(hereinafter referred to as the “Company”)

by

The REINSURERS executing

Interests and Liabilities Contracts

attached to this Agreement

(hereinafter referred to as the “Reinsurer”)

ARTICLE I — BUSINESS COVERED

The Agreement is to indemnify the Company for statutory benefits paid or payable as a result of
Accidental Death, Dismemberment, Accidental Disability and Accidental Medical Expenses arising
under all policies, binders, contracts or agreements of insurance, whether written or oral as
intended to be covered hereunder (hereinafter called “Policies”) which are in force, written or
renewed by or on behalf of the Company during the term of this Agreement and classified by the
Company as Workers’ Compensation, subject to the terms and conditions herein contained.

ARTICLE
II — TERM

This Agreement shall take effect 12:01 a.m., Eastern Standard Time, January 1, 2009 and shall
apply to all losses occurring on and after this date, and shall remain in force until 12:01 a.m.
Eastern Standard Time, January 1, 2010.

If this Agreement 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
Agreement, be determined as if the entire Loss Occurrence had occurred prior to the expiration of
this Agreement, provided that no part of such Loss Occurrence is claimed against any renewal or
replacement of this Agreement.

If any law or regulation of the federal or state or local government of any jurisdiction in which
the Company is doing business shall render illegal the arrangements made in this Agreement, the
Agreement can be terminated immediately insofar as it applies to such jurisdiction by the Company
giving notice to the Reinsurer to such effect.

ARTICLE III — TERRITORY

The liability of the Reinsurer under this Agreement shall be limited to losses in connection with
business underwritten within the United States of America, and shall apply to losses occurring
within the territorial limits of the Company’s original Policies, including incidental exposures
as covered in the Company’s original Policies.

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ARTICLE IV — EXCLUSIONS

This Agreement does not cover:

	1.	 	All reinsurance assumed by the Company howsoever styled or classified;
	 
	2.	 	Any liability of the Company arising from its participation or membership, whether
voluntary or involuntary, in any insolvency fund Including any guarantee fund, association,
pool, plan or other facility which provides for the assessment of, payment by, or
assumption by the Company of a part or the whole of any claim, debt, charge fee or other
obligations of an insurer, or its successors or assigns, which has been declared insolvent by
any authority having jurisdiction;
	 
	3.	 	Nuclear incidents, in accordance with the Nuclear Incident Exclusion Clauses — Liability —
Reinsurance — U.S.A., attached hereto, such exclusions to be understood to apply equally
to so-called “hot testing” of nuclear plants;
	 
	4.	 	Liability in respect of loss or damage directly or indirectly occasioned by, happening
through or in consequence of war (whether war be declared or not), invasion, acts of
foreign enemies, hostilities, riot or civil commotion, civil war, rebellion,
revolution,
insurrection, military or usurped power, or any act of terrorism;
	 
	5.	 	Aviation exposures as respects professional flight crews;
	 
	6.	 	Industrial Aid Aircraft;
	 
	7.	 	Exposures involving underground or subaqueous work on tunneling or mining operations;
	 
	8.	 	United States Longshoremen and Harbor Workers Compensation;
	 
	9.	 	Manufacture and/or production of:

	 	a.	 	Fireworks, fuse(s), cartridges, ammunition, powder, nitroglycerine or any explosives;
	 
	 	b.	 	Gases and/or air under pressure in containers;
	 
	 	c.	 	Butane, Methane, Propane and other liquefied gases;
	 
	 	d.	 	Toxic substances and toxic waste with inherent potential for catastrophic loss;

	10.	 	Amusement Parks, Carnivals, Circuses, Professional Athletes and Performers;
	 
	11.	 	Employers’ Liability, Jones Act and Maritime Act;
	 
	12.	 	Cumulative Trauma; the term “cumulative trauma” shall mean an injury that fulfills all of
the following conditions:

	 	a.	 	It is not traceable to a definite compensable accident occurring during the
employee’s
present or past employment;
	 
	 	b.	 	It has occurred from, and has been aggravated by, a repetitive employment related
activity;
	 
	 	c.	 	It has resulted in a disability or death;

	13.	 	Extra Contractual Obligations and/or Excess of Policy Limits;

The terms “Extra Contractual Obligations and/or Excess of Policy Limits” are defined as those
liabilities not covered under any other provisions of Agreement and which arise from the
handling of any claim on the policies reinsured hereunder, such liabilities including but not
limited to compensatory, exemplary and punitive damages or fines or statutory penalties which
are awarded against the Company as a result of an act, error, omission, or course of conduct
committed by or on behalf of the Company arising because of, but not limited to the
following: failure by the Company to settle within the policy limit or by reason of alleged
or actual negligence or bad faith in rejecting an offer of settlement or in the preparation
or prosecution of an appeal consequent upon such action.

	14.	 	Terrorism Definition, attached hereto.

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ARTICLE
V — REINSURANCE PREMIUM

The premium for the reinsurance afforded by this Agreement shall be calculated by applying a rate
of 2.100% to the Subject Gross Net Earned Premium Income accounted for by the Company on business
the subject matter of this Agreement for the term of this Agreement subject to a minimum premium
of $40,000.

A deposit premium of $40,000 shall be paid to the Reinsurer on January 1, 2009.

“Subject Gross Net Earned Premium Income” shall mean the gross earned premium for business the
subject matter of this Agreement less premium paid for reinsurance, recoveries under which would
inure to the benefit of Agreement.

As soon as practical, but no later than 45 days following the expiration of this Agreement, the
Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed
in accordance with the first paragraph, and any additional premium due the Reinsurer or return
premium due the Company shall be remitted promptly.

ARTICLE VI — RETENTION AND LIMIT

The Reinsurer shall indemnify the Company in respect to loss(es) from each Loss Occurrence for
100% of the Ultimate Net Loss in excess of $7,500,000 each Loss Occurrence.

The Reinsurer’s limit of liability in respect to each and every Loss Occurrence shall be 100% of
$2,500,000.

The Reinsurer’s limit of liability as respects all Loss Occurrences during the term of this
Agreement shall be limited 100% of $5,000,000.

As respect to acts of terrorism, not defined by the Terrorism Risk Insurance Act of 2002 (TRIA) or
subsequent amendments thereto, the maximum loss to the Reinsurer shall be equal to $2,500,000 in
the aggregate.

ARTICLE VII — REINSTATEMENT

In the event all or any portion of the reinsurance hereunder is exhausted by loss, the amount so
exhausted shall be reinstated immediately from the time the Loss Occurrence commences. For each
amount so reinstated the Company agrees to pay an additional premium equal to the product of the
following:

The percentage of the occurrence limit reinstated (based on the loss actually paid by the
Reinsurer); times

The earned reinsurance premium for the term of this Agreement (exclusive of
reinstatement premium).

Provisional statements of reinstatement premium due the Reinsurer (based on the estimated earned
reinsurance premium for this Agreement) shall be prepared by the Company and submitted to the
Reinsurer with each request for partial settlement of losses hereunder. Any

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reinstatement premium shown to be due the Reinsurer (less prior payments, if any) shall be
remitted by the Company with each of its provisional statements or deducted from the loss
payment(s) made by the Reinsurer.

Thereafter, provisional statements of reinstatement premium due the Reinsurer shall be prepared by
the Company and submitted to the Reinsurer periodically at the discretion of the Company or as
requested by the Reinsurer or when the Company calculates the earned reinsurance premium for this
Agreement. Any reinstatement premium shown to be due the Reinsurer (less prior payments, if any)
shall be remitted by the Company with its statement. Any return reinstatement premium shown to be
due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and
verification of the Company’s final statement.

Notwithstanding anything stated herein, the liability of the Reinsurer hereunder shall not exceed
100% of $2,500,000 as respects loss or losses caused by any one occurrence nor shall it exceed
100% of $5,000,000 in all during the term of this Agreement.

ARTICLE VIII — OTHER REINSURANCE

Permission is hereby granted the Company to carry underlying reinsurance, and recoveries made
thereunder shall be disregarded for all purposes of this Agreement and shall inure to the sole
benefit of the Company.

ARTICLE IX — COMMUTATION

Seven years after the expiry of this Agreement, the Company shall advise the Reinsurer of all
claims for said annual period, not finally settled which are likely to result in a claim under
this Agreement. No liability shall attach hereunder for any claim or claims not reported to the
Reinsurer within this seven-year period.

With respect to any claim under business covered hereunder, either the Reinsurer or the Company
may, after seven years from the date of occurrence of the claim, request commutation of the
Ultimate Net Loss hereunder.

Within 80 days after receipt by either party of the request to commute the claim, the Company
shall submit a statement of valuation of the claim showing the elements considered reasonable to
establish the Ultimate Net Loss of the claim to be commuted. The Company and the Reinsurer shall
agree upon the capitalized value of such claim to the reinsured layer and the Reinsurer shall pay
to the Company the amount so determined. Payment by the Reinsurer to the Company, of the amount as
determined herein, shall release the Reinsurer of any further liability in respect of such claim.

If the Company and the Reinsurer fail to agree on the capitalized value of such claim, then any
difference shall be settled by a panel of three Actuaries or Appraisers, one to be chosen by each
party and third by the two so chosen. If either party refuses or neglects to appoint an Actuary or
Appraiser within 60 days after the request in writing that the difference be settled by a panel of
three Actuaries or Appraisers, the other party may appoint two Actuaries or Appraisers. If the two
Actuaries or Appraisers fail to agree on the selection of a third Actuary or Appraiser within 30
days of their appointment, each of them shall name two, of whom the other shall

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decline one and the decision shall be made by drawing lots. All the Actuaries or Appraisers shall
be regularly engaged in the valuation of claims subject to the provisions of this Article. None of
the Actuaries or Appraisers shall be under the control of either party to this Agreement nor shall
they have any interest in the claim being commuted other than, that which is required to fulfill
their obligations hereunder.

Each party shall submit its case to its Actuary or Appraiser within 30 days of the appointment of
the third Actuary or Appraiser. The decision in writing of any two Actuaries or Appraisers, when
filed with the Company and the Reinsurer, shall be final and binding on both parties. The expense
of the Actuaries or Appraisers and of the Commutation shall be equally divided between the Company
and the Reinsurer. Said Commutation shall take place in Cleona, Pennsylvania, unless some other
place is mutually agreed upon by the Company and the Reinsurer.

The term “Capitalized Value” as used herein shall mean, as respects losses exceeding the retention
hereunder, the total of all payments made hereunder up to the date of commutation plus the present
value of all future estimated payments hereunder, discounted at a rate of interest to be mutually
agreed upon, which together comprise the Ultimate Net Loss to be commuted hereunder.

ARTICLE X — DEFINITION OF LOSS OCCURRENCE

The term “Loss Occurrence” shall mean any one accident, disaster, casualty or happening, or series
of accidents, disasters, casualties or happenings arising out of or caused by one event or one
causative agency.

Furthermore, it is understood and agreed that each case of an employee contracting any disease for
which the Company may be held liable shall be considered as constituting a separate and distinct
Loss Occurrence, regardless of the date of disability.

ARTICLE XI — NET RETAINED LINES (BRMA 32B)

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

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

ARTICLE XII — ULTIMATE NET LOSS

“Ultimate Net Loss” shall mean the actual sum paid or payable by the Company including Claim
Expenses, in settlement of losses, in payment of benefits, or in satisfaction of judgments or
awards for which it is liable including prejudgment interest included in the judgment (after
making deductions for all salvages, all recoveries and all claims made upon other reinsurances
whether collected or not). Nothing in this clause shall be construed to mean that losses under

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this Agreement are not recoverable until the Company’s Ultimate Net Loss has been ascertained.

However, in the event of the insolvency of the Company, Ultimate Net Loss shall be in accordance
with the Insolvency Clause of the Agreement.

“Claim Expenses” shall mean court costs, interest upon judgments when not included in judgments,
allocated investigation, adjustment and legal expenses. Claim Expenses shall be included herein as
part of the Ultimate Net Loss but shall be subject to the limit of liability of this reinsurance.

Neither Ultimate Net Loss nor Claim Expenses shall include ordinary overhead expenses of the
Company such as salaries, retainers, and other fixed expenses, but salaries and expenses of the
Company’s field employees while adjusting losses and expense of officials incurred in connection
with a loss shall be included.

All salvages, recoveries or payments recovered or received subsequent to a loss settlement under
this Agreement shall be applied as if recovered or received prior to the aforesaid settlement, and
all necessary adjustments shall be made by the parties hereto.

Unless the Company and Reinsurer agrees to the contrary, the Company will enforce its right to
subrogation and will prosecute all claims arising out of such right. Should the Company refuse or
neglect to enforce this right, the Reinsurer is hereby empowered and authorized to institute
appropriate action in the name of the Company.

ARTICLE XIII — LOSS NOTICE AND SETTLEMENT

Prompt notice of any loss and any subsequent developments thereto, which, in the Company’s
opinion, may result in a claim under this Agreement shall be given by the Company to the
Reinsurer. All loss settlements made or agreed by the Company, provided they are within the terms
and conditions of the original Policies and of this Agreement, shall be payable promptly by the
Reinsurer upon reasonable evidence of the amount due or to be due being given by the Company.

The Company shall immediately report, irrespective of any appointment of negligence, any
occurrence which involves serious bodily injury including but not limited to:

	a.	 	fatal injuries,
	 
	b.	 	brain injuries,
	 
	c.	 	spinal injury,
	 
	d.	 	paraplegia or quadriplegia,
	 
	e.	 	any other major permanent disability.

These serious injuries shall be reported when incurred by either an insured person, a third party
or both, regardless of the Company’s assessment of liability.

The Company agrees to investigate, defend and settle claims arising under Policies with respect to
which reinsurance is afforded by this Agreement and to keep the Reinsurer advised as to any
developments which may affect the cost of any such claim.

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The Reinsurer shall have the right, at its own expense, to participate jointly with the Company in
the investigation, defense and settlement of claims to which, in the judgment of the Reinsurer, it
is or might become exposed.

ARTICLE XIV — TAXES (BRMA 50B)

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

ARTICLE XV — FEDERAL EXCISE TAX (BRMA 17A)

(Applicable to those reinsurers, excepting Underwriters at Lloyd’s London and other reinsurers
exempt from Federal Excise Tax, who are domiciled outside the United States of America).

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

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

ARTICLE XVI — OFFSET (BRMA 36D)

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 Agreement; 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 XVII — CURRENCY

All payments made under this Agreement shall be in currency of the United States of America.

ARTICLE
XVIII — ACCESS TO RECORDS (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any reasonable time to all
records of the Company which pertain in any way to this reinsurance.

ARTICLE XIX — ERRORS AND OMISSIONS (BRMA 14C)

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

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ARTICLE XX — INSOLVENCY (BRMA 19B)

In the
event of the insolvency of the Company, this reinsurance shall be payable directly to the
Company or to its liquidator, receiver, conservator, or statutory successor on the basis of the
liability of the Company without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a
portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a
claim against the Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after such claim is filed
in the conservation or liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court,
against the Company as part of the expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.

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 Agreement as though such expense had been incurred by the insolvent Company.

It is further understood and agreed that, in the event of the insolvency of the Company, the
reinsurance under this Agreement shall be payable directly by the Reinsurer to the Company or to
its liquidator, receiver, conservator, or statutory successor, except as provided by Section

 4118(a) of the New York Insurance Law or except (a) where this Agreement specifically provides
another payee of such reinsurance in the event of the insolvency of the Company and (b) where the
Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations
of the Company as direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.

ARTICLE XXI — ARBITRATION (BRMA 6E)

As a precedent to any right of action hereunder, if any differences shall arise between the
contracting parties with reference to the interpretation of this Agreement or their rights with
respect to any transaction involved, whether arising before or after termination of this
Agreement, such differences shall be submitted to arbitration upon the written request of one of
the contracting parties.

Each party shall appoint an arbitrator within 30 days of being requested to do so, and the two
named shall select a third arbitrator before entering upon the arbitration. If either party
refuses or neglects to appoint an arbitrator within the time specified, the other party may
appoint the second arbitrator. If the two arbitrators fail to agree on a third arbitrator within
30 days of their appointment, each of them shall name three individuals, of whom the other shall
decline two, and the choice shall be made by drawing lots. All arbitrators shall be active or
retired disinterested officers of insurance or reinsurance companies or Underwriters at Lloyd’s,
London not under the control of either party to this Agreement.

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Each party shall submit its case to its arbitrator within 30 days of the appointment of the third
arbitrator or within such period as may be agreed by the arbitrators. All arbitrators shall
interpret this Agreement as an honorable engagement rather than as merely a legal obligation. They
are relieved of all judicial formalities and may abstain from following the strict rules of law.
They shall make their award with a view to effecting the general purpose of this Agreement in a
reasonable manner rather than in accordance with a literal interpretation of the language.

The decision in writing of any two arbitrators, when filed with the contracting parties, shall be
final and binding on both parties. Judgment upon the award rendered may be entered in any court
having jurisdiction thereof. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the expense of the third arbitrator and of the
arbitration. In the event that two arbitrators are chosen by one party as above provided, the
expense of the arbitrators and the arbitration shall be equally divided between the two parties.
Any arbitration shall take place in the city in which the ceding Company’s Head Office is located
unless some other place is mutually agreed upon by the contracting parties.

ARTICLE XXII — SERVICE OF SUIT (BRMA 49E)

(This Article applies to Reinsurers domiciled outside the United States of America and/or
unauthorized in any state, territory, or district of the United States of America that has
jurisdiction over the Company and in which a subject suit has been instituted. This Article is not
intended to conflict with or override the parties’ obligation to arbitrate their disputes in
accordance with the Arbitration Article).

In the event any Reinsurer hereon fails to pay any amount claimed due hereunder, such Reinsurer, at
the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction
within the United States and shall comply with all requirements necessary to give that court
jurisdiction. Nothing in this Article constitutes or should be understood to constitute a waiver of
the Reinsurer’s right to commence an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a transfer of a case to
another court as permitted by the laws of the United States or of any state in the United States.
Service of process in such suit may be made upon Mendes and Mount, 750 Seventh Avenue, New York,
New York 10019-6829, or another party specifically designated in the applicable Interests and
Liabilities Agreement attached hereto. In any suit instituted against it upon this Agreement, the
Reinsurer shall abide by the final decision of such court or of any appellate court in the event of
an appeal.

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

Further, pursuant to any statute of any state, territory, or district of the United States that
makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner, or
Director of Insurance or other officer specified for that purpose in the statute (or his successor
or successors in office) as its true and lawful attorney upon whom may be served any lawful
process in any action, suit, or proceeding instituted by or on behalf of the Company or any
beneficiary hereunder arising out of this Agreement, and hereby designates the above

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named as the person to whom the said officer is authorized to mail such process or a true copy
thereof.

ARTICLE XXIII — UNAUTHORIZED REINSURANCE (BRMA 55C)

(Applies only to a Reinsurer who does not qualify for full credit with any insurance regulatory
authority having jurisdiction over the Company’s reserves.)

As regards policies or bonds issued by the Company coming within the scope of this Agreement, the
Company agrees that when it shall file with the insurance regulatory authority or set up on its
books reserves for losses covered hereunder which it shall be required by law to set up, it will
forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to
the Reinsurer. The Reinsurer hereby agrees to fund such reserves in respect of known outstanding
losses that have been reported to the Reinsurer and allocated loss adjustment expense relating
thereto, losses and allocated loss adjustment expense paid by the Company but not recovered from
the Reinsurer, plus reserves for losses incurred but not reported, as shown in the statement
prepared by the Company (hereinafter referred to as “Reinsurer’s Obligations”) by funds withheld,
cash advances or a Letter of Credit. The Reinsurer shall have the option of determining the method
of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction
over the Company’s reserves.

When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure timely delivery
to the Company of a clean, irrevocable and unconditional Letter of Credit issued by a bank and
containing provisions acceptable to the insurance regulatory authorities having jurisdiction over
the Company’s reserves in an amount equal to the Reinsurer’s proportion of said reserves. Such
Letter of Credit shall be issued for a period of not less than one year, and shall be
automatically extended for one year from its date of expiration or any future expiration date
unless 30 days (60 days where required by insurance regulatory authorities) prior to any
expiration date the issuing bank shall notify the Company by certified or registered mail that the
issuing bank elects not to consider the Letter of Credit extended for any additional period.

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

	(a)	 	to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due
under the terms of this Agreement and which has not been otherwise paid;
	 
	(b)	 	to make refund of any sum which is in excess of the actual amount required to pay the
Reinsurer’s Obligations under this Agreement;
	 
	(c)	 	to fund an account with the Company for the Reinsurer’s Obligations. Such cash deposit
shall be held in an interest bearing account separate from the Company’s other assets,
and interest thereon not in excess of the prime rate shall accrue to the benefit of the
Reinsurer;

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	(d)	 	to pay the Reinsurer’s share of any other amounts the Company claims are due under this
Agreement.

In the event the amount drawn by the Company on any Letter of Credit is in excess of the actual
amount required for (a) or (c), or in the case of (d), the actual amount determined to be due, the
Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing
shall be applied without diminution because of insolvency on the part of the Company or the
Reinsurer.

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

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

	(a)	 	If the statement shows that the Reinsurer’s Obligations exceed the balance of credit as
of the statement date, the Reinsurer shall, within 30 days after receipt of notice of such
excess, secure delivery to the Company of an amendment to the Letter of Credit
increasing the amount of credit by the amount of such difference.
	 
	(b)	 	If, however, the statement shows that the Reinsurer’s Obligations are less than the
balance of credit as of the statement date, the Company shall, within 30 days after
receipt of written request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of credit available by
the amount of such excess credit.

ARTICLE XXIV — CHOICE OF LAW AND JURISDICTION

This Agreement shall be governed by the laws of Pennsylvania and shall be subject to the
jurisdiction of the courts of the United States of America (subject to the provisions of the
Service of Suit Clause).

ARTICLE XXV — ORIGINAL CONDITIONS

All reinsurance under this Agreement shall be subject to the same terms, conditions,
interpretations, waivers, modifications, alterations, and cancellations as the respective Policies
of the Company to which this Agreement applies. However, in no event shall this be construed in
any way to provide coverage outside the terms and conditions set forth in this Agreement.

Nothing herein shall in any manner create any obligations or establish any rights against the
Reinsurer in favour of any third party or any persons not parties to this Agreement except as
provided in the Insolvency Article.

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ARTICLE XXVI — ENTIRE AGREEMENT (BRMA 74B)

This Agreement constitutes the entire agreement between the parties. In no event shall this
Agreement provide any guarantee of profit, directly or indirectly, from the Reinsurer to the
Company or from the Company to the Reinsurer. This Agreement may be clarified, amended or modified
only by written agreement signed by both parties. Such written agreement shall become part of this
Agreement.

ARTICLE XXVII — SEVERABILITY (BRMA 72E)

If any provision of this Agreement shall be rendered illegal or unenforceable by the laws,
regulations or public policy of any state, such provision shall be considered void in such state,
the enforceability of such provision in any other jurisdiction.

ARTICLE XXVIII — INTERMEDIARY

BMS Intermediaries, Inc. is hereby recognized as the intermediary negotiating this Agreement for
all business hereunder. All communications (including, but not limited to notices, statements,
premiums, return premiums, commissions, taxes, losses, loss adjustment expenses, salvages and loss
settlements) relating thereto shall be transmitted to the Company or the Reinsurer through BMS
Intermediaries, Inc., 5005 LBJ Freeway, Suite 700, Dallas, Texas
75244. Payments by the Company to
the intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer
to the intermediary shall be deemed only to constitute payment to the Company to the extent that
such payments are actually received by the Company.

ARTICLE XXIX — MODE OF EXECUTION

	A.	 	This Agreement may be executed by:

	 	1.	 	an original written ink signature of paper documents;
	 
	 	2.	 	an exchange of facsimile copies showing the original written ink signature of paper
documents;
	 
	 	3.	 	electronic signature technology employing computer software and a digital signature
or digitizer pen pad to capture a person’s handwritten signature in such a manner
that the signature is unique to the person signing, is under the sole control of the
person signing, is capable of verification to authenticate the signature and is linked
to the document signed in such a manner that if the data is changed, such signature
is invalidated.

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

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TERRORISM DEFINITION

Notwithstanding any provision to the contrary within this reinsurance Agreement or any endorsement
hereto, it is agreed that this reinsurance Agreement excludes loss, damage, cost or expense
directly or indirectly caused by, contributed to by, resulting from or arising out of or in
connection with any “act of terrorism” as defined in the Terrorism Risk Insurance Act of 2002 (the
“Act”) or subsequent amendments thereto, regardless of any other cause or event contributing
concurrently or in any sequence to the loss.

Notwithstanding the above and subject otherwise to the terms, conditions and limitations of this
Agreement, this reinsurance Agreement will pay actual loss or damage (but not related cost or
expense) caused by any act of terrorism which does not meet the definition of “act of terrorism”
set forth in the Act or meets the definition of “act of terrorism” as set forth in the Act but
results in loss under a policy that is not included in “property and casualty insurance” as defined
in the Act, provided, in either case, (1) such loss or damage occurs in line of insurance otherwise
covered by this reinsurance Agreement, and (2) in no event will this reinsurance Agreement provide
coverage for loss, damage, cost or expense directly or indirectly caused by, contributed to by,
resulting from, or arising out of or in connection with biological, chemical, or nuclear explosion,
pollution and/or contamination.

An act of terrorism that does not meet the definition of “act of terrorism” set forth in the Act
shall, for the purposes of this Agreement, mean an act, including but not limited to the use of
force or violence and/or the threat thereof of any person or group(s) of persons, whether acting
alone or on behalf of or in connection with any organization(s) or government(s), committed for
political, religious, ideological or similar purposes including the intention to influence any
government and/or to put the public, or any section of the public, in fear.

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NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE

U.S.A.

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

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

Limited Exclusion Provision.*

	 	I.	 	It is agreed that the policy does not apply under any liability coverage, to (injury,
sickness, disease, death or destruction (bodily injury or property damage with respect to which an
insured under the policy is also an insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or
Nuclear Insurance Association of Canada, or would be an insured under any such policy but for
its termination upon exhaustion of its limit of liability.

	 
	 	II.	 	
Family Automobile Policies (liability only), Special Automobile Policies (private passenger
automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability
only),
Comprehensive Personal Liability Policies (liability only) or policies of a similar nature;
and the
liability portion of combination forms related to the four classes of policies stated
above, such
as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.
	 
	 	III.	 	The inception dates and thereafter of all original policies as described in II above,
whether new,
renewal or replacement, being policies which either (a) become effective on or after 1st
May,
1960, or (b) become effective before that date and contain the Limited Exclusion Provision
set
out above; provided this paragraph (2) shall not be applicable to Family Automobile
Policies,
Special Automobile Policies,

	 
	 	 	 	
or policies or combination policies of a similar nature, issued by the Reassured on New
York risks, until 90 days following approval of the Limited Exclusion Provision by the
Governmental Authority having jurisdiction thereof.

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

Owners, Landlords and Tenants Liability, Contractual

Liability, Elevator Liability, Owners or Contractors

(including railroad) Protective Liability,

Manufacturers 
and Contractors Liability, Product

Liability, 
Professional and Malpractice Liability,

Storekeepers 
Liability, Garage Liability, Automobile

Liability 

(including Massachusetts Motor Vehicle or
Garage
Liability)

shall be deemed to include, with respect to such coverages, from the time specified in Clause V
of this paragraph (3), the following provision (specified as the Broad Exclusion Provision):

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December 30, 2008

 

 

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

	 	I.	 	Under any Liability Coverage, to (injury, sickness, disease, death or destruction (bodily
injury or
property damage

	 	(a)	 	with respect to which an insured under the policy is also an insured under a nuclear
energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would
be an insured under any such policy but for its termination upon exhaustion of its limit
of
liability; or
	 
	 	(b)	 	resulting from the hazardous properties of nuclear material and with respect to which
(1)
any person or organization is required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had
this policy not been issued would be, entitled to indemnity from the United States of
America, or any agency thereof, under any agreement entered into by the United States of
America, or any agency thereof, with any person or organization.

	 	II.	 	Under any Medical Payments Coverage, or under any Supplementary Payments Provision
relating to (immediate medical or surgical relief, (first aid, to expenses incurred with respect to
(bodily injury, sickness, disease or death (bodily injury resulting from the hazardous properties
of nuclear material and arising out of the operation of a nuclear facility by any person or
organization.
	 
	 	III.	 	Under any Liability Coverage to (injury, sickness, disease, death or
destruction (bodily injury or
property damage resulting from the hazardous properties of nuclear material, if

	 	(a)	 	the nuclear material (1) is at any nuclear facility owned by, or operated by or on
behalf of,
an insured or (2) has been discharged or dispersed therefrom;
	 
	 	(b)	 	the nuclear material is contained in spent fuel or waste at any time possessed,
handled,
used, processed, stored, transported or disposed of by or on behalf of an insured; or
	 
	 	(c)	 	the (injury, sickness, disease, death or destruction (bodily injury or property
damages out
of the furnishing by an insured of services, materials, parts or equipment in connection
with the planning, construction, maintenance, operation or use of any nuclear facility, but
if such facility is located within the United States of America, its territories, or possessions
or Canada, this exclusion (c) applies only to (injury to or destruction of property at such
nuclear facility (property damage to such nuclear facility and any property thereat.

	 	IV.	 	As used in this endorsement:

“Hazardous properties” include radioactive, toxic or explosive properties; “nuclear material”
means source material, special nuclear material or byproduct material; “source material,”
“special nuclear material,” and “byproduct material” have the meanings given them in the
Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel” means any fuel
element or fuel component, solid or liquid, which has been used or exposed to radiation in a
nuclear reactor; “waste” means any waste material (1) containing byproduct material and (2)
resulting from the operation by any person or organization of any nuclear facility included
within the definition of nuclear facility under paragraph (a) or (b) thereof; “nuclear
facility” means

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	 	(a)	 	any nuclear reactor,
	 
	 	(b)	 	any equipment or device designed or used for (1) separating the isotopes of
uranium or
plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or
packaging
waste,
	 
	 	(c)	 	any equipment or device used for the processing, fabricating or alloying of
special nuclear
material if at any time the total amount of such material in the custody of the
insured at
the premises where such equipment or device is located consists of or contains more
than
25 grams of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
	 
	 	(d)	 	any structure, basin, excavation, premises or place prepared or used for
the storage or
disposal of waste, and includes the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for such operations; “nuclear
reactor” means any apparatus designed or used to sustain nuclear fission in a self-
supporting chain reaction or to contain a critical mass of fissionable material;

(With respect to injury to or destruction of property, the word “injury” or
“destruction” 

(“property damage” includes all forms of radioactive contamination
of property.

 (includes all forms of radioactive contamination of property.

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

	 	(i)	 	Garage and Automobile Policies issued by the Reassured on New York risks, or
	 
	 	(ii)	 	statutory liability insurance required under Chapter 90, General Laws of
Massachusetts, until 90 days following approval of the Broad Exclusion Provision by
the Governmental
Authority having jurisdiction thereof.

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

 

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

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December 30, 2008

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